by digby

Matt Yglesias makes an excellent argument today for the necessity of government spending right now on things that only the government does. I hadn't thought of it in his exact terms, although I intuitively understood that people need a break from the consumer buying binge of the past few years, which means that we probably aren't going to find our religion any time soon. There's too much debt and frankly, people have just shopped themselves out. This hangover is overdue.

And the ramifications of that are stark. Yglesias illustrates this with a comment from The Atlantic:

There’s the rub. My company’s bank loan officer has called frequently asking if we need to borrow. They are begging to lend money. For what? We could buy a nice new machine tool at a good price, but why do that when sales are falling? Put an extension on our building? Buy some failing competitor and strap oneself with debt? Unless you absolutely need a new car or a new television or a new roof, the big ticket discretionary purchases paid for by loans aren’t going to be made. The loans the banks are making now are companies rolling over existing debt, not new debt. Given the “stuff” out there that is discretionary purchases, I wouldn’t be at all surprised to see unemployment hit 20% before a bottom is reached.

That makes sense to me and it argues for a long and very unpleasant downturn if we depend upon consumer spending to bring this economy back. As Yglesias explains, the government needs to put people to work doing the things that only government can do and which the anti-government experiment of the past few decades have starved in favor of hysterical consumption of disposable goods.

He writes:

It’s not just that we’re prosperous enough that people aren’t starving to death, but over and above that compared to anyplace else in the world we just have a ton of consumer goods stockpiled such that even if purchases of new goods slowed enormously for years we could keep on keeping on at a high standard of living.

But that’s not to say that things are perfect. Compared to other times and other countries, there are a lot of scores on which we’re doing extremely well. But there are other respects in which we’re falling well behind what we know is achievable by contemporary societies.

We have a smaller proportion of our population graduating from college than do some other countries, and we’re making no progress. Relatedly, our K-12 education system could perform better. Our intercity passenger rail offerings are much worse than they could be, and none of our non-NYC metro areas have really top-notch mass transit offerings. We have substantially more violent crime than do other countries or historical periods in the United States. The level of prenatal health care our pregnant women are receiving is substandard, as is the physical fitness of our children. Public libraries are generally worse than they were a generation ago. America’s streets and sidewalks are, in general, not especially clean or well-maintained. And though our highways are plentiful, they’re not well-maintained either.

This all adds up to a lot of fields in which it would be plausible to say that we could enhance human welfare by expending more funds. But these are basically all things in which the private sector could realistically only have a secondary role.

And all of these things are feeders to the private sector in the long run --- a well-educated, healthy population and an efficient modern infrastructure are the foundation for private sector wealth. Without these things it's hard to see how the private economy ever truly recovers.

People have lots and lots of stuff, all the gadgets they can use for a while and a serious case of consumption fatigue. What they don't have are these important necessities that have been neglected for so long. It's perfectly logical that this is where spending should go for a while. Indeed, it seems to me that modern capitalism requires it. If its purpose is to fulfill needs, then these are the needs that require fulfilling. And the only entity capable of efficiently and quickly delivering such large scale necessities is the government.