2 June 2010
Deficit vs. Stimulus Hawks
Posted by Connor under: Economics; Politics .
If we leave aside bullshit wedge issues such as gay marriage, etc. it seems reasonably clear that one of if not the overarching, meta-debate between (loosely) “progressives” and “conservatives” really comes down to an argument for what is the best way to get the American economy growing again. And that argument is: which is more important, reducing the deficit and balancing the budget (conservatives/Chicago School Economics) or for government to open the spigots of spending to generate demand for goods and services (progressives/Keynesian Economics)?
Via Democracy in America, a recap:
I think popular deficit anxiety is related to a mistrust that what worked to end the Great Depression will still work today. The political will to achieve sufficient stimulus spending to kick-start the American economy out of its shortage of aggregate demand in the 1930s arrived in the form of an existential military threat: for four years, the government blew out all the stops on spending and printed money like there was no tomorrow. (Wars make it easy to get people to think that way.) At the end of the war, the national debt was over 100% of GDP, and the de-militarising economy faced a realignment that dwarfs anything today’s creative-destruction fans could imagine. But that late-1940s economy could count on two things: lots of young families who’d been starved of consumer goods for years and had built up a tremendous appetite, and a technological moment in which all sorts of fabulous new consumer goods were just being invented and advertised and pouring onto the shelves. In an industrial economy that was inventing amazing stuff people had never seen before—Whirlpools, Buicks, split-level ranch houses—demand was not hard to create. Today’s post-industrial economy is still creating a lot of amazing stuff people have never seen before, but a tremendous amount of it is downloadable and free. Much of the rest is fabulously expensive, and only useful if you have a rare genetic disease.
Paul Krugman has a famous essay in which he explains that our inability to imagine what people will spend money on as the economy changes is a failure of our imagination, not of the economy. But still, I’m having a hard time imagining what people will spend money on as the economy changes. We could certainly use a bunch of high-speed trains, a smart electric grid, highway and water-main upgrades and so forth, but only government can pay for those things, and to do that, you have to either tax or borrow. And those are the two things the public remains unwilling to do, because they don’t believe the spending will do the trick.
It seems to me that there is some room for splitting the difference here. I think a reasonable coalition could be assembled to cut spending by:
- raising the retirement age to 68 or or even 70, as the EU is preparing to do
- increase the social security contribution limit above $102,000 to say… oh, half a million sounds good
cutting several tens of billions from the Pentagon budget by killing programs aimed and fighting a Major Land/Air/Sea War (I’m looking at you DDG-1000, F-35and, and Expeditionary Fighting Vehicle) and refocusing on asymmetric war fighting (people).
One could then take about half of that and put it straight to bottom line deficit reduction — the retirement, SS moves alone would have long-term beneficial help for the deficit beyond the simple year-on-year revenue savings — and put the other half into big budget, big vision jobs projects like high speed rail and smart grid technology.
This is something that could probably get done in the House. In the Senate on the other hand, good luck getting it through without some Senator blocking the process because his/her sacred cow of a DoD project is on the chopping block.