There is a shouting match going on about what economic policy we should be following. One of the camps whole-heartedly support Keynesian stimulus, the other rejects it. This morning’s exemplars of the divergent viewpoints are columnist E. J. Dionne and Tim Cavanaugh at Reason.com.
Mr. Dionne favors fiscal stimulus. Big fiscal stimulus:
President Obama has only one option as he ponders a world economy teetering on the edge: He needs to go big, go long and go global.
Obama should not be constrained by what the Tea Party might allow subservient Republican leaders in Congress to do. He should state plainly, eloquently and in detail what he thinks needs to happen. Neither history nor the voters will be kind to him if he lets caution and political calculation get in the way.
Going big means immediate action to boost the economy, even though this will increase the short-term deficit. His proposals to continue the payroll tax cut, extend unemployment insurance and enact patent reform are good, but they are not enough.
The federal government needs to come to the aid of state and local governments again; the budget cuts they are being forced to make are precisely what the economy does not need now. We must find ways of boosting spending as quickly as possible on roads, bridges, transit and other building projects, including a new program to rehabilitate the nation’s dilapidated schools. And the administration needs to do far more to resolve the mortgage mess, which is holding back consumers.
Tim Cavanaugh presents the flip side of the coin:
Is it possible that the choice between budget-balancing and job creation is a false choice?
Does government actually create jobs?
Is there any reason to believe at least $2 trillion in fiscal stimulus and $2.9 trillion in monetary stimulus since 2008 have made a positive difference in the economy—especially considering that most economic indicators are worse than the worst-case scenarios that were made public when those spending decisions were approved?
How does a deal that contains no actual cuts, adds to an existing $14 trillion pile of public debt, and preserves spending for cowboy poetry qualify as an “austerity” budget?
And how many times can the Keynesian consensus fail the test of outcomes before it goes away for good?
I’ve already outlined my views here.
Given the recent experience and the country’s serious budget problems (remember: it will require more than $600 billion dollars of combined additional revenue and cuts per year just to stabilize our fiscal situation) I continue to think it’s incumbent on those who propose aggressive fiscal stimulus in the present and even higher taxes and deeper cuts in the future to provide some specifics on how they plan to spend the dough. Infrastructure spendin isn’t a specific. Bridges to nowhere are infrastructure spending, too. Does maintaining the scheduled step pay increases for big city school district teachers or seniority pay increases for police officers count as effective fiscal stimulus?