Feb 07

I’ve completed your assignment, Professor Reich.   I’m not a “Republican running for office next November” and regarding “thinking hard about things”, well, unless I’m missing something, I just don’t see where this is so hard.   Perhaps I need some after-class help.

Robert Reich

I read and re-read this part of the assignment:  “You don’t have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging the public sector has to borrow and spend in order to keep the economy moving forward.”

You seem to share Paul Krugman’s never-ending chorus that government must step in and make up the difference when private sector spending undergoes a contraction.   Here’s a good example of that.

I also caught your appearance on CNBC with Larry Kudlow and the Cato Institute’s Dan Mitchell on January 26th as well, where you said:

“At a time when the private sector, consumers and businesses, are massively deleveraging, government has got to come in there to fill the gap.  I mean, I don’t care whether you are a Keynesian, or a Neo-Keynesian, or a Neo-Conservative, or a Neo-Classical economist you’ve got to understand that there is not enough demand in the economy to keep the economy going when the private sector is deleveraging and pulling back.  And therefore, there’s got to be a government spending, regardless of your ideology.”

I admire your consistency.   And you said that on live TV, to boot!

I suspect that you have fond memories of your time on the playground, creating wonderful towers of sand with a sand digger,  standing back and announcing “Look, everyone, at what I’ve made!   Isn’t it grand?”   But I also suspect that you ignored all of the cries of the other kids in the sandbox:  “Hey, Bobby’s taking all the sand again!  Jimmy just broke his ankle in a hole that Bobby made!  Bobby’s hitting dirt and wrecking all the sand!”    How did you get all this past the playgound aides?

I’ll stay after class for extra help if you can provide an explanation of how increasing government spending, massive deficit spending no-less, which must be funded with the resources taken from the private sector, ultimately helps the private sector.   I mean, on one hand, there seems to be nearly uniform agreement that we want the private sector to create jobs.  But on the other hand, aren’t you advocating taking the resources with which, at the margin, the private sector will create those jobs?

I’ve heard something about a “Keynesian Multiplier”, but what about what I’ll call a “Government Subtractor”?   (and can I get extra credit for that term?)  It seems to me that if the federal government decides to spend a bunch of money, it needs to first spend some of that money deciding how it’s going to be spent, and then if it passes it on to the states, the state governments are going to do the same.  Maybe even a local government will get involved, too.   So how much of each original dollar, taken from the private sector in the first place, actually returns to some recipient in the private sector?   In addition to that, how do you feel about everyone arguing via politics on how to spend all that money?    Are the playground aides still involved here somewhere?

For another twist on that theme, you must be familiar with organizations like Charity Navigator that rate various charities at their efficiency.   No one likes to give to a charity that wastes tons of money on administrative overhead.   I suspect the government would not rate very highly if judged this way.

Again, I’m no Keynesian, but if we just did an across the board tax cut, one that could be largely achieved just by changing a few variables in some software here and there (I learned that in my programming class), wouldn’t that basically pin the charity evaluator’s efficiency meter?   It would put more money in everyone’s pockets overnight, where they could do whatever they thought was best with it.   Yes, admittedly, it might not make for many great photo ops, like you sitting on the digger next to your nifty sand castle.

But what really has me stumped is how you are smart enough to decide that the private sector is not spending enough, and can decide (even approximately) how much the government should spend instead.   In other words, you not only feel confident in identifying a gap between the actual and the ideal, you’re prepared to use the force of government to do something about it.  It must be the leverage of that sand digger you that remember.  The power in those two handles really is pretty cool, I confess.

Also after class, perhaps you can explain this chart to me:

I know that a lot of people used to bemoan the United States’ very low saving rate.   But it sure seems to me that they got the message recently!  Looks like they’re saving again!   Have you decided that this huge collective behavior of our society is actually wrong? Are you pitting your singular professorial prowess against the collective brainpower of all of these new-found savers?  It seems to me that the only way you’d feel comfortable saying that the government should spend more is if you believe that the government will spend the money more effectively.  I thought we were in Econ 101 here… is this some preview of a graduate-level course or something?   Do you teach that course, too?

I will hand it to you though, all these different spending programs over the years have certainly created a very impressive tower of laws and regulations, along with an army of individuals trying to figure them all out.   It seems a lot of politicians loved their sand diggers, too.   But they must have mixed mortar into the sand they used for those towers, because no matter how hard people jump up and down on them, they never seem to collapse.

What do you think?

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