Oars in the Water

In yesterday’s Washington Post there was an article on a mammoth proposed stimulus package to jump-start the U. S. economy:

Facing an increasingly ominous economic outlook, President-elect Barack Obama and other Democrats are rapidly ratcheting up plans for a massive fiscal stimulus program that could total as much as $700 billion over the next two years.

That amount, more than the nation has spent over the past six years in Iraq, would rival the sum Congress committed last month to rescuing the country’s financial system. It would also be one of the biggest public spending programs aimed at jolting the economy since President Franklin D. Roosevelt’s New Deal.

Hints of a hefty new spending program began emerging last week. New Jersey Gov. Jon Corzine (D), an Obama adviser, and Harvard economist Lawrence H. Summers, whom Obama has chosen to lead his White House economic team, both raised the possibility of $700 billion in new spending. Yesterday, Obama adviser and former Clinton administration Labor secretary Robert Reich and Sen. Charles E. Schumer (D-N.Y.) also called for spending in the range of $500 billion to $700 billion.

That’s $700 billion on top of the $700 billion for propping up the financial industry.

There are multiple conflicting ways that such a stimulus could be used. If the intent is to get the money out into the hands of consumers quickly and ensure it will be spent, by far the best way to accomplish that would be to extend unemployment benefits, increase food stamps, and certain highly restricted sorts of aid to state and local governments. I doubt that would take $700 billion. None of those measures would do much to change the structural problems with the economy, they’d just inject a quick infusion of cash into the system hoping that would get things back to normal. That’s assuming that what’s going on now isn’t the new normal.

If the intent is to do something that’s politically popular, there could be another tax rebate. Given our experience with the last two times this has been tried it wouldn’t do much to perk up the economy nor would it help to correct our structural problems. People always like to get unexpected money (even if it’s their own).

This isn’t the 1930’s. Working on infrastructure, defined as roads and bridges, takes years of planning and doesn’t involve nearly as many companies or people as it used to. Unless you believe that America’s economic future requires lots more individual transport and you want to make that cheaper, it doesn’t sound like a good long term investment to me.

The most cost effective investment we ever made in the economy of this country was the space program. For a couple of hundred billion dollars (in current money) we created the industries of today: electronics, computers, telecommunications, the Internet, and so on. I’ve already made one suggestion for a mass engineering project of that sort. Unfortunately, without some sort of imminent threat a mass engineering project probably won’t prove politically popular in today’s climate. And it wouldn’t do anything to solve our immediate problems.

Bailing out a hopeless industry, like the automobile industry, might gain a few votes in the areas of the country most dependent on the automobile industry. It wouldn’t do much to jump-start the economy, it would be counter-productive in terms of looking towards the future, and it’s not a balancing act we can continue forever.

Unless you believe that the beneficial secondary effects of doing so will overwhelm both the huge direct costs and the adverse secondary effects, advancing a social agenda by undertaking a big, new program like, say, hugely ijncreased government subsidies to health care will neither jump-start the economy nor change our economy’s structural problems.

If you try to accomplish all of these things at the same time, you won’t achieve any of them.

The reason that having too many oars in the water, all paddling in different directions, is a problem is that you don’t go anywhere. All that you really accomplish is to make a lot of froth. There are more efficient ways to make froth.