Stimulation After (Economic) Climax
I see Mssr. J. Schwenkler linked to and posted some of a recent Brian Beutler-Megan McArdle Bloggingheads on the stimulus bill.
McArdle lays out her own priorities for a stimulus bill. Her basic argument is that infrastructure projects–including the so-called shovel ready ones–will take too long to bring stimulus. Ditto in her mind health care spending, green energy buildup, and the like Similarly tax cuts as those take a long time as well. She would prefer increased transfer payments, things like unemployment insurance, food stamps, and the like.
At the risk of incuring the wrath of Br. Freddie, let’s imagine she is correct for the purposes of this argument. I’m not sure she is (I’m not sure she isn’t), but let’s just act as if she is for the moment.
It sounds (to me) like a reasonable critic of the stimulus bill qua stimulus bill. If one thinks the issue is stimulus perhaps she has a point. The question it leaves me with though is a stimulus bill the right thing at this point? If what we are facing is a global deflationary debt-fuelled depression, then is stimulus even if were to work–whether of the libertarian, conservative, or liberal varieties–the best means of approach?
As ED pointed out in this post, the US middle class has been severely and in some sectors mortally wounded. All the king’s advisors and the all the king’s stimulus projects, will not put the US economy back together again seems to me. The plan Obama laid out during his campaign laid out a good deal of what shows up in this stimulus bill–particularly the heavy emphasis on infrastructure. In a different economic universe, I would have liked to see that side of his policy put into effect. I think government investiture in infrastructure is a central element of its purpose and existence.
Pigging backing on ED’s point about the loss of the middle class which leaves the country more open to a populist anti-elite backlash (very serious possibility right now), I imagined Obama’s plan would have a least begun the necessary rebuidilng of that segment of society, however much it was a little too built into certain interest groups of the Democratic Party whose views on some issue I don’t share.
But at this point, given the plunging stock market, the continuing destruction of personal wealth via the never-ending black hole of the burst housing bubble (and we ain’t all the way there yet I’m afraid to say), and I think the coming deflationary and potential plunging value of the dollar, all Obama’s plans might just be swept away.
I think we are headed to a multi-year readjustment–which some days I actually think could include major government defaults and the IMF having to get involved. If the problem is the entire way the economy is structure, i.e. debt-burdened consumerism, how is stimulus the way to proceed?
Is the stimulus package (whichever variety) supposed to just right this ship? But what if the ship is headed straight for a crash? Why right it simply back to the coordinates that are going to send it to sink?
How does stimulus, even if it were to work as stimulus answer the bell of ringing fiscal insolvency?
Postlude I: Dan Drezner shorting Paul Krugman:
Shorter Paul Krugman: “We’re headed for deflation and depression, we need a really big stimulus, and if Barack Obama keeps trying to placate Republicans in the name of post-partisanship, we’re all gonna be living in grass huts.”
Drezner then goes on to say that he is not sure that a lost $100 billion dollars (“only $100 Bn.”) will make the difference between rescue and grass-hutism. He may have a point. But both Drezner and Krugman are disturbingly forgetting one important piece of information (they are assuming way too much). To wit, making a grass hut is really hard.
Krugman assumes a de facto turn into grass huts as if this were some automatic fall back position. But as someone who has lived at various points for all told about 3 weeks of my life in actual grass huts (that someone else constructed), they are damn hard to build. My point: do not assume the grass huts will be there for your housing needs.
Given our society and most of us lacking know how to construct such an edifice, I’m imagining it shouldn’t be grass huts (which again are actually quite complicated) but rather maybe cardboard boxes. Perhaps though I am falling into the very trend I decry in the others. Maybe someone will write in to tell me that cardboard box-ism is actually harder to construct than it looks. I’m open to being convinced on that front.