Not So Dismal

Making Economics a Little Easier to Understand

Posts Tagged ‘stimulus

Re-Writing the Rules

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From today’s Politico Arena question: “The economy: How big a stimulus? How wide a rescue?”

It depends on what indicators take priority. If the goal is to make stock market values rise quickly, then an immediate reduction of the capital gains tax to 0% would do wonders to bring buyers back into the market. However, because these would be speculators looking to take advantage of a limited-time tax break, this could simply be another shot in the arm that leads to an even deeper hangover recession a few years down the line.

If instead we agree that we’re in the midst of a broad reallocation of resources across the board (which is a recession’s part to play in free markets), then we can choose two routes. Either we allow the recession to take its course, lasting longer than we would probably like but resulting in a more efficient economy in the long run, or we make decisions at the governmental level about what priorities America most values. For example, how important is General Motors to this country? If we as a people decide that it is worth saving due to national pride or some other metric, then that is well within our reach.

Map of the US Interstate System

The key is that whatever decisions are made, they should be made with a larger sense of strategy. It’s maybe a bit distasteful but okay in the long run to run up a deficit in the present if it leads to strong returns in the future. Some people call this overspending; others call it speculative investment. It seems clear that government interventionism is here to stay for now. So be it: put the unemployed to work on green energy projects and on building this country’s infrastructure for the 21st century. Imagine what this country would be like had similar expenditures not been made the 1940s and 1950s. We can use this as an opportunity to set the ground rules for future economic growth.

Written by caseyayers

7 November, 2008 at 2:42 pm