As the Bush administration continues to pursue an economic stimulus package, it seems that the prospects of passing this initiative look dim. The U.S. Senate and the Bush administration cannot accomplish through legislation what the market can do on its own: create an adequate and appropriate stimulus for the U.S. economy.
The economic stimulus package currently languishing in the Senate would extend unemployment benefits, provide medical vouchers, and accelerate the tax reductions for individuals and businesses that were passed earlier this year. When the Senate recessed for its holiday break last month, it failed to offer a substantive debate on the issues involved in the economic stimulus package. Instead of vigorous debate, both Republicans and Democrats resorted to pointing fingers and evading responsibility. This is an unfortunate event for American economic policy, as a vigorous debate could well have surfaced some fundamental truths concerning the true shape of the American economy.
The most substantive question yet to be addressed by either side is the key issue of whether or not market forces are capable of adequately addressing and properly correcting the economic downturn the U.S. is currently experiencing. In the midst of the acrimonious debate between the Republican White House and the Democratic Senate leadership, the Commerce Department published a report registering the largest one-month increase in consumer confidence since February 1998. Furthermore, a Labor Department report revealed that weekly unemployment numbers fell for the seventh time in the last eight weeks. These significant statistics went relatively unnoticed by legislators on Capitol Hill. In addition, the four-week unemployment average – which offers a more reliable measure by taking into account weekly employment fluctuations – also fell for the second straight month, returning to pre-September 11 levels.
Obviously, a two-month trend is far from being an accurate indication of the long-term performance of the U.S. economy. The national unemployment rate, which remains around five percent, is still too high and offers an indication that our economy is far from being healthy. Trends show, however, that unemployment is leveling off and other key indicators of overall economic strength remain solid. One example is the residential real estate market where sales remain strong. Furthermore, consumer spending during the crucial holiday shopping season outpaced most analysts' grim forecasts. Walmart alone scored a record-breaking $1.25 billion in sales the day after Thanksgiving, and e-commerce increased a dramatic 30 percent from last year's recorded levels.
Considering the dire economic situation of the nation's major airlines, it is interesting to note that while the these companies continue to announce layoffs, cutback routes, and suffer reductions in their stock prices, regional and low-cost carriers have been able to adapt and respond positively to changes in the economy. These regional and low-cost carriers have witnessed an increase in passenger loads anywhere from five to seven percent and have enjoyed increased value of 46 to 83 percent in stock prices.
Given these positive indicators, the question to answer remains: “Is the economy better off left to its own natural trends rather than having what appears to be unnecessary and possibly detrimental government interference?” The early nineteenth century political theorist Benjamin Constant wrote, “Whenever there is no absolute necessity, whenever legislation may fail to intervene without society being overthrown, whenever, finally, it is a question merely of some hypothetical improvement, the law must abstain, must leave things alone, must keep quiet.”
Legislators tempted to meddle with the economy for political gain would do well to heed Constant's wise instruction. The real source of stimulus in any economy, and especially in one that favors free market principles, is the freedom of individuals to exercise the God-given gifts of innovation and creativity in ways that respond positively to the trends and forces at work in the market.
The government is charged with appropriating tax dollars entrusted to it. If government fails to display the virtue necessary for a free society to flourish by rewarding irresponsibility and penalizing competence, it surrenders its “expertise” in economic matters. Politicians seeking market intervention for political points should take a step back, review the economic facts, and let the creative and dynamic forces of the free market work themselves out in a fashion that benefits all – not just special interest constituencies.