As a follow-up to my last post, during a radio address, Barack announced a major plan to use public works projects as a stimulus boost to get the economy rolling again. He never once used the word spend. Instead, he referred to the works and money as "investments". He was panned by the media for not saying "spend". To be fair, the truth is that money will be spent. Therefore, it is correct to call this spending. BUT, and this is a big but, these are exactly the kinds of spending projects that need to occur. Why?
1) Governments should spend money and lower taxes DURING RECESSIONS while NOT SPENDING and raising taxes during boom times. It's basic economic theory and good practice. Government spending helps jolt the economy during times when consumers are not consuming and pays for those projects via higher taxes when salaries, income, and spending are up.
2) The things bought with that money will provide services for the U.S. for the next 50 years. We are still using the original interstate system (albeit with normal maintenance and repairs) and much of the original electric grid. Now is the time to spend on getting those systems up to date while also supplying a broadband system (since we are in the information age and economy), better educational facilities, and improve alternative energy resources.
3) Invest is the correct word. Spending now in order to reap the economic benefits when the world economy picks up again is, by definition, investing. Investing in improved infrastructure is a good start. We also must invest in our human capital and resources- education and health care being the two biggest areas ripe for improvement.
4) At the end, when the spending is done, WE WILL HAVE SOMETHING TANGIBLE TO SHOW FOR THE EFFORT. We will have roads, bridges, hospitals, solar energy stations, fiber-optic connections, and schools. These are things that make life better for everyone now AND in the future. For comparison- nearly $1 trillion will ultimately (estimated as of today) be given to the financial sector. What will this bailout give? Tangibly...very little. The money being pumped in HAS NOT improved capital flows to the people that need it. If it had, Ford and GM would not be banging their tin cups on the Capitol steps. Maybe, eventually, at some unspecified time, the money will flow. But remember...hundreds of billions of that WILL NEVER BE SEEN BY US because it was used to pay off the people that lost the money. We subsidized their losses so they would have lower losses. We didn't subsidize our losses. That was left up to banks, mortgage holders, and insurance companies.
5) Public works projects provide employment. Giving money to Wall Street does not. At least, not in a direct proportion. These projects keep companies in business and keep people employed.
6) The subsidies already given to energy companies, telecoms, tobacco growers, farmers, and big business (typically in the form of tax breaks, but often via direct cash injections) are worth HUNDREDS OF BILLIONS over the life of the subsidies. Therefore, the government is already handing out this kind of money. Why not let some of that flow to the people at the bottom that are the people that will be employed on these projects? You can't give money to certain people and then tell others that giving them money would be socialism.
So yes, it's spending. Ultimately, it's good spending. Compared to 8 years of bad spending, this seems downright reasonable.
3 comments:
Obama's plan sounds like FDR's approach...not meaning that this is a bad thing, it just makes sense. Take what worked before, modernize it, and put it in place. I just hope that we don't need another world war to end THIS depresssion (not recession - they are all afraid to call it like it is).
Also, we REALLY do need to invest in our 'infrastructure'. It seems we don't respond to fix a problem until a catastrophe hits. The freeways in California collapse during an earthquake (who woulda thought?) so we start spending billions to 'earthquake proof' bridges throughout California; a bridge in Minnesota collapses from wear and tear, and we start worrying about bridges, etc.
Maybve Obama can create a newcabinet position - Secretary of Looking Ahead for Potential Problems? They could call it the SLAPP office (just to give Brandon another acronym).
HAHAHA...SLAPP...genius.
It's very much an FDR approach. Whether good or bad...who knows? I just like the idea of spending money and getting actual items that are of use now as well as in the foreseeable future. Giving money to corporations that have made bad business choices in the hopes they will make good ones seems a poor way to prop up an economy, at least to me. Saving people that made bad business choices in the name of short-term profits is just bad policy.
It's been a recession for at least 4 months, if not longer. I haven't called it a depression yet simply because we haven't hit the hallmark of depressions: really lousy employment and deflation. Now, we "lost" 533,000 jobs last month, twice what was predicted and the largest loss in who knows how long. But those numbers are always redrafted over the next few months and usually are lowered, but can go up in rare circumstances. Also, except for raw materials, overall prices have been stable and not deflationary. Strong deflation is a classic marker of depression economics.
Until we hit a prolonged period of severe unemployment and deflation, I'm not gonna call this one yet. But it's pretty damn close and I may just be splitting hairs.
If you are surviving, it's just a recession. If you aren't, it's a depression.
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