Another stimulus may be bad medicine for ailing economy

Though still not technically in a recession, the U.S. economy is hardly booming. It grew at a rate of only 1.9 percent in the second quarter, after growing a paltry nine-tenths of a percent in the first quarter &

and shrinking a tiny bit in the last quarter of 2007, according to revised government figures. Unemployment hit 5.7 percent in July, the highest rate in four years. Many economists believe that the second half of 2008 will bring more job losses.

So, is it time for a "second stimulus" &

to follow the $168 billion economic injection, mostly in the form of tax rebates, that Congress and President Bush administered this year? House Speaker Nancy Pelosi has called for a $50 billion package, possibly including increases in food stamps and home heating assistance as well as more Medicaid money for states and new infrastructure spending. Fleshing out Ms. Pelosi's concept, Senate Appropriations Committee Chairman Robert C. Byrd, D-W.Va., has unveiled $24 billion in proposed energy, infrastructure and disaster relief money. The Democrats sense a no-lose issue: Either President Bush signs a bill, in which case they can take credit for a new flood of government cash, or he vetoes it, in which case they can accuse Republicans of neglecting the economy.

We understand the political logic of a second stimulus; the economic case is less convincing. Any fiscal stimulus must be targeted, timely and temporary. That is, it must put money in the hands of people who are likely to spend it quickly &

while not committing the federal government to new long-term spending. Some Democratic proposals, such as an increase in food stamps or extended unemployment insurance, would meet these criteria, even as they help the neediest ride out the tough times. Infrastructure spending, by contrast, is dubious as stimulus. It takes too long and passes through too many hands. As you might expect, Mr. Byrd's "stimulus" bill is chock-full of election-year goodies: $5 million for an FBI mortgage fraud investigation; $70 million for "improved business opportunities" in rural areas; $3.5 million for small-business development centers in the Midwest.

The government can pump only so much borrowed money into the economy before the long-term costs &

inflation, higher interest rates &

start to outweigh the short-term benefits. And with next year's federal deficit projected to reach nearly $500 billion, those potential costs loom large, indeed. Federal Reserve Chairman Ben S. Bernanke, who supported the fiscal stimulus this year, seems cool to an extra dose now. As Mr. Bernanke notes, we still don't know the results of the first stimulus. Indeed, according to the Center on Budget and Policy Priorities, 5 million people, mostly low-income seniors, disabled veterans and others with disabilities, have not yet even filed to receive their stimulus checks &

let alone have had a chance to spend the money. Meanwhile, sharp increases in gas prices ate up much of the stimulus checks of those who did receive them. But the price of gasoline has been falling for more than two weeks, giving consumers back some of the cash they expected. Better for Congress to let these processes play out than to rush into an ill-timed, and therefore wasteful, new round of spending.

"" The Washington Post

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