What I had on my mind heading into the election was this column by Paul Krugman from Sunday, “Mugged by the Debt Moralizers.” Consider this passage, in particular:
So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.
I am in firm agreement on the first point. In fact, it would be hard to find someone who called for more spending than I did any sooner than I did. (Nice summary here.) I was expressing support for “building while it’s cheap” while many of the rest of the experts were advising “timely, targeted, and temporary.” I was still advocating for it while they were having esoteric arguments about the relative size of this multiplier or that. Don’t they wish that they had commissioned all of those non-shovel-ready projects in January 2008 or February 2009? Our biggest mistake with fiscal policy has been that we constrained our 3-year options to be a series of 1-year options.
So the first lesson for the Republicans, now that they have a majority in the House, is to get busy defining what type of deficit-financed spending is appropriate and what type is not. In the post linked above, I laid it out like this:
- Stop using debt to boost private and public sector consumption of things we don’t need.
- If you are going to use debt, use it on things we do need, like public infrastructure repair, maintenance, and investment.
- Even if you use debt, set up your budget so that those who benefit from the expenditures pay off the debt in a timely manner.
I will judge the performance of the new House majority by how well they abide by these principles in proposing their fiscal policy.
I still strongly disagree with normative aspect of Krugman’s second point, but that’s a topic for another post.