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The president was right - and it's a shame his inner circle convinced him otherwise

July 13, 2012 - Mike Maneval
It is a much-repeated trope of Keynesian economics, used to demonstrate the theory that the government, through direct employment, can mitigate the damage of economic recessions and depressions, that the government ought to pay people to dig holes, people to fill the holes back in, and people to dig them yet again. Its durability as a trope is understandable - it's a colorful, vivid sound bite, and modern debate on politics and economic policy craves sound bites. But it fails in at least one important regard - the insinuation that the government has no better work to perform, and can satisfy no demand on the part of consumers for a good or service being unmet.

After a thunderstorm in late June, electric service remained out in parts of the Potomac Valley in Virginia, Maryland and West Virginia for several days, in some case a week or more. This travesty should remind us of a political debate from a few years ago, part of the debate over the Obama administration's stimulus plan.

Initially, President Barack Obama wanted to include an impressively large investment of public funds into repairing and upgrading the nation's utility grid. Michael Grunwald, writing for Time magazine's Swampland blog, puts the aims of Obama and Vice President Joe Biden at $100 billion in federal spending. The project would've both put unemployed Americans back to work, and met a need of consumers for a more reliable electric grid, the sort of grid more resistant to the thunderstorm that left Americans without power and cost American businesses in the affected areas in efficiency. It would've, in the process, illustrated the shortcomings of the above trope - that the government can employ unemployed Americans with useful labor and not mere "busy-work."

Unfortunately, as Grunwald and others detail, Obama's inner circle of advisers were determinedly pessimistic about such an investment's effectiveness. The size was pared down to a little more than $11 billion, and the initiative became another example of a missed opportunity, both to improve the lives of Americans and to demonstrate the potential for Keynesian economics not only to put Americans back to work but to put them to work fulfilling the needs of the country as a whole.


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