Politics is politics. Economics is Economics. While too often cross paths, nary do they go in the same direction.  Now that people are speaking of recession in less than hushed terms, politicians of all stripes and colors have raised their no so collective voice in a cacophony of proposals.  I’m personally less than impressed.

We’ll start from the top with Bush proposed tax rebate. While personally I’d welcome a tax rebate, I also question a) how much good it will do the economy and b) how are we paying for it? There’s no question the economy is sputtering. While there’s still debate amongst experts if we’ll hit an actual recession, there’s not no debate in mind.  A recession at this point is inevitable.  I hope it to be mild, and more importantly that Americans will learn some valuable lessons on over consumption and bubbles.  A tax rebate will certainly help prop up consumer spending which is the largest part of the U.S. Economy, and potentially help get the economy sped up again. However, I find the tax rebate to be a short term fix, a short term fix that will not address fundamental problems.  The biggest long term problem is that the U.S. Savings Rate is too low.  Americans spend more than they can, saving much less than they should.  The tax rebate exacerbates the problem because the U.S. Government is one of the more profligate borrower and spenders. The money to fund the refund isn’t appearing from thin air.  The Government will have to borrow to fund those checks.

Hilary Clinton also made some headlines for her proposal to deal with the housing meltdown. The thrust of her proposal are:

  • 30 Billion Fund to Help with the Foreclosure Fallout
  • 90 day moratorium on foreclosures, and 5 Year rate fix
  • 25 Billion Emergency Energy Assistance Fund
  • 10 Billion in Extended Unemployment benefits

The majority of the press has been pretty merciless on attacking point 2, the 5 year moratorium on interest rates.  This would effectively be government price fixing. While there are merits to some price control like minimum wage, and caps on interest rates, this would be price fixing after the fact.  The fact is that consumers need be reminded that they should not borrow more than can afford, and banks need to recall that good underwriting means not lending to those who can’t afford to pay the loan back.  The current housing crisis has hit banks and consumers alike, but to reward bad behavior sets a bad precedent that will only lead to more pain the future.