According to Republicans the stimulus bill that just passed the House is nothing more than a monstrous pork fest for Democratic pet causes. It has nothing to do with addressing our economic crisis. Among the spending projects that Republicans object to:
- Amtrak– $1 billion
- Child care centers — $2 billion
- National Endowment for the Arts — $50 million
- global warming research — $400 million
- new cars for the government — $600 million
- fixing up the Smithsonian — $150 million
- $81 billion for Medicaid
- $20 billion for food stamps
- $20 billion for fish barriers
- $87 million for an ice-breaker ship
This is of course business as usual. The GOP objects to spending on social programs, mass-transit, the arts. This isn’t news. What IS NEWS (and maybe the GOP leaders missed this), the economy is heading into the tank. According to the CBO if nothing is done unemployment will reach 9 percent this year, and economic output will fall below it’s potential by $1 trillion. This is a serious problem but it could be at least partially alleviated by government spending. That’s what this about, not pork.
Since the basic problem seems to be getting ignored here, let’s try to bring it back in focus. The economy is falling off a cliff, but the problem isn’t lack of a willing and skilled workforce, or lack of investment in factories, building, roads, and docks. We have the people and the wealth and the know-how to create far more goods and services than we are likely to create over the next few years. But somehow the supply and demand don’t meet. How does that happen? It happens because people suddenly stopped spending money and suddenly started hording cash.
This is all understandable—given the loss of wealth from the bursting the housing and stock market bubbles; not to mention the general uncertainty. The problem is that the desire to hold cash can translate into a deadly feedback loop for the economy. What was a simple desire for security ends up forcing banks to call in loans to generate the cash people want to hold. That puts businesses out of business. Banks also have to sell assets to raise cash; that depresses asset prices; further worsening the banks situation. Since people are not spending, other businesses see demand for their goods drop; they lay off workers; demand drops even more; they lay off more workers. Pretty soon we are in deep do-do.
One way to break this cycle is to flood the market with cash. The Fed effectively says, “hey, if people want cash, lets just print money and give it to them”. That way banks don’t have to start calling loans and putting businesses out of business. Once the panic passes and people stop holding so much cash, the Fed effectively takes the cash back out of the economy.
Another way to break the cycle is for government to spend money “counter-cyclically”. Some government programs do this automatically: unemployment insurance, food stamps. Government can also enact specific legislation to spend money to break the cycle. The is what the current stimulus debate is about.
This is why calling the list above “nothing but pork spending” is ludicrous. It’s spending; therefore it’s stimulus. No doubt it’s not what Republicans would spend money on, but the concept here is SPENDING. If the GOP wants to propose other spending, fine. But the GOP is acting as if it 1985 and they are making huge political points by fighting against big goverment Democrats. Wake up guys. It’s 2009 and the economy is going off a cliff.