Sunday, March 22, 2009

Stimuluses or Stimuli?

Whenever I talk politics, it is probably wise for me to say every so often: "Of course, I wouldn't want the job of the leader." In the present recession, I honestly don't know what exactly our leaders should do. Spend as much as possible, almost without discrimination as long as cash is in circulation? Rely on tax cuts more than spending? Focus on both spending and tax cuts that truly qualify as immediate and short-term stimulus (so that many proposed infrastructure projects are too long-term to count)?

Mickey Kaus, one of my favourite bloggers, has, I believe, made three suggestions:

1. In bailing out the automakers, don't protect either union rules or union wages, since both have helped to make the North American firms uncompetitive, and this is not the time to ask taxpayers to subsidize non-competitive practices;
2. Don't simply raise the budgets and staffs of government departments. This is the kind of change that a) is unlikely to be focussed on specific, urgent problems and b) is likely to be hard to reverse in the future--that is, it is a clear example of long-term as well as unfocussed spending. Even Reagan had trouble cutting government jobs.
3. Don't, in your liberal haste to make sure the poor are covered, give the states financial incentives to add to their welfare rolls; this is likely to reverse the good results of Clinton's welfare reform ("work (or training, or honest effort) for welfare").

David Dodge, former Governor of the Bank of Canada, has offered some specific thoughts:

But rather than obsess on designing short-term programs that will expire in a couple of years with the aim of returning quickly to surplus, he said, Ottawa should be spending in areas where there will be a payback to the Canadian economy later in the next decade, and where governments have not been able to spend sufficiently in the past.

“Everybody was afraid to do anything that has a tail because of the sense that this was going to be short and sharp,” Mr. Dodge said. “But I just don't think it's going to be short and sharp, not because of what we in Canada are facing, but because it's going to take a while for the world to come back.”

Urban infrastructure should be a key target for government spending, but won't benefit much from short-term programs that rely heavily on provincial governments and the private sector to match federal spending, he said.

Information technology in the health-care sector should also be a prime target, he said, since it is badly needed and there are now plenty of human resources in the technology sector who could be put to good use.

“We're thinking of it as stimulus, somehow, as a bridging exercise, instead of recognizing that it will be a somewhat longer period of recovery and that we really need to do some of these things to augment our productivity down the line.”

As recovery takes hold, Ottawa could then raise taxes a bit – by, say, increasing the GST by a percentage point – to nurse the country's books back to health.

No comments:

Post a Comment