As an economist I have studied the history of recessions and depressions and as an elder member of that tribe, I have lived through several recessions. In the past, the government was careful not to “talk the economy down.” I thought I knew why this was happening during the campaign – it provided the Democrats with short term political advantage. Since they won and have the White House and Congress, I am mystified by why they continue to hammer consumer psychology. From this point forward they are responsible for what happens; remember “it’s the economy, stupid!”
Does this mean the Democrats do not understand how fragile confidence can be during a deep recession, or does it mean the Democrats have some other rational motivation for making a bad situation worse? Clearly, the public is more likely to accept radical solutions the bleaker the outlook and the more urgent the situation. The global warming extremists use this strategy: create an impending doom and people will do things without thinking it through.
If you have faith the public is rational and the policy you recommend is indeed carefully formulated, why would you need to stampede people into an immediate decision by creating such fear? The situation is not that urgent. We need to do something, but we do have time to get it right. Otherwise, there will be enormous unintended consequences three to five years in the future.
This crisis will pass and we will have new problems to deal with, some of them will be the consequence of what we do now. In the long run jobs are created by the private sector. In the short run government can get the ball rolling when confidence is low; but if those short run jobs persist into the longer term they crowd out private sector jobs and eventually they wind up being a permanent government subsidy. Therefore, real government stimulus programs are composed of tax cuts and infrastructure programs.
We need to make investments in public capital goods like highways, bridges, sewer systems, water supplies, and airports. Like all capital investments the infrastructure projects approved should be those with the highest social return. Classic pork projects like the “bridge to nowhere” are not just wasteful; they deprive us of projects that could in fact permanently make the economy more productive. It matters a great deal which infrastructure projects get approved.
I believe in the collective wisdom of our democracy. If we present people with the facts, they will make the right decisions. The public does not need elite groups to make decisions for them. We will recover, as we always have. Those throwing dirt on our grave are more than a little premature.
Robert E Martin
Emeritus Professor of Economics