the government has to spend big time. The real challenge will be for
government to spend it
wisely ! http://www.truthout.org/112908C
The Rebirth of Keynes, and the Debate to Come
The economy has just about come to a standstill - not so much
because credit markets are clogged as because there's not enough
demand in the economy to keep it going. Consumer spending has fallen
off a cliff. Investment is drying up. And exports are dropping
because
the recession has now spread around the world.
So are we about to return to Keynesianism? Hopefully. Government
is the spender of last resort, which means the new Obama
administration should probably be considering a stimulus package in
the range of $600 billion, roughly 4 percent of national product -
focused on building and repairing the nation's crumbling
infrastructure, providing help to states to maintain services, and
investing in new green technologies in order to wean the nation off
oil.
But between now and late January, when the stimulus package will
be voted on, we're likely to be treated to a great debate over the
wisdom of Keynesianism. Fiscal hawks will claim government is already
spending way too much. Even without the stimulus package, next year's
budget deficit is likely to be in the range of $1.5 trillion,
considering the shrinking economy and what's being spent bailing out
Wall Street. The hawks also worry that post-war baby boomers are only
a few years away from retirement, meaning that the costs of Social
Security and Medicare will balloon.
What the hawks don't get is what John Maynard Keynes understood:
when the economy has as much underutilized capacity as we have now,
and are likely to have more of in 2009 and 2010 (in all likelihood,
over 8 percent of our workforce unemployed, 13 percent underemployed,
millions of houses empty, factories idled, and office space unused),
government spending that pushes the economy to fuller capacity will
of
itself shrink future deficits.
Conservative supply-siders, meanwhile, will call for income-tax
cuts rather than government spending, claiming that people with more
money in their pockets will get the economy moving again more readily
than can government. They're wrong, too. Income-tax cuts go mainly to
upper-income people, and they tend to save rather than spend.
Even if a rebate could be fashioned for the middle class, it
wouldn't do much good because, as we saw from the last set of rebate
checks, people tend to use extra cash to pay off debts rather than
buy
goods and services. Besides, individual purchases wouldn't generate
nearly as many American jobs as government spending on
infrastructure,
social services, and green technologies, because so much of we as
individuals buy comes from abroad.
So the government has to spend big time. The real challenge will
be for government to spend it wisely - avoiding special-interest
pleadings and pork projects such as bridges to nowhere. We'll need a
true capital budget that lays out the nation's priorities rather than
the priorities of powerful Washington lobbies. How exactly to achieve
this? That's the debate we should be having between now and January
20
or 21st.
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