| Yargh. Every time I start thinking about the way that macroeconomics is being discussed by the press and Republicans in Congress, I just want to shoot myself in the face.
Take Senator John Ensign's ridiculous claims this morning. The fact that he doesn't get laughed out of a television studio for saying that state budgets are bloated and deserve cuts, that aid to states should be removed from the federal recovery act, and that no firefighters or teachers should be laid off is all nuts. Or, as Matt Yglesias put it, "stupid."
There are two big competing theories of generally how economies work in stiff recessions. One is the classical theory that the economy contracts, but eventually money becomes cheap enough (as deflation convinces lenders to give it away for 0% interest presumably) that borrowing ticks back up in the private sector, new ventures form, existing ventures expand, and the economy gets moving again.
The competing theory is the Keynesian theory, which is that you basically end up in a downward spiral of tightwaddedness. Everyone gets too nervous about their own economic situation to spend money. Lenders become worried about people with bad credit and pull in loans. Even as money becomes cheaper, no one wants to extend loans at low interest rates for fear that if they misjudge the coming growth, they'll get screwed. Fear and uncertainty rein.
So the assumption of the Keynesians is that you need to do some predictable short- and medium-term government spending in order to get money moving in the economy again.
It turns out aid to states is a really good way of keeping money moving in the economy, because otherwise states cut their budgets, laying people off (putting people into unemployment systems) or cutting back on health care benefits or other programs. Keeping that money in the pipeline is the probably smartest use of quick money to prevent job loss.
So of course it is in the crosshairs. Like I said, Yargh. |
