"In for a penny, in for a pound," goes the old saying. In the contemporary Washington fiscal universe, perhaps the amounts should be revised: "In for a billion, in for a trillion." The point of the saying is that sometimes moderation is not the best strategy, that once a plan has been adopted, one can kill it be looking back over one’s shoulder, and that if you truly judge yourself to have a winning policy (or poker hand), then you should not be reluctant to raise the bet as needed.

This morning’s Washington Post has a great column by E. J. Dionne in which he examines why the Democrats in Congress should not be reluctant to continue stimulating the economy. He quotes Larry Summers: "Spurring growth, if we can achieve it, is by far the best way to improve our fiscal position." Summers, who is hardly a spendthrift, knows that in a fragile economy, government may be the only actor willing and able to jump start the economy. This is Keynesian econ 101.

The Republicans have no, repeat no, alternatives. The screech about the Democrats spending too much, but they threw away the government surplus when they had the chance, enacted a hugely expensive Medicare drug benefit without raising a dime of revenue to pay for it, and went to war in Iraq, conveniently keeping the expenses of that war off the books. With that kind of track record, they are the last people to consult on the issue of fiscal health, but even if you were so inclined, their all-purpose remedy – tax cuts – would hardly achieve the kind of direct economic stimulus the nation needs. As with the tax cuts in last year’s economic stimulus, too many people pocket the money and wait for a healthier investment climate. As for stimulating investment, only when there is a dramatic drop or increase in tax rates do they have a significant effect on business and investment decisions.

The whole point of a stimulus is to get the money into the economy now, and the best way to do that is to prevent lay-offs of teachers and firefighters and police. It is a fair question, and curiously a question the Republicans seem unwilling to ask: why not let the states and localities raise the money to pay the teachers and the firefighters and the police. After all, at a local level, the services are even closer to the taxpayer. That firefighter might also be a neighbor and that teacher a fellow parishioner. In my hometown in Connecticut, the town meeting was always forthcoming with the money needed for a new ambulance, although there were great fights over the school budget. But, still, why not let the local governments raise taxes and keep the payrolls going? The economic reason is that in a recession only the federal government can borrow money against the future so it makes sense for them to help states and localities, which must balance their budgets, across this rough patch. Tax cuts are not an elixir, but raising taxes is ill-advised in a recession too.

I hope the Obama administration is in touch not only with the teachers’ unions and the firefighters’ unions and the police unions, but that they are reaching out to Republican mayors and governors, those who are facing the budget crunches at the local level and who need federal help. They may not share the doctrinaire stance taken by the Republicans in Congress.

There is a time to look at fixing the federal deficit, but there will be no fixing it until will pull the country out of the recession. We all seem to have forgotten how close to the edge of total, 1929-quality, collapse the economy was in the last months of the Bush administration. People have forgotten that in September 2008, yields on short-term Treasury bills dipped below zero, $400 billion was withdrawn from money market funds in one night (as opposed to the typical $5 billion) and the entire economic system teetered on the brink. We are not looking into that deep abyss anymore, but we have a long climb out of the rut.

The enactment of health care reform that begins to bend the cost-curves down was the second most important step toward achieving long-term fiscal health for the government and the nation. The most important step is to keep the recovery moving forward, to stimulate the economy so that it can begin to grow again on its own. I am with EJ: I understand why the Republicans oppose such a stimulus, but it is bizarre why the Democrats are now hedging their bets.

 

Comments

Gabriel Marcella | 6/14/2010 - 7:41pm
What we need on the America blog is a true economist whose postings will be based on theory and facts, and whose policy recommendations will be equally informed. Otherwise we will continue to get polemics and counterpolemics, incomplete analysis, a dollop of ideology here and there, and partisanship. There must be a Jesuit Paul Krugman out there who fits the bill.
Anonymous | 6/14/2010 - 2:08pm
Mr. Kopacz,
 
Eventually all manufacturing will come back to the US but it will not mean typical manufacturing jobs as most of the work will be done by robots or computers.  It will still employ lots of people but not in the typical hands on type of work that started during the Industrial Revolution.
 
As much as the Industrial Revolution has been maligned it served as an outlet for the people on the farms that had no jobs.  There was a combination of a population explosion and lots more food in the late 1700's and early 1800's and this population moved to the cities for manufacturing jobs.  And many in tragically bad conditions especially in England.  A similar thing happened here just over a 100 years ago as a majority of the people lived on farms or near farms but those jobs are gone.  A close friend's grand mother left school after 6th grade to work in a shoe manufacturer.  That was typical then but it isn't now.
 
This is a normal progress that has gone on for over a thousand years.  One of the things that funded the Crusades was the massive increase in wealth that occurred as farms became more efficient and needed less people so the people moved to towns and started new businesses, mostly as tradesmen.  Again an excess of people had to find something to do.  It will work its way out in the long run but we need the technology to grow the new jobs.  In the last 30 years technologies due to computers and the internet have produced high paying jobs and so has the tremendous growth in medical technology.  The internet esssentially didn't exist till 1995 and that is only 15 years ago.  Now tens of millions owe their livelihood to it.  In the future there are possibilities for large number of jobs in new fuel technologies and things like nano technology.
 
I am not a pessimist about this and it will happen as it has before if only the conditions are right to facilitate it.  If we try to regulate it or inhibit it then the jobs will indeed go elsewhere.  The people are out there willing to start the businesses and a high percentage lead to high paying jobs.
 
I never understood the problem with shifting jobs over seas.  They are God's children just as are the people here.  Free trade has always been a win win situation so I encourage all this interchange of ideas and jobs and flow of goods.
 
Anonymous | 6/14/2010 - 2:04pm
Deficit spending is a wise strategy if the money is invested wisely. The problem is that Congress has a bad track record of spending money wisely! Mr. Winters trusts Congress more than the majority of Americans.
Tom Maher | 6/15/2010 - 11:58am
Here we go again. We are now back to square one where MSW is advocating the 1930s celebrity economist and his ideas that address economic conditions of the 1930s. Objective science is what we should be after not finding the economic verison of "American Idol".

We do not need a celebrity high-priest of economics pandering to our favorite economic pre-conceptions A more objective, fact-based and current approach is needed. We do know a lot more today then we did in the 1930s. Keynes ideas are not timeless, and unchageable like MSW's subjective economic theologies and politics.

For example Communist economic theory (Marx and Engels) has always been highly favored by academics, intectuals. churchmen and politicans from the 1920s thru the the lat 1980s, failed miserably in one of the largest worldwide , seventy-year, experiement ever conducted. Centralzed planning, and a command economy even under a all-powerful centralize govenment were shown to not work and were spectacularly rejected worlwide. Communist economic theory has been scientificlly proven false.

Unfortuanely more than 20 years after the collapse of the Soviet Union many academics, intellectuals, churchmen and journalist still have not gotten the message or significance of the massive world-wide abandonment of communism. Communist ideas have been disproven but still are very fashionable.

Unfortuanely disproven ideas live on for decades. Dated, unmodified theories like Keynes need to be re-evalued under changing economic conditions but are not. Science unlike religon is not eternal and unchanging. Science demands constant review and revision or even outright rejection of its ideas to stay in touch with proven reality. Nothing is sacred in science. But dated, unquestioned economic ideas do not help us understand current reality.- What rally is. All economic ideas need to be ialways questioned and skeptically reviewed and revised if disproven in any detail.

A ceelbrity economics is not needed. Objective economic science about the real economic world is needed.
Gabriel Marcella | 6/15/2010 - 9:17am
Vince,
Indeed, economists are not the last word on the economy, and perhaps they shouldn't be. Yet with such a demanding readership, the America blog could use economic literacy on such areas as the federal budget, public policy affecting growth and employment, international trade, and economic development. These are recurring themes in America that could use more serious treatment than some of the flat earth economics we have seen. Tim Reidy, can you help?
Vince Killoran | 6/14/2010 - 9:21pm
As an argument for economic literacy, I agree with Gabriel.  But let's not present economists as the last word on the economy.  Economists are a varied lot and divide about a dozen ways according to approach and politics.
Tom Maher | 6/14/2010 - 8:59pm
There is a science of economics but it is unknown to most Americans.

Most people in the United States with college degrees never had a course in economics, Otherwise college graduates have only second or third hand impressions of economics from History courses, English literature courses, theology course, political science courses, women studies course etc. all of which have an ax to grind about what the economy is and how it operates. Yet the United States and the global economy are complex and always evolving. WE live in th elargest economy in the world that impacts every part of our lives. . Yet so few Americans ever know the basics about economics. It a major dysfunction of our society that so little is known about the economy and how it functions or does not function.

Most people have only highly biased political imnpressions about the economy. These impression are an irrational source of division within our society.

Worse the U.S. economy for the last twenty years is part of the global economy but most people have no idea what the "global economy" means and what implications it has on them. Only a relatively few people have a decent grasp of economics in our society.
Stanley Kopacz | 6/14/2010 - 2:56pm
Mr. Cosgrove,
The only thing that will bring jobs back to this country will be the end of cheap energy.  But I don't see why the automation won't be put in place in India and China, if it becomes necessary.  It's even hard for automation to compete with $150/month.  And as I said before, a CNC machine in the US can be programmed from Hyderabad.  This is another fruit of the internet.
Yes, the overseas workers are God's children, but they are non-unionized and powerless which is what attracts the capital. If they earn 5% of what an American worker makes, you can be pretty sure thay are still not making quite enough to get by wherever they are, and they are being squeezed to the limit.
When a country no longer manufactures things, it ends up manufacturing lots of fake jobs, like lawyers and financial consultants, i.e., witch doctors who really don't produce anything.  I'm afraid that's where we are now.  Manufacturing grounds people.  You can fool investors or judges or members of a jury but you can't fool the laws of physics and chemistry.  The product works or it doesn't, although quality can vary.   This tends to ground people better.  I'm afraid that we have been and are becoming a sillier country.
One of the interesting effects of offshore manufacturing is loss of security.  With the increased dependence of our power grid and defense hardware and software on imported goods, bad code can be inserted into our machines and even smart weapons to allow remote shutdown by a hostile power.  This can be put in by the hostile power itself or by entrepreneurs who can sell back door access to the highest bidder.
Anyway, we are in for an interesting ride over the next fifty years.  I think it will be very unpredictable.  Although, I do recommend that kids learn Mandarin.
Vince Killoran | 6/14/2010 - 2:42pm
The question about small businesses and job creation has made the rounds.  Here's a useful article called "Five myths about how to create jobs" from the WASH. POST (2-7-2010): "New jobs come from both small and big businesses. From 1987 through 2005, nearly a third of the net new jobs were created by businesses that each employed more than 500 workers. By 2005, these big companies accounted for about half of the country's total employment, although they made up less than 1 percent of all U.S. firms."
 
This gets to Stanely's question about "what kinds" of jobs small businesses create. Most Catholics writing on business ethics and labor relations tend to focus on large enterprises and very little on the "Mom & Pop" businesses. I've known good and bad small business owners. For the most part, they do not tend to pay high wages or salaries (let alone a "living wage"); there is little job security for employees, and they are usually fiercely anti-union.  The question is: to what standards should they be held? Why do some people celebrate them (is it the family or local character of them?)?
Stanley Kopacz | 6/14/2010 - 1:24pm
Mr. Cosgrove,
I still want to know what the statistics are and what kind of jobs they are.  The large companies might have generated more jobs but they were shipped overseas as quickly as possible.  As far as the stimulus is concerned, I see it having no good effect if the economy is leaking jobs offshore.  Even developing infrastructure in this country means buying goods from offshore.  Clean energy technology is made offshore.  I personally believe our goose is cooked no matter what the politicians of either party say or do.  I would be happy to see no more stimuli if, along with that, we would withdraw from Afghanistan and Iraq and cease the futile anti-drug wars in South America. 
Apparently there are large deposits of lithium in Afghanistan and maybe that's what we're fighting for.  Lithium batteries will be necessary for electric cars.  That might make some American corporations wealthier but since we are  a country getting out of the manufacturing business as quickly as possible, and the Chinese will be making the batteries, perhaps they should overrun the region instead and save us the trouble.  Although you see a threat from the Islamicists, I see them switching their attention from us to China as the Chinese further eclipse us and start throwing their weight around in the world..
Anonymous | 6/14/2010 - 12:49pm
Mr. Kopacz,
 
They generated every new job in the US economy since 1980.  Established firms generated zero jobs.  Oh, some generated some but others lost jobs.  So if you want to employ people and I believe that is called social justice, then go all in for new businesses and not more stimulus money which just sends money to Democrat constituencies such as public employees and medical personnel.
Stanley Kopacz | 6/14/2010 - 12:34pm
I keep hearing about the wonderfulness of the small business startups.  But what are they?  What kinds of jobs are they generating and what types of jobs stay in the country?  Don't the majority of business startups fail and the jobs with them?
One small business can be developing and producing Short Wave Infrared focal plane arrays. Great.  When they need higher volume production, will the bulk of the jobs be created offshore?
For every business like that, how many are dollar stores selling junk made offfshore or selling junk food to make Americans fatter and sicker?  Until the details are known, this is just another magical black box we throw our problems into while hoping they'll solve themselves.
 
Anonymous | 6/14/2010 - 12:13pm
Here is an interview by Charlie Rose, that well known conservative, with Carl Schramm, President and CEO of the Ewing Marion Kauffman Foundation.
 
http://www.charlierose.com/view/interview/11026
 
They are a think tank that specializes in the creation of small businesses here in the US and around the world.  Here is another well known conservative, Tom Friedman, discussing the creation of new jobs by small business and how important it is.  He is also referring to the Kauffman Foundation.  His number is 40 million jobs by small businesses since Reagan changed everything in 1981.
 
http://www.nytimes.com/2010/04/04/opinion/04friedman.html
 
And here he is last week.  Friedman is starting to sound like a Republican.  If he repeats it long enough the new mantra will be that it is a Democrat idea that Republicans have been opposing.
 
http://www.nytimes.com/2010/06/09/opinion/09friedman.html
Tom Maher | 6/14/2010 - 11:09am
Today unlike the 1930s we live in a global economy. In today's world Keynesian barrowing has very heavy negative consequences on any country's economy.

Countries in the 1930s were debt-free so they could barrow to stimulate their economy as Keynes' economics directs while still having little worry about the nation's debt burden relative to their total economy.

The world has changed drastically since the 1930s. Many governments including the United States are heavily in debt realtive to their total economic activity. In absolute terms the United States government owes 13 trillion and this is projected to go to 20 trillon in five years.

The level of debt is so high that since the early 1980s when the United States first becasme a net debtor nation (imports more captial than it exports or lends abraod), the United States depends on foriegn countries to finance its public debt. China alone ownes trillions of dollars of U.S. governemnt debt.

China and other creditors, on whom we now depend to conintue to finance our national debt, have complained about the United States's high level of public debt. 13 trillion in absolute terms is a lot of money relative to anything, Furhter China at least has started to cut back of buying U.S. debt instruments (U.S. Treasury notes and bonds.)

The writting is on the wall. The United States is on its way to exhausting its ability to barrow as it needs to from the global credit market. Out ability to service this hugh debt is beginning to be questioned publically.. That is bad. We are getting by for now. But confidence in the United States government ability to service its public debt is no longer a given. The United States is still trusted as safe from defaulting on its debt obligation. But that trust and ccnfidence could be suddenly lost. If foriegn investors suddenly decide for any reason the United States might default: it is all over with. Qw need to have a much wider margin of saftey than we have.

Greece of course was not so lucky. Investors refused to buy any moore Greece debt. Greece owes nore that its entire economy produces in a year. Greece must now accept a very painful bailout or default on its debt an have an even more painful economic collapse.

Keynes in the 1930s could not imaging a default by a nation on their debt obligation as may yet happen to Greece. Keynes certainly did not advocate or suggest that nations allow their accumulated debt to become wildy wildly unmanegable bebt. Deafault on national debt is a national disaster for any nation that Keynes would not have favored.

The nation needs to sober up and look at what is going on in Europe due to excessive national debt. Unlike Greece the United States will have no country to bail it out if it ever comes close to defaulting on its debt. Accumulating debt is at out nation peril that Keynes would likely advise against today.
Anonymous | 6/14/2010 - 10:35am
A few quick comments.
 
There is another more appropriate expression that is applicable here.  ''Don't put good money after bad.''  The stimulus did not work and there is good reason to suspect this  type of spending will never work.  Of course it will prevent some jobs from being lost and these people spend money so they will help support others around them but stimulus money does not build anything and that is what is needed for long term growth.  The problem is in the local governments which continue to hire  and give raises even since the fiscal crisis in 2008.
 
Long term growth will only come from small business start ups.  That has been the Republican position since 1980 and what added 45 million jobs to the economy since that time.
 
The health care bill will not lower health costs.  That is pure fantasy and no one believes that.  To keep passing that canard off, is disingenuous.  But nothing new here on that.
 
The deficit under Bush was heading to zero and in 2007 was getting as low as $100 billion.  That is territory that the Democrats can only dream of now.  What stopped it from reaching zero and going positive is the sub prime financial crisis.  And if you want to point fingers, the budget originates in the house so the last two years of Bush saw the Pelosi budgets.  
 
Let have an honest discussion for a change.  Is Mr. Winters capable of one?
Anonymous | 6/14/2010 - 10:20am
 My head hurts from reading the ''foolhardiness'' in this column.  I will just stop at saying that if the GOP can be criticized for its single-minded focus on tax cuts, the Democrats' ''spend-more (and more)-now-only'' approach is equally wrong-headed.  We need complex, creative approaches to not only weather the storm, but fix the deeply-entrenched fiscal problems.  Something along the lines of Paul Ryan's Roadmap is intriguing to me (insert broken record); it would be nice if Mr. Winters at least uttered the words ''Ryan'' or ''Roadmap''; I think the Democrats are wising up to the fact that a multi-pronged approach is required rather than simply a fourth (or is it fifth?) ''stimulus''.
 
PS- The GOP criticism of the first (or was it second?) stimulus was precisely that it failed to get the most money into the economy in the short-term, and was instead high-jacked by the Congressional Democratic leadership eager to load the bills with favors and pay-offs to interest groups who had financing the successful Congressional campaigns.  The problem is Congress, not any particular party.