Friday, October 17, 2008

Depression Economics

Now, as I've mentioned many times before, I have very little knowledge of economics... but Paul Krugman just won a Nobel for his own and has a recent column making an indirect, yet scathing, attack on McCain's "Spending Freeze" proposal. For those not aware of it, McCain has been saying for the last couple weeks that we should cut non-defense discretionary funding that isn't "essential" because of the financial mess we are in. I guess, on it's face, this might make some sense... during what might be a long and painful recession the government is going to be having significantly less revenue coming in to the Federal coffers, so why shouldn't it tighten its belt, as it were? After all, if you took a pay cut or lost your job, you wouldn't go out and buy a boat... so why won't Obama and McCain say they will scale back their domestic agendas? The D.C. press corps is livid that they won't be "honest" about the financial realities of our situation. It seems only McCain is even considering making significant cuts with his Spending Freeze... though he still wants to give $800 billion in tax cuts to the rich first.

Well, like I said up front: I don't know much about economics, but I do know who Herbert Hoover and John Maynard Keynes were... and from what I understand, freezing spending would be pretty much the opposite of what you want to do... but don't take my word for it:
It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

As he goes on to state, with the busting of the tech bubble it was the Federal Reserve who mainly responded and their efforts were mainly ineffective until we found ourselves a new bubble. So with interest rates already quite low and no other bubble in sight, it's up to the government to:
...provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Besides being solid Keynesian economics, it just makes sense to be working even harder to protect vulnerable citizens in tough economic times. After all, when would you be worried the most about your health care... when you just got a raise, or when you think you're going to get laid off?