It's not like your family budget. When times are tough, the federal government should spend lots of money. And there's a role for local government too.
As the debt limit debate drags on in Washington, it looks like a big mistake will be made no matter what happens, as it revolves around just how much domestic spending will be cut. This is a huge mistake. The only problem with the stimulus package of two years ago was that it wasn't big enough and wasn't followed up with another of similar size. Still, it probably kept us out of a second Great Depression.
The American Reinvestment and Recovery Act (ARRA) did a lot of good. Among other things, it helped the city of Madison rebuild University Avenue and other streets, helped us buy 14 new American-built hybrid buses, and weatherized lots of homes and businesses. All over the nation ARRA helped local governments rebuild decaying infrastructure that needed to be rebuilt anyway. ARRA put people to work just when jobs were needed most, pumping wage dollars into the economy.
The problem with our lagging recovery has nothing at all to do with the deficit. If that were the case we'd see interest rates rising as the government competed with the private sector for scarce dollars. That's not happening. What is happening is that corporations are making lots of money but not reinvesting in plants and people. Why? Because of weak consumer demand. What we need to do is a whole lot of pump priming. Consumers aren't spending because they're unemployed or concerned that they might be soon.
Another stimulus package would put people to work, get necessary projects done and restore consumer confidence, freeing up the billions in profits that are currently parked in corporate coffers, which will lead to even more investment and more jobs.
But the debate is Washington is over just how much worse the federal government will make things. And that will trickle down to local government as states look at even further cutbacks in response to cuts from the top.
It reminds a lot of economists of 1937, when FDR, convinced that the pump had been primed enough, cut domestic spending in the name of a balanced budget. The result was a double dip depression that was only solved by the forced massive debt-inducing spending of World War II.
So, it's frustrating to hear even Democrats make inane analogies between the federal budget and the budgets of American families. Of course families cut back when times are tough. But the federal government can go into debt to stimulate the economy and counter the cycle. While it's responsible for individuals to trim their spending when their incomes drop, it's actually irresponsible sometimes for governments to do the same.
At the local level this plays out in our city capital budget. Now is the time to invest in road rebuilding and parks and new buses and special projects like the Garver Feed Mil and a public market. These are worthy projects; borrowing money is historically inexpensive right now, and the jobs this investment creates will lead to more consumer demand.
Just as this is exactly the wrong time to obsess over the federal deficit, it's just the wrong time to cut back on local capital projects. Hasn't anybody learned the lessons of 1937?
