'Stimulus Opponents Aren't Accurately Describing the Stimulus'
And who said Washington couldn't think long-term?
With 16.5 percent of the country unemployed or underemployed, Congress seems more preoccupied with our future ability to borrow money than our current ability to keep teachers employed and give jobless families money to pay for food and air conditioning. It's swell to see Congress rediscover the virtue of farsightedness, but it couldn't have come at a worse time, says Brookings fellow Gary Burtless. We chatted today about whether stimulus critics understand the stimulus, and why "jobs bill" is such as elusive idea. An edited transcript follows:
The stimulus debate essentially comes down to the question: Is short-term stimulus and long-term deficit reduction totally incompatible? David Brooks, for example, writes that "debt-fueled government spending doesn't increase confidence. It destroys it." Do you agree?
I think trying to reduce the deficit in the next couple of years is likely to harm employment growth. Period. Full stop. I think the argument that says, "oh well the reason everybody is hesitating to make investments to create jobs is their uncertainty about what the fiscal position of the US is in 2018 or 2028" is nonsense for most ordinary consumers. Tax levels in 2018 is not part of the decision to buy today or defer purchases. For business psychology, I find it preposterous to think that an entrepreneur is delaying or putting off the start of a business because of unknown tax levels. Businesses didn't know what taxes they were going to pay in 1969 or or 1999 when they were adding jobs a tremendous rate. The reason they were hiring was that animal spirits were running high, and they could see plenty of consumers who wanted to buy what they produced.
This notion that ultrarationalist economists have about business consumers in 2018 is removed from actual human psychology. I'm shocked it's gotten credence among economists and public officials. I don't know what in the world they are thinking.
What about the public? They aren't so hot on the stimulus, either.
The fact that the general public doesn't think the stimulus works suggests to me they're answering the question: "What is the current economic outlook?" They're not making a sophisticated judgment. The question they should be asking is whether the current outlook is better or worse than it would have been if the financial rescue package or stimulus in 2009 had not been undertaken.
Stimulus critics are pointing to the record amount of cash hoarding among corporations to show that companies are nervous about making future investments. How do you explain all of this reluctance among companies to spend?
Companies entered the recession with huge cash balances. The cash hoards helped them to withstand the recession. Through the downturn, many corporations acted in very conservative ways. Not only did they hoard, they took all kinds of steps to reduce cash outlays. They reduced employment. They reduced hours more than we thought they would. I think they wanted to protect themselves from the meteor shower to guarantee their access to the levels of credit they were used to.
Let's move to the actual stimulus bill. People are calling this a jobs bill. But it seems to me that the actual meat of the plan -- billions of dollars for cash-poor families and state governments -- isn't really about creating jobs, if that's even possible for the federal government to do. It's about sustaining demand and public sector employment to create the conditions under which job creation is more likely. Is that more accurate?
Basically. Extending unemployment benefits holds up consumer demand for necessities: making timely mortgage payments, buying groceries, paying doctors' bills. If you look across industries, spending on necessities besides housing has held up pretty well. I haven't seen a decline in grocery store employment or in the health sector. The unique thing has been the scale of fiscal relief to state governments. States would have had to raise taxes, or curtail spending, or both, much more.
Why do think the administration has had trouble selling something as simple as "we saved you from tax increases and much higher unemployment"?
Stimulus opponents, including lots of good economists, aren't accurately describing what Congress passed. Stimulus for many reporters, economists, and politicians means the government is out there engaged in government activities it would not have otherwise engaged in. But that's not what the stimulus is. For the first two years, it's overwhelmingly two things: assistance to state governments to help them maintain spending or not raise taxes; and direct increases in net disposable income by reducing taxes or increasing benefits. If you think the federal government doesn't know how to spend money, you should love this stimulus package! The political debate cannot describe what's been done, and it has reached 180 degrees the wrong conclusion.
So let's say you're the czar of the Congress. What kind of stimulus would you like to pass by fiat?
Given the severity of the employment, it would have been better if there was more spending on public capital. We could have made a powerful case that the government should be doing what FDR was doing: build a damn, build a highway, put up buildings ... we're going to need them anyway! Construction has fallen 25% since December 2007. Do we think it's a great idea to let a quarter of that industry stand idle with all of these unmet public sector needs? The government can borrow at a low rate. It's cheap to hire all these unemployed construction workers. We want better trains, subways, water systems. We should do that now that it's cheap to borrow.