Matt Yglesias

Spend the Money

One of the least-understood aspects of our political atmosphere is the way a specific contention made by a certain set of Clinton administration advisers in 1993 about the situation that existed in 1993 came, over time, to be reified into a bizarre Cult of Fiscal Discipline completely detached from the actual considerations that were thought to militate in favor of a focus on deficit reduction as an economic strategy in 1993. There’s plenty of blame for that to go around, but the nonsense really reached a high point Friday night when Jim Lehrer was trying to bully the candidates into admitting that the crisis in the financial markets somehow would or should force them to curtail their governing agendas. In the real world, of course, the economic problems of 2008 don’t resemble the economic problems of 1993 so there’s no reason to assume that similar policies are appropriate.

And, indeed, as Lawrence Summers (who, unlike Lehrer, actually understands what Clinton’s deficit reduction initiatives were all about) argues in the Financial Times this is totally backwards. Considerations related to the short-term fiscal situation that might have made certain projects seem unwise 9 months ago are now absent. Today interest rates are low, growth and employment are heading downwards, and it seems unlikely that monetary policy will be able to juice the economy. Insofar as politicians have ideas for beneficial structural reforms that have significant upfront costs or ideas for infrastructure projects that will prove useful in the long run (i.e., a Metro expansion rather than a Bridge to Nowhere) implementation of those ideas should be sped up.

We’re facing a lot of economic problems right now, but an objective incapacity to finance public sector projects through deficit spending isn’t one of them.