Posts Tagged ‘recession economics’

Still Not Getting It

February 27, 2009

Economic stimulus.  It’s not that complex a notion.  When the economy enters a deep recession, such that a lot of our output capacity goes idle because demand has dropped off, it’s useful for the federal government to increase its spending, thus bringing demand back up and employing that idle capacity.

It almost doesn’t matter what the feds spend the money on.  Certainly, some things are more stimulative than others, but the fundamental mechanism of economic stimulus is dead simple: spend a lot of money.

Yet the GOP and the “Blue Dog” Democrats have had difficulty grasping that pillar of macroeconomics.  It seems to be news to them, despite its being a fundamental concept in every Econ101 course in every college in every capitalist nation for the past 75 years.

They keep criticizing the stimulus bill as big-gummint big spending  — “There they go again, spending your money!”  Well, duh.  As a somewhat flummoxed President Obama said, “That’s kinda the point.”  How, exactly, is it a criticism of a bill whose fundamental purpose is to spend a lot of money — a bill that exists solely for that purpose — to say that it spends a lot of money?

Then they said, “What about fiscal discipline?  What about the deficit?  We’re spending our children’s money!”  They can’t seem to comprehend that if we don’t stimulate our economy, there’s a good chance the one we hand to our children will look like 1931.  They also seem not to realize that right now is the best time, ever, for the U.S. government to borrow money.  With the entire global economy in the crapper, people are willing to loan us money at extremely low interest.  For a while, U.S. Treasury securities were selling like hotcakes at 0% interest — that’s zero.  The only other people getting terms that good on a loan are Habitat for Humanity families.  If we’re ever going to borrow money, now is definitely the time to do it.

The newest complaint from conservatives (GOP, Blue Dog, and otherwise) is that we can’t possibly spend $770 billion dollars (though they keep calling it $1 trillion, for some reason, and I just heard one GOP congresswoman say it was $1.5 trillion — twice the actual spending in the bill) without waste and fraud.

They’re right.  We can’t possibly spend hundreds of billions of dollars without some waste and fraud.  Here’s the thing, though: it does. not. matter.  In brute economic terms, all that matters is that the money gets spent.  If some of it gets wasted or even skimmed, it still stimulates the economy.  It still raises demand.  Which is the whole blessed point.

Now, obviously, we’d like to both stimulate the economy and end up with [public] goods and services whose value roughly equal what we spent.  Nobody likes to see taxpayer money wasted; nobody likes graft.  So the feds will be watching out for that stuff, with incomplete success.  But even if they weren’t, even if they turned a completely blind eye (as the Bush administration did with billions of dollars in cash handed over to the Pakistani government), the stimulus bill would still be the right thing to do.

This isn’t a normal spending bill, folks.  The point of a normal spending bill is to buy things the country needs.  Waste and fraud defeat the purpose.  That’s not the case here.  This is a stimulus bill.  The point of spending the money is not to obtain goods and services we need.  The point of spending the money is to spend the money.  If some of it goes to waste and fraud, that’s unfortunate, but the money still got spent, and it still stimulates the economy.