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FRONT PAGE CONTRIBUTOR

Do The Democrats Have The Courage Of Their Convictions?

Say, has anyone noticed that the stimulus projects which are getting the most negative attention from the press and the public, actually are the ones that orthodox Keynesianism suggests are the best ones to do?

I admit that striking the $600 million for condoms hurts no one but the people in China who would have manufactured the condoms. That one is a good strike, because it’s transparently a giveaway to the pro-abortion lobby.

But spending $21 million to re-sod the National Mall is exactly the kind of make-work that fiscal stimulus is all about. The objective isn’t to create a capital asset that will pay off in increased productivity later on, although that’s often adduced as a bonus. The idea, as someone like Paul Krugman will readily tell you, is simply to reflate the economy by putting money into circulation and causing it to have a little velocity.

If you were to state this case baldly to the people, they’d probably laugh at you. What consumers want to do more than anything in the world at this point in time, is to SAVE A FEW BUCKS. But orthodox economists hate this idea because it creates no velocity, no additional GDP, and thus (according to orthodox theory) no additional employment. What all the smart people are missing is that you can’t work your way out of a depression led by impaired consumer demand unless you increase consumer confidence. A major tax cut is what the people need. And it would have to have radical features to be effective, chief among them a sharp reduction in the payroll tax, not just the income tax as proposed weakly by Congressional Republicans.

And even the case that fiscal stimulus generates capital investment is suspect. You don’t get much more utility out of a freshly-painted museum that no one goes to, than you do out of re-sodding the National Mall. (By the way, you can employ 1000 people at well over $10 an hour for a whole year, for $20 million. This isn’t about re-sodding the Mall. It’s about featherbedding.)

But we’re all arguing the wrong things here. Let me tell you what the fiscal stimulus will REALLY accomplish. Except for the tax cuts (should significant ones actually materialize), the money will all be disbursed to the control of state governors and possibly some big city mayors. And what will they do with it? Yes, certainly, they’ll fund some make-work (“shovel-ready”) projects like bike paths, bridges to nowhere, new paint and air conditioners for government buildings, and (my personal favorite) Museums of the Great Depression.

But the thing these governors need more than anything else, is to fill in gaps in their state budgets. To a first approximation, the fiscal stimulus will be used to pay for healthcare and teacher salaries. The most direct effect of the stimulus will be to relieve states and cities of the need to raise taxes.

Don’t hear anyone talking about that, do you? It would have been nice to force state and local governments to apply some discipline and efficiency to their operations, but now they won’t have to.

For the Democrats to be willing enough to strip this stuff out under political pressure tells you that they really don’t have the courage of their convictions here. This stimulus legislation is rotten to the core.

This post also appears at The New Ledger.

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