On Economic Stimulus, part 1

(I have been having some fun poking gently at conservatives at my friend (and relative, via my son) Jack’s site, getreal.vox.com, and neglecting my own blog – but I don’t have enough argumentative weirdos on Quarkscrew to bring out my best! Anyway, I decided to recycle a couple of my longer comments there in order to share my views here on economic stimulus and health care.)

Generally, the pace and volume of the economy grows and contracts – there are periods of sustained investment and growth, and periods of divestiture and contraction, ‘boom’ and ‘bust’, each containing positive feedback cycles which if left to themselves tend to sustain the direction of economic change until conditions are so drastically altered that the cycle ends itself.

These boom-and-bust cycles can be mitigated by government action such as market regulation, differential taxation, control of centralized banklike structures such as the Federal Reserve, borrowing and selling financial instruments with other nations, and direct government intervention via directed investment of funds. We did a lot of this sort of thing after the Great Depression, and by and large it worked; not always perfectly, but the American economy stayed pretty stable for quite a long time.

It began to lose stability when the US government began to dismantle regulatory structures, and a long pattern of borrowing money through selling financial instruments abroad and over-use of the lowering of interest rates left us without many tools to handle fluctuations. (Both political parties were complicit in that, by the way; Clinton was certainly far more fiscally responsible in terms of balancing budgets and slowing the rate of foreign borrowing than Reagan or either Bush, but he and the Congressional Democrats, especially in the Senate, were just as irresponsible about dismantling financial market regulatory structures.)

The economy as a whole has plainly just experienced a massive contraction beyond the usual fluctuations, and the stimulus plan was designed to hasten the end of the current cycle; doing this will require quite a lot of deficit spending, especially inasmuch as the less direct controls such as lowering key interest rates have already been bottomed out. Obama laid this concept and its limitations out pretty clearly, I thought, in his first address concentrating on the American Recovery and Reinvestment Act:

It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.

Only government can break the cycle that are crippling our economy — where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.

That’s why we need to act boldly and act now to reverse these cycles. That’s why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That’s why we need to restart the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again.

Deficit spending to break the feedback cycles of the current downturn and spur the creation of new and refurbishment of old infrastructures, and implementation of new, re-implementation of old and unwisely abandoned regulatory structures to prevent such excessive cycling from happening again, that’s the essentials of Obama’s economic plan.

History suggests that it’s plausible, albeit likely to be difficult and painful in implementation. To his credit, Obama has never denied the difficulty of the task or the probable need to react to events by altering the specifics of the plan. It’s certainly unlikely that doing nothing, or hunkering down and reducing government spending, is going to help.

The size of the immediate cost is certainly daunting, but the proportion of it being invested in America versus the amount being thrown into holes in the sand overseas is certainly an improvement and is promised to improve further.

(Promises which the American people need to make sure are kept!)

A national health care system will be a help, not a hindrance; working in the automotive supply chain I’m all too aware of the competitive disadvantage my factory has compared to Canadian facilities, purely because of our healthcare costs.


~ by B.T. Murtagh on July 21, 2009.

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