One of the most intelligent statements Obama has ever made was when he urged Republicans to stop listening to Rush Limbaugh. Today I came across economist Menzie Chinn's rebuttal to a recent WSJ article by Limbaugh which contained some pretty embarrassingly faulty economics. Said Limbaugh:
Keynesian economists believe government spending on "shovel-ready" infrastructure projects -- schools, roads, bridges -- is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.
Of course, long-time PP readers know that the case of supply-side economics (as the term is usually understood) is anything but persuasive. Chinn deals with Limbaugh's ridiculous assertions:
I know that proof by repeated assertion without data is a time honored tradition by some individuals, but Mr. Limbaugh's first assertion is truly an amazing. In terms of aggregate demand, while tax cuts might get to the individual households quickly, actual spending will be spread out over time. This is illustrated in the dynamic multipliers from the OECD's macro model.
My take: the problem here isn't about the debate between tax cuts and government spending. The issue is that the Left wants to argue that spending of any kind is necessary as an urgent fix to the recession, even though their proposals will spend the bulk of the money years from now and there is no indication that they are spending in the right places. The Right wants to argue that cutting taxes everywhere and all the time is a solution to every problem. Both proposals will add dramatically to our debt without really solving the problem. The real solution:
1. The "stimulus" package needs to be broken up into two parts: a stimulus, and a long-term Obama Improves America package. Each should be subject to their own, separate debate.
2. For the stimulus portion, we need to have a conversation about the best way to get the economy going. It will likely need to have a combination of temporary, carefully targeted spending and carefully targeted tax cuts. It should have a minimal, temporary effect on deficit spending. I believe that, at this point, Martin Feldstein has the best ideas. He criticizes both the tax cut portion and the spending portion of the current "stimulus."
3. For the long-term portion, Obama needs to give America the conversation it deserves. Future generations will be paying for his plans, so pushing them through under the banner of urgent recession treatment is deceptive and irresponsible. We need to talk about how to really fix our problems - a good list is in my last post - and Obama needs to keep his promises about listening to the experts. Most of all, this plan should be made parallel to a plan for reducing the national debt. No permanent expansions of government should be considered unless we have a binding plan for how to pay for them.
Obama can prove to us that he really is about Change. End the partisan games and listen to the experts to devise a plan that will actually work with minimal collateral damage.
