So, we're all agreed. The minute president-elect Barack Obama takes office, if not sooner, we must have a gigantic stimulus package of federal spending or tax cuts to get the country moving again. Wait. Better make that a humongous stimulus package. In fact, what's bigger than humongous? We'd better have a gargantuan stimulus package. Ordering up solutions to this economic crisis is getting to be like ordering a latte from Starbucks: On second thought, we'll take the bigger one.
But what about that $750 billion we already gave Hank Paulson, the Treasury Secretary, to clean up this mess? Oh yeah, that. Well, that wasn't a stimulus. It was a bailout. Big difference. The purpose of the bailout was to save the financial system from collapse. (And anyway, it hasn't worked.) The purpose of a stimulus is to get the entire economy moving again. Put money in people's pockets and let them spend it. Or, even better, let's spend it together on national projects like fixing the highway system. Bring on the earmarks! Hey, Sarah--where did we stash those plans for that Bridge to Nowhere?
The Economist warns about "the perils of incrementalism." Nobel Prize--winning economist Joseph Stiglitz cautions that we must not let "latter-day Hooverites" stop us from thinking "big--very big." Stiglitz himself is thinking "at least $600 billion to $1 trillion," which is pretty big. Paul Krugman, another Nobel economist, says there is an "intense debate" over how big the stimulus should be. Krugman doesn't offer a number, but he makes it clear that he is not going to be outbid.
Near as I can tell, these guys are all dressed up for battle with no one to fight. Who are these latter-day Hooverites? What prominent economist is out there opposing a stimulus? What politician has said he or she will pass up the opportunity to vote for spending a few hundred billion in a big hurry? Harvard professor Gregory Mankiw, who chaired George W. Bush's Council of Economic Advisers, noted puckishly in the New York Times that he has children, whereas John Maynard Keynes--the intellectual godfather of the idea that government spending can jolt you out of a recession--did not. But even Mankiw doesn't actually oppose the idea of burdening the children with more debt.
If anything, there is a world-historical consensus about the need for a very big stimulus. This is so even though any amount in the hundreds of billions--the minimum necessary to enter the bidding--immediately makes a mockery of anything anybody has said or done in recent years about getting government spending under control. At best, you might be able to stir up an argument about "very big" vs. "very, very big," or about how the money should be spent. Politicians aren't the only ones dusting off their wish lists. Columnist David Brooks, channeling Harvard Business School professor Michael Porter, says let's not forget state universities. Noted.
And sure, I get the point: if the patient is dying, you give him blood right now and worry about his cholesterol count later. Krugman says, plausibly, that it's not even a question of long run vs. short run: we'll also be better off in the long run if we can escape the effects of this immediate crisis. If the patient dies, he's not going to be healthy in 10 years no matter what.
But is there a downside here at all? Maybe these economists (and the Economist) think the downside is obvious, but it obviously isn't obvious, or we wouldn't have run up what seemed until a few weeks ago to be the very large deficits of the past 30 years. Unless there is a downside, why stop at a trillion? Why choose between cutting taxes and spending on infrastructure? Heck, let's do both. Party on!
Here's the best part. Apparently, we can pay for it all by printing money. This has been a no-no ever since Fed Chairman Paul Volcker slew the inflation dragon almost three decades ago. But now it seems the risk is deflation, not inflation, so running up a tab and printing money to pay for it is a good thing. After all, Volcker is back, heading Obama's emergency economic council. If Volcker says it's O.K., that's good enough for me. So is there a downside at all, or is this medicine so delicious that you look forward to getting sick?
The answer is yes, there is a downside. Even though amounts this large inevitably seem like toy money, it's a real trillion dollars we are talking about spending. Even if we spend the money wisely (on bridges to somewhere), we or future generations will still have to pay it off, with interest. Or, more likely, we will inflate it away, along with the life savings of those who were foolish enough to save all their lives. It's just that the downside of doing nothing is worse. It's an easy choice, I guess. But let's not pretend that it's a happy one.