Federal Reserve Chairman Bernanke has inserted himself into the middle of the 2008 presidential elections. By supporting a large economic stimulus package focused on bolstering consumer spending, Bernanke has come down clearly on the side of Congresswoman Pelosi and Senator Reid. Both of these two Democrat leaders have advocated another round of tax rebates to the consumer thus expanding the federal government's interference in the market place.
There are two problems with this approach. First, it is called a tax rebate despite the fact that a large share of the federal payments go to individuals who do not and will not pay federal income taxes. Second, the accumulated federal debt of $10 trillion and 2008 budget deficit of $450 billion argue against such reckless policy. Beyond the current downturn, this action will only serve to heighten inflation or raise interest rates, neither of which serve the economic prospects of the nation.
For a supply side economists, the current return of Keynesian approaches to the economy is both troubling and counterproductive. Using the taxing and spending policy of the federal government to influence economic growth is damaging to the economy in the long run. It did not work in the 1960s and 1970s and it will not work in the future. It only serves to increase the power of the federal government at the expense of the business sector.