Commentary

We need more government spending

Marketplace Staff Nov 26, 2008
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Commentary

We need more government spending

Marketplace Staff Nov 26, 2008
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TEXT OF COMMENTARY

Steve Chiotakis: This week, President-elect Obama introduced a new economic team and revealed a plan for economic recovery. We’re hearing about another stimulus package, but is that what the country needs right now? More government spending? Commentator Robert Reich says without a doubt, yes.


Robert Reich: The economy has just about come to a standstill — not because credit markets are clogged, but because there’s not enough demand in the economy to keep it going. Consumer spending is down. Investment is drying up. And exports are dropping.

Government is the spender of last resort. Which means we need a stimulus package of about $600 billion, this time focused on repairing the nation’s crumbling infrastructure, helping states maintain services, and investing in new green technologies to wean the nation off oil. It’s a whopping sum, but spending that puts Americans back to work and invests in future productivity. That’s exactly what the economy needs right now.

Fiscal hawks will claim the government is already spending way too much. Even without the stimulus package, next year’s budget deficit will run over a trillion dollars, given what’s being spent bailing out Wall Street. The hawks also worry about aging post-war baby boomers causing Social Security and Medicare costs to skyrocket.

What the hawks don’t understand is that when the economy has so much underutilized capacity — unemployment soaring, factories idled, office space empty — government spending that pushes the economy to fuller capacity will of itself shrink future deficits.

Meanwhile, Conservative supply-siders are calling for income-tax cuts, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They are wrong, too. Tax cuts go mainly to upper-income people who tend to save rather than spend.

Even if a rebate could be fashioned for the middle class, it wouldn’t do much good because, as we saw the last time, people tend to use extra cash to pay off debts rather than buy goods and services.

Besides, individual purchases won’t guarantee and generate as many American jobs as spending on infrastructure and social services. because much of what we as individuals buy comes from abroad.

The real challenge is for government to avoid having this money go to pork projects like bridges to nowhere. That requires a true capital budget that lays out the nation’s priorities rather than the priorities of powerful Washington interest groups.

Chiotakis: Robert Reich is a professor of public policy at the University of California, Berkeley. His most recent book is called “Supercapitalism.”

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