The following was written in response to a specific commentary piece by Robert Kuttner, of The American Prospect, published in The Boston Globe, but it followed a similar piece some time earlier by Paul Krugman, in The New York Times (which I also answered) and I have sent similar missives to guests on the Diane Rehm show and to other places because this theme recurs periodically — pretty much any time there is an economic downturn and a resulting demand that we both increase and decrease government spending in response.
My intent was not merely to offer my objections to what Mr. Kuttner and Mr. Krugman and the rest had to say but to ask of them a question: how would you go about convincing me, not that you are right but that you, and all the others who must participate in your scheme, can be trusted? I’ve never received a reply.
12 November 2010
Regarding your Globe commentary about what the Fed can/can’t/will do, and what we should be doing, to fix the economy:
I will offer to you the same observation — and the same challenge — that I offered to Paul Krugman (I received no reply and saw nothing in any follow-on writing suggesting he’d taken note) when he suggested that what we should do about the economy is borrow (or print money) to spend massively now, and then pull that borrowing/new money back in later by slowly reducing that spending and paying down the accrued bills once the economy was humming again.
I am not a Republican — I think of myself more as a libertarian-leaning pragmatist — but I do tend to be fiscally conservative, skeptical about the ability of government to effect positive changes (mostly because I think those who most desire that the government do so almost universally have no understanding of how it could do so, and seem to think they can ignore the market and/or command that it do their bidding) and apprehensive about allotting government the amount of authority and power that would be required for such a project.
Nonetheless, I think your (and Dr. Krugman’s) analysis might be correct. If the problem is uncertainty — people won’t spend because they have no confidence that it won’t lead to personal catastrophe — then having the government socialize the risk associated with spending in the short term is probably a way to overcome that.
My problem, and the reason I can’t bring myself to support such policies, is because I do not believe for one minute that the second half of your prescription — reducing spending and paying down the accrued debt once the economy is humming again — would ever happen.
In the first place, modern politicians of all parties appear to be incapable of saying “no” to any even moderately powerful constituency; and, as a public which comprises those constituencies, we seem to have adopted a philosophical outlook that says the current level of spending on our favorite gimmes is a god-given (or constitutionally mandated) right and nothing may ever be taken away. I laugh in despair upon hearing people express outrage about the amount of money in politics when they almost universally miss the biggest money problem: incumbents routinely bribe us to vote for them with our own tax dollars.
In the second place, one of our two major political parties seems to be officially and philosophically committed to the proposition that the government should be spending vastly more than we currently do. Both parties may choose to spend outrageously for base political reasons, but at least the Republicans might be embarrassed into restraint by pointing out that such spending is inconsistent with their stated philosophy of government. But why in the world would the Democrats ever follow through on the winding down part of the proposition, when the winding up is what they have been after for decades and regardless of the state of the economy? When the economy again becomes robust, that will simply give them an excuse to lock in whatever spending we commit to now. If it’s hard to convince them to reduce spending when times are tight, imagine what it would be like to convince them when times are good.
What both parties really need to commit to is holding spending at a reasonable level relative to the average economic conditions over the long-term. But, instead, when times are good we spend as much as the economy will bear because we can, and when times are bad we spend more than the economy will bear because (in the view of people like you and Dr. Krugman, at least), we should.
Here is my challenge:
What assurance can you offer me that, if I go along with a robust governmental stimulus financed by debt and inflation now, then the Congress and the President will follow through with austerity programs to resolve that debt and inflation later?
Because, unless you (or someone) can provide such assurances, can convince me that our politicians and government bureaucrats will suddenly change their approach to fiscal policy and behave in the rational way that economists would advise them to do, I and many like me cannot support such stimulative policies.
© Copyright 2010, Augustus P. Lowell