Why We Need To Spend Big
By Justin Gardner | Related entries in Economy, History, Money
Christina Romer explains exactly why at the Brookings Institute today.
This similarity of causes between the Depression and today’s recession means that President Obama begins his presidency and his drive for recovery with many of the same challenges that Franklin Roosevelt faced in 1933. Our consumers and businesses are in no mood to spend or invest; our financial institutions are severely strained and hesitant to lend; short-term interest rates are effectively zero, leaving little room for conventional monetary policy; and world demand provides little hope for lifting the economy. Yet, the United States did recover from the Great Depression. What lessons can modern policymakers learn from that episode that could help them make the recovery faster and stronger today?One crucial lesson from the 1930s is that a small fiscal expansion has only small effects. [...]
The key fact is that while Roosevelt’s fiscal actions were a bold break from the past, they were nevertheless small relative to the size of the problem. When Roosevelt took office in 1933, real GDP was more than 30% below its normal trend level. (For comparison, the U.S. economy is currently estimated to be between 5 and 10% below trend.)9 The emergency spending that Roosevelt did was precedent-breaking—balanced budgets had certainly been the norm up to that point. But, it was quite small. [...]
Because of balanced budget requirements, state and local governments are forced to cut spending and raise tax rates when economic activity declines and state tax revenues fall. At the same time that Roosevelt was running unprecedented federal deficits, state and local governments were switching to running surpluses to get their fiscal houses in order.11 The result was that the total fiscal expansion in the 1930s was very small indeed. As a result, it could only have a modest direct impact on the state of the economy.
And so the plans for massive spending are put in place.
I know many of you think that spending this money will result in our complete collapse, but I’d like to point out one very important distinction and that is this: everybody’s going down the tubes. In a situation like this, aggressive fiscal expansion makes sense because every single economic power are taking very similar measures too. So the risk of inflation or our currency falling out of favor is virtually nonexistent right now. The same logic obviously wouldn’t apply during a time when the rest of the world wasn’t facing a collective economic crisis, but that’s not where we’re at and the distinction is important.
Also, given the reality that where we’re seriously lagging behind up and coming super powers like China in new infrastructure spending, now is the perfect opportunity to quickly play catch up. Because, trust me, they’re starting to pull away. They’re building entire cities that will leave no carbon foot prints and produce all their own energy. Where’s that innovation stateside? Only a massive tornado could convince us to try such things, and certainly not on the ambitious scale that China is undertaking.
In any event, read the rest of Romer’s piece. I believe in the administration’s approach because it makes sense to me given this unique time in our worldwide financial history.
I welcome your thoughts…
This entry was posted on Monday, March 9th, 2009 and is filed under Economy, History, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
March 9th, 2009 at 5:31 pm
Ah, so the problem is that we didn’t spend enough… Is that how you run your household?
And is that face what we get for 787 billion? I’d rather take my cut to the Emporer’s club.
March 9th, 2009 at 7:01 pm
I’d feel better about the spending if i thought the system itself was shored up. With all the toxic assets still on the books, and the credit market still frozen, is it possible that the spending will be wasted? I think that’s the gut fear that’s gripping a lot of people. Currency is the grease that keeps the machine running smoothly, but if the machine is broken, it doesn’t matter how much grease you throw into it – it’s still broken, and you’ve wasted a lot of grease. We need more good news about a FIX.
March 9th, 2009 at 7:08 pm
The federal government/household comparison is a complete disanalogy. Unlike households, the United States government is the world’s largest economic power, one which controls massive fiscal and monetarial tools. We are now in the midst of a crisis of such magnitude that the lives, and livelihoods of untold millions hang in the balance.
To say that we must maintain our ideological purity, our fiscal conservatism (which, was where the prior 8 years?) no matter what the human cost may be, isn’t viable policy.
March 9th, 2009 at 7:24 pm
Again, at least for me and for many others who are not on board with all of Obama’s programs, the isue is not whether to spend (or cut taxes to allow or incent people and companies to spend more) and spend big enough to make the necessary fiscally stimulative but whether the spending in Obama’s stimulus program will, in fact, do anything of the kind.
At the risk of being reptetitive, the right kind of spending (or cutting atxes that allows people to keep their money and have higher disposable incomes) must — repeat must — be timely, targeted and temporary.
Far too much of Obama’s schemes fail the first test. They are not timely and thus simply not stimulative. Whether the rest is well targeted is a matter of some debate and by no means a closed issue; we will see. As for temporary, it’s clear that many programs set in motion by the plans will not be eliminated in 2 or 4 or 6 years easily once established and pleasing this or that constituency (go look at farm subsidies as a good example of that).
My favorite stimulus program was and remains a total holiday for payroll taxes that could immediately — i.e., as of last month — put up to $120 a week into the pockets of everyone who works for as log as needed. If the equity issue troubled some people, it could be made “progressive” easily with the tax kicking in again at some point for higher earners. And it could be authorized for just six months with the option to extend it for three-month periods, as Congress and/or the President determined.
I would have kept the relief components of the package (extended unemployment, etc.) the aid to states, and the truly timely infrastructure spending. Costs these elements out and the total might have been more than the final approved bill. In contrast, though, it doubtless would have garnered substantial GOP support (or marked the GOP as really unwilling) and more importantly, it would have been nearly 100% fiscal stumulus.
You know, the limits of making this straw man argument may be just around the corner, if in the fall, it becomes painfully clear that a new, second and real stimulus program is needed.
March 9th, 2009 at 8:00 pm
John:
If the savings rate is up the tax holiday will have less effect. Means-test it at least, give it to people who will have no choice but to spend it. Don’t give it to me.
March 9th, 2009 at 8:10 pm
@John – I think that plan is interesting, but what we’re worried about right now is that people won’t spend the money, they’ll save it. That’s what happens in a deflationary period and that’s why the stimulus bill last year didn’t have much effect. I know I just used it to pay of credit card bills, which does virtually nothing to stimulate the economy.
Also, Obama’s plan does have tax cuts in them. $275B worth. But it can’t be all tax cuts. Because those don’t address the biggest problems our country faces right now, which are massive budget shortfalls in nearly every single state, as well as a crumbling infrastructure that isn’t ready for 21st century competition. Looks like you say you agree with this spending, but I’m a little confused as to where you really stand on the overarching point the post is making.
One last thing, you won’t see another stimulus package proposed until at least late 2010. But, again, this is a unique time in history when we can do it and not suffer the kinds of monetary consequences we otherwise would.
@JMG – Thank you for making that point. They’re very different scenarios and conflating the two isn’t apt.
March 9th, 2009 at 8:24 pm
Yes, I see the logic here.
We’re 12 trillion dollars in debt.
Running an annual deficit of more that a trillion dollars.
And we need to SPEND MORE !
Yea, that makes sense.
These debts come due people, and when they come due, the pain will be multiplied.
March 9th, 2009 at 9:52 pm
Doug, you can completely ignore my argument if you want, but simply sticking to those talking points doesn’t address what I’m saying AT ALL.
No doubt these debts will come due, but everybody’s in serious debt right now and if we don’t use this opportunity to get more competitive, we’ll regret it. What’s more, we can always pay down that debt, but we may never have an opportunity like this again.
March 9th, 2009 at 11:39 pm
Doug:
Actually, regular people DO go into debt and sometimes increase that debt even when they’re already in debt and guess what? When they’re all done they have a little something called a college education. What do you think 4 years of Stanford costs? How about medical school? How about law school?
What about entrepreneurs: they go into debt and don’t know whether they can pay it off. Businessmen go into debt to buy new equipment. How many miles of cable do you think gets laid down out of the petty cash box?
So this refrain that draws contrasts between the supposed main street virtues of thrift and the alleged government vice of debt is false. Regular people go into debt. So do businessmen. It’s how we get things done.
The US went into debt to win WW2. We went into debt to build railroads and airports and highways. Sometimes the decision to go into debt works out pretty well. Other times not. But no one with any sense thinks that with private spending dropping, and private credit dried up we should cut government spending and balance the budget. The time to balance budgets is when times are good, not when we are desperate for stimulus.
March 10th, 2009 at 5:42 am
Justin,
The debt never gets “paid down” and that’s the problem.
The reason we’re in the situation we are in is that we’ve been living beyond our means, and there’s no better example of that than the fact that the Federal Government spends money it doesn’t have today on the (false hope) assumption that we’ll be able to pay it off tomorrow.
You can’t keep racking up debt upon debt and not think that there will be consequences in the future, that’s a simple fact that the people in Washington are refusing to admit. When we’re at the point where the interest on the national debt alone is higher than the entire Federal budget was a decade ago, something is very, very wrong.
And that’s only part of the problem. Between all the crap-sandwich bailouts and the Federal Reserve turning the printing press on turbo, we’ve pumped trillions of dollars into the economy in a very short period of time — the monetary base has grown more since September than it has at any other time in American history. Inflation is inevitable — it’s happened every time anyone anywhere in the world has tried something like this, and it will happen again.
March 10th, 2009 at 6:03 am
The debt never gets “paid down†and that’s the problem.
Exactly.
March 10th, 2009 at 6:14 am
That’s what people SHOULD be doing, in good times or bad.
If this crisis means that we finally see the end of a culture that worships consumer consumption, then that’s not necessarily a bad thing.
March 10th, 2009 at 7:25 am
Doug, what you’re suggesting is, in a nutshell, the Great Depression.
March 10th, 2009 at 7:36 am
If that’s what’s going to happen, that’s what’s going to happen — no amount of deficit spending is going to stop it.
We are building up a mountain of debt on a currency worth little more than our own government’s “full faith and credit.” At some point, I fear that the rest of the world is going to realize what a sham that actually is, and then there’ll be hell to pay.
We can wait for the inevitable to happen — and perhaps hope that it will be far enough off in the future that we’ll be dead by then — or we can fix it, now.
March 10th, 2009 at 7:59 am
Well said, Doug. And the cold irony is that an economic collapse is going to erase every single entitlement program the administration supports.
Social security, medicare, medicaid, food stamps, you-name-it, it’s all going away eventually.
The only upside is that after this house of cards finally implodes, we’ll have an opportunity to return to he limited government and sound fiscal policy the founders intended.
March 10th, 2009 at 8:50 am
No, I think it’s more likely that we’d see a much more authoritarian state, which is one of the reasons I’m hoping we won’t see the kind of collapse you’re talking about.
March 10th, 2009 at 9:03 am
I certainly agree, Doug, and I realize that economic collapses are frequently followed by dictatorships & war. All the more important to be ready for what’s to come.
March 10th, 2009 at 12:24 pm
Justin, I have trouble with some of the logic in this article, and would like to examine it further, if you don’t mind.
Take a look at your comment here: “I know many of you think that spending this money will result in our complete collapse, but I’d like to point out one very important distinction and that is this: everybody’s going down the tubes.”
The problem here is that the first part of your statement has absolutely nothing to do with the second half. Sadly, I agree that “everybody’s going down the tubes”; but I am baffled to understand how that relates to the fact that many of us think spending this money will result in our complete collapse. It is not our doubting the government’s policies that has led to this situation; it is the government’s policies themselves.
Lest you accuse me of taking things out of context, let’s take your next sentence: “In a situation like this, aggressive fiscal expansion makes sense because every single economic power are taking very similar measures too.”
Begging your pardon, but isn’t that like when my mother used to ask me “if all your friends decided to jump off a cliff, would you jump, too?” There is never a time when doing something stupid makes sense simply because everyone else is doing it. And even if you don’t agree that the idea itself is stupid, surely you can see that there is no logic in defending it in this circular manner.
Or the next sentence: “So the risk of inflation or our currency falling out of favor is virtually nonexistent right now.”
Um, as a general rule, improvable absolutes are not a good idea–especially when talking about the economy (ask any economist)–but obviously I can’t definitively DISprove this, either. Let’s reconvene in three months, however, and I bet I can. But as a logical support for your argument, it lacks, um, logical support.
Next sentence: “The same logic obviously wouldn’t apply during a time when the rest of the world wasn’t facing a collective economic crisis, but that’s not where we’re at and the distinction is important.”
Oh, yes, the distinction is important. (But not in the way you think it is.) However, for the sake of your argument, the distinction is irrelevant, as “the same logic” obviously does not apply at all, as none of your previous statements were logical to start with.
This is only a random paragraph in one of your articles, but I’ve been reading you for a bit, and, while I appreciate your optimism about the government’s frantic attempts to pull us out of this quagmire, you are operating on the fallacy that is illustrated by the following statement you made on March 4, 2009:
“To me it’s an obvious choice, and while I understand many of you have much different economic principles than I do, you also have to accept the reality that we aren’t going to let 15% of our population slip into economically devastating circumstances. Because that would be FAR more costly in the long run.”
It is not an obvious choice; actually, to those of us who disagree with you, it is not a choice at all: it is a fait accompli, a situation we must stand back and watch with horror as it races toward its inevitable conclusion, accepting “the reality that we aren’t going to let 15% of our population slip into economically devastating circumstances.”
But we should. It would have been easier to let it happen long ago, but we did not, and we apparently are not going to now, and the problem will grow bigger and bigger and bigger, until we are “not†going to let who knows what percentage “of our population slip into economically devastating circumstances,” and then–surprise–we will let them slip—we will all slip—because there will be nothing left.
There are only so many resources, Justin. That is a reality you can’t argue with. And when they have run out, and there is nothing left for any of us, come talk to me about what was “FAR more costly in the long run.”
I know you don’t believe me now–and perhaps you never will–but letting the economy correct itself would be far LESS costly in the “long run.” By trying to save–first just a few people (welfare), a few more (bankers), and yet more (defaulting mortgagers)–we have indeed destroyed everyone.
Just don’t come back and tell me, when all is said and done, that if only we’d acted sooner, if only everyone had cooperated—oh, gosh, don’t you dare blame this on me. Because a bad plan is a bad plan, and I, for one, will not be blamed for it.
March 10th, 2009 at 1:00 pm
Val:
You fault Justin’s logic, but then you add this:
I know you don’t believe me now–and perhaps you never will–but letting the economy correct itself would be far LESS costly in the “long run.†By trying to save–first just a few people (welfare), a few more (bankers), and yet more (defaulting mortgagers)–we have indeed destroyed everyone.
You don’t know this to be the case any more than Justin can prove the opposite. You’re both guessing. The entire world is guessing.
Your guesses follow your ideological bent just as Justin’s follow his. Neither of you is epistemologically clear on this. Honesty would require us all to admit what no one in the blogosphere likes to admit: we don’t know.
Mr. Obama also doesn’t know.
Here’s what we do know: we know that a solution is not clear. We know that Mr. Obama is highly motivated to reach a solution. We know that Mr. Obama has better and more complete data than we have. And we know that Mr. Obama is forced to deal in the world of political reality as opposed to the realm of purely abstract theory.
This does not bring us to the conclusion that Mr. Obama will make the right choices. But it tends toward a conclusion that he is more likely than you or Doug or Justin or me to hit upon the best practicable solution.
How much more likely? I don’t know. But since he’s also the only one in a position to actually do anything, I guess we’re going to have to hope he gets it right.
March 10th, 2009 at 1:16 pm
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March 10th, 2009 at 1:23 pm
Michael, every nation that has ever done what we’re attempting to do has destroyed their currency. One must either accept or reject the basic premise that nations can continue to accrue debt indefinitely.
If you have an example of this kind of fiscal policy actually working in the long-run, I’d love to hear it. I could use a little ‘hope’ right about now.
March 10th, 2009 at 2:06 pm
MW,
Quite honestly, I don’t think that there’s any reason to believe that Obama or Geithner or Bernanke have any better idea how to end this than anyone else. I’m convinced that — like Bush and Paulson — they’re just making it up as they go along, and ignoring reality while they do so.
March 10th, 2009 at 2:17 pm
Based on that, Michael — maybe none of use should form any opinion at all. You claim a great deal of a-symmetry in Obama’s “more complete data.” Really? Because I guarantee Obama doesn’t know more about my business than I do. I guarantee he doesn’t know more than the auto companies about the auto industry. I guarantee he doesn’t know more about wind energy development than private wind energy developers. I guarantee he doesn’t know more about hospital administration and costs than hospital administrators. I guarantee he doesn’t know more about the financial industry than you know…actual bankers. He doesn’t have real-time information, he doesn’t hold industry trade-secrets, etc. He doesn’t have the lastest real-time financial data. At any given time, his decisions are based on data months behind.
Mr. Obama needs to protect the country from foreign invasion and be very careful with our tax dollars. He is not king of the economy — at least not yet. The best practicable solution to the economy needs to come from the private sector, because in fact, they have a much better real-time information flow and it should not involve hand-outs with no strings attached.
If you need one example of how well the federal government “invests” (a bad joke) your tax dollars — here it is: Corn Ethanol. Maybe we can subsidize Marsian based water-drilling
March 10th, 2009 at 3:32 pm
J:
The issue is not your business. It is emphatically not your business, or my business, but the overall economy, which is not contiguous with your business or mine.
And you really want to talk about what the auto companies know? Really? They’re bankrupt and begging for taxpayers to save them from the consequences of their own inability to understand their own businesses.
Just as banks clearly did not understand their businesses. And insurance companies clearly did not understand their businesses. And the health care industry does not know its business.
You honest-to-God want to start that same tired “business knows best” nonsense at a point where the taxpayers are all that’s keeping auto companies and banks alive? It’s like arguing for Marxism in 1989. You’re in the realm of religious faith, not realism.
By the way, if you need one example of where the government invests, try the interstate highway system. How many cars do you think GM would be selling if the US government had not spent hundreds of billions in current dollars on interstates?
And I’ll give you a small bore example as well. For years the auto industry fought tooth and nail against government-mandated safety measures in new cars. I just bought a new car. My single overriding criterion? Safety. Which is why I own an Audi and not some other models I actually liked a bit better. Government-mandated safety improvements, which created a market for such safety improvements and resulted in my car purchase, and further will lessen the potential for a serious accident.
Your old time religion needs a more moderate interpretation.
March 10th, 2009 at 3:36 pm
Snoop:
The dollar has strengthened remarkably over the last few months. I hate to prick your balloon with facts, but I can buy a Euro for 1.27. I was paying 1.60 a few months ago. A rather dramatic improvement.
March 10th, 2009 at 3:36 pm
I don’t think anyone here has, so far, quarreled with my repeated contentions that we are very unlikely to be able to get away with the current greatly expanded levels of govt spending for more than 2 to 4 budgets, counting 2008 and 2009 as two. I am not eager to see a repetition of this into 2010 (which would be the 3rd), and if it’s still going on by 2011, the foreign bailing and rampant inflation could well be underway.
I have also yet to see anyone here quarrel seriously with the suggestion that we MIGHT be able to get away with 2 or 3 years or so of drastic overspending if only because the entire global economy is in the shitter, so foreign investors lack safe havens and alternative favored currencies.
For clarity, let me just add that by “get away with” I simply mean that we would avoid an utter collapse and find ourselves with a slowly rebounding economy and an annual budget that is out of balance by the still-unfavored but at least more customary less than 5%. Of course there’d be the matter of our accrued debt to face, and the issue of how debt service on it would painfully impact annual discretionary expenditures.
I’d also like to endorse MR’s contention, not least because I too have been stressing it. My continued sense is that we’re all guessing. I distrust most of the folks who sound certain. Justin’s team of the certain folks seem driven by fear and want to keep doing “ready, fire, aim.” The snoop team of certain folks I distrust for their ongoing unwillingness to attribute any of this mess to Wall St fraudulence in favor of just blaming the gov’t.
I’m fine with blaming the gov’t for lots of awful stuff. And I’m fine with acknowledging that low interest rates granted by the fed gov for too long were ultimately a main driver, as long as we all take care to notice that the constituency for raising interest rates has been, over the past decade, just about ZERO. Along with all THAT entails about policies that were and were not possible.
But it troubles me how willfully opaque many fiscal conservatives are in refusing to forthrightly acknowledge just how colossal a black eye Wall St deserves for its role in fraudulently and carelessly packaging high risks as low risks. Wall street utterly failed to police itself, and it utterly failed to see the economic ramifications of its own actions. Apparently, according to many fincons, we are supposed to believe that if not for the gov’t’s actions, the market would have responded rationally and efficiently and all this could have been avoided? Give me a F%^king break.
It also troubles me to see how very few conservatives think our government (of the people and FOR the people, by the way, not of the market and FOR the market) has any responsibility to take actions on behalf of the people whose lives are being damaged by the fallout from fraudulent market behavior.
March 10th, 2009 at 3:37 pm
Michael,
It’s a dollar bubble.
I will pop, and when it does the problems will really start.
March 10th, 2009 at 3:42 pm
Doug:
No, you’re the one ignoring reality. Like the reality of needing to get votes to support any particular plan. You can generate jeremiads til the cows come home, but none of it matters unless the president can get the votes.
Further, he has to look at broader political realities and foreign policy effects, all of which armchair economists can safely ignore.
As for them making it up as they go along: that’s just what I said. No one has the answer. But whatever answer we try to implement has to keep political reality in mind.
March 10th, 2009 at 3:44 pm
Doug:
Then with your psychic ability to predict currency markets you should have no difficulty riding out this downturn.
March 10th, 2009 at 3:46 pm
Michael,
You haven’t responded to something Snoop said:
Facts are stubborn things and the fact is that the Obama-Geithner-Bernanke strategy has failed every time it’s been tried.
March 10th, 2009 at 3:51 pm
To Michael Reynolds about means testing a payroll tax holiday:
I’d have no problem with that if it were both fair and practical. I was thinking about a stepped structure — e.g., 100% tax holiday up to first $50k earnings, 50% from $50-75k, and 25% up to maximum just over $100k. I see the point that someone who will earn $150k or $250k doesn’t need the holiday at all. So you could stop withholding for them too and require that they pay up at quarterly tax time or arrange an option to keep the withholding going. You’d have to take account of the fact that there are people who made $150k last year who are unemployed or earning less this year, so you couldn’t simply use 2008 tax returns.
To Justin about this comment:
“@John – I think that plan is interesting, but what we’re worried about right now is that people won’t spend the money, they’ll save it. That’s what happens in a deflationary period and that’s why the stimulus bill last year didn’t have much effect. I know I just used it to pay of credit card bills, which does virtually nothing to stimulate the economy.
“Also, Obama’s plan does have tax cuts in them. $275B worth. But it can’t be all tax cuts. Because those don’t address the biggest problems our country faces right now, which are massive budget shortfalls in nearly every single state, as well as a crumbling infrastructure that isn’t ready for 21st century competition. Looks like you say you agree with this spending, but I’m a little confused as to where you really stand on the overarching point the post is making.”
The spend-save tradeoff is real in that the more you earn, the more likely you are to save part of the windfall, so the “multiplier” impact on the economy is lower than direct federal spending for construction or whatever. BUT while the multiplier is lower, it is not non-existent. Plus, you have to compare the alternatives in terms of their timeliness. It’s clear that a dollar available through a tax cut now has an immediate effect but with a lower multiplier — even as low as 50 cents. But a dollar spent in 18 or 24 months has zero stimulative effect when it’s spent so a multiplier of $1.50 is useless. Worse, it may be harmfully inflationary when it happens in late 2010 or early 2011 or beyond.
Yes, Obama’s bill had lots of tax cuts, money for the states and for infrastructure. My “stand” is simple and clear: I supported all of that spending and cutting if it aimed to be out the door within at most 12 months, preferably 6, 8 or 10. Justin, calling it “stimulus” over and over doesn’t make it so. It’s not, if it does not kick in soon enough to drive federal accounts into deficit, which is what fiscal stimulus does. “21st century” investment in infrastructure may well be needed but committing to projects that may start in 2 years and end in 10 is something else. Perhaps it’s all good — but what if that commitment to spending becomes an obstacle to another badly needed, real stimulus in the fall? Or the bill for the “black hole” at the banks — the root problem of the current crisis — is really another $2 trillion, but we can’t come up with it because we’re committed to all this other stuff?
March 10th, 2009 at 4:05 pm
Michael:
You are right when you say that I “don’t know this to be the case any more than Justin can prove the opposite. [I'm] both guessing. The entire world is guessing.” I apologize for the remark to which you refer.
Seeing as how we are facing uncharted territory (although this situation is being compared to the previous Great Depression, I’m not sure how that analogy will follow through, given the disparity between the world now and the world then), are there any things that we can agree on that are “facts,” things that we can all agree on to be valid premises, and then try to base our decisions on those?
Because to be honest (and I mean this seriously, and not just as a blanket condemnation of Obama’s economics), it is frightening to me that we are dealing with, as you say, “guesses,” when I get the feeling that many of these choices are being made without any context with reality.
I just wish someone would give me something real, instead of rhetoric about how we can’t let “15% of our population slip into economically devastating circumstances” because that would be “far more costly in the long run.”
Why 15%? Why that number? Would it be all right to let 14% slip? What if it were 50%?
And why would it be more costly in the long run? How does anyone know something like that–enough to bet our economic future on it? And has no one heard of evolution?
So speaking of which, how about this for a premise–Survival of the Fittest?
If we’re trying to create a policy based on more than just “guesses,” is that a place we could start? Can we agree that “survival of the fittest” is a valid time-tested principle we could argue from? If not, we need something else–some common ground that I hope exists somewhere.
I’m serious about this. I’m not usually a jerk (though I confess my last reply was on the snotty side, and I apologize). But I feel as if I’m Alice and I’ve just fallen through the rabbit hole, and the world around me has gone mad. It’s a little scary, to be honest. A little context would be nice.
March 10th, 2009 at 4:13 pm
KK
“I distrust most of the folks who sound certain. ” I agree.
My experience with those who speak with absolute certainty is they are either incompetent or faithful. Competent people tend to understand that they don’t have all the answers. They know what they know, and they know what they don’t know.
Regardless of job experience or education, everyone here is guessing. How many people would have guessed in 2001 how destructive the previous administrations fiscal policies would have been? I doubt many.
March 10th, 2009 at 4:14 pm
Doug:
I ignore it because it’s a reductio ad absurdam argument that rests on undemonstrated premises. We are not attempting to accrue massive debts forever. We’re trying to get through this particular sh-t storm.
We took on massive debt in WW2. We survived. In the aftermath we took on still more debt and prospered from the GI bill and the Marshall Plan among other debt-financed government plans. (Bail out Europe! No way! We’ll go broke!)
Most of us as individuals have taken on massive debt at one point or another — school loans, mortgages, medical expenses. And mostly we survive. We take on the debt to deal with a crisis or a specific need.
The question is not whether we can do this right now, but whether we can go on doing it forever. Well, as a rule you can’t do anything forever. The better question is where we’ll be 4 or 5 years from now when the storm has (we all hope) passed. What Mr. Obama is attempting to do is look down the road at that point, at health care and education, realizing that a wobbly educational system and massively expensive health care system have contributed to our present mess. And he’s looking at transparency and oversight so that we don’t get more Thains or Madoffs.
Can we take on more debt now? We have no real choice. (By the way, did you rail against the off-budget trillion we spent in Iraq?)
Must we begin to match taxes to expenses. Yes. Which is why I am willing to pay more.
Should we kick education and health care down the road, thus ensuring that long-term recovery will be even less likely? No. That’s the short-end thinking we’ve had for too long.
March 10th, 2009 at 4:20 pm
Val:
Survival of the fittest is an evolutionary concept, not a civilizational concept. (I think I just made that word up.)
In its crudest sense survival of the fittest would leave us to act like Spartans and dump the weaker children in the forest to be eaten.
We’re trying to build a civilization. Which means taking not just the apparently strong but some of the weak along with us. Of course this is broad strokes, and I don’t mean to imply that we have to keep zombie banks and hollow auto companies alive. But we do need to make sure that large numbers of people are not thrown out onto the streets. If for no other reason than that those people may decide that we look just a little weak to them.
March 10th, 2009 at 4:27 pm
Mike A:
The fact that so many of us accept the premise that we are guessing is terrifying. I suppose to some extent “guessing” is inevitable–no one can predict the future.
But if guessing is all we have going for us–and heaven help us if it is!–can we at least gather a few facts together first and try to approach something like “educated guessing”? Surely there is some way to come up with a few undisputable points, and start building a policy from there, rather than throwing a few marbles into a box, shaking it up, and seeing which corner they happen to end up in.
March 10th, 2009 at 6:11 pm
Michael:
Um, I think you just made up the whole premise there, actually; I bet old Darwin is rollin’ over as we type. Survival of the fittest is a concept that pretty much applies to everything, near as I’ve been able to tell, but I’m sure you’ll correct me if I’m wrong. I was specifically trying to apply it to economics, however.
Yes, in the crudest sense, survival of the fittest is pretty harsh, though hopefully we wouldn’t dump the weaker children in the forest. (I’m not quite sure how Spartanism applies here, but okay.) I would hope that one of the results of evolution would be that we would develop some sort of relevant compassionate response, but to be honest, I don’t have the faintest idea. Anyway, I digress. (And in a moment, you’ll doubt I’ve evolved any compassion whatsoever, though you’d be wrong. I’m very compassionate; I just refuse to be a doormat.)
Though you seem to be rejecting my hypothesis outright, you do mention a few points I’d like to address:
First, I’m not ready to take on civilization–is it okay if we just go for the economy for now, and take civilization on another day?
I reject your premise outright that in order to build a civilization (economically) we must take the strong but also the weak along with us.
Here is reality: some people will be “thrown out onto the streets.” It happens. It is going to happen; it is happening right now. We need to deal with it in a sensible manner, not use it as an excuse make irrational justifications for making unsound policy decisions and spouting random hyperbole. And yes, I am referring to your comment, “If for no other reason than that those people may decide that we look just a little weak to them.”
I am not willing to live my life based on the fear that I may look just a little weak to someone. I want the right to live my life based on the idea that there is some sort of rational order to the universe, that there are some truths that are self-evident (though becoming less so by the second), and they include the pursuit of life, liberty and PROPERTY. (Jefferson blew it big time when he changed that to “pursuit of happiness.” Ah, the irony!)
Well. Bottom line is, I guess Darwinism isn’t going to help here. Got any other suggestions?
March 10th, 2009 at 6:50 pm
The dollar has strengthened remarkably over the last few months.
Sorry Mike, it’s still falling. A little more slowly then the Euro & Yen, so we’re left with the false impression that it’s strengthening, but it’s not.
It’s like driving 55 down the highway. Just because everybody is passing you, doesn’t mean you’re standing still.
Get out of the dollar while you can.
March 10th, 2009 at 10:37 pm
You know what I love about this…”Your old time religion needs a more moderate interpretation” — as if we have magically transcended an economic dialectic going back to Adam Smith. I’ll play along like it is a totally novel idea to deficit spend to try to fix the economy and overcome a recession. If by “interpretation” you mean “personality” — I’ll agree with you. If by interpretation you mean we should make incremental philosophical steps away from free-markets towards central planning — no, in that regards, I think we are way cooler than you. In addition, you can only dodge the economic consequences of inflation for so long. The over-valuation of real estate, and this rather unpleasant correction, was very much the result of asset-based inflation. Not the kind of goods-based inflation that the Fed “protects” against, but not much fun either. But hey, I hope like hell it works for my children’s sake and we are all prosperous. I’ve just seen a lot of investments lost because the government sent out a false market signal. We can agree to disagree and I won’t even claim that your economic beliefs aren’t reasoned. We can both agree though that there ain’t no such thing as a free lunch.
March 12th, 2009 at 8:00 am
[...] Harrison predicts that we’ll hit 9% unemployment by this summer, which he rightly points out is 8.1% higher than the Obama administration’s prediction in the stimulus package. And that means that more stimulus could be needed down the road. But as I’ve explained, if there’s any time to do it, it’s now. [...]