StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

It May Be a Broken Record, But the Sound Is Still the Best

05 May 2011
Posted by Andrew Samwick

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.

(If this is the first time you are reading my views, go here and here for the original presentation of the ideas.)

When former right-wing Reagan

When former right-wing Reagan budget dudes are sounding like far-left hippie freaks, you know that your political scene is screwed.

I am a member of a

I am a member of a Selectboard for the second-largest municipality up here in Vermont. (Before you get too excited about that "second-largest" adjective, our town's population is roughly 20,000!) We just approved an update of our local wastewater treatment plant, which is shared by three municipalities. The bond will be about $16 million, probably over twenty years. For my community, the annual residential sewer user will have to pay an additional $200 per year to help cover our share of the bond repayment. Of course, annual user fees will be in addition to the bond payment.

When our municipal system was begun in 1984, the Feds paid 75% of the cost, the State of Vermont paid 15%, and our town picked up the remaining 10%. Yes, I know that even federal dollars have to be paid for, but my point is that, instead of a true partnership among the three levels of government, the burden for this infrastructure upgrade will fall almost exclusively on local residents, who are already being hard-pressed by stagnating incomes, non-existent cost-of-living adjustments in Social Security, etc.

So, Andrew, just about 90 miles up I-89 from where you teach, a real-world example of what you are describing is playing out, but just not in such a positive way

Bruce Post: Not to put too

Bruce Post:
Not to put too fine a point on it, but would you rather still have outhouses? They are cheap, and places like Alaska still rely on them, as well as honey bucket systems. You Vermonters certainly have the option to Go Galt on your sewerage system.

Going 19th century

Outhouses and chamber pots aren't "going Galt", they are "going 19th century".

In populated areas, it is also "going cholera, etc."

But the lower taxes would allow you pay for some really nice coffins and wakes.


Is that the same Alaska that ranks #1 in pork barrel spending? The same Alaska that takes in almost six federal dollars for each one it is taxed? The same Alaska that has 1/3 of its jobs supported by federal dollars?

Or is it the Alaska that produced a half-term governor that is the heroine of the Tea Party movement and lectures us socialist coastal states about fiscal responsibility and family values? The Alaska that ranks #1 in rapes and sexual assaults? Help me out here.

As a proud Washingtonian, where we get 80 cents back for every federal dollar we give out, I say let the Randian Tea Partiers have what they want. I welcome their faux conservatism. We'll see well tough the "outhousers" are when they don't get their $1-2,000 welfare checks while the rest of us shoulder their burden.

How about a new Galt homage: "The coastal socialist Democrats shrugged."

The Reason Why

"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."

The reason is actually pretty simple. There's a Presidential election coming up in November 2012. Long-term consequences be damned, but if we don't do something soon (like extending tax cuts further or an additional wasteful stimulus package), Obama's re-election chances will be reduced.

Missed the point

The reason we extend tax breaks is Republican pressure to do so (along with some Democrats).

The point of this article, I think, is that we should be spending the money putting people directly to work on valuable and necessary investments in our infrastructure, while they are cheap (since people need a job). And, that would be much more likely to assure Obama's reelection. Oh yeah, and helping the country out of this miserable mess we are in. You seem to have missed the point.

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