Why we might need more deficit spending

PHOTO: Sidewalk with inscription \'Constructed by Work Projects Administration\'

On the 2nd of this month I wrote a short snarky post about the explosion of our national deficit. I still think it was dangerous and stupid to borrow so much money (from China mainly) in a time of economic prosperity to spend on the war in Iraq and tax cuts for the rich. However, that doesn’t mean all deficit spending is bad, and in terms of the recession, cutting back on spending might be the thing that throws us into a full-blown depression.

If we were going to cut back on spending and start saving for the bad times, we needed to start doing that before we actually got into the bad times. By cutting spending on anything that may keep or create jobs now, all we’ll do is make the economic crisis worse. In fact, it makes far more sense to take the Franklin Roosevelt approach and create jobs through significantly more spending on things like new infrastructure and green technology that can have lasting positive effects.

Yglesias sums it up pretty well:

Meanwhile, as you may have noticed, there’s a credit crunch afoot. A lot of people or business who might think they have solid ideas about how to invest some money in new production or sales are finding they can’t get the loans they need to do that. One of the few entities that still can easily raise large quantities of money on favorable terms is the federal government. If the feds don’t take up that opportunity and borrow cash that gets plowed into something or other, then there’s going to be no new economic activity at all. What we ought to be doing is debating not whether to spend, but what to spend the money on since, clearly, it’s much better to have the money spent on something useful than on something pointless.

So when you hear fatalist questions in the media about what McCain or Obama will have to cut from their ambitious plans because of the crappy economy, they’re asking the wrong questions. We have to spur growth through spending if we want the recession to be relatively painless. So what’s the best way to do that?

Flick photo by Mark Sardella

One Comment

  1. Ian

    More deficit spending that we currently have? I would say no. Get us out of Iraq and use that money for some more pressing economic issues back home. Pass laws against loading pork onto bills. I mean… why not? Every politician claims to be against pork. I mean, states already have their own taxes, they can pay for their own “bridge to nowhere” if they really want it. We should use that federal tax money for nationwide programs, like upgrading our national infrastructure (like interstates).