Monday, November 02, 2009

Stating the Obvious Isn't Necessarily Helpful


Robert Samuelson lectures us about debt and taxes:
Despite huge deficits, interest rates on 10-year Treasury bonds have hovered around 3.5 percent. In time of financial crisis, investors have sought the apparent sanctuary of government bonds. But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates - and we don't know when, how or whether that may happen.
So we get a conclusion that's both obvious (how many people aren't aware that there are limits on how much a nation can successfully borrow) and useless (if we borrow too much, however much that happens to be, bad things of one sort or another will happen at some point in the future). With due respect to Samuelson's talk of the difficulty of balancing the budget by cutting spending or increasing taxes,1 and the possibility that taking those steps could also cause bad things of one sort or another at some point in the future, he's tossing out marshmallows. He concludes,
The arguments over whether we need more "stimulus" (and debt) obscure the larger reality that past debt increasingly constricts governments' economic maneuvering room.
To a degree, that observation is as obvious (and useless) as everything else Samuelson has to say. The argument against any stimulus, let alone a larger one, has been that "we can't afford it".

The countervailing argument is that we can't afford not to have a stimulus, even if it means significant short-term borrowing, as without significant stimulus spending our economy will continue to sputter and stall. Samuelson's concern that short-term spending might tie the government's hands in the future reminds me of the concerns of his other friends at the Post, who at best offer lip service to out-of-control spending that goes to things they support (such as wars in the Middle East) but switch from chicken hawk to deficit hawk mode the second we're talking about domestic spending. Samuelson's version of political "truth", similarly, involves slashing Medicare, Medicaid and Social Security, but makes no mention of military spending.

Perhaps Samuelson hasn't noticed that tax revenues have plummeted in this recession. A stimulus that hastens an economic recovery, a rebound in employment, and improved tax revenues could in fact be much better for the country than wringing our hands and doing nothing out of concerns for nebulous, theoretical economic consequences that... we know wouldn't result from a stimulus even two, three or four times as large as the one the government passed. Unless you're from the "If you can't pay for it in cash, you can't afford it" school of economics, you should recognize that sometimes you borrow not just to spend but to invest.
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1. Samuelson's argument on taxes seems to hold a mirror to GW's. While GW argued that tax cuts were the solution for every economic situation (the economy's strong - let's cut taxes; the economy's faltering - we must save it by cutting taxes; we're in a recession - we must cut taxes), Samuelson seems to be arguing that no matter how strong or weak the economy it's a huge gamble to increase taxes to cover government expenditures. His preference for deficit spending over responsible budgeting is evidenced by his slippery slope argument leading to default, not to a realization that taxes must go up in order to prevent default, even though (with due respect to the timing of tax increases) our nation can afford higher taxes.

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