We Need Countercyclical Spending, Not Counterintuitive Spending Cuts
Matt Yglesias points out once again that since we can borrow money at basically negative real interest rates, we should do it. We should do it to stimulate the economy, put money into infrastructure like high-speed rail, and get the beast chugging along again. Given that lower-than-projected growth is actually leading to an increase in the size of the deficit, I think he’s right.
Tyler Cowen thinks that since the government spends money on really stupid things, we should not be borrowing even more of it. He has a point, but it misses the mark. Yes, we spend money on lots of stupid things, but I think it’s far likelier that if the economy grinds to a halt and we start hacking at the limbs of the federal government, it’s going to be programs for the poor and working class that get cut first. It’s going to be middle class government workers suddenly out of a paycheck, not billion dollar defense contractors.
There is a time to get spending under control, and a way to go about doing it that doesn’t make the economic pain that much worse for those who can bear it the least. That time is not during a recession.
Besides, how can we justify cutting programs here at home that might actually do a little good, when we continue to spend hundreds of millions in foreign wars? Not borrowing money at these rates seems downright ludicrous to me. Raising taxes and cutting spending strikes me as a horrible idea. Chains first, then crutches – but only if we can get rid of the crutches without causing harm. Right now we need more crutches, not fewer, because we have so many more people who have lost their footing.
Of course, Cowen is right about that in a way. Our spending is likely going to be on chains or crutches for those who don’t need them. That’s a failure of governance, though, it’s not an inevitability. And I fail to see how austerity will change that.
Even though I agree with you, I feel the need to point out the fact you compared middle-class government workers to multibillion dollar defense corporations, as if everyone who works for defense contractors is incredibly wealthy. My libertarian friends would have said middle-class white collar jobs in the private sector being lost to the all-consuming government. It’s a strange rhetorical flourish that I do wish would go away, as it dehumanizes people who work hard for both.Report
What’s this “chains or crutches” thing about? I’ve seen that all over this week, as if out of nowhere. It’s like there’s a new anti-statist by-phrase of the month that gets released by fax from headquarters to select Tribunes and slowly circulated amongst the cognoscenti and then from there out to the unsuspecting public or something.Report
I think this is the origination. It’s worth a read.
http://highclearing.com/index.php/archives/2008/02/21/7909Report
Good enough. I think this conception of trying to remove the “crutches” at just the “right” time runs into the same problem that libertarians oftenidentify wrt to the whole welfare state project: if you only think it’s worth doing if you can do it just so exquisitely right, you basically ensure it’s not going to work by your standards. Liberals tend to be okay with a cruder assessment of effectiveness, figuring that the aid does immediate good, whatever the longer-term (possible) damage; libertarians tend to focus more on the longer-term outcomes and lack of positive structural change. Which is all to the good, dialectically. The “remove the crutches at just the right time” analytic doesn’t seem at first blush to me to have enough flexibility to make it viable, but perhaps it can be made to do so.Report
Yes, and see also: ordinary-gentlemen.com/blog/2011/04/30/redistribution-and-the-state/
I’ve written about it a number of times. I wouldn’t call it anti statist.Report
And actually I’m moving much closer to a “remove crutches only from the rich and big corporations and remove chains, leave other crutches in place or expand them”…Report
What this guy said.
Also, I’m not convinced that failure of governance isn’t an inevitability, at least in the context of mass democracy.Report
Yeah, trust me, I get this argument. My counter is not that the government will not spend money badly or that they have lost our trust. It is simply that the alternative to this is cuts from those who can least afford them, and an austerity that will, given the circumstances, very likely put an even greater drag on the economy.Report
The fact that they can (currently) least afford is no measure of obligation.
Back in the early 90’s, I worked maintenance at a Section 8 apartment complex; 120 units, I believe. That gave me a really bad attitude about a whole lot of people on the gov’t dole.
I would rather see the living sh*t kicked out of an alcoholic every time he gets drunk rather than for him to receive a disability check for alcoholism.
People that are disabled because they are too fat to work should not receive food stamps– and then go out and buy pies & ice cream at the first of the month until the food stamps are all gone.
I have no problem with old people on social security receiving subsidized housing.
But by far the majority of the housing subsidies go to people of the background of, “My baby-daddy kicked my ass after I smoked up all of the crack while he was gone to the liquor store.”
Really. Now they have a free apartment for life because they chose to smoke up all the crack.
That’s at least 80% of the residents that I saw.
There are some things that we, as a society, should not be asked to subsidize.
For instance, a Chem 201 Methamphetamine Manufacture for Beginner’s class at the high school in Cape Girardeau.
Why would we agree to something like that?
You see, one way to reduce unemployment would be to imprison every third person.
I’m sure it would work.
There might be a few undesirable aftereffects with that one though.Report
I wonder (dare i say hope) that by saying you get the argument, it doesn’t mean you endorse the idea that massive stabilization payments designed to limit state and local public payroll shrinkage was in any way not entirely vital public policy in the 2009, however those whose jobs were spared may have gone on to vote, and the necessary corollary that if that policy was necessary and vital, then in promoting a bill that did in fact include infrastructure spending, if the political pitchmakers assigned with selling it chose to place the focus on infrastructure portion of the bill, they in fact did nothing wrong of that was necessary to get the bill passed.
This is not to say that the argument that they blew their trust cannot be valid at the same time. But let’s ask if we really think it is a functionally descriptive account. The implication made by this argument is if the stimulus had been 80% infrastructure and sold as such, then if necessary the public would now be willing to support additinal such stimulus, regardless of anything else. Including regardless of if it had been no more effective. So ask yourself: if a stimulus that was 80% infrastructure had been sold on the infrastructure argument had worked precisely as well as the one that was passed did – if unemployment were still at 9.1% in August, 2011, do you think the public would be receptive to arguments that more of what (it would be argued by detractors) didn’t work the first time around – deficit infrastructure spending financed by low-interest Treasury bonds – are just what was needed now? Merely because back in 2009, the initial measure had been 70% more accurately sold to the public?
Sorry, I’m not seeing it. The public is not receptive to another massive round of fiscal stimulus because 1) it has been demonized by the opposition via a massive, cynical campaign of sensationalization of the issue of public debt in a way designed to rub off on the economic consensus in favor of running deficits in times of economic downturn, and 2) because the ARRA plus subsequent stimulus measures have not been sufficient to lower unemployment to a level that is sustained below 8% indefinitely. It’s pretty much that simple, and it has nothing to do with whether state and local government stabilization or infrastructure spending were emphasized in the 2009 sales pitch. I don’t buy that there is more than a handful of very zealous, high-information opponents of both the idea of deficit stimulus spending in concept, but moreover of President Obama as a political figure, for whom that is even a factor in their views on the question of whether another round of stimulus spending is well-indicated policy.
Raise your hand if you happen to be a counterexample to that hunch.Report
No I think we’re very nearly on the same page, Michael.Report
Cowen’s not calling for austerity, he’s just saying don’t borrow more. That’s also consistent with just holding spending at current levels.Report
True enough.Report
Sorry to be anal about this, but most of fiscal policy takes time to implement. In a large country like america, the money spent will not always go to create jobs.
Granted that monetary policy works better than fiscal policy, and that america has mostly run out of monetary policy options, the best fiscal policy tool you have is taxes.
So, which taxes to cut?
No 1 on the list is the payroll tax. Since, as you say, deficits don’t matter (at least for the moment) you dont have to make any changes to social security payments. This will increase employment rates in general as the price for employing someone decreases.
2. Cut the corporate tax rate. Corporate taxes look like a tax on the rich but the costs are passed on to workers and consumers.
Now, none of this may work because people know that america cannot maintain such deficits forever and are worried about future austerity. Therefore, instead of spending the extra cash, they may just be saving everything.
That’s why monetary policy is better. Start printing money, loads of it. This will set off inflation and people will stop saving and sart spending to get things of real valuue instead. Of course, this has long run consequences of making your creditors less willing to lend you money in the future.Report
I’m with ya on the printing press Murali. At the very least the Fed should start printing money until the needles on inflation start jumping a bit. Outside of oil shocks it’s been pretty much moribund since the recession started.Report
http://www.businessweek.com/news/2011-09-01/uncaged-inflation-a-beast-easy-to-free-hard-to-control-view.html
The best laid plans of mice and men. I started and lost my first business in the 70s — we don’t want to experience Carter II.Report
Oh yes Mike, I certainly am not in favor of actually aiming for higher inflation. But I do feel the Fed has been over-cautious on the inflation side of things.Report
… what kind of business? do you genuinely believe that Carter had a more than 80% failure rate (the standard that Germany and most people set as “reasonably average”) for startups?Report
I’m pretty okay with target infrastructure spending that accomplishes two things:
1) Creates jobs where a significant number of the workers are gaining marketable skills that will help them stay employed after the federal spending dries up. This country desperately needs machinists, electricians, etc and Uncle Sam could provide them. Ditch diggers and shovel slingers are not a hard-to-find group.
2) Creates or repairs ifrastructure that makes us a stronger company economically. When FDR electrified rural areas and when Eisenhower built the interstates, this pushed the economy in obvious ways. A good example of a new project that would accomplish this is make sure every American has access to broadband.
Also, as soon as I read ‘high speed rail’ in conjunction with any potential jobs program it immediately sounds unserious.Report
My only fear is that politicians who talk about “building roads” will actually do just that.
On the broadband question I think you’re exactly right though. While I’m not exactly comfortable or confident in the social effects, I think economically it’s pretty clear that increasing connectivity and the rate of interactions will go a long way toward increasing productivity and creativity. The costs of internet access, at least in populationally dense areas, might even be a good thing to subsidize.Report
Exactly. My job is a perfect example. I got it because we have a big Fortune 500 company based in my town and they hired me 11 years ago. because they needed people in this physical location. Those jobs weren’t available to some guy that lived in a rural county 200 miles away. Now my job could easily be done remotely because ot improvements in technology and there’s no reason why a qualified person somewhere else shouldn’t be part of the potential labor pool.Report
E.D.:
Instead of borrowing more, why not spend what we have wisely? Of course it might help if Barry actually had a budget. People pan the tea party for railing against higher taxes but those same folks never suggest we spend more wisely.Report
The fact is we have a deficit, which means we can’t spend what we have without borrowing. To do that we’d have to make cuts. The whole point of counter-cyclical spending is to run deficits in a recession.Report
The whole counter-cyclical aspect has been way out of balance for a long time. Typically, it runs like this:
Some Senator sees a terrier and thinks, “Maybe I should give that terrier a Milkbone.” Next thing you know, he’s making a big to-do on the floor of the Senate. Then the dog treat industry throws some money into the pot. And then the program is instituted.
Then someone notices that game wardens are deficient in their options at the snack machine. Someone gets the bright idea, “Well, we’ve got this Milkbone program.” So the game wardens now get Milkbones whenever they shake hands.
Someone complains about the dental care of deep-sea divers. Next thing you know, they too are on the Milkbone program.
Now, an awful lot, if not most, of these programs started out just fine. But we couldn’t leave well enough alone. We had to add group after group after group to the eligibility requirements.
It’s the entitlements, man.
Far better to just snatch them up by the back of the head and stick their heads in the toilet until the legs stop kicking. Problem solved.
And yes, it matters, even if we could crap out a big roll of quarters just by adding some trace minerals to our diets.
Because if we cut way, way back on the automatic payouts, we would have so much more money to spend.Report
… so cut the fucking second mortgage tax deduction.
Voila! Social Security is saved!
[jeezus, some people will believe ANY propaganda]Report
Not concerned so much with “saving” it as gutting it; that is, I really don’t care whether it’s saved or not.
Shoving the elderly down a flight of stairs would do it, as well as providing an intense amount of amusement.
But I like the SS check roulette idea.
Under this plan, random benefits checks would spray the elderly with gasoline whenever they open them, and they would then be left to find their own ignition source.
Really, I like the folding speargun approach, where a speargun pops out and impales granny against the wall with blood dribbling from her mouth for hours on end. The issue is, how to get a speargun to automatically unfold once the envelope is opened?
Even better, granny could get sprayed with fire ants after being impaled by the speargun, and gasp and moan while the fire ants eat away her flesh. The problem here is, of course, that the fire ants must necessarily be genetically engineered so as to eat the flesh from only one eyeball, so as to retain a good view of the demise.
That would be nice.
You really can’t beat the speargun/fire ant initiative.
But shoving the elderly down a flight of stairs is a good place to start.
A lot less social security to worry about that way.
But I really don’t understand why anyone would want to save it.
That seems so counter-productive.Report
I agree, spending more “wisely” is the crux.
If only we could gut the defense budget we’d have plenty to invest in the long term and stimulate in the short term. The money’s there, it just needs to be redireced.Report
*nods* gutting the health care budget is just the first step.Report
Kim, you’re just trolling now.Report
E.C.:
Yes the typical liberal solution of gutting the defense budget. Aren’t you guys supposed to be more imaginative than that? I say we zero out foreign aid until the debt is paid off before we gut those programs that protect us. But let’s say you do gut defense, how many former service members do you want to add to the unemployment lines?Report
Just because you gut defense doesnt mean you fire soldiers. You gut the part of defens that requirres massive government payments to weapons and other military technology corporations. You gut the massive command economy that you have in the military industrial complex like military living quarters and military schools etc etc by privatising them. A massive scaling down of all this will divert more resources to the private sector.Report