Those Government Checks

by Ronald J. Rychlak - February 26, 2008

Reprinted with permission.

You've surely heard of the economic stimulus payments that the government is planning to send out this summer. Most people will receive $300. The government hopes that we will all rush out to buy things, and that this will revive a slumping economy.

Trying to stimulate the economy with an infusion of cash is not a new idea. Prior to the 1980s, this was usually accomplished with "works" programs. Thus, when the economy slowed down, the government would build a dam, pave a new highway, or develop a port. Projects like these would provide lots of employment, put cash in workers' pockets, and hopefully stimulate the economy. Of course, we would also get a new dam, road, or port in the bargain.

Unfortunately, works programs can no longer be used to stimulate the economy. The National Environmental Policy Act (NEPA), signed into law by President Nixon, requires that an Environmental Impact Statement (EIS) be prepared on any "major federal action" that will "significantly affect the environment." Any works program that would be large enough to stimulate the economy would certainly qualify as a "major federal action." As such, the works program would have to be evaluated to determine whether it would have a significant impact on the environment. That evaluation typically takes close to a year.

What's more, if the evaluation results in a conclusion that there would be a significant impact on the environment, the federal agency behind the project would have to prepare an EIS. That could take several more years, cost significant amounts of money, and, at the end of the process, the agency could still determine that environmental concerns require the project to be called off completely.

The premise of a stimulation plan is that a sudden jolt or infusion of cash will jumpstart a slowing economy. If the money filters in, or if it is delayed too long, the theory does not hold, and the plan won't work. Accordingly, because of the delays imposed by these environmental laws, works projects are no longer effective ways to stimulate the economy. That is why our lawmakers have turned to the cash giveaways.

Don't get me wrong: With six kids, and the second preparing for college next year, I'm always happy to get a few more dollars. But are cash distributions really a good idea?

First of all, the size of the check most people will get is unlikely to change their lives. After all, the money is being given out so that the cumulative impact will drive the economy, not to help individuals or families (that's just a fortunate byproduct). Secondly, the federal government is running pretty big annual deficits. Unless the jumpstart sufficiently primes the pump so as to grow the economy to the point where tax revenues are significantly increased, the stimulus program will just add to the problem. Third, at a time when most Americans tend not to save enough for college, retirement, and emergencies, is it really a good idea to encourage more spending? Finally, I have a haunting fear that much of this money will be spent on products made in China and will end up boosting that country's economy more than our own.

Here's a suggestion for the next time we want to kickstart the economy: How about a short-term "fire sale" on long-term capital gains taxes? If those rates were significantly reduced for a short period (say, two months), people with long-held family assets – be they stocks, real estate, or other precious goods – would have an incentive to dispose of them quickly. This would likely result in a large number of transactions, new money in the hands of people who would then re-spend it, and the economy might get the jolt it needs. Moreover, by encouraging these sales, tax revenues would almost certainly increase. That might be a better way to stimulate the economy than sending out checks.

Of course, the current deal is an "easier sell" for the politicians who get to take credit for handing out money to everyone, not just cutting taxes for the rich. It's also a better deal for me, my wife, and our six kids. I don't have any of those long-held assets, and I'll be happy to get a check.

But as a way to look at public policies, it seems wrongheaded. Ben Franklin said that we had a republic, if we could keep it. We put that republic at risk when we give ourselves benefits without considering the costs.

Ronald J. Rychlak is the associate dean and MDLA Professor of Law at the University of Mississippi School of Law. He is the author of Hitler, the War, and the Pope (2000) and Righteous Gentiles (2005).