Tuesday, February 10, 2009

Wow, I sure hope it works

I have been learning a lot lately about Keynesian economics from all the economic news of late. The gist of this theory is that massive government spending can help pull a nation out of recession, in the same way that World War II is often credited with ending the Great Depression. Of course, this also has obvious impacts on interest rates, inflation, and the national debt; in fact, the Congressional Budget Office predicts that the stimulous plan could increase output by 1.4%-4.1% by the end of this year, but that it would actually lead to a shrinkage of 0.1-0.3% by 2019.

I've always been something of a deficit hawk. I don't mind carrying a small deficit: debt provides leverage, a little of which is a good thing. But the current crisis and collapse of so many financial institutions illustrates beautifully the problems of too much leverage when things turn sour. One should always have the cushion of being able to fairly easily take on more debt; if you're at your debt limit, you have little margin for error, and little maneuverability. But being a deficit hawk must also have its limits: attempts to balance the budget and tighten the money supply are widely blamed for exacerbating the great depression.

So what do I think of the Obama plan? Well, if Keynes was right, then it's probably the right thing to do, regardless of whatever warts it has. And if Keynes was wrong...well, I hope that the spending is at least productive and useful. Trouble is, I don't know which it is.

Either way: I'm very disappointed to see such lopsided voting. This is problematic for a few reasons. First of all, it suggests that for all the talk of bipartisanship, it isn't actually happening. Secondly, I want both parties to have skin in the game. When significant legislation passes with only one party's votes, then the other party can play blame-game and use it for political gain later. The Democrats did this during Bush's tenure, and the Republicans seem to be doing the same. If it's a more evenly distributed vote, then both parties are making a commitment to solving the problem and giving up the opportunity to use the vote as a political weapon. Finally, the lopsided vote certainly reinforces the suspicion that Democrats are more interested in pet spending projects or advancing other agendas than in a bill that is truly targeted to economic stimulus and only economic stimulus. I get that the Democrats won the election, but they are repeating Bush's mistake of confusing a victory with a mandate.

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