Yglesias gets pissed at the CW that since we’re in a financial crisis, there’s an urgent need to cut federal spending and reduce the deficit:

This is ludicrous. You need to respond to a downturn with expansionary policies of some kind. In recent decades, we’ve preferred relying on expansionary monetary policy (Fed interest rate cuts) rather than Keynesian deficit spending. But at the moment, there’s no real room left for the Fed to cut rates. That means you need deficit spending. Among other things, the nature of state and local budgets means that a contraction in the economy will naturally lead to a contraction in state and local spending. That will lead to further contraction in the economy. If the federal government did what Scherer’s suggesting and added its own cutbacks to state government cutbacks, local government cutbacks, and private sector cutbacks that would only deepen the recession.

Now is the time for some really big infrastructure improvements (internet fiber, mass transit, high-speed rail), which will create jobs and pump millions of dollars straight back into the economy.  Also, state governments are facing budget shortfalls across the nation, and municipalities are having trouble raising money because no one is buying their bonds, due to the credit crunch.  We need more aid for states and local governments to keep our cops on the street and make sure that local healthcare initiatives stay afloat.

Btw, I think Barack Obama did well tonight by pivoting questions like these back to McCain’s tax plan (although he tended to muddle the wording).  In a time of crisis, it’s ridiculously unpalatable to advocate huge, expensive tax cuts to the wealthy when that money could be much better spent creating jobs for the middle class.

But then again, when you advocate a spending freeze in the middle of a recession, you should automatically be excluded from the debate.

Tags: Barack Obama, economics, John McCain, politics

This entry was posted on Wednesday, October 8th, 2008 at 12:30 am and is filed under Some Pulp. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.