His desired package is going to be bigger than a breadbox and focus on infrastructure, schools, energy, and transportation.
Hey! He left out healthcare!
I’m just wondering - how much can we borrow to do all this? If the stimulus works it is worth it, and I think that this sort of investment is our best chance to have a path out of this ditch we have been driven into, but if it doesn’t drive up revenues in some kind of short order then what kind of fix are we going to find ourselves in?
Well, your Treasury borrowing costs now are essentially zero in short term paper, historic lows otherwise (Bloomberg Politics - Bloomberg) - demand is so high for your debt as a safe asset , if there was ever space for low cost deficit spending…
If you invest this in stimulus actions that create long term value, you will be the better for it. Certainly with the world looking at a potential Depression this doesn’t seem like very much money at all.
Of course if it is pissed away, well…
Regardless, there is panic in the air.
So wmfellows assuming that it is going to be big enough, will this be fast enough?
The Economist makes a strong argument speed is of the essence. Yes, longer term these new infrastructure, new schools, new technologies, etc. will be job producing. But as the point out there are many “shovel-ready” infrasrtructure projects ready to go on the states’ dockets being held up only for lack of funds. The fastest way, they posit, to implement a stimulus is to get money into these state projects.
What think you?
Why can’t we do both?
Can, yes. Will?
I hope so, but I’m not optimistic. It seems the deficit hawks, who were thought to be extinct for the last eight years, have suddenly and mysteriously resurfaced.
But how many of them are there on the Dem side of the aisle? It’s a Dem Congress – and this kind of package will be politically problematic for the Senate Pubs to filibuster.
In short: Whatever Barack wants, Barack gets.
Healthcare is more of a permanent change in expenditures. Also, healthcare reform is complicated, and we really want to do it right. If some of the R&D spending isn’t optimized though, it won’t hurt the US’s long run growth prospects.
But maybe it’s a downpayment. Krugman is calling for a $600 billion plan.
The states are broke and are cutting spending, raising taxes during a recession. Hand them money without strings and they won’t have to do that. So I agree that block grants are a very good idea.
Over the medium run we need to repress consumption and stimulate net exports. One way to do that would involve energy conservation and expanded personal savings plans, with the worker being opted in by default (but given the option to opt out).
So, yeah, energy conservation and green energy should be part of the stimulus package.
Links:
Orthodox monetary policy has reached its limit, so we must depend upon a stimulus package.
Imbalances: Consumption and the trade deficit were unusually high in 2007. We need to fix that over the medium run.
Why we need $600 billion of stimulus.
wmfellows is correct: there is a worldwide flight to quality, which means that the US Treasury can borrow cheaply. I would prefer that the US spend its funds wisely, but during deep recession, spending money on pyramids is superior to doing nothing. (But recall the medium run imbalances that I mentioned earlier.)
[1] GDP= $13.1 trillion
OTOH, Obama is putting together a top notch team of advisers and cabinet members. And Barney Frank has a strong grasp of what’s at stake.
Meanwhile, I suspect that the American people will let the Dems do what they want provided that the policies are effective. I think there is some reason for optimism.
Then again, it’s disturbingly unclear what it will take for the banks and credit markets to resume lending.
There is much work to be done, but thankfully the economic cranks and foreign policy belligerents will soon be out of power.
Excellent summary, Measure for Measure. Just one thing I want to point out:
And rightfully so. Even if Congress passes a universal health care plan in early 2009, it might take a couple years (depending on how they structure it) for it to come into effect. This is simply too long. And health care will be a constant expense instead of a one-time Keynesian stimulus, anyway. We can’t rely on it, and so it shouldn’t be a part of our economic recovery plans. Obama is entirely correct to leave it out of this particular discussion.
My healthcare mention was facetious. I was merely commenting on the sun and the moon nature of the proposal. Yes, I know it really does need to be that big and I appreciate the fleshing out provided. I would like to see some smallish fraction go to infrastructure projects that are turnkey - ready to go now if only the money was there in the states hands. And I have not heard that from any US leaders. Have I missed it?
I don’t know.
Keynesian economists have called for the accumulation of infrastructure projects during economic expansions, so that they can be quickly funded during recessions. Such proposals have existed since the 1950s and have gone nowhere, for reasons that are unclear to me. That said, GBush the elder ordered that federal spending be accelerated during the early 1990s recession. I’m not sure how successful that was.
Block grants can prevent states from canceling infrastructure projects, of course. Other than that, I don’t know how many turnkey projects are lying around.
Military spending is another potential form of stimulus. I understand that we haven’t replaced many of the weapons lost in Iraq and Afghanistan. If procurement can be ramped up and then ramped down we should do so.