A fiscal stimulus for the US economy – either tax cuts or increased spending – would very probably be wasteful, late and have no impact on the US downturn. But it would still be a good idea. It would act as an insurance policy against a protracted and severe downturn that continued into late 2008 or 2009 and against the chance that Federal Reserve monetary policy is limited in its ability to offset it.

If enacted quickly, so it takes effect by mid-year; if targeted, so money ends up in the pockets of people who will actually spend it; and if temporary, so as not to wreck an already fragile budgetary position, a fiscal stimulus would have advantages. Fiscal policy avoids the troubled financial system and hands money directly to consumers. It would also make spectacular interest rate cuts less necessary.

The US political system, however, is uniquely ill-equipped to produce a sensible stimulus. Agreement between Congress and the White House takes too long, and there will be a time lag while any stimulus that is agreed takes effect. Republicans will push for tax cuts, Democrats will push for higher benefits and public spending. A timely and effective compromise in an election year would be a minor miracle.

Any US stimulus would probably end up wasting taxpayers’ money. It is already too late to do anything about the slowdown that is in train for the first half of 2008. But, given two serious problems with monetary policy, it is still worth doing.

First, it is not clear how effective lower interest rates will be in causing banks to offer more and cheaper credit, or indeed whether their customers want to borrow. The banks are worried about their balance sheets, liquidity and default risk; consumers are faced with falls in the value of their property.

Second, the Fed has to be careful not to stampede foreign investors out of the dollar, or give Americans reason to expect a surge in inflation. It still has room to cut, but there are limits to how aggressively it can do so.

It therefore makes sense to enact a fiscal stimulus package as a kind of insurance while trying to limit the inevitable flaws. At the least, legislators should pledge to offset the fiscal cost of a stimulus through tighter policy later in the cycle.

Had President George W. Bush and Congress run a tighter fiscal policy during the boom years of growth, it would be easier to pass a stimulus now. Moreover, it is absurd to have this kind of panicked, ad hoc discussion in the face of looming recession, just as in 2001.

It would be better to pre-commit to a specific fiscal stimulus when certain conditions are met in any future downturn. But better still would be repair work to automatic stabilisers such as unemployment benefits. If falling growth triggered higher spending in this way then anguished negotiations over a stimulus would not be necessary.