I've been wary of the rising talk of the need for another economic stimulus package. Lots of folks behaved sensibly and used that first batch of free money from Uncle Sam last spring to pay off debts or actually boost their savings. Unfortunately, such rational behavior doesn't do much good in an economy based on irrational and excessive consumer spending. Thus, the spring stimulus didn't save us (or John McCain's candidacy) from economic crisis. With more job losses, folks are even more inclined to take any stimulus checks and save them to ride out whatever trouble may be coming rather than spending them on consumer goods. Another round of tax rebates or tax cuts would likely miss the mark as badly as the first round.
So what can we do to jump start the economy? One of my favorite eggheads, Robert Reich, says pour on the stimulus—$600–$700 billion worth—but don't give it to folks to buy Big Macs and Wal-Mart junk. Pour it into something that will last: infrastructure!
The answer to the second question [what to spend the stimulus on] is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs [Robert Reich, "The Mini-Depression and the Maximum Strength Remedy," TPM Café, 2008.11.09.
Guess who else thinks that kind of economic stimulus is a bang-up idea: China. They still have 9% economic growth, but they're not waiting to follow America down the recession crapper. China plans to pump $586 billion into ten areas: low-cost housing, rural infrastructure, new railways, new roads, new airports, health, education, environmental protection, high technology, and disaster recovery projects.
Reich says such a stimulus package will actually cut deficits by putting people to work and "moving the economy to fuller capacity." He also says putting Americans to work will do much more good than just handing them money to spend on doodads made mostly overseas.
Put people to work, build things we really need, and take care of kids and the sick to boot. Sounds like a plan to me! I hope China finds that the Robert Reich stimulus plan works... and I hope, if America has to try another stimulus package, that we follow the same plan.
Update 16:15: Nobel laureate Paul Krugman argues that FDR's short-term economic stimulus efforts during the Depression floundered not because they were too bold, but because they were not bold enough. Krugman's advice to Obama: "figure out how much help they think the economy needs, then add 50 percent." Gulp!
Krugman also gives this quote from Rahm Emanuel: "You don’t ever want a crisis to go to waste."