As I noted last week, one problem hampering the design of effective discretionary stimulus is fear of the political impact of discoveries of waste, which leads to excessively slow-moving disbursement of funds. Another problem is in some ways the reverse—the difficulty of credibly committing to doing something temporary once you agree to put forward non-wasteful proposals.
This doesn’t arise if you really don’t care about waste. If we paid tons of people to dig ditches and then fill them in, I think it would be easy to convince people that we intended to stop doing that once unemployment fell. But conservatives recognize that, in general, liberals think the government should be spending more money on infrastructure projects and public services. So if we get to pass some spending increases at a time when the case for temporary stimulus is strong, who believes we’ll really give the spending up? And the same thing applies to conservatives and tax cuts. In general, it would be much easier to live up to the principle of balancing the budget over the course of the business cycle if there were political and social consensus around the level at which the budget should be balanced.
This is another reason in my view to think that whatever we do about the short-term economic situation, frustrated Keynesians ought to be spending some more time on trying to think up good ideas for improving the economy’s automatic stabilizers. The fact of the matter is that what we’ve learned in this recession is that in practice the American political system doesn’t deliver on discretionary fiscal stimulus in the way that it ought to.
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