In his February 1 column in the New York Times, Tom Friedman laments that thus far the government response to the economic crisis is akin to pouring water into a hole, waiting for the sound of it splashing against the bottom, but hearing nothing. I have another image that’s been in my head since as a young boy I saw a Tarzan movie my family’s first TV set – quicksand.
When caught in quicksand, I recall hearing Tarzan urge, you must master your instincts, as struggling only draws you in deeper until you are submerged. Be calm, make a plan, and get the help you need. By all means, stop flailing about.
That seems good advice for the Senate as it considers its stimulus package this week and for the conference committee that will take up the matter soon afterwards. The instinct to do as much as possible may not prove helpful. I cringe when I hear the argument that the biggest danger is doing too little, not too much. Doing too much of costly programs with a dubious stimulative effect and stretching expenditures out over eleven fiscal years simply set up the need for additional, probably quite substantial, new spending measures to help do what this bill is supposed to. The Congressional Budget Office estimates that only $107 billion of the $819 billion approved by the House would actually reach the economy in the fiscal year ending on September 30, 2009. Only $236 billion more would be spent in FY 2010. More than a third of the total would not become available until after October 2010, some of it not until 2019. If the CBO analysis is even remotely correct, we’ll end up sinking deeper into, and being buried beneath, the quicksand of debt as we pile one new stimulus upon another.
A second problem with the stimulus package in its current form is that it aims to do increase in the short run precisely the behavior that we need to cut back on in the longer run. Today, we want to stimulate consumer spending; tomorrow, we want to reduce our over-reliance on consumption as the major engine for GDP growth. Today, we need to borrow from foreign creditors; tomorrow, we have to stop that and start paying our own way again. These and other contradictions between immediate and longer run objectives were neatly summarized last week by Marina Whitman in an op ed piece in the Wall Street Journal.
Those two considerations suggest first that we need to get more public investment into the stimulus package now. In addition to the “shovel ready” highway and transportation projects – a paltry $46 billion of the $819 billion House bill – why not get started on a radical expansion of urban mass transit and high speed inter-city rail links to unclog our streets and air lanes and thereby reduce our fuel consumption and green house gas emissions?
Second, the stimulus ought to provide powerful incentives to private investment, too. It’s clear to all that government spending will not be enough to fund anything like a full recovery of our battered economy. Why not get started right now on a new investment boom by expensing new investment, at least in energy production and transportation, and giving a bonus to those who invest in the next year or two? Why not charter a national infrastructure bank and fund it privately, limiting the government expenditure to a guaranteed annual return? Why not set up a national energy development bank and fund it the same way? Such steps would leverage public expenditures, maximize the role for private capital (foreign as well as domestic), and stimulate real demand for materials, components, finished capital goods, services from engineering to transportation, and labor.
No one expects the Congress to devise a perfect a plan under duress. Time is of the essence. But a little more thought right now might give us a viable exit plan from the fiscal quicksand in which we’re trapped, setting the stage not just for a cyclical recovery but also for a genuine restructuring of the American economy. The whole world is watching and praying that we get it right.