We still see the glass as half full, given likely decent global economic growth, healthy corporate p...
A Family That Starves Together
09/07/2011 11:01 am EST
This is a time for smart public investments, not demand-destroying layoffs, writes MoneyShow.com senior editor Igor Greenwald.
It’s the ace in the hole for every right-wing politician on the stump. To cut through the economic gobbledygook, they urge listeners to think of the federal government as a family.
Ergo, a family deep in debt must scrimp and save, before the truck gets repossessed. Republicans in Washington are constantly exhorting Congress and the President to make the “difficult choices” already made by millions of American families.
So here’s the deal: that family truck, the one that takes Pa to work, is on the fritz. The house is not winterized, and set to leak heat like a sieve. The older kids have promising business ideas they can’t try for lack of startup capital.
Meanwhile, Ma and Pa have been offered an unlimited ten-year loan at an interest rate of 2%, and shorter-term credit virtually free of charge. But they’d prefer to get laid off for lack of reliable transportation, pay though the nose for heat and let the kids rot on the couch, because they’ve already got too much debt, thanks very much.
It’s a terrible decision for the family, in the short run and the long term, but at least the credit rating won’t suffer.
So there’s the nub of Republican opposition to further economic stimulus, such as the halfhearted, stillborn plan President Obama will unveil tomorrow. The family can’t afford any more debt. The kids would spend the startup capital on ice cream. The world is going to hell anyway, so let’s spend the last of the family’s money on canned goods and see if hiding out in the basement will reignite the business cycle.
Fortunately, most families are smarter than that, and so are most successful countries. The top four in the World Economic Forum’s Global Competitiveness Report released this morning were Switzerland, Singapore, Sweden, and Finland. (The US slipped from third to fifth.)
And one thing these success stories have in common are big public investments in education, research, and infrastructure.
There’s no question the US faces a long-term fiscal challenge as a result of overpriced health care and a military overreach abroad. But the long-term picture will get worse—much worse—if the recovery from the financial crash of 2008 is allowed to slide into a depression.
There are a lot of things the government can still do to mitigate that danger, from infrastructure building and education to a push to refinance underwater homeowners at today’s record-low mortgage rates.
But none of that is likely if we expect government to tuck its tail between its legs and fire people every time the economy sours, exacerbating economic volatility instead of cushioning it to make the future a bit more predictable for the families and businesses that will not invest otherwise.
This is a point that Nobel Prize-winning economist Paul Krugman has been making for years. And the trajectory of the economy since 2009 has proven him right.
The problem with the 2009 stimulus wasn’t that it marginally increased the national debt; that extra debt has certainly not raised the government’s borrowing costs. The problem was that the stimulus, designed to pass a divided and skittish Congress, proved entirely inadequate to the task of spurring long-term growth.
It wasn’t just a matter of insufficient bang for the buck. The problem was insufficient bucks given the size of the economy and its problems.
The super-low interest rates in the bond market are, in the words of Martin Wolf of the Financial Times, “saying: borrow and spend please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry.”
Even a government ought to be able to earn a nice rate of return investing money borrowed so cheaply. Especially a government that is relatively efficient as governments go, and one that ought to be able to deploy the cash to improve the country’s economic potential, and therefore its long-term solvency.
Americans understand the notion of going into debt to boost one’s longer-term financial prospects. That’s what we hope to do when we take out loans to go to school, or to replace the old clunker that keeps breaking down.
The economy is there now, stuck by the side of the road waiting for a tow truck. Here’s hoping one is coming.
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