A weak economy is not an excuse to spend money we don’t have on things we don’t need. I am with Stan on this tax cut deal. And Paul Krugman, for that matter. I repeat my view that the Bush era tax cuts should expire on schedule. The New York Times reports the two-year cost of this tax cut package at $900 billion. What is amazing is how little we have learned in three years. Quoting from an op-ed I wrote in February 2008, almost nothing has changed (other than the magnitudes, which have all gotten worse):
The agreement reached by the House and White House in January addressed two problems that the United States does not have.
First, the nation does not have an underconsumption problem. The personal saving rate hovers around zero. The government’s budget has been in surplus in only four of the last 35 years. The nation has run current account deficits with the rest of the world for the last 15 years. If we are looking for additional economic activity, consumption is a poor choice.
Second, we do not have an underinvestment problem in the private sector. Interest rates have been very low by historical standards, and the Federal Reserve intervened immediately to lower them even further. With or without additional tax-based incentives, corporations have plenty of access to cheap credit to expand their capital stocks.
Where our country does have an underinvestment problem is in our public infrastructure. The failed levees of New Orleans. The collapsed bridge in Minneapolis. Those are but two recent examples of an area where the federal government is falling down on the job. Regrettably, they are not the only examples. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition.
The ASCE released a new report card in February 2009. It put the 5-year cost of remediating the nation’s infrastructure at $2.2 trillion, more than a trillion of which is not currently authorized. For the $900 billion that this tax cut deal will cost, the government could go a long way toward meeting these objectives. When all the money is spent, we would have expanded our productive capacity and be in a better position to service the additional debt incurred. When all of this tax cut deal’s costs are incurred, what will we have that compares?