We Can Do Big Things, But It Will Cost Us

By SAM URETSKY

When President Obama took office, Rahm Emanuel said “You never let a serious crisis go to waste. And what I mean by that, it’s an opportunity to do things you think you could not do before.” He was talking about the economy, which was entering the Great Recession, or perhaps Lesser Depression. In 2008, the last year of the Bush administration, the United States had lost nearly 2.6 million jobs. The economy was in a crisis which was justification for doing things that might not have been appropriate at other times.

Normally the economy is mostly the purview of the Federal Reserve and not the Executive. Ideally the economy should manage itself and not require fine tuning, but now and then the Fed has to give it a nudge by raising or lowering the prime rate, the interest rate on money. When the rate is lowered, borrowing money is less expensive, so more people can afford to buy things. The problem is that, at least traditionally, zero is the bottom. Europe is experimenting with negative interest rates, but as the New York Times editorialized “Pushing down the cost of borrowing doesn’t address weak consumer demand or weak business investment.” Businesses will expand and hire, not when their costs go down, but when demand goes up.

When President Bush left office the national debt was $10.6 trillion, which was a rather intimidating number at the time, but as Mr. Emmanuel said “You never let a serious crisis go to waste.” There were two choices – do nothing or do something. The Republican position was do nothing, cut spending to balance the budget. The sound bite “you can’t spend your way out of a recession” became widely used, later followed by “or borrow your way out of debt.” But state and local governments are required to have a balanced budget. When tax receipts fell, the Republicans refused to raise taxes, but laid off government employees, making the recession worse.

The Democrats were following Keynesian theory, which has been shown to work – damn the deficit, borrow and spend and create jobs, and give the economy a jolt. Beyond that, they understood one of the principles of effective stimulus – spend, but do it on investments that will pay for themselves over time.

They went looking for shovel ready projects. The classic example was the Trans-Hudson Tunnel. This was the biggest project planned, and would have improved transportation between New Jersey and New York. It was clearly essential because of growth in both states. Instead of embracing the project and the influx of money and jobs, Gov. Chris Christie blocked it shortly after taking office in 2010, on the grounds that if there were cost overruns, he would be forced to raise New Jersey’s notoriously low gasoline taxes in order to cover the increases. Then the governor eventually got $4 billion of the money earmarked for the tunnel to his near bankrupt transportation trust fund, to cover road repairs. The money saved jobs, but it was misuse of capital project money for operating expenses. The tunnel will still have to be built.

Republican Govs. Bobby Jindal in Louisiana, Rick Scott in Florida and Scott Walker of Wisconsin also refused federal money for construction projects. Mark Sanford of South Carolina refused money allocated to his state unless he could use it to pay down debts, but the White House held firm that the money was meant to build schools and retain teachers. These are the same states that have rejected expansion of Medicaid funds, although the plan would assure that the Federal funding would cover 90% of the costs.

The stimulus worked – sort of. The United States has demonstrated steady growth. In contrast, European nations that chose austerity have been in constant struggle and serious declines in economic output and jobs. As an economic experiment it proved the benefits of Keynesian theory. At the same time, it was not enough to really jolt the economy, so that Republicans argued that the recovery was too slow and too weak.

President Obama’s second State of the Union speech was marked by a theme, “we do big things.” It was used like a mantra, but it went the way of Bill Clinton’s “new covenant.” It must have seemed like a good idea at the time.

Anyway, it’s not (quite) too late. The economy is still as fragile as our bridges, and vice versa. The American Society of Civil engineers gave America’s infrastructure a D+ report card (2013), and estimated that $3.6 trillion will be needed by 2020 to bring it up to grade. But the interest rate remains around 0% and as long as inflation is pretty much factored into the economy, the real cost would be minimal since the current dollar value would be in steady decline. The demand for US bonds remains high because the probity of the US remains unquestioned – our debts get paid. And the people, now unemployed or underemployed, would have long term, good paying jobs, so that tax receipts would increase, helping pay off the debt.

It won’t last – normality will return, but the special situation is still available. Given a Congress that understands, we can still do big things.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@outlook.com.

From The Progressive Populist, September 15, 2016

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