Saturday, February 28, 2009

Saturday reading assignment

Christina Romer, Chairwoman of President Barack Obama's Council of Economic Advisers, makes the case for Spendulus 2009 and beyond. You can read it here.

She makes three main points. First, she says it's okay that we can't measure the plan's results:

"The first issue is what it would mean for the policy to work. The President gave a very concrete metric: he wanted a program that would raise employment relative to what it would be in the absence of stimulus by 3 to 4 million by the end of 2010."

So the plan is essentially to start with an unknown (national employment without government stimulus), add 3 or 4 million to it, and declare victory. Nice jobs plan.

Second, she says that if we assume stimulus will create "or save" jobs then it's okay to go ahead and assume the government will inflate the economy into another comfortable bubble.
"When people are employed and buying things, loan defaults fall and asset prices are likely to rise. Both of these developments would surely be helpful to stressed financial institutions. This is, I believe, a key lesson of the Great Depression. In the Depression, the end of deflation, renewed optimism, and increased employment and output were as crucial to the recovery of the financial system as the more direct actions taken to stabilize banks. Thus, real and financial recovery reinforced each other. So, fiscal policy to raise employment may help to restart lending and in that way generate a more durable recovery."

Finally, Romer offers as proof that the city and state bailout is working the fact that the money is already being spent.
"And when, a week after the bill is signed, we see my home state of California raising taxes and cutting spending by more than the amount of the relief the package provides, it certainly doesn’t feel like we’ve accomplishing anything. But we have. States have balanced budget requirements. In the absence of the relief provided in the package, the best case is that their spending cuts and tax increases would be even larger, and the worst case is that they would be unable to pay their bills at all. The fact that states are already changing their budgets, and are factoring in the funds from the package in doing so, is a sign that this portion of the package is timely and effective."

As scary as it is that this pitiful rationale was sufficient to ram massive pork spending through Congress, what's next will be even worse. That comes when taxpayers start buying government health insurance for 48 million people while being promised that doing so will generate "slowing health care costs."