My friend, Robert Reich, an economic adviser to President Obama, believes Obama´s Jobs Program and government spending are good for our ailing economy.Many Republicans disagree and call for tax cuts, rebates and limited government spending. Their plans did not work over the last 8 years and will not work in the future!
I tend to agree with my genius friend and my hero Robert!
Between now and late January, when the stimulus package will be voted on, we're likely to be treated to a great debate over the wisdom of Keynesianism. Fiscal hawks (Republicans) will claim government is already spending way too much. Even without the stimulus package, next year's budget deficit is likely to be in the range of $1.5 trillion, considering the shrinking economy and what's being spent bailing out Wall Street. The hawks also worry that post-war baby boomers are only a few years away from retirement, meaning that the costs of Social Security and Medicare will balloon.
What the hawks don't get is what John Maynard Keynes understood: when the economy has as much underutilized capacity as we have now, and are likely to have more of in 2009 and 2010 (in all likelihood, over 8 percent of our workforce unemployed, 13 percent underemployed, millions of houses empty, factories idled, and office space unused), government spending that pushes the economy to fuller capacity will of itself shrink future deficits.
Conservative supply-siders, meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They're wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend.
Even if a rebate could be fashioned for the middle class, it wouldn't do much good because, as we saw from the last set of rebate checks, people tend to use extra cash to pay off debts rather than buy goods and services. Besides, individual purchases wouldn't generate nearly as many American jobs as government spending on infrastructure, social services, and green technologies, because so much of we as individuals buy comes from abroad.
So the government has to spend big time. The real challenge will be for government to spend it wisely -- avoiding special-interest pleadings and pork projects such as bridges to nowhere. We'll need a true capital budget that lays out the nation's priorities rather than the priorities of powerful Washington lobbies. How exactly to achieve this? That's the debate we should be having between now and January 20 or 21st.
What the hawks don't get is what John Maynard Keynes understood: when the economy has as much underutilized capacity as we have now, and are likely to have more of in 2009 and 2010 (in all likelihood, over 8 percent of our workforce unemployed, 13 percent underemployed, millions of houses empty, factories idled, and office space unused), government spending that pushes the economy to fuller capacity will of itself shrink future deficits.
Conservative supply-siders, meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They're wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend.
Even if a rebate could be fashioned for the middle class, it wouldn't do much good because, as we saw from the last set of rebate checks, people tend to use extra cash to pay off debts rather than buy goods and services. Besides, individual purchases wouldn't generate nearly as many American jobs as government spending on infrastructure, social services, and green technologies, because so much of we as individuals buy comes from abroad.
So the government has to spend big time. The real challenge will be for government to spend it wisely -- avoiding special-interest pleadings and pork projects such as bridges to nowhere. We'll need a true capital budget that lays out the nation's priorities rather than the priorities of powerful Washington lobbies. How exactly to achieve this? That's the debate we should be having between now and January 20 or 21st.
We are totally out of control in this country. We are borrowing billions from foreign sources who will literally own us, our children and our grandchildren. Be very afraid.
ReplyDeleteOf course, not all the tax cuts the GOP proposes would be focused on individuals. An important aspect of that approach was to cut the taxes of businesses so they could be more competitive and hire more workers. Perhaps that remains a viable alternative to some outright government spending. Nevertheless, I remain in favor of the necessary spending to repair our infrastructure which will require a budget choking amount in total. Nevertheless, given that this is money that will have to be repaid one way or another, we should make this construction more like some of the depression era programs where the men are enabled to get work to support their families if they have them but not for fancy living with high mortgage payments, multiple color TV sets, cell phones, computers and other unnecessary electonics. During the Great Depression young men went off to the CCC, lived in tents, and sent their wages home to their families. Most thought they were lucky to be able to get any kind of work and help their families. These were often young, unmarried men who supported their parents and younger siblings. Desperate times...
ReplyDeleteKeynesian economics has its proponents and its detractors. Many say without WW II the pump priming of the FDR years would not have worked. We'll see if Reich gets his way.
There is no indication that Obama is prepared to abandon his promise of another major rebate almost immediately. I confess that I don't fully understand how a depressed economy recovers. Obviously, it is as much about psychology as anything else. Clearly, it is also about the world wide demand for goods and services. Many will postpone purchases until they have a reasonable assurance that the economy is improving. It is a chicken and egg type of thing. Government hopes to create the illusions if not the reality that we are out of the woods by spending money it does not have. It remains to be seen whether the public will respond to the bait or whether it will continue to lay in the weeds waiting for some other sign that all is well before it spends on other than the necessities. We will know when the mood shifts as people begin to buy durables like autos, refrigerators, etc. The Obama plan seems to be clear at this point-- another rebate stimulus package, infrastructure investments, and green research and development. What if all this doesn't work because more illegals offset any new green jobs created and we also allow them to soak up the infrastructure jobs. That's something Obama needs to think about before he pushes amnesty, open borders, and increased immigration. It seems to me that those moves run counter to common sense in an economic crisis.
But as we have seen with Obama's appointment of an ex-La Raza official, he is intent on paying his political debts so he may not honor the niceties of labor economics.
Robert Reich is an American politician, academic, writer, and political commentator. He served as the twenty-second United States Secretary of Labor, serving under President Bill Clinton from 1993 to 1997.
ReplyDeleteI think President Obama is doing a very fine job in building his cabinet and I am very very proud he is naming Hillary as Secretary of State!
ReplyDeleteWe needed CHANGE vs the last 8 years!!
This is a CHANGE WE NEED!!
Terrorism against Americans is already happening, and I have yet to hear Obama even mention or condemn those attacks in Mumbai. Not a word from him in regards to all the Americans killed.
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