The ST Editorial Board is conflicted: Private employment has not been buoyed by U.S. stimulus
Originally published July 9, 2010 at 4:16 PM | Page modified July 9, 2010 at 8:08 PM
The U.S. government's "stimulus" of borrowing and spending does not really stimulate the economy, argues The Seattle Times editorial board.
PUT your finger to the economic wind. Has the "stimulus" worked? The breeze is faint.
Subtract out the U.S. Census jobs and other government work.
The needed boost is in private employment, and it is hardly there. After the biggest "stimulus" in modern times, the private-sector recovery is the weakest in modern times.
One side says government has not "stimulated" enough. Paul Krugman, Nobel Prize winning economist and New York Times columnist, says that. Fill the cup to the brim with new debt.
This time you will be stimulated.
We doubt his prescription. Japan borrowed a Mount Fuji of yen during its "lost decade" of the 1990s, and its economy was not stimulated. In the 1930s the U.S. government did the same, and its borrowing has often been cited as a policy success. But the recovery in the 1930s was the slowest of any in the 20th century.
How is "stimulus" done? Imagine a bank. The U.S. Treasury sells bonds to the bank, which buys them with depositors' money. It is a nice deal for the bank. There is no work to it, and no risk. The bank does not have to make a commercial loan. The result is a banking system stuffed with government bonds and business complaining about a lack of credit.
That happened in the 1930s. It is happening now.
Look at the debt. At its peak, at the end of World War II, the federal debt was a bit more than one year's worth of output by the entire U.S. economy. Call it one GDP. It was a towering amount, and Americans vowed to reduce it. For 35 years they did, until in 1980 the debt had shrunk to one-third GDP. Then it started up, to fund Reagan's military expansion. It went up under both Bushes (not Clinton), and now goes up under Obama.
It is now above 0.9 GDP, and by 2012 is forecast to hit 1 GDP — a load last felt in the first term of Truman.
If debt were a stimulant, America would be stimulated. It would be overstimulated.
What happened last time America had a year's worth of debt?
Congress cut spending sharply, starting with the biggest military cuts in U.S. history. It was a controversial move.
The champions of spending more and running up the debt warned that without massive doses of "stimulus," the Depression would come back.
They were wrong. It did not.
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