I'd like to note that I am opposed to government-sponsored stimulus spending, in general, but especially when the recipients of our taxpayer dollars are Wall Street investment banks.
I have not examined the provisions of this particular stimulus bill, but many economists - including Krugman - have been saying for months that the only way for government to short-circuit the current recession is to drastically increase spending, which would theoretically lead to increased consumer confidence and spending. Excerpts below.
Today's Krugman:
Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.
It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.
Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.
It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.
Consumers, their wealth decimated and their optimism shattered by collapsing home prices and a sliding stock market, have cut back their spending and sharply increased their saving — a good thing in the long run, but a huge blow to the economy right now. Developers of commercial real estate, watching rents fall and financing costs soar, are slashing their investment plans. Businesses are canceling plans to expand capacity, since they aren’t selling enough to use the capacity they have. And exports, which were one of the U.S. economy’s few areas of strength over the past couple of years, are now plunging as the financial crisis hits our trading partners.
Meanwhile, our main line of defense against recessions — the Federal Reserve’s usual ability to support the economy by cutting interest rates — has already been overrun. The Fed has cut the rates it controls basically to zero, yet the economy is still in free fall.
Today's Kristof:
So this is what the Senate seems to be coming down to: keeping bridges and throwing students out the window. The effort to prune the stimulus package to make it more palatable to Republicans is focused on slashing money for education.
The proposed cuts, by various accounts, include $40 billion to help states (in large part with education budgets), possibly $14 billion for Pell grants, and $14 billion for other education programs (though late word from the Washington Post is that the Pell grants may have survived). The argument is that these would be ongoing programs, not a short-term stimulus, and conservatives are very wary of expanding education programs in ways that will increase the federal presence in the education space or the burden on taxpayers. They particularly don’t want Headstart and school construction in the stimulus. Mel Martinez says: “I love schools; I love children,” but he adds that such measures “don’t belong in this bill.”
He’s wrong, for a couple of reasons. First, the priority has to be to get the stimulus passed, and it’s better to err on the side of a big stimulus than a small one. I lived in Japan from 1995 through 1999 and saw how crucial it is for a government to act decisively – and, rather like Colin Powell’s doctrine of “overwhelming force” – with real power in confronting an economic crisis. Tim Geithner, Ben Bernanke and Larry Summers were all close students at the time of Japan’s mess, and that’s why they’re all determined to get enough of a stimulus and avoid a lost decade. And constructing schools or paying Headstart teachers delivers just as much economic stimulus as a new bridge or road; indeed, the economic multiplier effect is probably greater in low-income communities than in America as a whole.
Second, I’m increasingly of the view that our nation’s top priority — which I used to think was a national health care system — must be revitalizing our education system. The good suburban schools are great, and do just as well as Singapore’s or Hong Kong’s. But our inner city schools are a disaster, and they fail the students and our country’s economic future.
My thinking shifted partly after reading The Race Between Education and Technology, by Claudia Goldin and Lawrence Katz, one of last year’s most important books. As I wrote at the time, they argue that the central reason America became the most important economy in the world was its emphasis on broad education, at a time when Europe educated only the elites. Yet that edge has disappeared, and America is the only country today where parents are more likely to graduate from high school than their children. If we want to maintain America’s economic greatness, then we need roads and bridges, yes, but we also need a more educated work force.
