On Republicans, Our Neighbors, Pork, and Arts

From Arizona Congress Watch (via CDM):

The [eco-stimulus] bill pushes tens of billions of dollars into education, and not just for building and renovation projects, but for everything from Head Start to college loans and Pell Grants. Some Republicans ask: How does that stimulate the economy?

“For example, $50 million for the National Endowment for the Arts,” Flake says. “There’s no better example than that. How that stimulates the economy, I don’t know.”
 Seriously?  Seriously?!?

I honestly don't know what else to say, here.  Of course the arts feed the economy.

...Though I will concede: there's evidently a provision in the bill that "includes $200 million to reseed the National Mall in Washington."  That smells like pork to me.

But the arts?

I'd be offended if they weren't included in a stimulus package.

...DISCLAIMER: This is not to say I think the stimulus package is a good idea. I don't. I simply take exception to republicans--especially Arizonan republicans--claiming that the arts are an expendable, second-class, special-needs part of the economy.


Victor said...

Well, stimulus package is a good idea.

There are three options in front of us now:

Do nothing, and let the shit hit the fan. There's a whole lotta shit out there, and it can get way, way worse. Nobody wants that.

Use monetary policy. This is what we've been mostly doing since Great Depression -- manipulating the fed interest rate. However, our interest rate is near 0 now, and no room to meaningfully cut interest further. You can thank Greenspan's and Bernanke's paranoid aversion to pain for that.

Use fiscal policy; i.e. canonical keynesian deficit spendings. The government is the only entity with enough clout to borrow and spend that much money, kicking the whole thing in the ass and sending it moving again. This is what the stimulus package is.

Doing nothing is unacceptable, manipulating interest rates is impossible (not enough slack left). So yeah, stimulus package is the unavoidable conclusion.

Jeremy Rice said...

You and I both know that I don't have the economic chops to counter this intelligently.

But, naĆ­vely, this smells a bit like begging the question.

I can't disagree that public works are a good idea for building an economy, and have argued fervently in support of such things.

...I just have a gut feeling that this package isn't done right. It strikes me as an awful lot of money spread awfully thin, when the financial woes we're experience seem (to me) to have been caused by bad business and lack of proper regulation and "meta-markets" and gaming a system that cannot be gamed.

You've heard, I'm sure, of that rule that, when gambling, the surest way to win is to double your bet every time on the game with the odds closest to 50%. As long as you keep betting, eventually you will win.

...Unless, of course, there's that 1-in-100-million chance that you keep losing, and losing, and losing, until you break.

That's what this economy feels like. It feels like there were people making bad bets and doubling them over and over until it broke.

Again--I don't know what I'm talking about. This is an impression. So keep doubling the grains of salt you take with what I'm saying.

Victor said...

See, the point about financial stimulus is to get the money out there. Keynes famously argued that even simply burying money in bottles in deep coal mines, and then announcing it to create a mining rush, would still be better than doing nothing. Of course if we can spend money constructively -- e.g. on infrastructure improvements -- it's even better; but the point is to get people to spend money, pretty much at any cost. it's a vicious -- or virtuous -- cycle; and the deficit spending is supposed to switch gears, from vicious to virtuous.

The real question is not whether money is spread thin or thick, whether it goes to everyone a bit at a time, or in large lumps to major infrastructure projects (this is what you meant, right?) The real criterion here is, will the money get spent or will it get saved? The former is good, the latter is bad.

The aggregate value of economic transactions in the economy is the nominal quantity of money (money supply) times the velocity of money (how many times a dollar gets spend per year). Think of a village with 10 dollars and 10 people who each spend $1/month, vs. a village with 1 dollar and 10 people who sell each other a dollar's worth of goods and services ten times a month. The total amount of economic activity is the same.

Conversely, if the first village has $10 and spends it once a month, and the second village has $10 and spends it ten times a month, the latter has ten times more economic activity, ten times more goods and services etc. Velocity of money matters.

Obviously, if people stop spending money, the amount of real economic activity diminishes rapidly. Thus, money must be made to move, to spin faster. This is the purpose of the stimulus. Actual infrastructure investment is just a side effect, really -- a pleasant one, but an incidental rather than essential feature of the package.

And yeah, it's possible that we are sending the good money after the bad. However, while that is possible, it's certain that if we do nothing, we will lose far more.

With the doubling down, you increase your losses each time, so cutting your losses makes sense. Here, if we cut our losses and not do the stimulus, we will likely lose far, far more money than we would spend on the stimulus (assuming that money were wasted).