Tuesday, March 11, 2008

John McCain Economics, Limited Edition

I just watched John McCain on CNN talking at a fundraiser. He talked economics, sort of, and didn't seem overly worried about the economy. He suggested that we wait and see what effect the tax rebates ($1,200 for a couple, and $300 extra per child) will have. His logic was as plain as simplistic.

When the consumers get their checks they will spend the money, but when the government spend the money it’s bad, because it’s your money, he told the audience.

It just happened that his clip was followed by a piece about New Orleans, and all the poor people who still live in temporary trailers. If we are to believe McCain, there is nothing the government can do there, because the money belongs to the taxpayers, and their only wish is to get the money back.

My hunch is that the tax rebates are going to do nothing to bring us out of the recession. They are not going to restore confidence in an economy that has been pushed to the brink. People are scared, they worry about their future and they are afraid to spend. If anything, they may try to pay down their credit card debt a bit. In a situation like this, John Maynard Keynes told us a long time ago, that the government should step in and create new jobs, while at the same time investing in long term infrastructure projects, investments that will boost the economic competitiveness of the country. That’s what FDR did, and that’s how America got its huge interstate highway system. And that’s how the foundations for the Internet were laid.

When the government spends money on war – which is what Bush-Cheney did – jobs were created, and income generated, but as little new was produced that people could buy, the extra demand was shifted abroad to China, generating a huge trade deficit, and undermining the competitiveness of the American economy. It’s basically the old guns-or-butter story.

When the government spends money on the people, on building roads, schools, repairing bridges, investing in science and new environmentally friendly technologies, then jobs are created while the economy is becoming more efficient, turning out more and better goods and services.

I suspect that John McCain will never include that in his Economics 101. Better stick to that old harangue about the big bad gov coming to take your money away...

Hans Sandberg

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