The problems with a fiscal stimulus
As Congressional leaders meet to discuss Obama's new stimulus package, many people are questioning what should be included. But commentator Tyler Cowen questions whether a fiscal stimulus is the best way out of a bad economy.
Tyler Cowen (George Mason University)
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Kai Ryssdal: Whatever the politics of a new stimulus package turn out to be -- and they are going to be big -- there are going to be a lot of questions too. Tax cuts or more spending? Infrastructure or green jobs? Commentator Tyler Cowen says Congress ought to be asking whether there should be a stimulus package at all.
Tyler Cowen: Borrowing and spending more money isn't the way out of a bad economy. Recovery is really about economic production. The phrase "fiscal stimulus" sounds like it will do good things but in reality it's not so simple. First, a lot of project ideas won't put unemployed people to work. Take solar energy, which would be wonderful if it were cheaper. The whole point of solar energy is that the sun does most of the work. A new technology could be invented by scientists, and designed by engineers, but those are exactly the people who already have jobs and are least likely to lose them. Obama also proposed broadband access for everyone, but again, that kind of construction doesn't match the skill set of the current unemployed.
Second, quick projects are usually wasteful projects. Good new projects need to be thought out and planned. The environmental impact study alone can take years. But Obama has told the state governments they will have to "use it or lose it" when it comes to federal grants. The result will be a lot of poorly conceived projects just to capture the money.
The biggest problem with a fiscal stimulus is this: our economic problems stem from having spent too much in the first place. Now that our homes are no longer rising in value every year and America is aging, more saving is in order, not more spending. Recovery will come only when we discover which new and valuable things the economy should produce as it shifts out of real estate and finance. Simply borrowing and doling out more cash doesn't solve that problem.
The Federal government shouldn't just sit still. It's important to help state and local governments preserve their current budgeting and that task will prove hard enough. We're all hoping for an economic revival, but the bitter reality is that we will be very lucky simply to hold even and prevent further declines. Fiscal stimulus won't change that fact.Ryssdal: Tyler Cowen is a professor of economics at George Mason University.
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From Mesa, AZ, 01/11/2009
From what I have seen the solar power plans which use reflected sunlight don't look very high-tech. They are rows and rows of reflectors, pipes and turbines etc. Just the type of stuff you could make in closed-down auto plant. Just the type of stuff that auto workers are used to making!
From merrimack, NH, 01/09/2009
Let's see, the claim is made that quick infrastructure project are wasteful, can't happen quickly, blah blah....
So, according to the Tyler Cohen's of economic theory and ideology, the I-35W bridge that collapsed less than 18 months ago after replacement was delayed until 2020 because the half billion dollar replacement cost would have required tax increases, must be years from starting with the price tag sky rocketing, with no one available to do the work.
Well, Tyler needs to leave the ivory tower and take a drive over the bridge he knows can't exist. The replacement bridge was completed some months ago, taking far less than the projected three years for a normal lots of planning and review project.
The bridge collapsed on August 1, 2007, five bidders expressed their intent as of August 9, bid submitted by September 18, the contract awarded on September 19. The cost was projected to be $300 to $350 million, but the winning was for $234 million, and that included penalties for failing to complete construction within 15 months and rewards for completing it ahead of schedule. Public hearings were held in August on the requirements for the bridge, and the design required to include more lanes and capacity for future light rail.
The first concrete was poured on December 17, 2007 with the contract calling for completion by December 24, 2008, and the bridge was completed on September 18, 2008, three months ahead of schedule.
The bridge is high tech with monitoring sensors so the bridge performance can be monitored, and the bridge automatically deiced.
Now what I want someone to explain is how a project can be done in about one-third the normal time for replacing a bridge with lots of planning, and done for a price that is lower than normal, and delivered ahead of the accelerated schedule.
Perhaps marketplace can investigate and explain how the government did the impossible when it came to this quarter billion dollar infrastructure project?
From merrimack, NH, 01/09/2009
Let's see, the claim is made that quick infrastructure project are wasteful, can't happen quickly, blah blah....
So, according to the Tyler Cohen's of economic theory and ideology, the I-35W bridge that collapsed less than 18 months ago after replacement was delayed until 2020 because the half billion dollar replacement cost would have required tax increases, must be years from starting with the price tag sky rocketing, with no one available to do the work.
Well, Tyler needs to leave the ivory tower and take a drive over the bridge he knows can't exist. The replacement bridge was completed some months ago, taking far less than the projected three years for a normal lots of planning and review project.
The bridge collapsed on August 1, 2007, five bidders expressed their intent as of August 9, bid submitted by September 18, the contract awarded on September 19. The cost was projected to be $300 to $350 million, but the winning was for $234 million, and that included penalties for failing to complete construction within 15 months and rewards for completing it ahead of schedule. Public hearings were held in August on the requirements for the bridge, and the design required to include more lanes and capacity for future light rail.
The first concrete was poured on December 17, 2007 with the contract calling for completion by December 24, 2008, and the bridge was completed on September 18, 2008, three months ahead of schedule.
The bridge is high tech with monitoring sensors so the bridge performance can be monitored, and the bridge automatically deiced.
Now what I want someone to explain is how a project can be done in about one-third the normal time for replacing a bridge with lots of planning, and done for a price that is lower than normal, and delivered ahead of the accelerated schedule.
Perhaps marketplace can investigate and explain how the government did the impossible when it came to this quarter billion dollar infrastructure project?
From TX, 01/08/2009
"doesn't match the skill set of the current unemployed"
All I want to know is just who he thinks "the current unemployed" are and what their capabilities are.
From Bethel, CT, 01/06/2009
After the scientists and engineers invent and design, and before the "sun does most of the work", someone has to plan and schedule production, fabricate the parts of a solar panel, assemble it, test it, package it, ship it, receive it, advertise it, sell it, deliver it, install it, and so on. Then there are trainers, data-entry workers, maintenance, supervisors, managers, the food service workers in the factory cafeteria, and so on. Few of these jobs are done by scientists or engineers. Delivering broadband access to all will similarly employ people with many different skills, from ditchdiggers to technicians.
Well, he may not know how manufacturing industries work, but at least the professor is equally ignorant about who is at risk of unemployment; I was there when my former employer laid off engineers in multiple rounds of cutbacks, as well as some of the few scientists, including PhD's (myself among them, eventually).
From Seattle,, WA, 01/06/2009
Who is Tyler Cowen kidding? "The whole point of solar energy is that the sun does most of the work?" Has he ever tried to figure out the correct amount of panels to install so the most power possible is generated? Has he designed their layout so they are efficient? Has he installed those panels?
Maybe he has and he thinks it's easy. So I've got news for him. There are many types of "green" jobs out there that will put people back to work from manufacturing turbines for wind mills (talk to folks who used to make parts for cars about whether spending money on re-training them is a good idea) to bringing recycling onshore and to communities that have been gutted by industry in the past (see what Oakland, CA is doing to stimulate this kind of industry).
These are just some of the types of jobs that will be created in the new "green" economy and will help turn this country's economic situation around. Yes, it will take spending now, but the cost will bring great returns in the not-so-distant future.
Charles Redell
Associate Editor
Sustainable Industries
From Winston-Salem, NC, 01/06/2009
"We are on the brink of a new paradigm, and this requires the boldest leadership we can find."
Maybe. It appears we need some help, and that more govt. spending is the type of help that will be attempted. However, even if this works, we must acknowledge that too much spending (esp. govt.) has been a significant cause to our problems. Cumulative deficit spending is very bad!
Second, we must produce locally, which means maunfacturing goods in the US, and our own citizens buying those goods.
From WA, 01/06/2009
I am writing in response to Mr. Cowen's statement "A new technology could be invented by scientists, and designed by engineers, but those are exactly the people who already have jobs and are least likely to lose them." Wrong, wrong, wrong ... Where do you get the notion that scientists are magically protected during an econimic downturn? Research/Development is one of the first things companies and the FED cut back on during an economic downturn. During a downturn, if it does not affect the immediate bottom line it gets scrubbed. I know several people that have been laid off. I know university professors that have given up on applying for research grants. Please check a few facts before making such sweeping statements.
From Lafayette, IN, 01/06/2009
The problems with the US economy seem so obvious to me that I am surprised when I hear economic scholars like professor Cohen preaching on the error of spending our way out of the current situation. The no. 1 economic problem in the US, and by unfortunate extension, the rest of the world, has been the enormous waste of resources on the Iraq campaign. Year after year the Bush administration has poured not just American resources (assets), but the resources borrowed from every other nation on earth, to support a wasted project. If Iraq had been transformed and the middle east had become a major contributor to the world economic order, this investment might have been worthwhile. If those assets had been used to rebuild New Orleans, or to raise a new industry around green technology, the US would be leading the world to incredible prosperity.
It is still not too late to change course. If the new administration prints truck-loads of money, directs its use toward building a new auto industry focused on electric cars charged by power plants fueled by renewable energy, the world will lean toward prosperity once again.
Americans are demoralized by the decline in America's industry--as represented by GM, Chrysler, and Ford. What I believe Americans are looking for is not a tax break, but the restoration of America's productive vitality. We need Obama to set this in motion, then let the rest of us build momentum.
Tax breaks that go to the bottom of the tax bracket will go to immediate expenditure for food, housing, clothing, and other non-discretionary spending. Professor Cohen's comments that it would or should be saved, is short-sighted.
We are not living through a short corrective phase in this economy. We are on the brink of a new paradigm, and this requires the boldest leadership we can find. I hope Obama and his cabinet live up to expectations.
From IN, 01/06/2009
I may be getting older -- at age 77 -- but I firmly believe: THE WAR IS THE ECONOMY! End the Iraq and Afghanistan Wars and the economy will vastly improve directly proportunate to those decisive actions.
From Huntington Beach, CA, 01/06/2009
I agree with Professor Cohen and the comments that spending is not the solution. The infrastructure spending after WWII created the basis for economic growth. The modern highways, power plants, power lines, telephone lines, sewer lines, and other infrastructure provided the basis for economic growth. In the 1930’s only 24% of households had washing machines, 40% radios, 51% indoor plumbing, 41% telephones (source Think Tank). Now that houses had plumbing and electricity, consumers could buy and use the then new technologies. For every dollar spent back then, there was multiple dollars of economic activity. The current plan of paving over existing roads will add jobs, but the dollar spent will only result in a dollar of economic activity.
From Washington, DC, 01/06/2009
I was taken abavk by my neighbor-scholar Cowen's comments re: energy investments. He claims that "those jobs" can't be done by the currently unemployed. But, in fact, whole communities can organize around a green-collar economy -- wiring, insulating, installing, transporting, and so on -- in pursuit of efficiency targets that take us away from the draining dependence on declining resources. Just open box, apply imagination, and get out of the way.
From Hyattsville, MD, 01/06/2009
The most important things that Tyler Cohen said was that a big government spending program financed by more debt is not the solution to our problems because its our HUGE INDEBTEDNESS that is core of the problem. Our government is borrowing billions every week just to stay afloat and we owe most of the debt to foreigners. Our nation's current economic model is flawed. It's based on Borrowing and Consumption. That has always been a receipe for disaster and disaster is what we have. Autrian economists (of which Cowan is one) have been saying for years the our economy is flawed and was headed for just what has occurred. Check out Jim Puplava's FinancialSense.com or Peter Schiff at Euro-Pacific Capital if you want economic truth. Keynesian eoncomics and Milton Freidman's Chicago School are flawed because they don't see the long term problems of debt based fiat currency.
01/05/2009
http://usuprojects.ning.com/
Please check this out. It is an open source intellectual property project consortium of students, the unemployed, over employed, and everyone in between. More project work and brainstorming sessions will add to the GDP. There are a lot of students wasting their potential output on class projects. There are a lot of projects wasting away in corporate America that never get done. The unemployed are trying to transition to whatever the next great wave of productivity will be. Why not instead, just have them participate in that future which is now??!! Isn't that the best way to build these skills and our future???
http://usuprojects.ning.com/
From Portland, OR, 01/05/2009
Mr. Cohen is WAY off track, thinking only in the short term is what created the horrible mess we are in today. Yes, we could create a bunch of jobs that continue the status quo, but how will that help us in the long run? Rather, the US could be leading the way in green energy, just as we did in the industrial and technological revolutions. As it is today, we lead in no field and we are quickly slipping behind in all. This is more than making a quick buck, it is about keeping our standing on the world stage. Right now, who respects us? If we have nothing to offer, not even our gross consumption, I don't think any country, friend or foe, will stand by our side in times of trouble. This is more than about getting Americans out of debt and into jobs, it is about our future.
From NJ, 01/05/2009
Dr. Cowen, as many commentators note, is so far within the box that it is painful to listen to him. He begins by criticizing the cost of solar panels but does not fully internalize the cost of coal-fired power thus suffers from the well-known anal-olecranon syndrome.
As to engineers and scientists, their jobs are also being outsourced, as are faculty members, e.g., Phoenix University, perhaps that should include his.
He should refer to the excellent article by David Cay Johnston in mother Jones to present a more meaningful discourse.
01/05/2009
Mr. Cowen isn't just making this stuff up. If a project is going to add to GDP, somebody's going to make money off it, meaning the best projects are all being undertaken without stimulus so that people can make money. Government spending that efficiently adds to GDP (education, job placement, "safety net" programs to ease frictional unemployment, etc) takes a pretty long time to work because it is not direct.
From Marlborough, MA, 01/05/2009
I would say that Prof. Cohen not only suffers from lack of imagination, but total lack of understanding about energy! To say "The whole point of solar energy is that the sun does most of the work. " According to this logic, the whole point of gasoline is that the liquid does most of the work. Investing in Solar, or other renewables is an investment in INFRASTRUCTURE with PAYBACK lifetime on that investment that exceeds the investment. We spend money to save money. What part of this doesn't he understand?
From New York, NY, 01/05/2009
Tyler Cohen suffers from a failure of imagination. Solar engineers have jobs, but unemployed urban youth could be put to work surveying city rooftops for suitability for installing solar panels. That's just one example. And cities and states have already thought out the projects they'll be applying for and done the environmental impact studies. Conservative economists always say do nothing, but the WPA proved that doing something is the right decision.
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