After a week of Inauguration activities, houseguests and software upgrades - the Intangible Economy is back to blogging.
It has been an exciting week in Washington - with more surely to come on the policy and political front. An indication of how exciting is already evident in the debate over the stimulus package. President Obama wasn't even in the White House before the naysayers descended to criticize the package. It would be easy to dismiss much of this criticism as politically motivated, as much is coming from the Republican side of the aisle. That, however, would be simplistic. The real resistance seems to be based on an orthodox vision of economic policy. Take for example the tax cut versus spending debate. As I've noted before, some politicians and pundits are rushing toward tax cuts as a more effective stimulus -- at the same time as economists are questioning that assumption. And it is not just the right who are using this line -- today's Washington Post editorial "Priming the Pump" repeats the questionable line that tax cuts are better.
More telling is the debate over the vision of the stimulus - again highlighted by the Post editorial. In that piece the Editorial Board argues that "Much of the stimulus bill does not really claim to deliver a short-term boost to the economy." They then go on to criticize a number of spending items, such as Pell grants, the smart-grid electricity proposals and money for scientific infrastructures. They, unfortunately, get it wrong on two counts. The first is whether these programs provide a short term boost. They do. Building a new research lab has a simulative effect on the construction industry, for example. Providing grants to help people stay in college has as much a stimulus effect as paying them to be in the unemployment line.
Second is their assumption that the stimulus package should focus only on short-term stimulus - to the exclusion of other goals. This is what I call the stimulus versus downpayment debate. Over the course of the past few months, President Obama made clear that his vision for the package was stimulus as a downpayment on new priorities. The critics are arguing that stimulus should only be for stimulus.
Such a view is not only short sighted, but wrong. It is rooted in a vision of the status quo: that our goal is simply to return to the economic pattern of the pre-financial crisis. If we have learned anything, we should have learned that the "good old days" were not. They were artificial and unsustainable and they were fundamentally flawed. The bubble economy did little to strengthen the US's underlying economic competitiveness (witness the rise in the trade deficit and the financial indebtedness) and did little to help the prosperity of US citizens (witness the stagnation of incomes for most Americans).
To argue, as is implicit in the view of the critics, for a package that returns to the status quo ex ante is ludicrous. New priorities are not only a good idea - they are absolutely necessary if we are going to get out of this mess. That is why President Obama was elected and that is what the American people want to see happen - the prophets of the old way of thinking not withstanding.
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