A Pixie Dusting
Caroline Baum gave us a few things to think about on Feb.17th in Bloomberg.com. “Fiscal Stimulus is a Ruse Absent Fed Pixie Dust”, she began.
“It’s a job-creation program. No, it’s investment in our future. It’s a tax-relief plan. Wait, it provides assistance to consumers hardest hit by the economic recession.
“It’s legislation to jump-start the economy. No, it’s a recovery program. It’s a life raft for state and local governments. It’s a spending bill.
“Which is it? Fiscal stimulus is all things to all people. In other words, it represents the triumph of faith over reason …
“Advocates of fiscal stimulus would have us believe the government is Santa Claus, delivering gifts to those who are nice without extracting anything from those who are naughty. Economic modelers say with absolute certainty that every $ 1 spent by the government translates into $ 1.47 or $ 1.50 or $ 1.63 of gross domestic product. The specificity of these forecasts – down to the last penny – doesn’t do much to convert the atheists among us. The same models that didn’t see a recession until it was underway are now specialists in human psychology?
“Besides, where’s the proof that fiscal stimulus delivers? ‘Empirically, nobody can point to a single Keynesian episode that worked,’ says Dan Mitchell, senior fellow at the Cato Institute, a libertarian think tank in Washington.
“Attempts to spend their way out of a slump by Herbert Hoover, Franklin Roosevelt, George W. Bush, Japan (in the 1990s) and Europe yielded little in the way of results, Mitchell says. ‘The only thing Keynesians have ever been able to point to that worked was World War II’, which isn’t something we want to repeat …”
Caroline is pretty savvy, and we agree with her that another World War is what must be avoided. But during those World War II years, what was it that made it possible for us to spend our way out of the Great Depression? It was mainly the nation’s massive shipbuilding program. The warships we built were unproductive, costly and highly sophisticated, to be sure, and millions of workers were required in order to get the job done. We could take the same shipbuilding route today and create some 30 to 50 million jobs in that industry. But this time we’d be building merchant ships.
We don’t need a war or a fiscal stimulus to get out of this depression. We need to build productive, low-cost and unsophisticated (and patented) container ships. Such an undertaking would provide jobs for our unemployed, and it would also strengthen sagging Asian manufacturing economies.
Consider the end results. Jobs, buying power and an enormous merchant fleet for the U.S., and productive jobs for our overseas friends. All of which translates into world peace and prosperity.