COMMENTARY: Is Surgery Necessary?

Mark Lacter

A strange thing happened on the way to the operating room the patient suddenly took a miraculous turn for the better. Doctors wondered whether major surgery was needed after all, especially since they hadn’t agreed on how to perform the delicate procedure. Not able to reach a consensus and with Christmas just a few days off they wheeled the patient into a holding area and hoped for the best.

The patient is the U.S. economy. The doctors are members of the U.S. Congress, who return from their extended holiday vacation this month and must decide whether the operation otherwise known as an economic stimulus package is still necessary.

It wasn’t supposed to happen this way. Just a couple of months ago, it seemed certain that Congress would pass some sort of economic rescue plan because, well, all signs pointed to a deep recession that could last for much of 2002.

Not that there was much consensus on what the package should include. On one side were House Republican ideologues who included all kinds of corporate giveaways that even had the Wall Street Journal’s editorial page second-guessing. The Democratic-controlled Senate pushed for basics: extended unemployment benefits, medical coverage for the jobless and a temporary investment tax credit.

Grass-roots enthusiasm for either approach has been muted, probably because people are more focused on legislation to beef up security at the nation’s airports. Besides, we have been coaxed over the past 25 years into believing that the less government intrusion, the better. The idea that Washington could kick-start the economy by pumping in lots of money seems out of place in a deregulated world.

Of course, none of this would have mattered if the numbers kept getting worse. With the entire House of Representatives and one-third of the Senate facing reelection in less than 12 months, pragmatic minds would have given President Bush some sort of stimulus package to sign before the holiday recess.

But the numbers didn’t get worse. For all the preemptive hand wringing over Christmas sales, retailers wound up with a 2 percent increase not great by any recent measure, but not the disaster many had feared. Perhaps that explains the unexpected boost in consumer confidence and the steady stream of homebuyers. And don’t underestimate the benefits real and psychological of paying a few dollars less each week at the gas pump.

So encouraging are the recent numbers that many economists expect the recession to end within the next 90 days (if it hasn’t already). With that expectation is the hope in Congress that the economy will skirt by without requiring any sort of stimulus plan, big or small.

It’s a huge bet based on two huge assumptions: One is that fiscal stimulus has little, if any, effect on economic expansion (don’t tell that to the Keynesian crowd); and the other is that substantive growth is just around the corner.

Put another way, here’s what they’re hoping for: That the employment market will quickly open up for all those thousands of people who have lost their jobs in the past year; that credit will be loosened or restructured for those overextended businesses; and that state and local governments now burdened with deficits will discover new revenue sources (other than tax hikes) so they’re not stuck slashing essential services.

Is the patient really getting better or are those Capitol Hill doctors simply unwilling to operate?

Mark Lacter is editor of the Business Journal.