Neil H. Buchanan

Fighting the Recession With Deficits: Do Advocates of More Stimulus Spending Need to Prove Their Credibility?

By NEIL H. BUCHANAN
Thursday, July 15, 2010

The U.S. economy continues to struggle, with the unemployment situation remaining stubbornly unchanged month after month. Currently, fifteen million Americans are unsuccessfully looking for work, and over a million of those have been out of work for two years or more. The job situation is so forbidding that millions more have reasonably concluded that searching for a job in the current depressed environment is sure to be fruitless. They have thus decided not to continue to beat their heads against the wall -- a decision that makes sense, but one that also removes those people from the official unemployment rolls.

The jobs situation has not been this bad since the Great Depression of the 1930's. Even so, as I discussed in a FindLaw column earlier this month, the U.S. Senate is deadlocked and unable even to agree to extend unemployment benefits for the long-term unemployed. This is both inhumane and self-defeating, because cutting off unemployment benefits will not only hurt the people who are already out of work, but also put more people out of their jobs as spending drops, and still more businesses are forced to close. Yet Republicans have united against a plan to extend unemployment benefits, apparently believing that an electoral strategy to win the mid-term elections is more important than the ongoing misery of millions of Americans who are jobless through no fault of their own.

The excuse, of course, is that we cannot afford to pay for these unemployment benefits, as well as other stimulative measures. The deficit, we are told again and again, is just too high. Even though the cost of the bill that is stalled in the Senate is about $35 billion, or about 2% of the deficit, it still is said to be too expensive.

Many have commented on the hypocrisy of those who oppose stimulative measures, yet happily voted to increase deficits in the past -- and who would gladly do so again, if the issue were not unemployment benefits. As disturbing as it is to witness the cruelty and hypocrisy of these lawmakers, however, there is another, equally pernicious argument that has also been made against using short-term stimulus to fight the recession and put people back to work.

That argument is that people who favor short-term stimulus have no credibility because they do not have a long-term plan to reduce future deficits. Such an assertion is nonsense. The economy needs more stimulus now; and those who raise what amounts to an ad hominem attack against proponents of further stimulus are deliberately distorting the debate.

During an Emergency, You Call the People Who Can Solve the Problem at Hand

In a recent editorial, The Washington Post inveighed against those who want to increase the short-term deficit in response to the worsening economic situation. The Post sneered: "We'd find the stimulus-now, spinach-later argument more credible if its advocates gave some hint of where the long-term belt-tightening will take place."

The idea the editorial expressed is deceptively appealing: Those who are willing to increase the deficit cannot be trusted, we are meant to believe. They are just the kinds of people who would have us "dig deeper into China's pockets," in the face of ambiguous evidence as to whether the economy really needs more stimulus. Such thinking, the argument continues, disqualifies anyone from being part of the deficit conversation, unless the person also has a plan to reduce the budget deficits that have been forecast to continue into future decades.

But such a requirement -- to force someone with a short-term solution to prove their bona fides by showing their commitment to long-term fiscal contraction -- simply does not hold up to scrutiny. Consider an analogy. Suppose you have a loved one who is having a heart attack, and the medical consensus is that surgery is the best option. As the surgeon heads into the operating room, however, you ask her to explain to you what she would have your loved one do to reduce the likelihood of future heart attacks. Exasperated and in a hurry, she says: "I don't have a plan other than to save this person's life today."

No sane person would prevent that surgeon from doing her job, even though she has no long-term plan regarding the patient's health. Yes, after the crisis is past (or even while you are in the waiting room), you will want to think about what to do to change the long-term prospects for your loved one. You might consider helping with a plan of exercise, or cooking healthier food. That does not, however, mean that the person who knows what to do in the immediate term must pass an ideological test to determine whether she is the kind of person you would want to consult on a long-term basis. In this analogy, the surgeon does not also have to be the nutritionist.

Both in the surgery hypothetical and in today's depressed economy, you want results now, and a person who can produce those results should always be welcome. The idea that people should be ignored in the current crisis because they have not articulated a longer-term plan is, therefore, silly in the extreme.

Who Truly Lacks Credibility? Shouldn't Long-Term Deficit Hawks Prove That They Have a Short-Term Plan?

Those who promote this argument -- the argument that everyone, to be credible, must bring a long-term deficit solution to the table -- are saying little more than this: "We do not like deficits, and people who do promote deficits are presumptively bad people. They should prove that they are really not out to harm the economy with their crazy pro-deficit ideas." This is not an argument against deficit spending to fight the recession. It is a non-argument that redirects attention to the supposedly sinister motives of those who advocate stimulus spending.

If we are to engage in such irrelevant inquiries into people's motives, however, it is notable that the editors of The Washington Post, and others who have endorsed similar arguments, do not themselves practice what they preach. They blandly acknowledge that deficits in the immediate future might be acceptable, so long as there is a plan in place to reduce deficits after the economy recovers. But they are really arguing against stimulus, even in the short term.

The Post's argument is ultimately that there should be no short-term stimulus, because those who argue for such an approach are insufficiently loud in their denunciations of long-term deficits. Their argument would be more credible, however, if they had a plan to improve the economy now, while it is in critical condition. Who cares if they are willing to call on politicians to make "hard choices" to take effect years from now, when they show no particular concern about the current crisis that we are in?

Is There Really an Emergency, Short-Term or Long-Term?

The easy answer for the spinach-now, spinach-later advocates is to say that the economy will simply fix itself. Even better, why not argue that there really is not such a big emergency now, since "We don't know which way the U.S. economy is heading"? Actually, we have very good evidence that the U.S. economy is going in the wrong direction quickly, and that efforts to cut off unemployment benefits only accelerate that trend. Moreover, there is nothing stopping us from putting in place stimulative policies that will be discontinued when the economy recovers.

Additionally, skepticism about deficit spending depends in large part on the belief that the long-term fiscal situation for the country is irretrievably grim. These longer-term forecasts are much less reliable than short-term forecasts about the effect of stimulus spending on the economy, simply because those forecasts cover longer periods of time; yet the voices of economic contraction are perfectly willing to believe the long-term pessimistic forecasts, while ignoring the short-term forecasts that support arguments for stimulus.

In fact, most of the official long-term forecasts of the U.S. debt situation do look quite worrisome. On the other hand, the pessimism in those forecasts is all driven by health-care spending, war spending, and the continuation of the Bush tax cuts. Nothing we do today regarding stimulus spending will change that.

The economy is currently in horrible shape, and all of the things that might make it stronger -- consumer spending, business spending, monetary policy, state and local government spending, and exports -- are stagnant or moving in the wrong direction. The economy has vast amounts of unused resources, in the form of both human beings and machines. Putting those resources back to work will help now, and it will also help later.

The central point, however, is that the policy debate is ill-served by suggestions that those who actually want to solve today's problems should be disqualified from even being in the room. We can have a reasonable debate about long-term fiscal policy, but the fact that we are having that debate cannot be allowed to justify our continued lack of urgency in dealing with the economic and human cost of the Great Recession.


Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

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