President Bush has joined Democratic presidential candidates and Congressional leaders in calling for a "stimulus" spending plan to head off a potential upcoming recession.  The plan calls for tax "rebates" for families below a certain income and some piddling business tax write offs.  This is an unfortunate return to Keynesian, demand-side economics proved to be ineffective in the "stagflation" days of the 1970s.  Rather than dealing with the barriers the government has erected that prevent more robust economic growth, the government will simply seek to take money from "the rich" to give to "the poor" to the tune of $140 billion or so:  it's Robin Hood on steroids.

Not only is this plan an application of failed economics, a blatant pandering to voters during an election year, and a misplaced redistribution of income, the idea of government checks is a one-time administering of liposuction where a change in diet is needed.  At its best, the plan is for American consumers to take the checks, currently proposed at $800 or so, and go shopping.  Great, a one-day shopping spree for the American economy.  That doesn't create new jobs, encourage entrepreneurism, or help families to build wealth.  It creates no long-term growth prospect for the American economy.  If we are heading towards a recession, it does nothing to fend it off.  It does one thing successfully:  it allows politicians to show that the "feel the pain" of the voters.

If actual economic growth is the goal (which it should be), then the government should act on the supply side, not the demand side.  Pro-growth economic policies that remove barriers to capital investment, job creation, and starting new businesses could be rolled away.  Most people who have a job work for a company or own their own business; reducing the tax rate on businesses provides them with more money to use to hire new employees, or invest in new equipment, or even provide a dividend to investors and shareholders.  Cutting taxes and removing regulatory barriers also encourages businesses to relocate from other countries into the US, further boosting economic activity.  Cutting the tax on capital gains increases the profit motive for new investment that spurs economic growth.

In a previous column, I advocated cutting the corporate income tax rate.  With economic indicators showing a slowing economy, the imperative is even greater for doing so.  Add in a cut on the capital gains tax, and now we're really talking.  Further cuts in income tax rates would also spur demand-side consumption, but would have the benefit of impacting future behavior as well.  Making the Bush tax cuts permanent would signal to the declining stock market that individuals and investors won't get hit with the biggest tax increase in American history that is currently scheduled to take place when the tax cuts expire in 2010.

A dose of free market capitalism is what this ailing economy needs to get back on its feet.  Unfortunately, our politicians seem to prefer junk science and fad diets instead of sound medicine.