Ideally, an expert on Keynesian economics would set Esenberg straight but, since Paul Krugman doesn't seem to be paying attention, I'll have to do. I lack Krugman's Nobel Prize but my economic qualifications probably roughly match Esenberg's.
Esenberg's first paragraph reflects the sudden Republican preoccupation with the budget deficit. Right-wing concern over fiscal responsibility lapsed for a a few years there (roughly 8) but no matter. Professor Esenberg asks "What does classical Keynesianism tell us about debt financed responses to a recession which was brought on by, at least in the administration's view, too much borrowing? Really, who knows?"
No one's arguing that we wouldn't be better off if the previous 8 years had seen a little more fiscal responsibility but the borrowing required to pay for the stimulus bill will amount to under 6% of annual GDP. The projected shortfall in output from an unabated recession is much larger. Critics worry, for the first time I've ever heard of, about some more prosaic effects of large-scale government borrowing. Professor Krugman has a more thorough treatment of that issue.
Esenberg goes on to fret again about the role borrowing played in the lead up to the current financial crisis asking,"Does it make sense to say, if people have borrowed too much and are now hunkered down, that the answer is to let the government borrow for them?"
I've talked about this before. It's the belief that times were so good and so lavish during the Bush administration due to over-borrowing. The recession is seen as the return to a reality where we all just have to learn to live within narrower means from now on. It's B.S.
During the "Bush Boom" economic output only ever scraped the bottom of the Congressional Budget Office's estimated potential GDP once, in 2006. The rest of the time the economy was running under capacity even with the housing bubble. The CBO predicts that, without intervention, we would fall below potential GDP by $3 trillion over the next two years. The stimulus package isn't large enough to fill that gap but the people whose lost livelihoods that $3 trillion represents might just appreciate the lifeline.
Next, the fear of the impending "entitlement crisis" and the horror of exploding our debt to the foreigns. Here, James Galbraith explains why blowing problems with future entitlements out of proportion isn't any excuse for failing to deal with the very current, very real economic crisis. Here, Professor Krugman explains to George Will why government borrowing, rather than putting us in hock to China (which has problems of its own), actually provides a safe haven for private investors looking for a place to put their money while the banks implode.
In the next paragraph, Esenberg invokes, consciously or not, Ricardian Equivalence, an economic theory so sound it was rejected by its own creator. The argument is that people will be wise to government borrowing and the stimulus will have no net effect as the populace will save an equivalent amount of money in anticipation of future taxes to pay off the debt.
If people actually responded to debt by saving the equivalent of the borrowed money as quickly as it was spent, we wouldn't have any sort of crisis right now because there would be no such thing as lending. What could possibly be the point?
For a more concrete example, let's look at an object lesson in how the U.S. populace reacts to government borrowing. In the first years of this decade the federal budget went from surplus to deficit. As public borrowing resumed we'd expect to see a commensurate increase in the private savings rate. Again, if we had, we wouldn't be talking about any of this.
The rest of Esenberg's article is standard right-wing nonsense:
- "The Stimulus is loaded with pork:" Mostly, conservatives are just cranky the whole damned thing isn't made up of expensive, ineffective tax cuts. The most I've ever seen someone pull out of the bill as "pork" is about a tenth of a percent and, like volcano monitoring, it usually depends on your point of view.
- "The Stimulus is too Slow:" For this Esenberg cites the payroll-tax-elimination part of the Republicans' quickly assembled, outrageously expensive permanent-tax-cut alternative plan (that should totally help with the "entitlement crisis") then cites a Washington Post article lamenting that $200 billion of the stimulus will likely be spent after 2010, which means that $587 billion won't. I'll be shocked if the economy's out of the woods by 2011 but, if it is, I'll enjoy the high-speed rail even more.
Before this, the only thing people like me knew about John Maynard Keynes was the line, "In the long run we are all dead."
In Keynes' full context, it reads, "... this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
Keynes was saying that it isn't enough to sit back and let things work themselves out when people are dying. Today, millions of people are losing their livelihoods and their homes. The stimulus package at least does something for them.
