President Barack Obama’s proposal for $50 billion in new spending to address the slowdown in the economic recovery is a good idea, but it is much too small. My response, when I heard about it: “eh.”
And, anyway, the proposal likely won’t be approved, though I have been wondering why the administration did not advance a bigger plan, to make the point that Republican lawmakers are truly standing in the way of much-needed repairs to roads, ports, sewers and more – not to mention job creation.
Beyond all that, this new initiative provides me with a chance to discuss one of my pet peeves: the stupidity of the conservatives’ stance that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money. Basic economics tells us that there
are some things the government must provide – namely, public goods whose benefits can’t be internalized by the market. So suppose we’re going to put to work $50 billion in financial resources that would otherwise lie idle.
Is it better to use that money to produce public goods like improved roads, or is it better to use it to produce private goods like more consumer durables? There’s a pretty strong argument to be made that we are, in fact, starved for public goods in this country.
And in the interest of job creation, we should definitely give priority to public goods when trying to put the unemployed to work.
The topic of economic recovery brings to mind two other comforting delusions that are currently in circulation around the country.
The first is that the American economy is indeed on the road to recovery, just moving more slowly than we’d like. To be fair, the White House keeps saying this, but it’s not true. Growth in gross domestic product is below potential.
And growth in employment is not keeping up with growth in the work- ing-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is: forever.
The second involves the lingering hope that the $787 billion economic stimulus from 2009 may yet do the trick, because there are still sub- stantial funds unspent.
I pointed out last year that the level of G.D.P. growth depends not on total funds spent, but on the rate at which funds are being spent. And that rate peaked last year.
Unfortunately, it’s all downhill from here.
Backstory: Little Time Left for Legislation
Intense debate over a proposal for a new round of government spending threatens to become more factious as the United States Congress heads into the November midterm elections – and elected officials seek to gain traction with voters who, polls show, have grown weary of what many see as big-ticket government bailouts and years of uncomfortably high unemployment. After President Barack Obama asked for congressional support on Sept. 6 for a $50 bil- lion “infrastructure bank” to fund the renovation of several thousand miles of roads, runways and railways, Congressional Republicans attacked what they described as Mr. Obama’s big-government agenda, while a bipartisan group of lawmakers insisted that the program would be more beneficial if it were expanded to fund projects beyond transportation system renovations.
Mr. Obama did win a victory for his economic initiatives on Sept. 16, when the Senate approved legislation that sets aside $30 billion for lending via the Small Business Administration ward by a vote of 61 to 38. The vote to pass the legislation included those of two Republicans who voted with Democrats, ending a political stalemate that had been in place since July.
The bill now goes to the House of Representatives for debate.
Passage of this law would bring Mr. Obama one step closer to achieving one of his job-creation initiatives – perhaps paving the way for further stimulus measures.
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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007).