Today I had the pleasure of being able to watch This Week while having lunch here in Iraq. A quick side note, AFN (Armed Forces Network) is an amazing resource for us here, if for no other reason than the news channel, AFN News, has an amazing selection of shows that provides a great deal of diversity of opinion. Anyway, back to my point. During the panel discussion, George Will made an excellent point about the stimulus bill currently making its way through Congress. He said that "When the only tool you have is a hammer, every problem looks like a nail." When all we have left is spending policy, it seems as though every problem can be solved with it.
While it may seem a little simplistic, he hits the nail on the head. Paul Krugman, another panelist, pointed out that our monetary policy is essentially tapped out. Our interest rates really can't go lower and raising them would be catastrophic. Therefore the question becomes how do we stimulate with spending?
The theory is straightforward: direct spending on infrastructure creates jobs and has a stimulative effect. The problem is that infrastructure spending alone will not solve our crisis. At the same time as we try and stimulate the economy, we need to remove roadblocks to job creation such as onerous tax laws and bureaucratic regulations. If we do not ensure that we are creating an environment that is favorable to future entrepreneurship, then all the billions - indeed trillions - we spend will be wasted.
Unfortunately, removing these roadblocks does not have an immediate effect and we need an immediate impact. So how do we do that? Most economists - including Fed Chairman Bernanke and soon to be Secretary Geithner - believe direct investment by the government is the answer. My question, as has been the theme around here, is how much?
We see that much of the new $825 billion package has very little stimulative value. While aid money for colleges and local school districts may be important, what effect does it have on the economy? That money would be better spent funding public-private partnerships to develop new energy technologies than to simply subsidize tuition. Only a fraction of the stimulus bill is going towards actual infrastructure like roads, bridges, and power plants - critically needed ones, not frivolous pork. If spending really will have a stimulative effect, then let's do it in a responsible and disciplined manner. Now is not the time for pet projects and sacred cows.
According to the state Department of Workforce and Development, Wisconsin lost 62,600 jobs in 2008 - 33,600 in December alone. That type of loss is impossible to ignore and it demands action. The financial crisis has made all of this worse, because it is now harder to get the loans that many businesses would use to try and invest in rebuilding. The only entity with the ability to make those types of payments is now the federal government. It may be the only tool we have left right now.
But it is important to remember that not all spending is stimulative. If this is to work, we need to set aside other expansions in government spending. We cannot increase the size and scope of our welfare or entitlement systems. We cannot spend lavishly on projects that have little to no economic impact. Restraint must be a part of the plan.
If all we have left is a hammer, then let's focus on the walls falling down around us. The goal is to get our economic house stable again. The paint and trimmings will have to wait.