JEFFREY BROWN: Even as the Senate now takes up the nitty-gritty details of a stimulus plan — the particular programs and tax cuts, the exact dollars and cents — larger questions abound about short-term needs, longer-term goals, and the ambitions and tensions of tackling so much at one time.
David Leonhardt of the New York Times tackled these questions in a story titled “The Big Fix” that appeared in yesterday’s Times magazine. Greg Ip has been watching and writing on them as U.S. economics editor for the Economist magazine.
Welcome to both of you.
David, in terms of balancing short term and long term, how do you define the ambitions and tensions that arise?
DAVID LEONHARDT, New York Times: Clearly, the first goal here is to stimulate the economy, which is the short-term goal. You want to get money out and you want to try to make this recession less deep than it would otherwise be.
But given that you’re going to spend $800 billion or $900 billion by the time the Senate is done with it, you want to try to also do some good. Yes, you could just dig ditches and then fill them again and that would be stimulus, but obviously wouldn’t do any good, long-term good.
And given we’re spending this vast amount of money, it would be a waste not to try to accomplish some long-term good. That’s the theory. The tension is that it is hard to accomplish long-term good and to spend it quickly.
JEFFREY BROWN: Because?
DAVID LEONHARDT: Because long-term good is often investments. You want to be careful with it. You don’t just want to dig ditches. You want to think about where the ditches should go and what you should then do with this hole.
JEFFREY BROWN: What they connect to and all, right?
DAVID LEONHARDT: Exactly. And how do you spend the money in education? How do you spend it in health care?
And so there are some projects that clearly can do both the short and the long term, but there aren’t enough to spend $900 billion doing both short-term and long-term good, and that’s where you get into trade-offs.
Setting long-term priorities
JEFFREY BROWN: How do you see the trade-offs, the tensions here?
GREG IP, The Economist: Very similarly, Jeff. I mean, you can stimulate the economy two ways, basically. One is by spending more, and the other is by taxing less. And they both have advantages and disadvantages.
As David said, with spending, if you want to do it well, it takes a very long time. The advantage, however, is that every dollar the government spends will generally result in at least a dollar of additional economic output and maybe more, if it's done the right way.
Now, with tax cuts, the issue you face there is that, if you give a person a dollar more of after-tax income, you can't guarantee they'll actually spend it. They may save it. And, in fact, in the temporary tax cuts that we had last year, we think that two-thirds to three-quarters of that money was saved.
Now, the advantage of those tax cuts is you can do them fairly quickly. You can actually reduce the tax withholding in people's paychecks within a matter of months.
And they're also less distorting. And by that I mean, when you let households and businesses decide how to spend the money, it will happen in a way that maximizes their welfare instead of having the government trying to guess at the best way.
JEFFREY BROWN: Well, things like education, health care, energy, infrastructure you named, are these kind of debates seeping into -- you guys both cover these things -- are people worrying about those things while they worry about the short-term stimulus? How much is that getting into the discussion right now?
DAVID LEONHARDT: It is getting into the discussion. I mean, President Obama has very clearly said he doesn't want this just to be a stimulus package. He wants it to be a down payment on some longer-term things.
And so that then gives rise to two debates. The first is, well, what should our long-term priorities be? Should they be alternative energy? Should they be education? Should they be infrastructure?
And the second debate is, well, in the course of doing that, do you end up slowing down how quickly you're spending this? As Greg was just saying, when you do government spending, it tends to be slower than tax cuts. And certain forms of government spending are slower than other forms of government spending.
Using stimulus for health care
JEFFREY BROWN: But when you translate these kind of big ideas into legislation, then we get down to what I was referring to as nitty-gritty, right?
GREG IP: Yes. And from where I sit, the nitty-gritty has not been pretty to watch, Jeff. I do not see any of the long-term sort of thought going into this fiscal stimulus. It ought to be associated with what, as David said, could be some very profound changes in the way we run social programs in this country.
Just to give you a simple example. Obama during the campaign had many thoughtful ideas on how to increase health care coverage for lower-income and poor people. Instead, what we have here is a one-time block grant to the states to aid with Medicaid funding and a supplemental payment to people who are unemployed to help keep their private-sector health care coverage.
There might be merits to both those ideas, but I don't see any way that those are integrated with a more comprehensive health care proposal.
DAVID LEONHARDT: I actually think health care is a nice way to see both the good sides and the bad sides about it. I agree with Greg. That's a real downside of this. You're building on already this very inefficient health care system through the programs that he's talking about.
The good side of health care is that they're also going to spend money to install these electronic medical records, which we hope will...
JEFFREY BROWN: Long-term goal?
DAVID LEONHARDT: Long-term goal. Well, it should provide some stimulus in the short term, installing them, employing people to do that, giving subsidies for them. But we also hope that it will give us enough information about how our health care system works and doesn't work so that down the road we'll be able to reform it and basically make it more efficient.
U.S. economic epicenter in D.C.
JEFFREY BROWN: I want to ask you something about -- another thing you wrote in your article, a very provocative thing from your piece. I'll quote it. "For the first time in more than 70 years, the epicenter of the American economy can be placed outside of California or New York or the industrial Midwest. It can be placed in Washington."
So not Wall Street, not manufacturing companies out there, Detroit or wherever anymore? Washington.
DAVID LEONHARDT: Yes. And I know that will rub a lot of people the wrong way. They'll say, "Private enterprise is the heart of our economy," and it is the heart of our economy. I don't question that for a second.
But what we need Washington to do is really two things fundamentally. One, we need it to regulate in ways that it hasn't been doing over the last decade or two, to make sure that we don't have the Bernie Madoffs or that, when we do, they're caught.
And the second thing it needs to do is it needs to make investments that the private sector will not make to a sufficient degree on its own. Most of those investments will still be made by the private sector. But we now see Wall Street shrinking. We see, obviously, Detroit shrinking.
And so I think there's really a role here for Washington to come in and not only regulate and not only stimulate the economy, but try to make the kind of investments we've made in the past, things like building the Internet. The government did that. Building the highway system, the government did that. Funding biotechnology so that we have an industry that's the envy of the world, the government did that, and try to find more things along those lines.
JEFFREY BROWN: Do you want to weigh in? A little skepticism?
GREG IP: Well, I'm just a little bit worried about mission creep here, Jeff, which is that there are certain things we do need the government to do because there is nobody else well suited to do it. And regulating certain business activities is definitely one of them and, quite clearly, not enough of that went on in this country in the last 10 years, especially in the financial area.
But government doesn't do a lot of things well. Among those are deciding, for example, who should -- what businesses should we lend money to? What businesses should get capital? I mean, Silicon Valley didn't need government's help deciding how to, you know, develop the Internet and so forth. That was the creativity of American entrepreneurs.
And when I hear people in Congress saying, well, if we're going to give banks this money, we need to tell them how much to lend and to who, I get very worried, because I haven't seen any evidence that, bad as the private-sector bankers have been, the government bankers are necessarily any better.
The fine line of intervention
JEFFREY BROWN: But, of course, out in the world, you hear a lot of public uproar saying, "Well, if we're going to give them the money, we should be telling them things like that," right?
DAVID LEONHARDT: Yes, and it's true. I mean, the government's record on things like that, on these fine-grain things is really not good, with setting prices and telling businesses when to do what.
The problem is now, because we didn't have enough government role before, we find ourselves in the situation of having to bail out these companies for the good of the whole economy and now we're in this difficult situation.
To me, one of the arguments for smarter and a little bit bigger government intervention -- maybe more than a little bit bigger -- is that it saves you from having to nationalize entire sectors down the road.
JEFFREY BROWN: But you're saying part of the debate here is this -- finding that fine line between more government and letting the private sector do its thing?
GREG IP: Right. And, for example, just to look at the banks for a minute, absolutely the taxpayer should get some upside from this. You know, and they can do that by purchasing common shares in these banks.
And if in the case of the weakest banks that need the most capital, that results in the nationalization of that bank, so be it. But it should not be the premise of the government's intervention that they want to own the banking system.
And if there are certain things that we as a society want to do, for example, to encourage a less energy-intensive society or one that uses less fossil fuels, let's look at the most economically efficient way to do that.
For example, if you want people to use less gasoline and to conserve on that and to reduce our dependence on Middle East oil, raise the gasoline tax. You know, you can ask 1,000 economists -- Republican, Democratic -- they'll agree that is the most efficient way to do that.
DAVID LEONHARDT: And that's a great example of how short and long term are hard to do together. A reasonable gasoline tax would be the very opposite of stimulus, and so it's not something we can do now.
JEFFREY BROWN: All right, thanks very much. To be continued. Thanks very much. David Leonhardt, Greg Ip, thanks.
DAVID LEONHARDT: Thank you.
GREG IP: Thank you.