Stimulating bad ideas

Washington lawmakers are excited because they've found a formula that works. Not a formula to fix the economy, but a formula for how to spend excessively without making people mad.

"Economic stimulus" is a label that succeeds almost as well as "it's for the kids" as an all-purpose excuse to justify any and all spending. It makes people act in haste as well as in waste.

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In this environment, bad ideas take root and flourish. And they never seem to go away. One of them re-surfaced at the Democratic presidential debate the other evening – a bad giveaway program gift-wrapped in fancy language and noble pretensions. I know it's bad because I killed it a few years ago while serving in Congress. Now it's time to play "whack-a-mole" and knock it down again.

At the debate, John Edwards and Sen. Barack Obama complained that many Americans don't have a bank account, so we need to "teach them financial literacy" by helping them to open one.

Now former President Bill Clinton and California Gov. Arnold Schwarzenegger are trying to promote this very thing, in an op-ed in yesterday's Wall Street Journal, saying we should help the "unbanked" to open checking and savings accounts.

We've seen this bad idea before. Six years ago we had a Clinton-promoted program called "First Accounts." Run by the U.S. Treasury, it gave grants to banks, credit unions and other groups to reach out to the "unbanked" and induce them to open a bank account.

In Denver, the Mile High United Way won a grant of $1,267,500 to persuade 2,375 people to open a bank account. That was $533 apiece. In Chicago, the Center for Law & Human Services was selected for a $686,566 grant to help 1,000 people open an account. That was $686 each. In Flint, Mich., the Mission of Peace Housing Counseling Agency was picked for a $592,654 grant so that 660 people could open a bank account. That was $897 each. There's more, as described at the Treasury Department's website, totaling $8,357,234 in wasted tax money. That was used to incentivize 35,445 people to open a bank account, at an average cost of $236 per account.

Giving away toasters would have been so much cheaper!

And that was only the beginning. This outrageous giveaway had been promoted by the Clinton White House, which estimated some 11 million households might someday "benefit" from it. At an average cost of $236 apiece, this would have cost taxpayers almost $2.6 billion.

For 2003, about $20 million more was in the "First Accounts" pipeline, but I used my leverage as an Appropriations Subcommittee chairman to kill it. Now it's back – a prime illustration of what liberals mean when they talk about "stimulus." It deserves a second death.

Let's remember the big picture. Washington is talking about giving things away. This always excites most voters, because they think they will get something for nothing. But Washington can only give away what it first takes from its citizens – or borrows now and takes away later.

Most of the stimulus proposals call for glorified handouts: money for food stamps, heating bills, senior citizens, etc., plus some tax rebate checks – even for those who don't pay income taxes! Yes, let's lower taxes, but the key to boosting our economy is permanent, growth-oriented tax cuts, not just one-time, free-money "rebates."

Brian Riedl of The Heritage Foundation explained it well: "Tax rebates fail because they do not encourage productivity or wealth creation. To receive a rebate, nobody has to work, save, invest or create any new wealth. Supporters of rebates argue that they "inject" new money into the economy, increasing demand and therefore production. But every dollar that government rebates "inject" into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another."

If liberals were right, then the more money government borrows and gives away, the healthier our economy would be. It's the same as trying to make everybody rich by raising the minimum wage to $100 per hour.

Beware: They might propose that at the next debate!

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Ernest Istook is a recovering congressman – a former U.S. representative from Oklahoma – and now a distinguished fellow at The Heritage Foundation.