The Economic Costs Always Seem Greater When They're From the Other Side...

…of the federal budget. From yesterday’s Washington Post (front page story) on the latest version of an economic stimulus plan (emphasis added):

Pitching a plan that is expected to include $300 billion in tax cuts, Obama pledged to consult Republican leaders, who until yesterday had been left out of negotiations between the president-elect’s advisers and congressional Democratic staff.

“The monopoly on good ideas does not belong to a single party. If it’s a good idea, we will consider it,” Obama told House and Senate leaders at an hour-long closed-door meeting, according to one attendee.

Obama, making his pitch two weeks before taking office, won generally favorable reviews from GOP leaders, particularly because of his decision to increase the tax-cut ratio to 40 percent of the overall package.

Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader John A. Boehner (R-Ohio) told reporters they were convinced that Obama was sincere in his invitation to let Republicans help craft the nearly $800 billion package to create jobs and lift the nation out of recession. But they also expressed concerns about the size of the package, as well as particular elements under discussion between Obama and Democratic lawmakers.

“I remain concerned about wasteful spending that might be attached to the tax relief. Simply put, we should not bury future generations under mountains of debt,” Boehner said.

Funny how it’s only the “wasteful spending” (the “other side’s” policy) that adds to the “mountains of debt”–and not the tax cuts to which the spending is now merely “attached to.” (No news flash here: tax cuts actually aren’t “free.”) And I think we ought to recognize that it’s not just “the monopoly on good ideas” that doesn’t belong to a single party; unfortunately, the market for bad ideas is similarly “bipartisan.”

One thing is becoming clear: all these gracious and sincere negotiations are going to add up to a whole lot of debt–my point in Monday’s post. So let’s hope we spend the money wisely, so our kids will have the capacity to pay it back later on. Whether it be through government spending or tax cuts, we really shouldn’t be fooled into thinking that “wasting” is ok just because we’ve decided large deficits are ok and maybe even desirable (for now).

Comments

[John Lounsbury:]

Diane - - -

Money is money however you count it. You seem to be one of the few economists who can state that fact so simply. If you were in Congress, you would stand entirely alone in recognition of that.

When it comes to making economic decisions, some politicians seem to be of the opinion that government knows best. Other politicians seem to be of the opinion that citizens and corporations know best. In light of all that has come to pass in the past 10-15 years, I think both groups of politicians are wrong. As you wrote, "we ought to recognize that it’s not just “the monopoly on good ideas” that doesn’t belong to a single party; unfortunately, the market for bad ideas is similarly “bipartisan.”


You are very correct in your worry about waste. The only problem is that there is nobody who knows how to avoid it unless no action is taken. If no action were taken, I'm afraid the country would be wasted.

We are going to have stimulus, we are going to increase debt and I can think of no better discussion of concerns about that than you have written this week.

Jan 07 02:36 AM

[Anandakos:]

Well said, madame. It does seem impossible for government to embark on a project without a certain degree of waste. Perhaps that's true of any organization; the various forms of private ownership more complex than sole proprietorships and simple partnerships all seem stacked in favor of one ownership group or another. But it does seem particularly endemic to government, because politicians want to be everybody's friend.

So what to do? I really don't see what good a genuinely lower and middle class tax cut does. That is, if one were just to raise the personal exemption, say, so that the cut was maximally progressive, it would smear billions around to too many hands to make much difference. It would be humane and kind, of course. But it wouldn't really have that much effect in the economy.

I think it would be much better to spend any "stimulus" in purely counter-cyclical ways: aid to the states to prevent layoffs and cuts to disability support, unemployment extensions, a big increase in worker training, transit operating subsidies and bus purchases. Raise the gas tax to help pay for some of it (and get best value from the transit spending), and throw a temporary Federal real property tax on estates valued at greater than $5 million. That would recapture some of the money from the looney hedge funders and Wall Street "quants" who have so screwed up capitalism.

There is certainly some room for the projects du jour: "shovel ready" infrastructure efforts. They have been ignored far too long by a rural-dominated Congress. BUT, they don't really give much bang for the buck nowadays. There will not be a million men with long handled shovels filling potholes and building National Park lodges in this recovery. We don't do things in the same way these days. A small number of skilled heavy equipment operators will get premium wages because they're the only people who can operate the backhoes to dig up collapsing pipes and the asphalt machines for street resurfacing. It's a mess.

Jan 07 03:15 AM