Robert Reich makes as good a case as exists for why he should be in charge of Treasury — though, that was not the intent of his piece at the Huffington Post today. Basically, Reich is anticipating the arguments likely to come over the next two months designed to thwart a stimulus package of the kind that President-elect Barack Obama has said he will put in place.
The antistimulus arguments are fairly straight forward: the deficit is too high, government spending will lead to inflation, tax cuts will be more effective.
Reich takes on two of the arguments — the deficit and tax cuts. (The third, the potential for inflation, is one my dad used on me recently, one that I easily countered by reminding him that we currently are in a period of deflation that must be reversed or the economy will sink into something more drastic than a recession.)
Here is Reich on the deficit argument:
Fiscal hawks will claim government is already spending way too much. Even without the stimulus package, next year’s budget deficit is likely to be in the range of $1.5 trillion, considering the shrinking economy and what’s being spent bailing out Wall Street. The hawks also worry that post-war baby boomers are only a few years away from retirement, meaning that the costs of Social Security and Medicare will balloon.
What the hawks don’t get is what John Maynard Keynes understood: when the economy has as much underutilized capacity as we have now, and are likely to have more of in 2009 and 2010 (in all likelihood, over 8 percent of our workforce unemployed, 13 percent underemployed, millions of houses empty, factories idled, and office space unused), government spending that pushes the economy to fuller capacity will of itself shrink future deficits.
As for the tax cut line, he offers this:
Conservative supply-siders, meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They’re wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend.
Even if a rebate could be fashioned for the middle class, it wouldn’t do much good because, as we saw from the last set of rebate checks, people tend to use extra cash to pay off debts rather than buy goods and services. Besides, individual purchases wouldn’t generate nearly as many American jobs as government spending on infrastructure, social services, and green technologies, because so much of we as individuals buy comes from abroad.
Basically, Reich says
the government has to spend big time. The real challenge will be for government to spend it wisely — avoiding special-interest pleadings and pork projects such as bridges to nowhere. We’ll need a true capital budget that lays out the nation’s priorities rather than the priorities of powerful Washington lobbies.
We are in a time of crisis, which requires that we reset our economic thinking away from the small-government mindset.
(I hadn’t gotten to HuffPost today, so I want to thank Matt Rothschild, editor of The Progressive, who linked to Reich’s piece from his Twitter post.)
Hank Kalet 