Can’t Spend Fast Enough

Views

Let me follow up on what I just wrote below about Krugman’s and Atrios’s views on our difficulty in finding ways to spend on stimulus quickly enough to pull the economy out of its nosedive. We’re not just looking for ways to spend — capital projects like major infrastructure spending — but also ways to prevent things that will force an even more rapid deterioration — like big budget cuts by state and local governments (Atrios’s point.)

I’d be very curious to hear from the real economists on this one. But if these assumptions are right (and I assume they are) I do not see how they do not become the major factor in the auto maker bailout discussion. Whatever we think of the long-term or even the medium-term fate of the US auto industry, it’s hard to think of many other stiff accelerants to the downturn than one of more of the big automakers going bankrupt any time in the next year.

For all sorts of reasons, we couldn’t broadcast the idea that we’re just propping up these companies in the near term as a de facto stimulus effort or as a way to keep money flowing into people’s pockets (nor am I proposing that approach, as opposed to a plan which keeps them spending and employing while also laying the groundwork for longterm health). But if Krugman’s prognostications are right, it’s not clear to me that such an effort would not justify itself in macro-economic terms.

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