And Where Would You Get This Saved Money?
February 1st, 2009 . by economistmom
Today’s Washington Post has “8 Questions on the Stimulus“–by Michael Fletcher. (There’s a video interview of Michael on the site as well.) I like that the Concord Coalition’s recent issue brief is cited under Question #2: Where would the money come from? (The question reminds me of Steve Martin’s line in the SNL clip that’s featured in the movie IOUSA–the skit “Don’t Buy Stuff You Cannot Afford” (hulu.com video linked here)–hence the title of this post.)
The money would be borrowed, adding a huge sum to the federal deficit, which is already projected to top $1 trillion, about 7 percent of the nation’s annual economic output. The spiraling deficit means increases in the nearly $11 trillion national debt. The money — much of it borrowed from foreign creditors — would have to be repaid eventually, meaning there would be less money available for future needs. Committing to large and persistent deficit spending beyond the recession could eventually undermine the attractiveness of U.S. Treasury debt to global investors, threatening America’s access to low-cost borrowing, according to some analysts.
That said, it is clear that there is no other way to pay for a stimulus plan. And without stimulus, there is a good chance that the economy could continue to shrink — or, at best, remain flat — for years to come. “The federal government’s immediate actions will likely run counter to the longer-term goal of promoting economic growth through more adequate saving and investment,” said a recent policy brief by the Concord Coalition, a nonpartisan group that advocates deficit reduction. “If properly designed, however, fiscal stimulus need not have an adverse impact on economic growth over the long term, and long-term discipline need not have an adverse impact on economic activity in the short term. We don’t need to sacrifice one to achieve the other, but we need to be clear about the trade-offs.”
