Spitzer Stimulates Us
Eliot Spitzer gets his oar in the stimulus debate. In a classic bit of mavericky Slate-think, the former Governor goes after the administrations emphasis on meat-and-potatoes public works projects:
The “off the shelf” infrastructure projects that can be funded immediately and provide immediate demand-side stimulus are almost by definition not the transformative investments we really need. [ . . . ] These projects by and large are building or patching the same economy with the same flaws that got us where we are.
Huh, you think. Until you get to the fairly conventional argument lower down that the economy would be better-served by smart utility meters and non-gas cars. (Now that’s out-of-the-box thinking!)
Of course, he’s right. But the bait-and-switch obscures a more important issue, one feeds into real issue with the stimulus and a source of resistance to it. Although the US economy needs a long-term investment that will reshape its foundations, we’ve gotten past the point where we can just take today’s pain and look toward tomorrow. That’s why the immediate stimulus is focused on immediate fixes.
Spitzer worries: “This moment presents the administration with what is likely to be its best—and perhaps only—opportunity to have essentially unlimited capital (both fiscal and political) to spend on a transformative economic agenda.”
The capacity of even the U.S. government to affect the overall global economy is limited. Suppose the package is $800 billion over two years: $400 billion is less than 1 percent of the global economy and a mere 3 percent of the U.S. economy. In relative terms, $400 billion isn’t all that much more than the $152 billion spent on the 2008 stimulus, which had nary an impact on the economy. Here is where the New Deal analogies are instructive. The New Deal probably didn’t pull us out of the Depression; World War II did that.
Spitzer thinks its a choice between saving the old economy and building a new one. But this now-or-never, a crisis-is-a-terrible-thing-to-waste attitude will be Democrats downfall. There’s a long road ahead to a new economy. And history is somewhat instructive. We’ve heard this refrain a lot recently–it was the war, not the New Deal–but we haven’t bothered to look at what that means.
World War II ended the Depression because it did two things: drew upon the surplus manpower and through the destruction of materiel re-deployed the industrial base. The war itself didn’t just solve the problem. The period after the war was an economic disaster as the country struggled with surplus labor power and idle capacity again. The GI Bill and Marshall Plan were two responses to that problem that set up the expansion of the 50s.
In other words, there’s more than one bite at this apple. And we’ve got a long list of jobs to address.
Source:
Robots, Not Roads
The Obama stimulus package should be spent on transformative investments, not bridges and buildings.
ELIOT SPITZER
Slate; January 6, 2009
http://www.slate.com/id/2207920/
January 6th, 2009 at 10:43 am
Well, I agree with Spitzy that the plan being proposed seems to be “junk stimulus.” It’s not going to spend money on productive projects that will yield positive returns. It’s more in the line of “make work.”
The silver lining may be the fact that there aren’t enough junk projects available to spend federal money on, so there will have to be tax cuts too. But rather than confine the tax cuts to people who actually pay taxes, the administration wants to give “refundable tax credits out to people who don’t pay taxes. This is just a fancy form of welfare. It’s not going to solve our fundamental problem: an inefficient economy that is overweighted towards the domestic consumer and an underproduction of goods for export.
Instead, if we want real stimulus and investment in America’s future, we should cut taxes on corporations and capital gains.
January 6th, 2009 at 11:23 am
“(S)mart utility meters and non-gas cars” aren’t transformative either. They just allow us to do the same things more cheaply (maybe). Even Tom Friedman knows that. The TVA was transformative for the South. The Interstates were transformative (toward inefficiency). So, Spitzer is right on what he thinks is wrong, but wrong on what he thinks is right. Green won’t transform us unless we make it here. Did I hear someone say, “Protectionism?” Otherwise, green just frees up cash for the home-equity-based retail economy at the expense of future taxpayers. (Thanks to deficit spending.) Big whoop.
January 6th, 2009 at 11:23 am
1st – thanks TBP for your blog format – Slate is horrendous to read user comments
On the story, our story here in America, the last land of vast resources to be conquered on the earth, this WWII relationship and the releated posts on TBP these past days ie “Dear Mr. Ex-KGB” and beyond …
so many thoughts to convey but staying focused on the stimulus plan, the rescue plan, the survival of the fittest plan, the provide for the masses plan … what a mess these cash plans are – all with the purpose of not destroying the fabric of society as we know it
as we know it … to many people making to many problems … que WWIII or a restructure
a restructure should look like a balance of resources (water, air, land, food, people) with the labor output needed to harvest those things … can’t we design a system where we are not fighting over those resources?
base problem 1 – getting someone behind a gun, or in a coal mine
base problem 2 – eating steak everyday, or going on 100 mile roadtrips for sun&fun
base problem 3 – skate’g
ok you win – que WWIII … but let me get mobile 1st – please
January 6th, 2009 at 11:52 am
Is there a single historical example of a stimulus program, voluntarily enacted (thus excluding WWII), that ended or mitigated a depression or deflation?
January 6th, 2009 at 12:00 pm
Yes. That would be called The New Deal. The problem with Obama’s stimulus isn’t going to be the money spent on infrastructure maintenance. That’s necessary work and should have been done over the last decade but wasn’t because Americans don’t want to pay legitimate taxes.
The New Deal programs that employed people did a great deal of good. The problem with most of the stimulus critique–including Spitzer’s–is that it focuses on what will spur growth. The stimulus here is a bulwark against disastrous decline. Think of it this way: you can pay to keep people employed and in their homes through the stimulus or through emergency aid measures (the same essentially goes for the auto workers) you might as well get a newly painted bridge out of the deal.
The problem with Obama’s stimulus is that his tax cuts are simply political payback–or another form of welfare, as someone else remarked.
January 6th, 2009 at 12:11 pm
And, post-New Deal, we crashed again in ‘37-38 (-49.1%). 21% pullback, ‘39-40. Semi-crash, 1942.
New Deal did diddly squat.
January 6th, 2009 at 12:22 pm
Feeding, clothing and housing millions of folks ain’t diddly; building public works and maintaining productive capacity ain’t squat. And the 37-38 crash was a result of reduced goverment spending and increased taxes, not a failure of the stimulus. The war was nothing but prolonged government spending: who do you think paid, fed and clothed all those millions of GIs?
So you proved my point. If you only look at something as a spark to massive growth, you’re going to miss the bulk of what economic activity is all about. Warren Buffett once made famous joke about the airline industry delivering no return to investors–the joke was that someone should have shot Orville and Wilbur out of the sky as a favor to capitalists. The reason it is a joke is that you benefit from the existence of an airline industry even if the investors lost their money.
January 6th, 2009 at 1:15 pm
>> Instead, if we want real stimulus and investment in America’s future, we should cut taxes on corporations and capital gains.
Corporate earnings are down because people are broke. Give the tax breaks to people who need to buy food/clothing and rent housing. Then, corporations will invest in new products and services to provide for the needs/wants of people, in order to wrest that money from their hands once again. As a byproduct, earnings will increase again.
I say that as an example of how you can argue for giving money to rich or poor. Either way, it’s a stimulus. But, “giving money away” to any one group (clear of the debt obligation to repay it) will certainly help that group over others. Who are you going to give it to? I don’t like the idea of giving *more* money away to corporations — 50% of which are owned by the top 1% — and directly to the top 1% (who benefit from capital gains tax reductions paid for by the rest of us through depreciated currency). Your policy prescription has been followed for 30 years already. I don’t like the culture we’re creating in the process.
January 6th, 2009 at 6:25 pm
@Wunsacon,
I just don’t think America needs more junk investment. The investment I think that is needed now is to build out the electrical grid and to convert the nation to natural gas and other efficient forms of energy (including renewables).
Capital Gains rates need to come down if we want to attract capital to invest here in the U.S. I think the investment needs to come from the private sector, because the Government sector 1) can’t afford to spend the money and 2) can’t efficiently allocate capital.
We are losing jobs to the rest of the world in large part because our companies can’t produce as cheaply. A big part of the disparity is because our companies, and their workers, are burdened with the taxes of supporting a huge, inefficient government.
January 7th, 2009 at 10:42 am
I was trying to envision the difference between government vision and capital market vision. I was going to say something like, “Do you think any government stimulus plan would ever create or finance an Iphone, a google or a myspace?” and then I came up with the perfect example. Government stimulus and invention creates a network that would allow its communications to survive a nuclear holocaust. The capital markets pick the thing up from there and make the internet what it is today.
That is the perfect example why the government shouldn’t be ’stimulating’ but rather lowering the cost of doing business, entrepreneurialism, investment and earning income so that the capital markets can do what they do best which is pulling the government ox cart when they have the proper incentive to do so
I sentence Spitzer to sit five years in a brainstorming room of a silicon valley company with tape over his mouth in order to see how the real worlds works. Hopefully, he will learn something along the way.
Isn’t it ironic that Washington and silicon valley are on the exact opposite ends of the US? SV has progress whereas Washington has congress