Continuing the series, how should a $500 billion spending plan be structured?
If I had my druthers, the word "stimulus" would be expunged from public discussion, along with "bailout" and "rescue." These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems. There are two problems with this idea.
First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who pandhandle most loudly for them. The reason to spend more in a recession is not to employ idle resources -- it is to be able to stretch the taxpayers' money further by getting a better price for its purchases because workers without jobs will work for less and owners of empty factories will charge less.
Second, there is no free lunch: the money we spend today is a loss to the Treasury, whether as "timely, temporary, and targeted" tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether AIG or the Big 3; or the largest public works program since the interstate highway system. That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.
Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment. By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits. Public investment also meets the criterion that the spending goes for projects that are within the government's responsibilities. Repairing roads today removes the need to repair them for a number of years. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition. If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we'd still have quite a bit of work to do.
So I give Obama praise for the direction his policy is taking. I may have more to say as the details are made more explicit. For my earlier writing on this issue, see these op-eds. For similar thoughts from a conservative expressed more recently, see this op-ed by Emil Henry.