A Good Idea, But… August 30, 2010Posted by Dwight Furrow in Uncategorized.
Tags: The Great Recession, William Galston
Democrats and Republicans have competing views on how to end this recession. Democrats want more stimulus and government spending to increase demand for goods and services; Republicans want to cut taxes to encourage more spending on consumer goods.
But there is reason to think neither strategy will work.
Over the past 30 years, consumers have been spending more by going into debt assuming that increased value of assets such as homes will keep them solvent. But that created artificially high prices, especially in real estate and real estate-backed securities, that collapsed when the financial crisis hit. Thus, there has been a massive loss of wealth since the beginning of the recession which makes it harder for people and businesses to borrow money and makes it harder to service the debt they have already incurred. Until the level of debt held by individuals is brought into line with current income levels, spending will be sluggish no matter what the government does. According to some economists, it may take 10 years to work of the excess debt in the economy.
So what to do about the recession? William Galston has the right idea:
A different era … How long will it take our policy makers and political parties to absorb the implications of that stark, undeniable phrase? When they do, they will realize that we have only two strategic options: Either we accept years of sluggish growth and high unemployment, or we shift to a new model that mobilizes the record level of private capital now sitting on the sidelines for public investments that will boost economic activity and employment in the short term, and economic productivity and growth in the long term, while generating rates of return sufficient to interest investors.
This is why we need a national infrastructure bank as the linchpin of a public investment strategy driven by economic analysis rather than congressional politics. Rather than bridges to nowhere, we need a bridge to the future. It’s time for hide-bound appropriators to get out of the way.
Our nation’s infrastructure is old and deteriorating. Now is the time to mobilize capital to rebuild it and put people back to work as well.
But what Galston fails to mention is that conservatives are likely to see a government supported infrastructure bank as more “socialism” since the idea is coming from Democrats.
Why would they be more welcoming toward this idea that any of the others Democrats have floated?
The problem is not a lack of ideas; the problem is Republican intransigence fed by public ignorance.
For political commentary by Dwight Furrow visit: www.revivingliberalism.com