Op-Ed: Misplaced Handwringing on the Stimulus

Tom Bozzo

has observed EconomistMom Diane Lim Rogers run multiple items pertaining to claims that it’s inappropriate to use deficit spending for longer-run public investments. I opine that such claims do not make a hell of a lot of sense. As Rogers is following basically Republican sources (the Washington Post op-ed page, Bruce Bartlett, the Wall Street Journal), at least the strong implication is that deficit-financing households’ consumption — or at least transferring debts from the private to the public sector — is OK (for that’s what individual tax cuts are; do read Bob Herbert for the latest installment of the ‘Party of Ideas’ Watch*).

I incorporate by reference Bruce’s post below on the actual front-loading of the draft House stimulus package, and reassert the important fact that New GFY 2010 is just 7-1/2 calendar months from the likely date of enactment. More to the point, if in 7-1/2 months we’re all sitting around agreeing, “Gee, we didn’t need so much stimulus after all,” the occasion will be one for Champagne-cork popping, raising taxes on the rich, and preparing kleptocrats’ show-trials; having spent a little more than “necessary” on the likes of schools, roads, transit, and the electricity grid shouldn’t keep anyone up at night.

Investments and consumption of durable goods are the exact sorts of expenditures for which “deficit spending” generally can be justified, and IOKIYPS** in that nobody in their right mind would says that businesses or households should avoid borrowing money (within reason, natch) for those purposes. I suggest as a matter of principle that the public sector should not needlessly be subject to regulations that would be stupid to apply to the public sector — i.e., that expenditures must be pay-as-you-go. This is not, of course, to say that we should throw long-term fiscal discipline out the window (in fact, I think Republicans were foolish when they in fact defenestrated that part of the Rubin-Summers program).

Now a good Republican should object that business investment is subject to market discipline including affirmative planning to generate sufficient expected income to repay the debt and provide returns to shareholders, whereas political processes can be waylaid in various ways. As a good technocrat, my response is that I have no objection to competently-performed cost-benefit analysis among other controls on public investments. As a good liberal, I’d note that the stimulus durable spending is concentrated in areas (roads, transit, schools, R&D) that in theory are under-provided by the private sector — and, moreover, are underprovided in practice, unless you happen to think that our roads, rails, schools, and intertubes are too good. And, it is not a bad time to borrow long if you happen to be the U.S. federal government.

Ostensibly moderate technocrats who like fiscal discipline should be wary of being played by people who seem to be on their side but who more fundamentally just don’t like public spending. I think that eating our public capital is so ingrained that it looks like radicalism to do otherwise.

* Regarding which saying we must conclude that Daniel Patrick Moynihan was offering a backhanded compliment or was nuts.

** It’s OK If You’re Private Sector.