Over the past three weeks, even Republicans have been forced to acknowledge the nation's growing economic problems and the need for decisive action by the federal government.
It's worth noting that President Bush and his GOP agreed to act only after the downturn hit Wall Street, exacting an unacceptable toll on the Republican Party's financial and political base. As a result, the Fed enacted the single largest interest rate cut in its history and Congress has moved quickly to design a fiscal stimulus package.
For a stimulus package to be effective, it must stimulate spending (demand) quickly. The essence of an effective stimulus package is for government demand (spending) to step in when private spending (consumption and private investment) is declining.
A recent study by the non- partisan Congressional Budget Office (CBO) concluded that extending unemployment benefits and increasing food stamps, policies that get money to folks who will spend it immediately, is the most effective form of economic stimulus.
Even President Bush was forced to acknowledge this. As a result, he temporarily dropped his initial proposal for making his high income tax cuts permanent since it would not have affected the economy until 2011.
So what has the Democratically controlled Congress agreed to? Another round of tax cuts for people who are less likely to spend it immediately!
Paul Krugman writes that the compromise plan is nothing less than a "lemon:"
Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon...
Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective...
The entire column is worth reading