A Case for Libertarian Progressivism
Writing at the New York Times blog Economix, Ed Glaser argues for a “small-government egalitarian” plan for economic stimulus:
Libertarian progressivism distrusts big increases in government spending because that spending is likely to favor the privileged. Was the Interstate Highway System such a boon for the urban poor? Has rebuilding New Orleans done much for the displaced and disadvantaged of that city? Small-government egalitarianism suggests that direct transfers of federal money to the less fortunate offer a surer path toward a fairer America.
Current American political discourse labels people as either anti-government or pro-equality, but wanting to help the poor should not require the abandonment of sensible skepticism about expanding the size of the state. Many of my favorite causes, like fighting land use regulations that make it hard to build affordable housing, aid the poor by reducing the size of government. In the wake of Hurricane Katrina, I also argued that it would be far better to give generous checks to the poor hurt by the storm than to spend billions rebuilding the city, because those rebuilding efforts would inevitably help connected contractors more than ordinary people.
Today, the New Deal’s heirs are vociferously arguing that more of the stimulus package needs to be spent on public works rather than tax cuts. The big-government skeptics point out that the government can’t spend hundreds of billions of dollars on infrastructure projects both wisely and quickly. Good infrastructure spending doesn’t happen on a dime, and applying a “use-it-or-lose-it” rule to speed up spending will lead to a lot of waste. The country could certainly invest more, in both human and physical capital, but that spending should follow the rule that benefits must exceed costs. Good investments need plenty of time to plan and implement, which pretty much rules them out as good fiscal stimulus.
Targeted tax aid for poorer Americans would be far more egalitarian than most kinds of infrastructure spending, like broadband technology. Sensible infrastructure projects wouldn’t disproportionately employ the least-skilled Americans. Forgoing the payroll tax for households earning less than $75,000 a year is surer progressivism than bridge-building.
For what it’s worth, Singapore uses a similar method of dealing with recessions, which seems to work pretty well.
(HT: Ross Douthat)
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Hmm, sounds to be like the Saudi approach– don’t use the oil wealth to leave behind any productive assets to benefit the future, but squander it by boosting income today (of course, the Saudi approach is tilted more to the elites, but still….). Personally, I think rebuilding cities and developing high-tech public transportation systems are good investments and provide good stimulus– who do the construction companies hire, do you think?
Hmm, sounds to be like the Saudi approach– don’t use the oil wealth to leave behind any productive assets to benefit the future, but squander it by boosting income today
Defenders of the stimulus have this habit of switching between two different justifications. If you question whether the spending will be on something worthwhile, they will say this doesn’t really matter, as the point is just to spend on something, anything, in or to stimulate the economy. Start to question whether the plan really is the best way to stimulate the economy, however, and they will start talking about how great the new projects will be.
It’s estimated that this year’s deficit will exceed 1.2 trillion dollars. That’s before the stimulus. If someone wants to argue that the spending projects in the plan are going to be so productive that they are worth running a 2 trillion dollar deficit, they are welcome to try and make that case. But unlike the Saudis, we aren’t sitting on a huge oil generated surplus.
Over at the Upturned Earth blog, John Schwenkler has made good arguments that sweeping government legislation often undercuts the goals that such legislation is trying to achieve- and often does so by creating a large and complex legal environment were only large corporate entities can act and thrive. He has focused particularly on environmental and agricultural policies, examples of which can be found at his blog. Of course, many others have drawn attention to the phenomenon of the mutually beneficial relationship that often exists between big government and big buisness, a relationship which is often obscured by the assumption that these are necessarily at odds with one another. My own thoughts on this matter have been formed by my experience growing up in a rural environment (Southcentral/eastern Oregon) where the state’s century-long attempt to legislate away the “competing” interests of local tribes, farmers, and environmentalists with regard to water rights led to a tangled and intractable mess that inevitable hurt the little guys (small family farmers). In contrast, certain people by passed the legal mess (which wasn’t always easy) by simply using their ingenuity and good will to collaborate with others to find a just solution which didn’t involved the arbitration (‘interference’ might be a better word) of larger bodies. Our family friends the Hydes are a good example. At their ranch, Yamsi, they were able to collaborate with others to find solutions congenial to all. They turned large parts of their ranch into wetlands in order to create vibrant ecosystems and they collaborated directly (sans lawyers) with tribal officials to make sure their water needs were respected (the ranch is at the headwaters of a major river). In order to sustain itself economically, the ranch had to adapt, which it did by offering flyfishing tours in addition to raising cattle. It did all this without, and in spite of, government action. I know that this cannot always be the case, but it seems to me that more often then not it can, and that those who have the greatest interest in making this kind of collaborative initiative happen are those local actors and entities which have the greatest stake in their communities well being, as opposed to large corporate bodies with armies of lawyers able to negotiate complex legal landscapes which can otherwise drown smaller bodies in paper and prohibitive costs. It seems to me that government legislation (especially sweeping federal legislation) is too blunt an object to deal with these problems and that recourse to such help often undercuts local bonds and relationships which can otherwise be the principal of great creativity. We might also ask how huge the huge transportation infrastructure projects of the past have contributed to our current unsustainable way of life with regard to petroleum consumption and the way our agricultural system is run (with much of our fruit and vegetables being engineered and produced by corporate farms with an eye toward easier long distance transportation and trade.)
You want the best bang-for-buck as possible. You will achieve that by spending, not tax cuts or transfers. Formally, spending multipliers are higher, both theoretically and empirically. To put it simply, a dollar spent goes directly to aggregate demand, but tax cuts or transfers can be saved– especially in an uncertain environment when people build up precautionary savings (having universal health care would help here, but that’s another story).
So we have spending, what type of spending? Clearly, capital spending makes more sense, as it will direcly affect employment and have the benefit of leaving an asset behind. What’s wrong with wanting to maximize the benefit?
To put it simply, a dollar spent goes directly to aggregate demand, but tax cuts or transfers can be saved– especially in an uncertain environment when people build up precautionary savings
This is just an accounting trick. If the government gives money to people they may spend part of it and save part of it, whereas if the government gives money to people and makes them dig holes, they still may spend part of it and save part of it, but all of the money will be counted as part of aggregate demand.
Another problem with fiscal stimulus is that it takes to long. According to the AP, for example, only seven percent of $274 billion in infrastructure spending would be delivered into the economy by the Sept. 30 end of the budget year.
MM,
Voodoo economics. http://online.wsj.com/article/SB123258618204604599.html
Em, no– it’s not actually core national income accounting, not a “trick”. You need to look up how the Keynesian multiplier is calculated, as you seem to be confusing the initial and the secondary impact.
Kevin– sorry, but I smiled when I saw you use the term “voodoo economics” and link to the Wall Street Journal, whose editorial page has been at the forefront of promoting real voodoo ecomomics for the past quarter century. On this particular issue, Barro is being a bit disengeniious– see Krugman for a refutation:
http://krugman.blogs.nytimes.com/2009/01/22/war-and-non-remembrance/
http://krugman.blogs.nytimes.com/2009/01/23/spending-in-wartime/
Another issue: you seem to be confusing the deficit with the size of government. It’s possible to have big government and small deficits (Sweden) and small government and big deficits (US). Stimulus means increasing the deficit by discretionary policy, not automatic stabilizers. You can do it by cutting taxes or raising spending. I have argued that the latter is better in terms of bang-for-buck.
The “size of government” debate is a whole other argument, related to the level of spending and taxation, and depends on the preferences of society. It has nothing to do with stimulus.
The standard equations for calculating the multiplier can be found here.
Now compare the standard government spending equation with the standard lump sum tax equation (I can’t reproduce them on my keyboard, unfortunately). If you look closely, you’ll see that there are two differences between them. First, there is a different variable representing the amount of the government spending vs. the amount of the tax cut (which is fair enough). Second, in the government spending equation, you divide by one, whereas in the lump sum tax equation you divide by -bc (where bc is defined as the marginal propensity to consume).
That’s the trick. If you give every American $1000 tax rebate, you use one equation, with one multiplier. Give every American $1000 but classify it as payment for services provided (say, thinking happy thoughts), and you get to use another equation and, the multiplier increases. Like magic.
On Krugman vs. Barro, it’s Krugman who is being disingenuous. Krugman has long used WWII as an example to support the effectiveness of government spending as a Keynesian solution to economic troubles, yet when Barro actually runs the numbers and finds that the multiplier wasn’t that big, suddenly it’s an irrelevant example on account of x, y, and z.