Hey look at that! Paul Krugman has a piece in the New York Times Op-Ed today Stay The Course. I'm starting to wonder if Krugman is getting more and more prolific with his writing, and more controversial with his opinions just to draw attention to himself. Whatever the case, I'm glad he is doing it because if anything, it keeps public debate going about very important matters. That's a good thing. A lot of people get mad at Krugman for his views and how he presents them. However, I think that the service Krugman is providing is that he is framing the arguments that all of us, as citizens, should be having. Additionally, Krugman's presentation of ideas surrounding fiscal stimulus, deficit spending, quantitative easing, etc make those of us who disagree, come up with coherent counter-arguments. That helps too, as it provides for policy alternatives.
Anyway, Krugman got me thinking about fiscal stimulus, quantitative easing, fixing the banking system, regulatory reform, housing rescue plans, etc. I'll present my ideas throughout the day, breaking them up so this doesn't turn into a "New Yorker" type piece. I would like to deal with the idea of fiscal stimulus first. Here's something I wrote back in January of this year.
I've been thinking a lot about this stimulus package that everyone is rushing to launch. What struck me as pretty odd this weekend, watching all the Sunday talk shows, was the politicians, the economists and the pundits all talk about massive stimulus packages like we've done them before and we know what we are doing. I had to stop and think, "We haven't done anything near the scale that they are talking about since the 1930's and;
- In the 1930's we were a agricultural and manufacturing economy. The service part of the economy (finance, legal, accounting, advertising, etc) was nowhere near the percentage of the economy that it is now. Additionally, the amount of the population that was college educated was minuscule compared to today. In short, the "American Worker" was a much different animal seventy-five years ago.
- There's not a lot of proof that massive stimulus packages work. Even if you could argue that the programs of the 1930's worked with regard to stimulus (from what I understand, FDR's policies were mostly good for the nations psyche as opposed to producing much economic growth) the data that the smart people are throwing around ($1 of shovel ready jobs equals $3 of stimulus, etc) is based on what? The 1930's? Japan? Different time and different people (and from everything I've ever heard or read, the Japanese stimulus was a costly failure). We've already proved in the subprime mortgage market that using historical data on a product or a idea that has very little in common with the product or idea you are trying to make projections on ends up with everyone having a sore tush (technical term).
I guess my main point here is we have a lot of people running around looking to spend $1 trillion without any real idea how it should work. Considering we are already a couple $ trillion in the hole we only get one shot at getting this right. President-Elect Obama doesn't want to turn this into a intellectual exercise, but considering we really have no idea what we are doing, a little thought might be a good idea.
Now we are in the middle of June. I agree with Krugman that it is silly to expect that the stimulus package passed in February should have fixed all that ails us in four months. However, does anybody know where the money is going? Has it gone anywhere? President Obama tells us that this will be a transparent process but that is quite a tall order. Transparency isn't Vice President Joe Biden telling us that thousands of "shovel ready jobs" are ready to go. What are these projects? If this is a transparent process then shouldn't somebody be able to tell us;
"Today the U.S. Government granted $500 million to repair the "Big Bridge" in XYZ-City. Here is the budget, here are the companies that will serve as sub-contractors, here is how the money will be allocated and here is the time-table for such allocations, etc, etc... Additionally, here is how the bidding process for sub-contract work was done. To the best of our knowledge there are no conflicts of interest in the process and the budgeted costs are as accurate and honest as possible. We will provide frequent updates as to allocations of the $500 million and progress of the project."
Have you seen anything like that? I haven't. They just tell us, "We're gonna give $20 billion to these 8 states for needed infrastructure repairs." There's a process that always ends up well right? We all know that when you put public funds in the hands of politicians, lot's of funny things happen. There's a reason that all of us, as taxpayers, have probably spent $10,000 each over the years to "build stuff" in John Murtha's congressional district or Robert Byrd's state! It all becomes a big old slush fund.
My point here is Paul Krugman and many other smart people ran around late in 2008 and early 2009 screaming that Congress had to pass a gigantic stimulus package by President's Day. Debate, even debate on how the money was to be allocated, was completely cut off. Anybody who questioned the plan was painted as an obstructionist idiot. Now here we are. It doesn't seem like we know how to spend the money and the package doesn't seem like it's stimulating the economy too much. Meanwhile, the $787 billion package is already factored into the Treasury's mounting deficit and that is beginning to have a big, negative effect on Treasury borrowing rates. Why couldn't we have a real debate on the stimulus package and fine tune the process and the investments? Sure, maybe President Obama would have been signing the bill today as opposed to February but if we created a better package wouldn't that have instilled greater confidence on what we were borrowing the money for and actually showed our creditors that we had a clue? A better package, passed later, would be stimulating the economy a lot more in my opinion and provided more confidence for the American people and the world. Can we have a do-over?