A fine mess

Posted at 1:04 PM on October 20, 2008 by Bob Collins (7 Comments)
Filed under: Economy

"Right now would not be the time to balance the budget."

That's the kind of economic analysis that usually goes in one ear and out the other. And it did today, until I saw who said it to the New York Times: Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Consider that just over a week ago, she was throwing up her hands because neither Barack Obama nor John McCain would name a single sacrifice he would ask of Americans to help the country through the coming -- or already here -- recession. "They don't make any of the tough choices," she said. "Not even close."

But now, MacGuineas is advocating worrying about a balanced budget... later. The message seems to be that right now a balanced federal budget is not a responsible one.

Start spending.

And that's OK with Ben Bernanke, the architect of the Wall St. bailout package. Bernanke told the House Budget Committee the country's economic weakness could last for a while and it was the right time for Congress to consider a new package, something along the lines of the rebate checks we got -- and spent -- earlier this year. President Bush gave it lukewarm approval without flat-out rejecting the idea.

"This is a fine mess," Oliver Hardy used to say. Up until fairly recently, we were supposed to be concerned about the debt we're leaving our children. Now, kids, you're on your own. We gave you the Internet. What more do you want from us?

If you only had two choices: A harder struggle now, but a budget deficit that would be less crushing to the next generation or an easier economic time of it now, causing a harder struggle for the next generation, which would you choose?

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Comments (7)

I am usually against more deficit spending... but one thing to think about: Right now, since interest rates on T-bills are so low, we (meaning the government) are basically borrowing for free. We'll have to pay back the principle of course, but at least it won't be compounding away.

I think it is pretty easy to click "I'll suck it up now" on the second question above... but will enough of us actually put our money where our mouths are? Will you elect people that will raise your taxes or cut money from programs you like?

Posted by brian | October 20, 2008 1:52 PM

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If the gov't wants to borrow money to stimulate the economy, they ought to spend the money on something that will return on the investment. There has been some talk of investing in infrastructure, for example. Wouldn't it make more sense to do that than to just send everyone a check again?

Posted by bsimon | October 20, 2008 2:11 PM

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This is a basic macroeconomic problem. Our economy is contracting (big time), individuals and private sector will not go against their interests by investing in the economy. Therefore it falls to the govt to put the money back into the economy at a time of contraction to prevent a worse contraction (aka depression). Basic Keynsian theory. This is what the Federal Jobs Programs in the 30's depression were all about.

The problem being that we are in a huge deficit today - which is why deficits DO matter! We are now stuck in between a rock and a hard place, or more like the Simpsons movie, we are Homer being slammed back and forth between them. We have to spend money that we don't have to prevent us from dropping like a rock. If we didn't have a deficit, i.e. we actually saved for a rainy day, we could go into deficit spending to prevent the recession/depression. Now we have to deepen our deficit for the same reason.

Ironically, to the George Bush neo-cons in charge, this is anathema to them. They always believed, and continue to believe, that just cutting taxes will bring the economy back - despite the evidence of the Reagan/Bush I/Bush II economies that it doesn't work that way and the deficit grows to huge amounts. The fact that they so quickly became Keysian supporters in our current economic crisis, points to just how bad it is/was/could be.

So the current administration and its economic policies have grown our deficit to record numbers by going on a spending spree of untoward amounts without calling for the American people to do their Patriotic Duty and pay for it (aka the War) with higher taxes, reduced consumption and more savings. Then they de-regulated the housing markets, refused to oversee the traders mixing up all the loans as they bundled them, and went bad. And now they are asking us to spend more to dig their, and by their - I means our, way out. We are intertwined in the economy. So we have to spend the money to save our butts.

BUT what we don't have to do is follow these crappy economic policies going forward, IF we don't put the people responsible for them back in office. The reality-based community must be returned to the economic decision making process for our country. And reality includes that in order to reduce the deficit we all must make changes: increase our savings, pay more taxes, and reduce consumption - but only when the economy is actually growing. Which we now have to wait for that to happen.

Posted by Gary | October 20, 2008 2:27 PM

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Some decades from now when the country is even more bankrupt, the U.S. could always default on its loans from China. What are they gonna do about it? The U.S. is "too big to fail".

Posted by sm | October 20, 2008 3:14 PM

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Hoover's brand of economics didn't work back in 1930 and neo-Hoover economics won't work any better now. Investing in infrastructure now does provide future rewards in terms of national productivity in a way that all the tax cuts to the top 1% never have and never will. So deficit spend away and then end the Bush-era tax cuts in favor of restoring income tax rates as they were under Bill Clinton, which even by historical standards were not all that progressive.

Posted by Econ 101 | October 20, 2008 3:19 PM

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Someone on NPR said (and I'm paraphrasing) that the "rebate checks" that were sent out were kind of a flop in the sense that most people used them to pay off debt instead of "spending" them. I know I used mine towards my property taxes. Isn't that spending? Guess I should've bought some new stuff.

Posted by Carolynn | October 20, 2008 4:51 PM

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If I vote twice in favor of stimulus checks do I get two stimulus checks?

Posted by Bruce | October 21, 2008 8:20 AM

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