Thursday, October 09, 2008

Cutting Back v. Expansion

In Tuesday's debate Barack Obama and John McCain were asked what programs they would cut back in these bad economic times. That is the wrong way to think about how to put the economy back on track.

From Open Left...

There's a pervasive frame that when times get tough, we've got to tighten our belts. Just as families cut back on niceties like vacations in the Bahamas, the government needs to cut back on frills like Medicare and Social Security. But while this might make some sense for families (it depends), it's nonsense for the government.

The reason is simple. Like it or not, our economy works because of a constant flow of money -- when you buy vacations, money goes to the airlines, who use it to hire airport staff and buy planes, which means more people building airplanes, who means more people building airplane parts, which means more people building machine tools, and so on. There's a word for what happens when all these people cut back: a recession. The money dries up, suddenly folks find themselves out of a job, and everybody left has to take a paycut to "stay competitive".

Belt-tightening means pulling even more money out, which means even more jobless and weakened. The only way to get things moving again is if the government counteracts these trends by investing -- getting more money into the economy so that it starts bulking up instead of cutting back.

This is what we learned during the Great Depression -- Herbert Hoover's fiscal austerity did little, but FDR's Works Progress Administration got America going by paying folks to build public buildings, write books, distribute food, and so on. Many of their books and buildings can still be seen today.

Government has the responsibility to help put people to work and strengthen our economy. They could do this by investing in passenger rail, renewable energy, updating our electrical grid, nationwide high speed internet, and fixing a few bridges along the way.

2 comments:

Ben said...

I agree with this post, but I wonder how to reconcile it with your earlier comments about cutting the deficit? You can't really do both.

noneed4thneed said...

I think Congress should enact PAYGO that requires all increases in direct spending or revenue decreases to be offset by other spending decreases or revenue increases.

Then I agree with what Iowans for Sensible Priorities was pushing before the caucuses. We should cut obsolete cold war weapons programs that are costing us ton.

We should everything to balance the budget by cutting wasteful spending.