Throwing money at terrorism

Funds: Mammoth economic aid bills are gaining swift approval in Congress, but economists say not all relief packages are created equal.

November 11, 2001|By Michael Hill | Michael Hill,SUN STAFF

"A billion dollars here, a billion dollars there and pretty soon you are talking about real money," Sen. Everett Dirksen is once supposed to have growled in his disheveled baritone. By the standards of the Republican from Illinois, who died in 1969 after a decade as minority leader, Washington began talking about real money within days of Sept. 11

Congress quickly approved a $15 billion bailout for the airlines and $40 billion in disaster relief, half of that designated for New York City. Some are saying military spending could increase by $20 billion. The Postal Service has asked for $5 billion for its costs responding to the anthrax scare. There are the additional costs of police officers, firefighters and security personnel of all types. There are many other damaged industries - from steel to rental car agencies - looking to Washington for help. And there is an economic stimulus package that is expected to carry a price tag of close to $100 billion.

With the country reeling under the shock of the Sept. 11 attacks, few were questioning the propriety of throwing around these amounts of real money.

In some ways that is as it should be. Economist Bonnie Wilson explains this is the way wars have always been financed - spend now, pay later. Just as the Baby Boomers paid for World War II, Gens Y and Z will be paying for this fight if it goes on and gets expensive.

"Future generations are going to benefit from us having fought this war today," says Wilson, an assistant professor at the University of Maryland, Baltimore County. "So it is appropriate to ask them to pay some of the costs."

But beyond those direct costs, many economists see the post-Sept. 11 Congress as a target for all sorts of interests showing up draped in the anti-terrorism flag trying to get their share of the handouts.

"This happens in crises," says Steven H. Hanke, an economist at the Johns Hopkins University who served on the Council of Economic Advisers during the Reagan administration. "Every opportunistic soul in Washington, D.C., rushes through the open door requesting special favors of one sort or another. ... Spending and regulations will ratchet themselves up. It's very difficult to get these things cut back down after the crisis abates. So that's a done deal."

All this spending comes from a Congress and an administration that just a couple of months ago were promising not to touch the Social Security surplus and were debating the propriety of tax cuts and the frugality of spending proposals.

The quick change of heart is no surprise. "It was a completely reasonable response to a pretty dire situation," says Ric Uslander, a political scientist at the University of Maryland, College Park. "When the country is attacked in such a way, with tremendous loss of both life and property, there is only one institution that has the financial ability to handle that - that's the government."

But the attacks, which came as the country was plagued by a declining economy, dealt a blow to the most important part of that economy - consumer confidence. With the bulk of the country's gross domestic product driven by consumer spending, it is economically devastating for millions of people to suddenly decide it is not a good time to buy that new car, boat or house. But, after watching the World Trade Center towers collapse and seeing the mail used to deliver deadly doses of anthrax, that is exactly the decision many made.

That means two things: The country is probably headed for a recession, and Congress will try to do something about it.

That something is an economic stimulus package that has come out of the House of Representatives and has few fans among economists interviewed. The Senate has begun debate on a far different package.

"I am disgusted by what the House did," says economist Chris Carroll of Johns Hopkins. "Outraged, really. They are trying to take advantage of a national crisis to ram through some tax cuts that have nothing to do with stimulating the economy."

Others were not as contentious as Carroll, but all pointed to the same flaws in what is essentially the Republican stimulus package. It emphasizes tax cuts but violates several basic economic laws of how a government goes about stimulating an economy.

Wilson points out that in the classic model of giving the economy a boost with corporate tax cuts, those cuts are temporary. "You are trying to get firms to move more toward the present any investment plans they have in mind," she says.

But in the House plan, many of those cuts are permanent - or at least long term - and in some cases retroactive.

"I cannot see why anyone would think this is an appropriate fiscal stimulus," says Roy T. Meyers, a UMBC political scientist.

Carroll is more adamant. "They are just handing pots of money to their corporate paymasters is the baldest way to put it"

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