Spending Now for a Better Future

The budget for the 2011 fiscal year that President Obama unveiled Feb. 1 lays out a depressing picture of this country’s future. Deficits will rise to a long-term level at which they will cease to be sustainable, and unemployment will stay high for many years. Our country is on pace to follow Japan down a path of aging and debt-ridden decay, and there seem to be few good solutions on the horizon.  The conventional wisdom says that after years of spending without any awareness of our limits, we must now enter an extended period of frugality. Yet, in reality, these desperate times call for greater spending, as opposed to cutbacks. In order to reduce the sky-high unemployment that threatens our country’s present and future, to soothe the damaged and frightened national psyche, and to build a strong foundation for growth, the government must unleash massive public spending.

In the last report, unemployment stood at 9.7 percent, and it looks to remain at that level for a long time. The recently released budget outlines a $100 billion jobs program and a $30 billion program to help community banks make loans, but the administration itself projects that these will only put a small dent in unemployment, which will remain at levels over or near 8 percent through 2012.

Sustained unemployment over 8 percent, however, is more than just a horrible number; it represents millions of families who put less food on the table, who have to choose between taking care of aging parents and sending children to good schools and colleges, and who suffer from the devastating social effects of joblessness. Many economists point to high deficits and returning growth, and argue that America must make the difficult choice to curb spending, even if unemployment will remain high. But if unemployment stays high for an extended period, we might lose an entire generation of children who could have grown up healthy and well educated if only their parents had jobs.

Not only does high unemployment severely hurt our country’s future, but it also hinders our ability to recover from the current crisis due to its effect on the national psyche. As renowned behavioral economist Robert Shiller clearly articulated in a recent New York Times article, for a country to truly recover from an economic crisis, workers must be personally invested in the country’s economy, confident enough to take out loans, and willing to take risks to fuel growth. Right now, the entire country is frozen in economic fear, paralyzed by the shattering depth of the economic crisis and concerned that recovery is too far in the future. In such an environment, it will be extremely difficult for our economy to become as strong as it was during the boom years of the ’90s.

In such times, the major solution is government spending. This is not a solution borne of socialist tendencies or a belief in government as the most efficient allocator of capital but, rather, the clear realization that the government can employ people quickly and effectively. The first step must be for the government to extend aid to states in order to save the jobs of teachers, civil servants, and local employees such as firefighters and policemen. Such aid was extended in Obama’s stimulus bill and helped save a great deal of jobs, but with almost every state running deficits and with a few even approaching bankruptcy, states would be forced to make difficult decisions if this aid were to run out. In addition to this, therefore, the government must build on the efforts of the stimulus and spend far more than $100 billion on infrastructure, clean-energy and other important projects that will create jobs. While tax cuts are often merely saved or used to pay down personal debt, spending on projects that have to create jobs comes with a guarantee of expanding employment.

Furthermore, the spending must be high enough to return the economy to normal employment in the foreseeable future, because this is the only solution to avert the generational and psychological catastrophe that will come with high unemployment. However, the necessity of such spending proposals does not allow us to ignore our deficit. Our excessive borrowing is a serious, long-term problem and should be dealt with by focusing on the skyrocketing costs of Medicare and Social Security instead of curbing domestic outlays that are necessary for economic recovery. But any fiscal reforms will be useless if they are implemented in a country that is permanently weakened by the loss of an entire generation destroyed by the specter of unemployment. In the short term, the government must spend aggressively to make sure that millions are not left without jobs, education, and futures. It has no choice but to spend more, because, unfortunately, the costs of inaction are far too large.

Ravi N. Mulani ’12, a Crimson editorial writer, is an applied math and economics concentrator in Pforzheimer House.