Sunday, November 09, 2008

The Burial Of Supply Side

I am not a fan of Robert Reich. Ever since his star-turn as Clinton's Labor Secretary, and his pouty and self-promoting tell all book after Clinton gave him the boot, I have found him to be a bit of a bore. He does frequent commentaries on economic issues on NPR, and what I come away from these with is, "Why doesn't anyone listen to my brilliance?" Or, perhaps, I have a block in my head where he's concerned. In any event, like I said, I am not a fan.

So it is with more than a bit of surprise that I am recommending an article he has written at TPMCafe. There is a non-trivial error in his piece - he claims that government spending on infrastructure helped end the Great Depression; it was, in fact, government spending on the military (Lend-Lease, then active military service after we entered the war) that ended the Depression - that should not be passed over lightly. For someone in a position of potential authority, as well as being as professor of economics, to claim that the New Deal ended the Depression when it clearly did not is disturbing.

In any event, he says what I have been saying, and uses basic Macroeconomic theory - anyone remember the C+I+G+exports curve? - to make his point. It is all about investing in infrastructure improvements.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?


The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)

Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.

So not just physical, but social infrastructure investment, too. I couldn't agree more. Not just roads and bridges, public land improvements and Head Start programs, either; my hometown post office was built during PWA days, as was the Sayre, PA High School. All sorts of public buildings could be erected, or repaired and improved.

He deals pretty easily with the supply-side argument that its all about tax cuts by pointing out in the real world, people who get these tax cuts either don't spend the money (they save it), or they use it to help relieve debt (which is what happened with the money sent out in the last stimulus package last spring).

This is not to say there should not be some modest tax relief. I also think there should be a reduction, if not out-right revocation - of payroll tax deductions for those earning below a certain amount. These folks get this money back in the form of tax returns, anyway. Why not eliminate a step and allow them to keep their money in the first place?

Anyway, I would highly recommend Reich's little article.

Virtual Tin Cup

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