Are you at all suspicious? Does it sound too good to be true? Here we are, plunging into a recession. The proximate cause is irresponsible mortgage loans made to people who can’t pay the money back. The deeper cause is, at least in part, years of too much borrowing and spending by Americans, both as individuals and collectively through the government. But behold: there is-oh, joy!-bipartisan agreement on a solution. Although quibbling over the details, everyone-Republicans and Democrats, the White House and Congress, all the presidential candidates-agrees that what we need is a “fiscal stimulus.”In other words, the government should go out and borrow even more money and pass it around for us to spend. The experts caution that for maximum stimulus effect, we must be sure to spend it immediately. No squirreling it away for a rainy day. In drinking circles, they call this hair of the dog: to cure a hangover, you have another drink.
A few Republicans are embarrassed enough by this universal wisdom that they are making noises about paying for the stimulus by cutting government spending. Unfortunately, even if such spending cuts took place, which is unlikely, they would defeat the purpose of the stimulus. Bush, for example, proposes to pump about $145 billion into the economy through tax cuts of various sorts. This is a classic Keynesian stimulus, and the whole purpose of that is to increase demand in the economy. Instead of a self-feeding spiral downward-I get laid off and can’t pay my mortgage, so the bank fires you, and you don’t buy a new TV, and so on-we get a self-feeding spiral upward: I take my government check and buy that new TV, Best Buy has the money to hire you as a salesman, you then buy a house and take out a mortgage, and so on. If the government puts $145 billion into the economy with its stimulus and then takes $145 billion back out again by cutting spending, the two effects will cancel each other out.
It is a sign of how completely Republican thinking now dominates discussions of economic policy that so few of the stimulus ideas floating around Washington involve increasing federal spending. It used to be that stimulus debates were about a tax cut vs. a spending increase. An increase in federal spending can goose the economy just like cutting taxes. The government builds a bridge or a highway, people get jobs, take their families to Olive Garden, which hires more waiters, and so on. In fact, direct government spending is a more efficient stimulus than an equivalent tax cut because all of it gets spent. When actual people get hold of the money, a few might have an unpatriotic tendency to save some of it.
But the current debate is virtually all about tax cuts. Republicans want them to go to business. Democrats want them to go to the poor and middle class. Both parties are fond of tax credits for approved interest groups and favored forms of behavior. The notion that the government is good for anything except issuing checks and printing money has just about disappeared.
People will say they don’t trust the government to spend the money wisely. I go further: I don’t trust the government or the Washington establishment or the presidential candidates of either party or, for that matter, the voters themselves to come up with a stimulus that will do the job intended and not make matters worse. Often in the past, these stimuli have come too late or been too small to do anything but add to the deficit. But that’s not my gripe. My gripe is that telling Americans they need to borrow and spend just a little bit more to get us past this recession-and then reform their ways-is like telling an alcoholic he needs one more drink before sobering up.
I think we should sober up first. Plenty of people are still partying as if it were 2006. Right-wing radio talk shows are still dominated by ads for second mortgages. Every day’s mail still brings fat envelopes from companies begging to issue you a credit card. Every TV commercial that isn’t about some prescription drug for a disease you never heard of (but may well have, now that they mention it) seems to be for payday loans. Always borrow responsibly, they say. A little late for that.
Here’s a thought. Suppose we don’t go further into debt in the name of fiscal stimulus. Suppose we stop selling ourselves piece by piece to foreigners (and suppose we stop blaming the foreigners for problems of our own making). Suppose we use taxing and spending to show the world that we can behave responsibly, see how the world responds to that, and let the Federal Reserve Board supply the stimulus with lower interest rates. If we must have a fiscal stimulus, let’s make sure it’s not too enjoyable. Build some rapid transit; don’t give away any tax breaks.
Suppose we stop looking in the mirror and saying “Gosh, you’re drunk. Waiter, I’ll have another.”
Thursday, Jan. 24, 2008
By Michael Kinsley