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Publisher's Note: Wow, that's stimulating
By Jody Reese
Economists have long debated government’s role in our economy. This recession around, it appears those who want a larger government role in the economy are in the majority. To be fair, I share that view. Government clearly has a role in how our economy is regulated and has a huge role in fiscal policy through taxation.
In the primaries last year, former Arkansas governor Mike Huckabee suggested that instead of giving taxpayers a stimulus check, government should use money for infrastructure (roads, bridges, sewers and schools) improvements. That idea seems to have caught on in the Democrats’ stimulus bill, where they are committing to spend $600 billion or more for those kinds of programs. In total the Democrats want to spend between $800 and $900 billion on a mix of tax cuts, infrastructure and aid to the states in the form of health care and other social spending. Republicans by and large have opposed this plan as too expensive and too spending-heavy.
It’s a tough call. What’s an appropriate level of spending to kick us back to economic health? Republicans want to spend in the $400 billion range. How much debt is too much debt? It’s not as if we have this money in the bank. We’re borrowing it.
Midway through the Great Depression President Franklin Roosevelt thought he had done enough and tightened spending to bring down the debt levels and caused a worsening of the Depression. It finally took a world war to bring us out of it. How was he to know?
What we do know is that unemployment is quickly rising, making this the worst employment situation since the early 1980s. Given the experiences of the Great Depression and the worsening unemployment, it makes sense for the government to do something quickly and make sure it’s big enough to make a difference.
However, there is something to be said for letting the market correct itself and reduce the value of real estate, stocks, bonds and commodities (not that I personally want to see this). If prices dip there, investor money may come out and buy those assets and put them to work – putting many people to work. For example, if someone were to buy foreclosures, fix them and resell them, that’s positive economic activity that creates jobs and wealth.
It is possible for both a stimulus package and investor activity to work, but that means that plans like Arizona Senator John McCain’s plan to offer homeowners 4-percent government-backed mortgages are probably a bad idea, though they appeal to me personally. Such a plan would keep investors out of real estate and likely prolong the malaise. There would be little investment and no people put to work fixing distressed properties. Sadly, the best course is likely to let property values drop.
However, if people are able to keep their jobs or find work through government stimulus spending, then a double negative quickly becomes a win-win. Property values decrease sharply in the short term, but they’ll rise in the long term and continue to allow younger people to buy homes as they start families.
There isn’t such thing as a perfect economic plan. Economics isn’t a science, it’s an art. And like art, it’s subjective.
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