Tuesday, December 27, 2011

A Response To John G

John G. wrote a thoughtful piece excoriating David Frum for his “moderate” views. Here is the Frum quote from which John bases his critique.
There's lots of time to worry about the deficit. The world is happy to lend the United States money for 10 years at less than 2%. I say keep borrowing as much of that money as you can and use the money to address the immediate trauma of an economy in crisis..."
First, I think that we need to understand the difference between government spending for the sake of building a welfare state versus government spending for the sake of stimulating the economy. The first is surely not conservative. With the second, conservatives should be very cautious. Stimulating the economy can leave behind a larger, more entrenched government. The balancing act of weighing the benefits of stimulating the economy versus the possible aftermath should cause conservatives to be very careful. Unfortunately, John G mischaracterizes Frum’s position when he says that Frum is “bragging” about how much money the US government can get away with spending. I have followed Frum for several years now and I have never got that impression from him. In fact, Frum was very critical of the first Obama stimulus, particularly in the way in which the money was distributed.

Second, Frum is absolutely correct from a policy perspective. Demand for US debt is the strongest it’s been since 1995, the last time period when there was a surplus in the federal budget. The world literally is “happy” to lend the United States money for ten years. That is not to say that this will last forever. Frum is not saying that. What Frum is saying is that the United States has a strategic opening to fund a concentrated investment program on infrastructure and other job-stimulating industries.

John believes that governments are unlikely to get their money’s worth on infrastructure spending. I disagree. Infrastructure spending provides a short-term economic boost as well as long term advances in production capability. But it’s more than just that. A report by the American Society of Civil Engineers showed “that infrastructure deficiencies add $97  billion a year to the cost of operating vehicles and result in travel delays that cost $32 billion.” It went on to note that “if investments in surface transportation infrastructure are not made soon, these costs are expected to grow exponentially. Within 10 years, U.S. businesses would pay an added $430 billion in transportation costs, household incomes would fall by more than $7,000, and U.S. exports will fall by $28 billion.” We can invest in infrastructure now at low interest rates, thus stimulating the economy with a larger workforce and preventing the billions of dollars the economy will lose as a result of current infrastructure deficiencies or we can spend money on infrastructure later at possibly a much higher rate and at a current loss in production capability. The conservative position is the one in which our money is used more wisely. Again, the conversation about “borrowing money” needs to go beyond catch phrases. Conservatives ought not to be against borrowing in general. They ought to be against wasteful spending with no intention of paying off debts.

Which brings me to my last point. While I believe that current borrowing should continue, it should also come with a long term plan to put our nation on a financial footing. John is right that our creditors will not happily lend forever. We should develop a plan to cut spending and possibly introduce a value-added tax (or something) sometime after 2014, when hopefully the economy has returned to full swing (as a result of concentrated infrastructure investments).

We are facing the worst economic crisis since the 1930s and there is a decent chance that Mitt Romney will occupy the White House in 2013. We need to put aside ideology in order to get America back to work. I believe that Romney will do that, especially considering how pragmatic he really is. If Republicans are concerned that Obama will fundamentally change America for the worse, then they need to show Americans that they can govern better. And only by governing better will Republican remain in office long enough to preserve the America that they know and love.

Please check us out on Facebook and If you like what you see, please "Like" us. You can find us here.

5 comments:

Alan said...

I disagree. Although some debt is occasionally necessary, there is always a price to pay. Just because one can borrow doesn't mean one should. Anyone can see that the US Government is not a responsible borrower. Did you know that the US Government never makes any principle payments? All debt payments are interest-only payments. Any bonds that mature are paid off by re-borrowing the money to pay. We are in a death spiral. Borrowing and spending must be stopped and slashed, respectively.

Pablo said...

"Anyone can see that the US Government is not a responsible borrower."

I agree with your feelings about too much debt but this statement is not correct. As I mentioned in the post, demand for US bonds are at the highest they have been since 1995. There are many, many investors who believe that the United States is a very reliable source. That is why the interest rate is so low.

Alan said...

The US Government may be a trustworthy borrower, but it is utterly irresponsible in its borrowing. Those are different things. The US Government borrows because it unwilling to control its spending. Just because one can make debt payments does make one a responsible borrower. Trustworthy? Yes (for now). Responsible? No. My original statement is correct.

CRUZ COUNTRY said...

The strong demand for US bonds has A LOT MORE to do with the roller-coaster stock market & shaky global economy than it has to do with the credit worthiness of Uncle Sam.

Freight Broker Software said...

Why is the president supporting tax cuts to the rich as part of this deal coming in its term, this Congress -- cutting programs that clearly will be spent 100 percent dollar for dollar?