While Spitzer and I agree that if the money is going to be spent we might as well spend it on smart things, I don’t agree with the premise that it must be spent, or that spending it will in some way help America.
The core point is that a single large investment (e.g. the trillion dollars that apparently so frightens you) can so completely transform certain conditions that it has a much greater effect than the same wealth invested piecemeal
Except that it can’t, for two reasons.
First, even $1 trillion is a drop in the bucket. It may be only 7.5% of GDP, as Spitzer points out, but it’s nothing compared to the effects of the deflationary credit destruction we’re experiencing. The credit bubble of the last eight years was massive in scale, and its unwinding will be massively destructive.
American households alone lost almost ten trillion dollars in paper wealth in 2008. That’s 75% of GDP, with a lot more to come in 2009. Government can’t even come close to replacing that, and consumers were 75% of the economy.
Second, government doesn’t create jobs or wealth, it only moves it around. At the very best, stimulus just shifts demand forward, to buy things today that we would otherwise buy next year. (What do you do next year?)
But even that implies that economic central planning works, which we know is false. In reality, it creates malinvestment on an epic scale, building things we don’t want or need (at a much higher cost). And doing it entirely with debt, guaranteeing that we continue paying forever for that which we don’t need in the first place.
To use your example: what, exactly, would a trillion dollar high-speed rail network get us? The fastest and most expensive empty trains in the world, I predict, at the expense of redirecting $1 trillion from the productive economy into what can only be called a boondoggle.
As for comparing the US economy to Japan’s, I think there are some key differences. Zero percent interest rates in Japan, for instance.
We’re already at zero, and have effectively been at (sometimes below) zero for more than a month.
Even worse, from the perspective of people who want banks to lend — of whom I am not one, to be clear — is that ZIRP is entirely counterproductive to that effort. The Fed has made it clear that they’ll loan money to anyone, and this is crowding out private lending.
What bank would be insane enough to lend at near-zero interest rates, given the current economic climate? Interest rates should be rising, not falling. When faced with the choice between making a high-risk loan at insanely low interest rates or hoarding cash (indeed, getting an absurd guaranteed return from the taxpayer, courtesy of the Fed), banks are wisely choosing not to lend.
The only major difference that comes to me at the moment is that the US dollar’s continuing status as the world’s reserve currency saves us from the idiocy of having our central bank trying to intervene in the currency markets.
As for whether governments are more powerful than markets, I think this depends — what was WWII? But it’s a vacuous point for Newsweek to make, agreed.
You’re right that WW2 pulled us out of the Great Depression, and not, as is so frequently and bafflingly claimed, the New Deal.
But WW2 didn’t create wealth any more than the Iraq war is creating wealth; it was destructive on an almost inconceivable scale. It was possible because of national fervor and sacrifice: productivity and savings shot up, as did the national debt. Even so, it’s hard to call war anything but malinvestment, and American households are in no position to finance our government the way they were in the 1930s and 40s. They’re totally tapped out.
But why worry? None of this economy shit matters much unless you were planning on getting rich quick, delaying all your *actual* dreams until that moment when you could stop worrying about making money
I’m not especially worried for myself; there are opportunities in any market. If you keep your powder dry, there will no doubt be incredible deals to be had (though I don’t think the market is anywhere near cheap today, despite the bleating of the talking heads on CNBC). If you’re not in debt, and you’re holding cash, you’ll be in an excellent position once the government gets out of the way and lets the market correct.
Nonetheless, I see U6 unemployment, with or without Obama’s stimulus, reaching 17-20% in the next 18 months; housing continuing to crater at least well into 2010; another 30-40% drop in the Dow and the S&P 500; a massive shift from consumer spending to saving, debt service, and bankruptcy.
Are those bread-lines-and-riots numbers? I don’t know. They might be. I think if the average citizen had any concept of the enormity of the swindle being executed by the US government, Washington would already be ablaze. I expect Obama will continue to get away with it on account of his hope.
In our lifetimes, barring a policy shift of such a magnitude as to be almost unimaginable, I don’t see how the math permits the United States to avoid defaulting on its debt. I don’t think you want to be there when that happens.