Spending debate misses the point

As more and more of our neighbors lose jobs, the political debate over a solution misses the point.
In January, Morgan County’s unemployment rate was 8 percent. That means 4,463 people in the county who wanted to work were unable to find a job.
For many, that means foreclosure or bankruptcy. For all, it means hardship. The numbers represent misery.
Stated broadly, there are two approaches to the misery. One is to do nothing. The other is to increase demand through government spending.
Neither approach is clearly wrong in an economic sense. Doing nothing means letting the market correct itself, which most agree it eventually will do. The do-nothing approach has the advantage of not add­ing to our national debt. Free-market purists view any governmental intervention as mucking up a system that works best when left alone.
Most economists advocated the do-nothing view before the Great Depression. Twenty-five percent unemployment, soup lines and a decade of widespread misery did not fit well into the concept that a free market optimizes employment and production.
The other main school of thought says the free market is not always self-correcting, at least not within an acceptable timeframe. Moneta­ry policy — usually adjustments in the interest rate — will stabilize the economy in most situations, according to this view.
When that does not work, the government should intervene with fiscal policy. In a situation where the nation’s production is falling, as it is now, that means expansionary fiscal policy. By using borrowed money to increase spending, the government can increase aggregate demand. If the government spends enough, it will kick-start the market toward full employment.
Lost in the debate between the do-nothings and the spend-mores is the narrow focus of their dispute. Again speaking broadly, the spend-more crowd does not believe government spending should always exceed tax reve­nue. It is only in a time of crisis, when production and employment are plummeting and monetary controls have failed, that they advocate government spending as a tool to prevent depression.
With due respect to U.S. Sen. Richard Shelby and Rush Limbaugh, picking through line items of the stimulus package and complaining they are a waste of money does not make much sense in this debate.
The whole point of the stimulus package is to spend money. The specifics of what it is spent on are incidental to the primary goal of increasing aggregate demand. Whether the spending is on health care, on roads or to get the stink out of pig poop does not matter. Just spend the money, and quickly.
Maybe, lessons of the Great Depression notwithstanding, it will turn out that the do-nothings were right. But the nation, both under the current president and the previous one, chose to pursue the spend-more approach to avoiding a depression. The greatest risk now is that Congress will spend too little. Repaying the debt will be tough if we spend enough to kick-start economic growth. It will be impossible if we spend too little.
Contact Eric Fleischauer at his blog, http://www.mile304.com.


Leave a comment

Filed under Free Market, stimulus

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s