Lawmakers Handle Stimulus With Barnyard Economics

With overseas markets tumbling and the U.S. economy in the midst of a downturn, possibly headed into a recession, wading through the econ jargon on Capitol Hill is a daunting task.

As lawmakers considered how best to create an "economic stimulus package," the Senate Finance Committee got off to a real-life, applied economics start this morning at the onset of a hearing.

Sen. Charles Grassley, R-Iowa, who speaks slowly with folksy jargon, wears ties with dizzying patterns and prides himself on being, as he puts it, a "family farmer," tried to apply some barnyard economics to the U.S. economy.

He wondered what a chicken farmer ought to do if people stopped buying eggs (read: economic downturn).

Grassley, who ultimately supports a stimulus package, thinks recovery is going to take a long time no matter what Congress and the president do. He said economists suggest, "When workers are fully employed and factories are fully utilized, they say we need to save more and increase supply. But when workers are unemployed and factories are idled, they say we need to spend more and increase demand."

And by that rationale, the government should inject some capital into the economy to spark a recovery.

Employing Barnyard Economics

Arguing that the explanation didn't withstand "careful scrutiny," Grassley illustrated his economic point with simple mathematics and "the proverbial chicken and egg."

Using two examples of basic supply and demand, Grassley said if "we have five chickens that each lay five eggs a week, but people want more eggs. The solution is to save some eggs, let them hatch and then you have more chickens to lay more eggs."

"In the second example, you have five chickens that lay five eggs a week, but people want fewer eggs. The solution cannot possibly be to buy more eggs, because that is the problem: There is a surplus of unwanted eggs."

"Now, when economists talk about stimulating consumer demand, they give the impression that we can grow our economy by getting people to go shopping, and it doesn't matter what they buy. But such talk obscures the fact that at any given point in time, our economy is comprised of a specific set of goods, a specific set of services, each with its own unique factors of supply and demand."

"If consumers decided they want more milk and fewer eggs, no amount of consumer demand is going to magically turn eggs into milk. Farmers are going to have to raise fewer chickens and get more cows and that, of course, takes time," Grassley later added, implying that an economic stimulus is more of a painkiller as the economy changes than a solution in and of itself.

Calendar Politics

Grassley admitted "it's only natural to want to help" in times of economic downturn, asking Peter Orszag, director of the nonpartisan Congressional Budget Office, which releases its annual economic outlook, if Congress should also be working to simplify the tax system and help Americans save.

While the Congressional Budget Office does not release its annual forecast of the U.S. economic outlook until Wednesday, Orszag testified today, talking about the threat of recession (or, god willing, just several quarters of slow growth) and the need of an economic stimulus package, which he said should be targeted at lower-income Americans — "the more you target lower-income people, the more bang you get."

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