Is stimulus a short or long-term fix?
TEXT OF INTERVIEW
KAI RYSSDAL: Whether you think David [Frum] is on point or not, there’s at least one thing we all can agree on. That it’s really hard to agree on what is or isn’t good stimulus.
Diane Lim Rogers is the chief economist at The Concord Coalition. When we got her on the line she said whether the package works or not all starts with that definition.
DIANE LIM ROGERS: The current debate in Washington is not over something that we’re calling stimulus any longer. It’s over a package that we’re calling The Recovery and Reinvestment Act. And, because of that, it has sort of morphed from what was initially supposed to be just a short-term boost to the level of economic activity, to something that suggests that it will leave us in a better place for the longer-term economy. So that complicates the question. If their intention is to primarily boost the short-term economy as quickly as possible, the mix of policies that you’d come up with would be quite different from, if the goal were to promote longer-term economic growth.
RYSSDAL: Well, break it down for me then. What is good stimulus?
ROGERS: Well, short-term stimulus is about immediately — as immediately as possible — boosting the level of economic activity in the economy. When an economy is in recession, there’s unused capacity in the economy. It’s not that we don’t have the capacity in terms of a labor force and a capital stock. We have buildings. We have land. We have natural resources. We have workers that are available to produce goods and services. But we’re not employing all of those resources. So the issue is, for the short-term stimulus, How can we most quickly employ those under-used resources. How can we get businesses to invest more and make more purchases, in terms of goods and services? How can we get government to directly purchase goods and services? That’s what will employ those under-utilized resources.
RYSSDAL: What about the other big part of this stimulus package — tax cuts, right? There’s government spending and then there’s tax cuts. Will those tax cuts do anything in the short-term — say, within a year — to get the economy going again?
ROGERS: Well, here’s the general problem I have with tax cuts. Tax cuts are an indirect way for government to immediately boost economic activity. Because, as I said, to immediately boost economic activity, you have to create demand for goods and services quickly. If the government, instead, directly hires workers that become government workers, or directly contracts for roads and bridges to be built in terms of direct government spending, that’s a one-for-one, immediate, dollar-for-dollar increase in GDP, in economic activity, because the government is directly purchasing those goods and services, not relying on businesses and households to purchase the goods and services.
RYSSDAL: Why do you suppose it is, given all the economists running around in Washington and folks on the staff in the Senate and the House, that nobody is making the case for more short-term spending — if stimulus is what we’re trying to get out of this bill?
ROGERS: Well, short-term spending doesn’t sound very glamorous. And it doesn’t sound very worthy. I think that what explains the mix of things currently being considered in the recovery package is not what is likely to actually have the most stimulative effect on the immediate-term economy. But it’s a combination of the politics of what President Obama promised on the campaign trail, and a need for politicians to signal to the American public that they’re doing spending that’s worth taxpayer money. And I think there is sometimes a tension between those two goals.
RYSSDAL: Diane Lim Rogers is the chief economist at The Concord Coalition. She’s got a blog, too. It’s at EconomistMom.com, and you can find a link to that on our website, which is, of course, Marketplace.org. Diane, thanks a lot.
ROGERS: Thank you.
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