Meet the New Speech

Aaron Blake and Chris Cillizza write in The Fix that President Obama almost granted me one of my wishes last evening. “There was a word missing from President Obama’s jobs speech Thursday night: ‘stimulus.'” Their statement reminded me of something I wrote in December 2008 when asked about the ideal stimulus package by the Economix blog:

If I had my druthers, the word ’stimulus’ would be expunged from public discussion, along with ‘bailout’ and ‘rescue.’ These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems. There are two problems with this idea.

First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who panhandle most loudly for them. The reason to spend more in a recession is not to employ idle resources — it is to be able to stretch the taxpayers’ money further by getting a better price for its purchases because workers without jobs will work for less and owners of empty factories will charge less. Second, there is no free lunch: the money we spend today is a loss to the Treasury, whether as ‘timely, temporary, and targeted’ tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether A.I.G. or the Big Three; or the largest public works program since the Interstate highway system. That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.

Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment. By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits. Public investment also meets the criterion that the spending goes for projects that are within the government’s responsibilities. Repairing roads today removes the need to repair them for a number of years. 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. If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we’d still have quite a bit of work left to do.

A couple of months later, the ASCE increased that estimated to $2.2 trillion (about half of which was not authorized over the five-year time period). I would stick to these criteria for how the Federal government ought to be passing legislation — if you are going to spend money, address an identified need and get something of lasting value. So the first trillion of additional deficit spending goes to fixing the deficiencies in our public infrastructure.

• Become A Funded Futures Trader