Fareed Zakaria makes an interesting observation in his column this week. Stimulating the economy with tax cuts, he argues,
would be only one more way to keep the party going artificially—like asking a drunk to go to AA next year, but in the meantime to have even more whisky. A far better stimulus would be to announce and expedite major infrastructure and energy projects, which are investments, not consumption, and therefore have a much different effect on the country’s fiscal fortunes. (They are not listed separately in the federal budget, but that’s just bad accounting.)
If it’s “bad accounting” to equate consumption with investment in the federal budget, is there an intellectually clear and honest way to do it that a) the public could understand; b) would not be undermined by the Norquist wingnuts; and c) could be done so that economists might reassess its effects on the economy? We’re all used to looking at deficits as a percentage of GDP; indeed, EU guidelines for its members use this to benchmark its governments’ adherence to EU rules. But if Zakaria is right, then it is a wrong metric.
Bill Clinton tried this in 1992, talking of new government investments, and was ridiculed by Republicans saying he just wanted to spend. But of course we all know that there is a big difference between using $50,000 to go on a vacation and using it to pay for a couple of years of college. Similarly, there is a big difference between investing in a nationwide broadband capacity or high-speed rail, and, say, spending a half trillion dollars in Iraq.
How could budget policy be changed to do this and do it right–and get the public to understand it? Mark? Mike?