It May Be a Broken Record, But the Sound Is Still the Best
Earlier this week, reacting to the weak GDP growth rate of 1.8% in the first quarter, David Leonhardt wrote:
But our working assumption should be that this recovery will remain at risk for a long time. If it stalls out for a second year in a row, the consequences could be particularly bad. The specter of a “lost decade,” like Japan’s, would become commonplace. Pessimism would feed yet more hesitation from businesses and households.
So far, so good. He then goes on to make the case for short-term stimulus of a particular form, as it is "the only way in which I can imagine Congress taking action to help the economy:"
At the end of this year, about $225 billion of temporary tax cuts and emergency jobless benefits are scheduled to expire. These provisions were part of the compromise bill in last year’s lame-duck Congressional session that also extended the Bush tax cuts. The Bush tax cuts were extended through 2012, however, while the other provisions — including a payroll tax cut for households and a tax cut for expanding businesses — expire at the end of 2011.
We are nearly forty -- that's right, forty -- months beyond the moment when we should have begun to commit to this level of additional spending per year. The problem that we are experiencing in Washington is in part due to the absence of the notion that we should be getting long-term value for the spending that we do. Why do we have to spend $225 billion on temporary tax cuts and emergency jobless benefits? The answer that we would infer from Leonhardt's column, and the countless other columns like it, is little more than "we have to." This is hardly persuasive, and I continue to think this is the wrong reasoning.
The right reasoning is that with aggregate demand lower by hundreds of billions of dollars a year, there are unemployed and underemployed workers and underutilized capital whose services could be purchased on the cheap. If we have projects that add long-term value, this is the right time to be undertaking them. Plenty of those projects are to repair and maintain our seriously degraded infrastructure. Others are to make the upgrades necessary to plan for a future with different forms of energy transmission and communication. Instead of fighting about which multiplier is the biggest and clingng to the misguided notion that all measures be "timely, targeted, and temporary," we should be building while it's cheap.
We should have started this years ago. Given the continued worry about the fragile state of the recovery, we should start it now.