Why austerity and not stimulus? Does it have to be either or?

[Today we welcome seasoned blogger FRSFreeStates.  We thank them for their contribution.  Be sure to follow them on Facebook and Twitter.  If you would like to contribute, please email peopleforpolity@gmail.com]

Link:

FRSFreeStates: Why Austerity and Not Stimulus?: Why does it have to be Either Or?

It’s hard to argue that the 2009 Recovery Act was a success if you look at the fact that today's unemployment rate and economic growth are both lower today than it was in late 2009.  The "Great Recession" officially ended, but we would be a hell of a lot worse off without the Recovery Act even though it wasn't a success.

But why wasn't the Recovery Act successful?

 Because it wasn't big enough and wasn't targeted properly, which is what happens when you legislate in "crisis mode" and you try and I try to clean this up and fly by the seat of our pants without a gauge to tell us where we're going and how to get there.

But the fact is we needed something like the stimulus, but it should have been done better.

I argued in a blog in early 2010 at the one year anniversary of the Obama Administration, as well as during President Obama's first 100 Days, that the Recovery Act wasn't big enough and not properly targeted. 

If your're going to have a Borrow and Spend Economic Policy...which I'm generally against except in an economy this bad where no one has any money to spend...and the federal government is the only one capable of printing money with their control of the currency, then you should borrow as much money as it takes to deal with a "Great Recession" to get economic and job growth going again. 

Instead of borrowing $45 billion for infrastructure, you should borrow about ten times that to fix a lot of these projects that the Corp of Engineers has said needs to be done...instead of cutting taxes and regulations and expanding lending authority for small business in the Summer of 2010.

You do that during the heart of the "Great Recession," and this is not Monday-morning-quarterbacking on my part; I wrote this in a blog on my site two-and-a-half years ago.

There is an idea of a national infrastructure bank that has a bipartisan bill in the Senate that would be self -financed.  The bill would prioritize a lot of these infrastructure projects and should have been in the Recovery Act. We could've borrowed the money to start it up, and it would've had a two year head start and would be up in running right now.  It would be taking care of a lot of this work and putting a lot of people back to work today, and our unemployment rate would have fallen.

And because the Recovery Act was badly designed, today we have an economy that's as bad or not much better than when the "Great Recession' started. 

We are now left with a bad economy and more national debt and a larger deficit that has to be dealt with at the same time.

This is partially because of the Recovery Act, but it is also because of a lot of bad fiscal policies that the Obama Administration inherited from the Bush Administration.  We are left with a situation, today in the Summer of 2011, where we have to both stimulate the economy and pay our bills and cut our costs.

The debt deal of last week is a solid start but should have been a lot better, and hopefully round two of the debt reduction will be a lot better and more balanced. 

But as we are doing this, we need to put people back to work and start spending money again...which is the easiest way to pay down our debt...with economic growth.  A national infrastructure bank, free trade, and an energy bill with targeted tax cuts to encourage consumer spending would be a good start.

We can pay for all of these things without hurting the economy.