From my Open Salon Blog: OCTOBER 31, 2008 11:35AM
Paul Krugman has an interesting column in today's New York Times called "When Consumers Capitulate." You can read the full column HERE.
He argues that consumers are beginning to do the long term right thing by tightening their belts and paying down debt, but that, ironically, they are doing it precisely when the health of the economy needs them to spend. Krugman concludes:
"The capitulation of the American consumer, then, is coming at a particularly bad time. But it’s no use whining. What we need is a policy response.
The ongoing efforts to bail out the financial system, even if they work, won’t do more than slightly mitigate the problem. Maybe some consumers will be able to keep their credit cards, but as we’ve seen, Americans were overextended even before banks started cutting them off.
No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.
Let’s hope, then, that Congress gets to work on a package to rescue the economy as soon as the election is behind us. And let’s also hope that the lame-duck Bush administration doesn’t get in the way."
I think he is right and that history has something to say to us about that. Specifically the first term of Roosevelt's New Deal involved huge incentive programs that built infrastructure and directly provided jobs. The WPA (Works Progress Administration) and CCC (Civilian Conservation Corps) are the most clear examples of programs that put people directly to work on major projects. Even artists were employed to paint murals in public buildings.
I am not arguing that the US now needs to have projects that directly employ workers, although I am not opposed to the concept of that. But I am saying that this nation has not had the discussion of the FORM of any "middle class stimulus" as Sen. Obama calls it. Congress will likely place the emphasis on further direct stimulus checks to individuals. It is clearly the approach that the Congress will think will be best received by the public.
The problem is that, as Krugman says above: "...the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend." That is a much harder sell politically.
It would be to everyone's great advantage to not push the next stimulus package through in a great grandstanding crisis. We have already done that once this Fall. But if we really want to stimulate jobs and have something to show for it (infrastructure improvements) then the stimulus must be one that creates jobs, and moves the country toward solving some big public problems by improving deteriorating infrastructure and helping states whose budgets are reeling from the slow down in the economy.
As I have written before, the 800 pound gorilla in the room that we ignore at our peril is that we have to spend our way out of this recession. But we need to take that knowledge one more step and have a national discussion on how best to do that.
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