$600 Billion Worth of Payoffs?

It seems that all the spending interest groups are in Ecstasy over the prospect of a huge stimulus package coming out of washington. If $150 billion wasn't enough last spring,  the answer is that it wasn't large enough. Paul Krugman suggests a figure of $600 billion, about 4 percent of GDP. Other commentators have paraded larger piles of cash before the spending interests. "An amount of over a trillion dollars is a minimum needed for the present situation" said one commentator.

It is a tribute to human creativity that the answer to someone's debt problem is for them to spend more-- on the things that will benefit others and calling it "investment". Adding solar panels to government rooftops or insulating old folks houses may sound pleasant, but they are hardly serious answers to heavily indebted people's problems. Added highway spending may relieve congestion, or may not, but it chiefly moves economic activity around from older or unimproved routes, just as the new gas station or fast food joint takes business from the old one in a mature market. Adding a few months to the period of unemployment insurance  will help people in need, helping to feed them while they look for a job (or hold out for a better offer), but those people will not be able to pay their mortgage, since the amount can never going to be large enough.  Nor can bailing out every institution create prosperity, or even much relief, just as the take-over of the railroads and the creation of Conrail and Amtrak did not create a prosperous rail service. Using subsidies to create new "green" energy industries will just create more industries dependent upon subsidies, just as it has since Nixon's "Project Independence" some thirty-odd years ago.

The greenies need other arguments to enact their agenda. While global warming and alternative energy may be superficially popular issues, few are ready and willing to endure the sacrifices and poverty they are really demanding. This year they are envoking the spirits of two of the most corrosive ideas popular in the American political tradition -- Alexander Hamilton's infant industries argument and Keynes pothole argument.

Back when Hamilton was the first secretary of the treasury, his first message introducing the tariff included the idea that the federal government could help create new industries in the young country by giving them special preference, special protection from competition, by selective use of the tariff schedule. Critics said perhaps these industrial infants might never grow up to support themselves, once accustomed to special favors. Much of the conflict and lobbying of the next 200 years can be traced to this policy.

During the Great Depression of the 1930's, John Maynard Keynes (later Lord Keynes) became famous for the ideas express in his monumental "General Theory...." which remade economics and established many of the concepts of macroeconomics. While many of his ideas were bastardized into crude cartoons,  his basic remedy for unemployment was manic government spending, since he viewed unemployed resources as a unambiguous deadweight loss. He even stated that society would be enriched by burying pound notes and launching a scavenger hunt. Disciples spread a gospel of the free lunch and a solution to the business cycle all over the Western world. The results of this political excuse for "stimulus packages" were major and long lasting. While in 1929 the US government spent less than three percent (yes 3%) of GDP, by 1975 they were spending more than twenty percent. Since fear of recession and depression were major fears for that generation, and experience of  inflation and devaluation were not, the federal budget was balanced only rarely from 1929 to 1998 (a few years during Eisenhower).