Economic Costs of Inaction Should Make State Aid a No-Brainer for Congress
by Gary Therkildsen*, 6/15/2010
In a post this morning on his Beat the Press blog, Center for Economic and Policy Research (CEPR) economist Dean Baker makes an interesting point when he laments the one-sided economic reporting on President Obama's recent request for quick action on several economic stimulus measures languishing in Congress. While the president's demand would add nearly $80 billion to budget deficits over the next decade, inaction on these aid measures will likely reduce gross domestic product (GDP) by $120 billion and eliminate 800,000 jobs.
The packages the president is urging action on include the continually-shrinking-yet-still-hard-to-pass "extenders" bill, state aid to help prevent public sector layoffs of teachers, firefighters, and policemen, and state Medicaid help.
A Washington Post article on the president's proposal, which Baker derides for not providing the contrasting economic costs of congressional inaction, quotes Sen. Ben Nelson (D-NE) on the reasons for his opposition to the president's plan:
Sen. Ben Nelson (D-Neb.) said [the deficit increases are] too much at a time when the total national debt is $13 trillion and rising. "The more we borrow on these important areas," he said last week, "the more I think we will retard the recovery period dramatically because of more deficit and debt."
Nelson needs to add a competent economist to his staff, because there is zero evidence that deficits and debt are going to start affecting the nation's recovery anytime soon. Indeed, it's a lack of deficit spending that "will retard the recovery period dramatically."
In his utterly confused opposition, Nelson is more than likely referring to the threat of inflation due to increased government borrowing. But as noted economist Paul Krugman recently observed, "Right now, investors don't seem at all worried about the solvency of the U.S. government; the interest rates on federal bonds are near historic lows." And there's no indication that that's going to change.
Policy makers, unfortunately, seem to be driven by a belief "that we must worry about the chance that markets might start expecting inflation, even though they shouldn't and currently don't." And this belief is growing among law makers, a group Krugman has labeled the "Pain Caucus" due to their predilection for enforcing fiscal austerity while the economy is still struggling.
I get that there is worry about political consequences to passing stimulus measures without offsets – though I still think the public worries more about jobs than they do the deficit – but no member of Congress can make a credible economic argument against passing these aid proposals.
Image by Flickr user Reigh LeBlanc used under a Creative Commons license.