July 12, 2009
Dean Baker
Talking Points Memo, July 12, 2009
See article on original website
The Washington Post, which gained worldwide fame for its effort to sell corporate lobbyists access to its reporters and Obama administration officials, wants 15 million workers in the United States to be unemployed. Of course that is not exactly what they said; the Post argued against another stimulus package. But 15 plus million unemployed workers is the certain effect of the Post’s preferred policy.
We will go through the Post’s logic, but the simple fact that the Post opposes the policy should pretty well establish its usefulness. After all, the Post has a near perfect track record of being completely wrong on the economy at every turn.
Remember back in January of 2008 when the Post told readers that: “There is not yet any proof of a recession, …. Nor is there any consensus that a recession, if one comes, will be severe.”
And then one week later we got the line: “timely, targeted and temporary.” This is a paper that had no space for those warning of the dangers of the stock bubble in the 90s and the housing bubble in the current decade.
In short, given its near perfect track record of being 180 degrees wrong on the economy, the Post’s opposition to more stimulus makes a compelling case for its merits. But, let’s look at the argument.
The Post argues that most of the stimulus has not yet gone out the door, so we should wait to see its full effect. The point that we have not yet seen most of the spending misses the point that it is the rate of spending that matters, not the amount.
The stimulus is currently being spent out at a rate of close to $30 billion a month. This is pretty much its maximum speed. The fact that we will continue to spend out at this rate for the next year and a half doesn’t mean that the impact will be greater in 6 months or 1 year.
Suppose that we would spend out at this rate for the next 10 years. By the Post’s warped logic, we would want to wait 5 years or so to see the impact. Argghhhhhh, can’t the Post find anyone who understands some basic economics?
The Post is also worried about the deficit, telling readers that there is a limited supply of capital in the world and that we are borrowing too much. Actually, for practical purposes there is not a limited supply of capital in the world when the United States and most of the other wealthy countries are seeing double-digit unemployment. We can pretty much spend whatever we want without coming up against resource constraints. (Unemployment — means excess labor supply, get it?)
There is also a really great measure that economists use to determine the relative scarcity of capital. It’s called “interest rates.” At the moment, the interest rate on 10-year Treasury bonds is about 3.25 percent. That’s more than 2 percentage points lower than during the days of budget surpluses at the start of the millennium. In other words, the evidence suggests that we have an enormous glut of capital right now, not a shortage.
It is truly a shame that the Post’s editorial writers and so many other people responsible for this entirely preventable economic disaster still have their jobs at a time when millions of hard-working and competent people are unemployed. It will be a great day when this situation is reversed.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, “Beat the Press,” where he discusses the media’s coverage of economic issues.
