The Stimulus Rush

January 29, 2009

by Mario Rizzo

 

The stimulus package which was virtual or notional for a long time was posted on the internet on January 24th (or thereabouts) – all 647 pages of its provisions. The Congressional Budget Office analysis was issued on January 27th. And now the House of Representatives has passed the bill on January 28th.  

 

Why the hurry?

If you listen to the economic advisors – formal and informal – you will hear that it is vital to have fiscal stimulus now to prevent the economic situation from drastically deteriorating. However, I do not think that the urgency is primarily economic in nature. There is no economic evidence that suggests that a stimulus package enacted by mid-February will work, but that one enacted, say, two months later will not – or work significantly less well. Are the social benefits of a more careful consideration of exactly where the money will be spent, how much will be spent, and whether particular expenditures will be effective obviously less than the incremental benefits (if any) of faster stimulus?

 

No. The urgency is political in nature. If the Congress were to examine the stimulus plan in detail it would become quickly obvious that there is no broad agreement with respect to the details. In fact, coalitions of resistance would begin to emerge. The plan would begin to fall apart. The ultimate result might be that a plan of the magnitude President Obama and his advisors want would not be passed.

 

So what lesson do we draw? Perhaps Keynesian fiscal policy of the kind and magnitude proposed cannot be enacted in a way consistent with democratic ideals. In the mega-stimulus world, the Congress becomes an ineffective “talking shop” that stands in the way of the interests (or “true preferences”) of the people. The plan must be rushed through before there is much discussion. Thus, as the economic role of the State grows, effective democracy withers.

 

I’d like to see an explicit recognition of this tradeoff by those who are rushing headlong into this new world.

 

8 Responses to “The Stimulus Rush”


  1. […] to pass the stimulus isn’t economic. It’s poltical: if we had time to digest what was in there… (Think Markets) StumbleUpon| Digg| Reddit| Twitter| […]

  2. Richard Ebeling Says:

    This is the dilemmna of the interventionist state. Once the political system is based on serving a wide variety of poliitcal, economic, and ideological interest groups, there emerges conflicts among them concerning the legitamacy and priority of the spending programs proposed.

    In fact, in his opinion piece in today’s “Washington Post,” liberal (i.e., left-of-center) columnist, E.J. Dionne, highlights the prioritizing disagreements between those who want to spend for job creation, those who want infrastructure repair, and those who want to push environmental issues in the spending plan.

    But rather than seeing that this is the insoluable problem of political interventionism other than based on “backroom” deal cutting and raw political power, Dionne relishes the arrival of “real agenda” debates.

    No longer will Washington politics be about “doing nothing,” no politics will now get down to the what politics should be about. “The most important arguments are among progressives over how much government should do, how it should do it and where it can spend the money most effectively,” says Dionne. “That very different from the debate Washington is accustomed to, and it’s a debate worth watching.”

    It was the conflicts and corruptions of special interest politics that helped bring about disillusionment and dislike for the democratic process in Weimar Germany in the 1920s, and created a political atmosphere that when the crisis of the Great Depression struck, many people in German society were ready for “non-democratic” means to generate employment and prosperity.

    As Mises pointed out already in 1926, a growing number of Germans were “setting their hopes on the coming of the ‘strong man’ — the tyrant who will think for them and care for them.” (‘Social Liberalism’ [1926] in “Critique of Interventionism” [1929], p. 67.)

    In an atmosphere of “crisis” and the psychological attitude that “something has to be done, now,” there develops an impatience with the deliberative process of the legislative process that the Founding Fathers intentionally bulit into the system to prevent hasty decisions that might be regretted later.

    Richard Ebeling

  3. Mario Rizzo Says:

    Richard,

    Thank you for this. We are at a crossroads in many respects. But the impact on the stimulus frame-of-mind on democracy and the rule of law is one of the least explored by commentators. This is why I think that Hayek’s Road to Serfdom is so important right now.

  4. RickC Says:

    A friend and I have been discussing the probability of a move toward outright fascism over the last few months. It seems to us that the situation is just short of being ripe for this move. All the pieces are in place.

    – An apparent “Messiah,” adored by the masses and himself a true believer in government as saviour has ascended to executive power.

    – This executive power has been growing for decades as each successive President , of whatever party, has accrued more power to the position.

    – There is a real discussion of nationalizing banks as a way to forestall economic collapse.

    – Up and down the business world, companies are clamoring for government largesse and protection while political figures call for collaboration between public and private entities to achieve a greater good.

    – All the mechanisms are in place for an easy transition into the police state.

    – Organized labor is seemingly gaining strength at a time when it should be weakening due to economic realities, and it wields much more political influence than it should given the diminishing numbers of members.

    – Politicians and other culturally influential pundits are calling for sacrifice and devotion to causes bigger than “the self”. The real world device for this is Obama’s proposal for massive increases in spending on national “volunteer” programs which will easily slide into mandatory youth programs.

    – The real possibility of >15% unemployment and actual economic hardships as the government intervention makes the situation worse.

    – The scapegoating of some “other” for our problems has already begun; witness the Treasury Secretary and others pointing their fingers at China.

    – Whole generations of Americans have been conditioned by a government run educational system to forget the great lesson of the Founding; that government is at best a necessary evil. While this conditioning has not been total, it has had enough impact to be visible in all public discussions. One can easily discern this through examining the assumptions on which the discussions are based.

    These are just a few of the areas my friend and I have examined and there are many more.

    Thanks Dr. Ebeling and Dr. Rizzo. I’m glad to know that others are thinking about this.

  5. Zachary Caceres Says:

    As chief of staff Rahm Emmanuel has said:
    “You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.”

    I too have been following recent developments with an eye on a sudden drift towards a more statist society. The shift has been gradual over the course of many years; but I wonder if, at last, all the necessary factors are in place for unprecedented government expansion.

    Regard the ‘youth corp’ mentioned above: I have been following that very closely (as I am of the age to have the state lay claim over my body and mind). Contrary to what Obama and others are saying, Emmanuel’s book makes no bones about the nature of the program. You can find the text online, but it clearly states that ages 19-25 would be required to attend three months of ’emergency training’ so as to prepare communities throughout the country for various ’emergency situations’.

    It all seems so very suspect; train eager, energetic youths in your brand of emergency response, have an emergency (real or imaginary) and you have your own intellectually-pliable drones in every community in the nation. Perhaps I’m just being paranoid.. but I’d rather entertain the worst possible scenario and hope for the best.

  6. Danny Shahar Says:

    Hehe sounds like the beginning of Bureaucracy


  7. R G Collingwood observed the events of the 1930s with mounting alarm and wrote at least two books to come to grips with the problems of civilisation. One was “The New Leviathan”, the other was “An Essay on Metaphysics” which has a thought-provoking chapter on the propaganda of irrationalism.

    This chapter depicts the process that occurs where the critical faculties of students or people at large are systematically destroyed. He first asks us to picture a civilisation where respect for truth is a powerful belief and systematic thinking is prized in intellectual and practical pursuits. Each feature of this civilisation would have characteristics derived from that prevailing habit of mind.

    ‘Religion would be predominantly a worship of truth…Philosophy would be predominantly an exposition not merely of the nature of thought, action & etc. but of scientific thought and orderly (principled, thought-out) action, with special attention to method and to the problem of establishing standards by which on reflection truth can be distinguished from falsehood. Politics would be predominantly the attempt to build up a common life by the methods of reason (free discussion, public criticism). Education would be predominantly a method for inducing habits of orderly and systematic thinking’. And so on.

    ‘And suppose that now within this same civilisation a movement grew up hostile to these fundamental principles…an epidemic disease: a kind of epidemic withering of belief in the importance of truth and in the obligation to think and act in a systematic and methodical way. Such an irrationalist epidemic infecting religion would turn it from a worship of truth to a worship of emotion and a cultivation of certain emotional states…Infecting politics it would substitute for the ideal of orderly thinking in that field the ideal of tangled, immediate, emotional thinking; for the idea of a political thinker as a political leader the idea of a leader focussing and personifying the mass emotions of his community’.

    This movement of thought would need to proceed by stealth because the healthy tissues of thought would strongly resist any open attack on the springs of rationality and scientific thinking.

    ‘Let a sufficient number of men whose intellectual respectability is vouched for by their academic position pay sufficient lip-service to the ideals of scientific method, and they will be allowed to teach by example whatever kind of anti-science they like, even if this involves a hardly disguised breach with all the accepted canons of scientific method.’

    ‘The ease with which this can be done will be much greater if it is done in an academic society where scientific specialisation is so taken for granted that no one dare criticise the work of a man in another faculty. In that case all that is necessary to ensure immunity for the irrationalist agents is that they should put forward their propaganda under the pretence that it is itself a special science, which therefore other scientists will understand that they must not criticise’.

    Collingwood was concerned about the impact of psychology at that time (pre-1940). Lately it sometimes appears that sociology has taken over the function he described.

  8. RickC Says:

    Rafe Champion,

    Always enjoy your comments, here and at other blogs. Thanks for the intro to Collingwood. You just added to my reading list.


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