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As a follow-up of sorts to my posts on how much the bailout is not likely to cost and how much more important health reform becomes as our economic outlook worsens, it's worth linking to this op-ed by former Treasury Secretary Larry Summers -- a decidedly centrist, broadly respected economist -- who writes:
The idea seems to have taken hold that the nation will have to scale back its aspirations in areas such as health care, energy, education and tax relief. This is more wrong than right. We have here the unusual case where economic analysis suggests that dismal conclusions are unwarranted and recent events suggest that in the near term, government should do more, not less. First, note that there is a major difference between a $700 billion program to support the financial sector and $700 billion in new outlays. No one is contemplating that $700 billion will simply be given away. All of its proposed uses involve purchasing assets, buying equity in financial institutions or making loans that earn interest. Just as a family that goes on a $500,000 vacation is $500,000 poorer but a family that buys a $500,000 home is only poorer if it overpays, the impact of the $700 billion depends on how it is deployed and how the economy performs.[...][I]n the current circumstances the case for fiscal stimulus -- policy actions that increase short-term deficits -- is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase -- probably to the highest levels in a generation...The economic point here can be made straightforwardly: The more people who are unemployed, the more desirable it is that government takes steps to put them back to work by investing in infrastructure or energy or simply by providing tax cuts that allow families to avoid cutting back on their spending.Fourth, it must be emphasized that nothing in the short-run case for fiscal stimulus vitiates the argument that action is necessary to ensure the United States is financially viable in the long run. We still must address issues of entitlements and fiscal sustainability...The best measures would be short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget, such as investments in health-care restructuring or steps to enable states and localities to accelerate, or at least not slow, their investments.In other words: A recession creates a straightforward Keynesian case for increased investment. When natural economic demand slackens, the need for public investment to kickstart the economy increases. Meanwhile, short-term problems do not obviate long-term threats. The looming dangers posed by health costs, global warming, etc, will not pause to politely wait out our recession. Most everyone knows that. But there's no doubt that if Obama -- or McCain -- is elected, that House Republicans and others opposed to action on these issues will pretend that the bailout somehow extinguishes our ability to act, and reduces the urgency of the problems. They will be lying.
