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More government spending

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More government spending

Paul Krugman has been arguing for a second round of fiscal stimulus in the United States. He believes that unless the government pumps an additional $700 to $800 billion into the economy, the recovery will be slow and the unemployment rate will remain stubbornly high for several years.

I applaud his concern for the unemployed. However, I do not believe that another round of spending is necessary.  Nevertheless, President Obama is injecting another $200 to $300 billion into a number of specific programs by using the remaining spending authority in TARP. TARP was established for one purpose and is being used for several others, and Obama is even considering taxing the banks to pay for the inevitable losses on these other spending initiatives.

Krugman is right to point out that there a number of critical areas where government spending could have very positive impacts on the economy, both in the short run and over a longer time horizon. The U.S. faces a significant infrastructure deficit – airports, roads, air traffic control, public transportation, water systems, hospitals, schools, energy efficiency, electricity generation and broadband capacity. The U.S. needs to make massive investments to bring their schools and hospitals into the 21st century.

The spending requirements to rectify the infrastructure deficits likely far exceed Krugman’s $700 to $800 billion spending goal. But Krugman should realize that sound economic policies rarely translate into good policies. Good ideas, once they go through the political grinder, generally come out in unrecognizable form.

I spent a few years in the center of policy making in Ottawa, and I do not remember any sound policies coming out of the system. My role became one of simply pointing out that the policy options being considered were all bad, and that one policy stood out as being the least bad of the bunch.

Unless the President has discretionary spending authority, Congress, politics and special interests get in the way. One needs only to take a look at the original stimulus package, and the health care and financial services regulatory reforms working their way through Congress to discount the likelihood that the U.S. political system can produce good policies.

The original fiscal stimulus resulted in numerous and unnecessary pork projects. Supposedly they were required to buy votes because the President did not take the lead and go directly to the public with his recommendations. Krugman should know better that a second round would produce as much, if not more waste as round one.

Krugman and other academics could be playing a more important role if they pointed out the lunacy of the existing system, and reported all of the waste and absurdities in the legislation that gets through. The electorate would be appalled, even when many are direct beneficiaries of the system. For at the end of the day, all taxpayers pay for the waste and future legal battles.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public ad International Affairs.


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