Tuesday, November 23, 2004

Max Speak

Max has more on crazy Republican budgeting plans. He makes important points:

For academics, this will be a grand experiment in neo-classical fiscal policy, founded on the premise that anything that doesn't change inter-temporal budget constraints has no effect on behavior. Yuk yuk. By this logic, if the Gov borrows to pay me a billion dollars today and simultaneouly passes the Revenue 3000 tax act, which levies a wealth tax on the inhabitants of Jupiter in the year 3000 to offset the accumulated debt, everything is hunky-dory. Don't laugh. These people are running the country!

There is verbiage -- don't call it argument -- that this is acceptable because the borrowing is an investment that pays for itself. I recall similar arguments made for the Reagan tax cuts, defense spending, and the savings and loan bailout. There were allusions to the business-like logic of capital budgeting.

EPI recently published a study on the benefits of early childhood health and education. Similarly there is literature on the merits of public investment in infrastructure, and in research and development. The only problem with the capital budgeting talk, aside from the fact that it is idiotic, is that it is not applied to actual investment in public capital.