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Tonight, the Senate passed a slightly moderated version of the compromise stimulus bill settled on by the White House and the House of Representatives 81-16. The bill was immediately rushed back to the House, where Speaker Pelosi got it passed rapidly. Senate Democrats’ version of a stimulus bill fell flat earlier after being fillibustered by Republicans and coming one vote short of qualifying for an up-or-down vote on the floor.

The Senate passed the House’s $150 billion bill, and tacked on an additional $18 billion in spending for those not paying income taxes but earning at least $3,000, as well as Social Security recipients and wounded veterans. Harry Reid alas’ decided to accept the original bill–which primarily features rebates for those earning less than $150,000/year and business tax credits–after vowing to stand for his bill whose price tag stood around $204 billion. The failed Democrat’s bill included bolstered unemployment insurance, heating subsidies for the poor, and incentives for investment in renewable energies, coal, and home building (because higher prices and more demand for energy, not to mention more home construction, are exactly what our economy needs right now).

All of the 16 who voted against the bill in the Senate were Republicans. They included such spending hawks as Tom Coburn (OK), Jim DeMint (SC), and Bob Corker (TN), the last of whom opined that Congress had just done the equivolent of throw $150 billion “into a mud puddle.” Wise words from the junior Senator from Tennessee. Unfortunately, John McCain apparently was never graced with Corker’s bout of wisdom, as the presumptive GOP nominee returned to the Hill on Thursday to vote for the muddled spending. Of course this is disappointing to see from the AZ Senator who has lauded himself as a great deficit hawk and budget cutter. On top of that, I have never–in any speech or debate–heard him explain what he believed on stimulus, nor even enumerate what his opinion was up until this point.

Hillary Clinton (in addition to Barack Obama) flew back just for the first vote. On the trail, Clinton has offered her own stimulus plan which has baffled me for its economic irrationality for some time now. It includes a provision to freeze rates on adjustable rate mortgages (of which there are currently 11 million in America) for the next five years. Here is a solid article from two prominent economists demonstrating the would-be consequences of such price fixing.

Despite the Federal Reserve cutting its federal funds rate substantially in recent months (from 5.25% all the way to 3% already), European central banks have been resolved in keeping their rates generally steady to combat inflation and avoid reinflating any credit bubble. Just today the Bank of England cut its rate by .25% but indicated that is unlikely to trim it any more, while the European Central Bank has yet to ease rates at all (announcing tonight that it would continue to keep them steady). Jean-Claue Trichet, the President of the ECB, made the case that the fundamentals of the European economy are strong and that inflation, which is currently above 3% and will probably remain above 2% for some time, is a more daunting worry.

More importantly, he noted that M3 growth remained fervent, as did borrowing by non-financial businesses, reaching highs in December 2007. The scary thing is that Europe is not having the same credit problems as we do, as Trichet noted, yet we are the ones debasing interest rates to the potential end of reinflating existing financial imbalances. The current mess we are witnessing is little more than the consequence of the Fed doing the exact same thing that it is doing now, when it lowered the federal funds rate all the way to 1% in 2003 in order to respond to the same type of economic slowdown. Even worse, the downturn in ‘01/’02 was less related to credit woes, so this time by loosening credit we are putting fire to even more flamable substances. Nevertheless, Trichet was wise to note that there is only so much we know–only so much data available to paint a realistic picture of the economy–and that “further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.”

The ECB President’s speech also brings me back to the topic of fiscal stimulus, as he used some of his time to rebuke the idea of government spending to boost the economy saying:

With respect to fiscal policies, a discretionary fiscal loosening in EU countries should be avoided. There is ample evidence that activist fiscal policies were not effective in stabilising European economies but rather led to sustained increases in the ratios of government expenditure and debt to GDP. Allowing the free operation of automatic stabilisers in countries with strong fiscal positions and safeguarding the long-term sustainability of public finances are the best contributions that fiscal policy can make to macroeconomic stability.

It looks like American officials from Bush to Bernake could take use some advice from the Frenchman, who is right on the money when it comes to warning about intervention to encourage more economic spending. Add him to the coalition against fiscal stimulus.

Also of interest is NYU Prof of Econ, Will Easterly’s critique of Bill Gates’ concept of “creative capitalism,” which the Microsoft founder spoke in favor of in his speech at the World Economic forum in Davos. In response to Gates, who argued that self-interest and the profit motive do nothing for the poor and that foreign aid and a sense of social responsibility are necessary to improve the plight of the world’s poor, Easterly makes the case that charity does little to lift poor peoples out of perpetual poverty. His rebuttal is in line with his book, The White Man’s Burden, as he argues that indeed self-interest and unfettered capitalism makes the whole world better off in the long run because it is most productive and creates the best incentives for third-world nations to build an economic system through a sense of individualism and self-reliance.

Finally, on a happier note, the writer’s strike appears to be over. A deal has been reached between corporate media and the writer’s guild, according to ex-Disney CEO Michael Eisner.

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The Senate passes stimulus, Europe keeps its interest rates steady, and other macroeconomic commentary by New School Politics, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.