For now, no more stimulus

Congress is likely to debate another economic-stimulus package soon after it returns to Washington from campaigning for the election, unless the economy shows signs of turning around.

Even Federal Reserve Board Chairman Ben S. Bernanke seemed to endorse a second stimulus package in his testimony before Congress last week.

We aren’t convinced that a second package would help, for a number of reasons.

TWO OPTIONS

Let’s look at the two primary options for such a package: stimulus checks sent directly to consumers and a package of infrastructure spending.

According to some experts, only about 20% of the first $150 billion stimulus package, or about $30 billion, actually flowed into the U.S. economy.

The remainder went into paying off debts, was saved or flowed overseas as consumers bought imported goods.

The result was that the first package didn’t stimulate very much.

Stimulus checks, similar to the first package but larger, might work better the second time because consumers may have paid down their credit card and other debts, and may be inclined to spend for Christmas. But that isn’t a given.

They may well have more debt to pay off, and those who don’t have such debts may well save again.

In addition, it is unlikely that the Department of the Treasury could get the checks out quickly enough to stimulate Christmas spending.

And as before, much of any such spending would no doubt flow overseas via spending on imports.

As a result, the stimulus checks might do more for China’s economy than for ours.

And do we really want to worsen the trade deficit?

INVESTMENT IN THE U.S.

Some have proposed a $300 billion package of infrastructure spending. This has appeal because such a package would be an investment in the country and, if done well, could improve the nation’s long-term productivity.

Key elements of the nation’s infrastructure — roads, bridges, ports and airports — all need to be repaired and upgraded. And it would give hundreds of thousands of workers jobs and benefit U.S. manufacturers of construction supplies and equipment.

But there are problems with infrastructure spending as a short-term stimulus package.

First, such projects require detailed planning and engineering, and can’t be turned on like light switches. This planning can take many months, if not years.

Probably only a very few infrastructure projects are fully planned and merely awaiting financing from the federal government. If the economy needs another shot in the arm, it needs it now, not a year or more from now.

Second, there would be much haggling in Congress over how much each state, city and municipality would get from any such stimulus package. The largest amounts of money likely would flow to the areas that have the most political clout in Washington, whether or not the infrastructure projects in those areas would deliver the biggest bang for the buck for the economy as a whole.

SCRAMBLE FOR MONEY

The scramble for infrastructure money would probably be like the scramble for the $3.5 billion the federal government hands out each year to state and local governments to prepare for terrorist attacks, but 100 times worse.

With $300 billion up for grabs, enormous sums would be frittered away through waste, fraud and mismanagement.

We hope that by the time Congress returns to Washington for the post-election session, the economy will be showing signs of recovery, making a second stimulus package less necessary.

Failing that, we vote for the infrastructure package, with all its inherent faults. Even after the misallocation of dollars, waste, fraud and mismanagement, the country still would get an investment in infrastructure that would serve it well in coming years — an investment that will have to be made sooner or later anyway.