Even if one agrees with the theoretical support for fiscal stimulus (which I do only to a limited extent, it can have a positive effect, but its hard to time right, and its unreliable and usually smaller than it proponents claim), its a function to use during a recession. It isn't something that generally increases economic growth. At best it can reduce the severity of a recession. Right now we are not in a recession. We are in weak recovery from a recession.
Stimulus in the form of infrastructure improvements and research will create jobs. That's an important role for gov't. Its what the Asian countries do very well.
As for the deficit, normally I'd agree with you that so much attention to the short term deficit during bad times doesn't make a lot of sense, but this deficit is so large that some attention has to be paid to it. Also current spending acts as a baseline for future spending, so cuts now tend to mean less spending in the future as well, and less spending (than projected, not necessarily then what we spend now in nominal or even real dollars), is crucial.
Very few people are saying the deficit should be ignored. What they are saying is that the rich should not be taxed at the lowest rates in 100 years when addressing the issue of the deficit. They need to make a fair contribution to the problem.
But more fiscal stimulus would also be a very bad idea. Since the economy is no longer in the initial financial crisis stage, nor in the latter recession stage, the timing would probably be off. A recovery, even a slow one, is not the time for stimulus (if there is ever a good time). Also spending and deficits are so high, that we are already going full bore on fiscal stimulus. With spending closer to 25% than the modern norm of 18 to 20% of GDP, and with the deficit ten times as high as it was in 2007, and with the debt in the area of 100% of GDP (total debt, other methods of looking at it would give a lower figure, but still a record for when the US isn't in a major war), if fiscal stimulus was going to work, it already would be working, since its what we are doing. Large increasing in spending beyond that probably won't help much in the short run (could even hurt by lowering confidence in the fiscal stability of the federal government), and will hurt in the long run.
I am not for arbitrary stimulus for the sake of stimulus......not at this stage of the recovery. And it can't be pie in the sky stuff like getting the first man to the moon.
But there is a problem......due to nearly non stop warring for the past 20 years, too many revenues have been diverted for war efforts that should have been spent on this country. That has to stop. The monies spent on wars should be used to stimulate this country's economy.
Canada has a similar problem with excessive spending and deficits, and it made serious cuts to its spending. Now its debt and deficit situation is better than that in the US, and its economy has been more healthy then ours has been. We should look in to flowing there example.
Canada's banks didn't play fast and lose during the past ten years. Their gov't did not stop monitoring the private sector like the feds did under Bush. As a consequence, Canada did experience the recession as severely as the US......not by a long shot. Hence, its recovery has been much healthier. I doubt it has much to do with their deficit situation. |
