Here's one thing you won't have to bother with this fall: Deciding whether to support another big round of federal stimulus spending to aid the wobbly economy.
Some people want it, and we might even need it. Bloggers are battling over the issue, and news organizations are tracking the political maneuvering in Washington as if a big story is brewing. It isn't. There won't be any more big stimulus deals before the midterm elections in November. Here's why:
There's no money.
Every bit of new spending adds to the mushrooming national debt, which even some Democrats have become uncomfortable doing. Debt-busters in Congress have growing power and they're starting to use it, especially in the Senate.
There's no time. The Senate, where legislation tends to grow moss before anything happens, is only scheduled to be in session for a few weeks prior to the November elections. That's long enough to pass urgent legislation with consensus support—but when was the last time there was consensus in the Senate? The one measure Democrats might try to push through is an extension of the Bush tax cuts for middle-class earners, a feather they'd like to have in their caps on election day. (Obama and his fellow Dems want to let the tax cuts for the wealthy expire, by contrast, effectively raising taxes on high earners.) If a tax-cut-extension passes, it might get labeled as "stimulus," although there are probably friendlier descriptions.
There's no gain. With 87 percent of Congress up for reelection, everything the two parties do these days is about campaigning, not legislating. And more stimulus spending won't do anything to aid the electoral prospects of the majority Democrats who would pass it. They've already passed at least half a dozen separate stimulus bills, including the big one in February 2009 for more than $800 billion and several smaller aid packages for states, cities, and the unemployed. So Dems can already claim to have pulled every government lever to aid the economy (although they may not want to point that out). Any new aid passed before the coming elections wouldn't have much tangible effect before voters went to the polls anyway.
The public doesn't want it. Polls show that the bank bailouts and various stimulus bills have been unpopular, especially since the economy hasn't come roaring back the way voters seem to have expected. President Obama's approval ratings have declined in lockstep with Congress's ongoing stimulus spending, and fewer than 40 percent of Americans now approve of his handling of the economy. That's easy to understand, since unemployment is sky-high and millions of middle-class votes are anxious about their prospects. Still, giving Americans more of the medicine they don't think is working seems unwise in the weeks prior to judgment day in November.
The government still has its hand on the rudder of the economy, however, whether it's steering toward shoals or calmer seas. As economists analyze all of the government interventions of the last two years, most believe the Federal Reserve's actions have been more decisive than anything Congress has passed. The Fed's actions are more arcane and less visible than the big bills that provoke political fights in Congress, so they attract less press attention. Yet the Fed under Ben Bernanke has been the most aggressive ever. And poobahs at the Fed remain in an activist mood—and worried about the economy.
Over the past few years, the Fed has brought short-term interest rates to nearly zero, which allows banks and companies to take advantage of cheap money and nurse troubled finances back to health. To help stabilize the financial system, the Fed backed various types of credit, provided liquidity in the moribund housing market, and injected more than $1.5 trillion into the money supply. In a recent analysis of all the government efforts to aid the economy during the recession, Mark Zandi of Moody's Economy.com and Alan Blinder of Princeton determined that the Fed's actions were "substantially more powerful" than stimulus spending passed by Congress, the bank and auto bailouts, or any other government moves. The two economists estimate that without any government intervention, the recession would have been far more devastating and the recovery even weaker, with the unemployment rate approaching 13 percent this year and next, nearly three points higher than it's likely to be. The difference adds up to roughly 4 million additional jobs that would have been lost.
The Fed's policymakers, thankfully, aren't running for reelection in November, so we might get more rational steering from the Fed than we would from Congress. With interest rates nearly as low as they can go, the Fed has used up a lot of ammunition. But it can still buy more assets and take additional actions similar to those it has already done—which it has hinted it might.
Then, once the November elections are over, President Obama and Congressional leaders will basically push the reset button. What they do obviously will depend on whether Republicans gain a few seats in Congress, a lot of seats, or control over one or both houses. But under most scenarios, the Congressional spending binge is over.
President Obama's debt-reduction commission is due to make its recommendations by December 1, and that could shape the agenda until the 2012 elections. The commission is likely to call for a mix of spending cuts and tax increases to get the nation out of hock, while castigating the kind of kick-the-can deficit spending that Congress has practiced over the last decade.
Those findings might provide the political cover that Obama and Congressional leaders need if they're going to take the unpopular actions necessary to right the nation's finances. If there's any new stimulus spending in the next Congress, the responsible way to do it would be to include provisions requiring the government to offset the cost in the near future, in a way that can't be undone. That alone would tighten the government spigot. Of course Congress could also ignore the blue-ribbon panel, as it has done many times before, and act as irresponsibly as it wants. One thing Congress never fails to stimulate is controversy.