Monday, January 28, 2008

Put People to Work Instead of Sending Them Shopping

Where have you gone Franklin Roosevelt? A writer turns his lonely thoughts to you.

Legislation to stimulate the economy by sending out checks to every household in America should sail through Congress with little opposition. After all, what legislator is going to stand in the way? Why play the role of the Grinch when you can be one of a cast of hundreds playing Uncle Samta Claus, giving taxpayers the generous gift of their own money?

This quick, one-off version of tax relief won’t do any harm to the economy. Neither will it provide much of a stimulus. Some people will go shopping, but the spree won’t last long. A good chunk of the money spent will be used to purchase goods made in other countries, thereby muting the stimulative effect here in the USA. Other people may use the money to pay down personal debt. This will shift some of the overall level of indebtedness from personal accounts to the national debt, helping it reach the ten trillion dollar mark a few months earlier. Those of us who are debt-free may choose to add to our savings. (Who knows this might bump the national savings rate back into positive numbers.) When all is said and done the effect of this particular stimulus to the economy will be negligible and short-lived.

What is disturbing about this approach to staving off a recession is that a far more effective means of doing so is not even being discussed. Reports indicate that some Democrats are disappointed that the stimulus package will not include an extension of unemployment benefits. I am disappointed that the idea of putting people to work is not included. It is time once again for a liberal dose of New Deal-style public works programs.

I am aware that using the words "liberal" and "New Deal" will touch a raw nerve with many "conservatives" who have devoted a great deal of effort to dismantling the New Deal. Before the knee-jerk reaction sets in, (Oops! Too late!) I hasten to add that Ronald Reagan, among others, advocated replacing welfare with "workfare." Reagan believed that giving someone a hand up in the form of a job is preferable to giving them a hand-out in the form of welfare benefits. I agree.

The Employment Act of 1946 states that "it is the continuing policy and responsibility of the Federal government to use all practicable means . . . to foster and promote . . . useful employment opportunities . . . for those willing, able, and seeking to work and to promote maximum employment, production, and purchasing power." I see little evidence of that policy. This would be a good time for Congress to actually assume that responsibility.

John Maynard Keynes prescribed a relatively simple formula for smoothing out the cycles of boom and bust that characterize unfettered capitalism. When the economy is heading into a recession, the government should cuts taxes and increase spending, incurring deficits in the process. When the economy is expanding, the government should raise taxes and cut spending in order to pay down the public debt that has accumulated. This allows the government to position itself to stimulate the economy again when the next downturn approaches, without amassing a ruinous level of indebtedness.

Politicians eagerly embrace the first half of Keynes formula because cutting taxes and/or increasing spending is always popular with voters. When the economy is expanding nicely and the opportunity to pay down the national debt presents itself, they may give lip service to the concept of fiscal responsibility, but fear for their jobs keeps them from actually doing anything to reduce the debt . Even in the best of times voters tend to punish legislators who raise taxes. Every cut in spending irritates those who were benefitting from the money being spent.

In a happy confluence of events for politicians, we find ourselves on the cusp of, or in the early stages of, a recession during an election year. Cutting taxes and/or increasing government spending is necessary. Putting unemployed or under-employed people to work will stimulate the economy more effectively than sending out gift certificates to people who have already done plenty of shopping.

There is work to be done. The need for repairs to our infrastructure is clear and growing. Assessments of bridges around the country show a substantial percentage in need of repair or replacement. The sewage systems in many of our cities need to be updated and/or replaced. A modern version of the Civilian Conservation Corps could put people to work planting trees. Public works projects to address these and other problems would move able-bodied workers from the unemployment and/or welfare roles to gainful employment and stimulate the economy in the process.

The checks are coming. I don’t plan to go shopping. I have no debt to pay down. I will add to my savings.

An article in my local paper yesterday indicated that a fair percentage of the people they interviewed (a decidedly unscientific sample) indicated that they plan to pay down debt or save the money. I hope that turns out to be the case. Maybe if enough taxpayers demonstrate fiscal responsibility with their tax rebates, politicians will do the same when the economy heats up again and we have an opportunity to pay down the national debt.

If the "shopping spree" approach to stimulating the economy is as ineffective as I anticipate, I hope that Congress will dust off the New Deal play-book and fight recession with public works projects.

All I am saying is give Keynes a chance!

No comments: