Economic stimulus... or something

Given the speed at which Congress and the President, Republicans and Democrats alike, have reached a consensus that the economy needs a stimulus to avoid recession, we must ask whether any of them know what they are talking about.

The last time that the government sent out random checks, nothing much useful happened. The time before that, in the Carter years, everyone laughed.

H. L. Mencken famously said: "For every complex problem, there is a solution that is simple, neat, and wrong." I strongly suspect that the politicians are living up to his expectations.

The first question is whether we are headed towards a recession in the first place. If we accept that a recession is on the horizon - or maybe even here - then the second question is whether we should be trying to avoid it.

There is an excellent argument that recessions serve a purpose: in this case to unwind some of the distortions and imbalances that have appeared in our economy. We have homeowners with no equity, and ugly looking loans, who would have been better off renting rather than speculating in real estate. We have consumers who spend like crazy and have no savings for a retirement that is likely to be longer than they have anticipated.

We have too many people who have forgotten that the advertisement said "buy now, pay later" not "buy now and refinance for ever."

And if the government is going to hand out checks to all, how much of this money will simply be spent on imports. That will hardly stimulate our economy but will certainly increase the debt that our children and grandchildren will have to pay.

I sympathize with those who will suffer through a recession. Some were deceived, not always intentionally, by the financial industry; others were just ugly greedy. Some were simply stupid and a fair few are going to be innocent victims. Whatever the reason, they will all suffer.

The problem is that trying to avoid a maybe recession now will only sow the seeds for worse later. Better, then, that we have a small and fairly short recession now (if that is what is facing us) than a deep and long one later.

Anyone remember the inflation of the 1970s and mortgage interest rates of 20%?