Steven Pearlstein's column in today's Washington Post goes after those Senators who are trying to cut the stimulus package:
As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures.
Moreover, much of the money that can't be spent right away is for capital improvements such as building and maintaining schools, roads, bridges and sewer systems, or replacing equipment -- stuff we'd have to do eventually. So another way to think of this kind of spending is that we've simply moved it up to a time, to a point when doing it has important economic benefits and when the price will be less.
Part of he wants is for those who are cutting programs to "explain why a dollar spent by the government, or government contractor, to hire doctors, statisticians and software programmers is less stimulative than a dollar spent on hiring civil engineers and bulldozer operators and guys waving orange flags to build highways".
He concludes:
Spending is stimulus, no matter what it's for and who does it. The best spending is that which creates jobs and economic activity now, has big payoffs later and disappears from future budgets.
I would stress the "has big payoffs later" part of that equation. What bothers me is not just the "arguing-over-the-size-of-the-firehose-as-the-house-burns-down" approach, but the implicit goal of simply reflating the bubble. That is why I am some what concerned about two provisions added to the bill with overwhelming support: tax breaks for home and car purchases.
On the surface both of these tax incentives sound good and make good politics. But both are examples of reflating the bubble. I would be more comfortable with them if they were tied to measures to restructure. But, Pearlstein points out, "many of the senators who supported these tax breaks then turned around and opposed as 'boondoggles' much more cost-effective proposals to stimulate auto and housing sales, such as having the government replace its current fleet of cars with hybrids or giving money to local housing authorities to buy up foreclosed properties for use as low-income rental housing."
It looks like change really will take some time.
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