Seeing a Need for Further "Stimulus"

Wed, 16 Jul 2008 15:28:44 +0000

Peter Goodman and David Herszenhorn tell us in today's New York Times that "Democrats See a Need for Further Economic Stimulus." The discussion is a very good example of what the absence of the last post's budget target can enable--every political faction advocating for a handout today funded by taxpayers in the future. There should be no need for further spending in 2008 & 2009 that is not combined with lower spending or higher taxes in 2010 & 2011, when the economy has turned around.

In the article, the references to infrastructure spending are what caught my eye. Consider:

On Tuesday, Nancy Pelosi of California, the speaker of the House, and other House Democrats met with economists to draft another stimulus package, saying it was likely to include spending for roads, bridges, schools and other public facilities, as well as aid for states confronting smaller tax revenues in the face of the housing downturn.

[...]

Senator Barack Obama of Illinois, the presumptive Democratic presidential nominee, last month proposed a $50 billion package of stimulus measures — $30 billion in fresh tax rebates, $10 billion in aid to states, and $10 billion to help families stave off the loss of homes to foreclosure.

The state money could be used to finance infrastructure projects to generate jobs, said Mr. Obama’s economic policy adviser, Jason Furman.

“We have a major collapse in the labor market, especially for men without high school degrees, a lot of whom have historically been employed in construction,” Mr. Furman said.

[...]

Mr. McCain’s economic adviser also rejected another idea that has become a centerpiece of Mr. Obama’s stimulus thinking — financing large infrastructure projects.

“That’s not timely and quick,” Mr. Holtz-Eakin said. He offered as a better course lowering corporate taxes and making President Bush’s larger tax cuts permanent.

It is true that infrastructure projects are less timely and quick in their impact than lowering corporate taxes, but the challenges in the economy are not that corporations with positive income are paying too much in taxes. Any connection of making tax cuts permanent in two years' time to "timely and quick" stimulus is laughable (and very good evidence of this).

We should not use the availability of unemployed factors of production as an excuse to spend money on things that are not needed.

It is evident that we need infrastructure repair and modernization. We should have moved those projects forward in January when the first round of stimulus discussion occurred. Had we done so, some of those projects would be in progress now and others would be starting up. And since those projects were eventually going to have to be done anyway, they are closer to being "paid for" than tax rebates and the like.

The process of using public infrastructure investments to counter the economic downturn could be made more systematic. See these op-eds from the winter for my ideas.