February 02, 2009

There's a lot I don't understand about economic stimulus packages. I barely understand economics. Never mind, I don't. But I have a couple of thoughts about debate in Congress about the current stimulus package:

I honestly don't get the logic behind the "tax cuts stimulate the economy" reasoning. I get that if people had more money, then maybe they'd spend more and that would benefit the economy. And that if businesses had less to pay in taxes then maybe they'd use the surplus money to create more jobs. But those seem like rather big maybes. And it could be argued from the experience of the last 25 years that giving businesses tax breaks doesn't result in more jobs, just a bigger payout for the executives and shareholders.

In a faltering economy where jobs are disappearing at a rate that has people worrying about The Next Great Depression, does it make sense to cut taxes on profit and payroll? If the job goes away, what payroll is left to tax? What income can be taxed? Cutting taxes on zero dollars still means that there's still zero dollars to spend, right? Is ten percent of zero still zero?

There also seems to be some concern that too much of the current stimulus package is focused on things that are indirectly stimulating, things that won't have a significant impact for a couple of years. Specifically, the various forward-thinking portions of the package: retrofitting buildings for energy efficiency; more spending on education; broadband for rural areas; upgrading the national electrical grid; funding for more green jobs.

If you had a car and you didn't do the regular maintenance for it, change the fluids, replace the tires before they were bald, etc, eventually the car would stop working. And you'd have to buy another one, which would probably set you back more than it would have cost you to perform the routine maintenance. This stubborn refusal to fund forward-thinking investments in the future is worse - it costs so much more and gambles that they (who? the Japanese? the Germans?) will still be making "cars" when the country needs a new one. Funding infrastructure is expensive, but putting it off makes it more expensive and more dangerous. Just ask Seattle about the Viaduct. Damn thing will fall down next time we have a decent sized earthquake, probably killing hundreds or thousands of people depending on what time the earthquake hits (Have you ever tried to schedule an earthquake? They never come at a good time.) and will take out more property than I probably know about, more if it sways at all before it comes down. We've known this is a likely scenario for more than 10 years, yet the Governor, the Legislature, the City of Seattle and the voters keep going around in circles because no one wants to own the cost of fixing or replacing the Viaduct or offend anyone who might not like the eventual solution. No one seems to think the Rattle of the Bay (1989) can happen here.

And perhaps more importantly, funding forward-looking projects is about Hope. It says, there's something good about the future, even if it's not here yet. We need the boost of National Confidence that Federal Spending on the Future would give us. If the government doesn't want to invest in the future, why should any of the rest of us? If there's nothing hopeful coming, why should I bother to come out of my bunker now? Spend money on the economy now? It's only going to get worse, so I should look to me and mine and make whatever preparations I can so that we're ready, so that we survive.

This is why I think that the President's stimulus package is worth passing. It's not exclusively about goosing the economy in the next six months. We're looking at a decline (collapse?) caused by years of short-sighted thinking; no single stimulus package is going to fix the damage done so that we're all merrily shopping again next month. This package is about finally looking at the big picture, seeing more of the future than next quarter's earnings or the results of the next election cycle. This is about saying, "We won't leave our children and grandchildren something worse than we received." And until that message is felt at the gut-level of the entire US population, there will be no significant economic recovery.

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