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Consumer spending drives our economy, but is an economic stimulus package that will encourage more consumer spending really good public policy?

With the close of World War I, wartime propagandists found themselves unemployed, but with the enviable knowledge of how to manipulate millions of people to do their bidding.  Led by Sigmund Freud’s nephew Edward Bernays, these out-of-work thought manipulators turned their attention from fueling the war machine to feeding consumer spending via the outwardly innocuous realm of public relations.  Conspicuous consumption – first calculated and domestic, then instantaneous and portable – has been accepted and encouraged ever since.

It is perhaps because of this ubiquity of consumer spending that the economic stimulus package of February passed with such support and so little criticism.  Why not give the lower and middle classes, the elderly, and disabled veterans some money to pay this month’s credit card debt and make this month’s mortgage payment, to take their husbands to dinner, and to buy their children a toy?  Indeed, why not?  

But the stimulus package, in its limited scope, at the very least suggests that prosperity – economic or otherwise – lies merely in one’s capacity to buy.  Whereas social status might be defined by the quantity or quality of consumption, social class is now determined much less by income in the United States and much more by factors that influence quality of life: education, health care, vacation, retirement, access to the arts, financial security.  Though Dr. Richard Vedder of Ohio University last year dismissed burgeoning income inequality at a congressional hearing on the middle class by demonstrating that consumer spending is quite evenly distributed across classes, one might wonder whether Dr. Vedder has simply been conditioned by Bernays’s gang.  Shall we herald debt-financed consumer spending as the great equalizer, or shall we turn our thoughts to ensuring that as many as possible have access to that awe-inspiring middle class of doctor visits, university educations, and paid sick days?

Though Congressional Republicans winked when they suggested stimulating the economy by making President Bush’s tax cuts permanent, Republican presidential candidates McCain and Romney were deadly serious when they planned to rescue the nation’s economy with cuts in the corporate tax rate.  After all, the United States brutalizes Americans with the second highest corporate tax rate of all countries in the Organization of Economic Cooperation and Development (OECD).  Never mind that the actual yield from this devastating tax ranks 4th lowest as a share of GDP out of the 30 OECD countries because of the generous tax preferences that litter the Internal Revenue Code.  This is nothing new: for years politicians have held out inducements to consumer spending, while allowing outsized corporations to swell, the wealthy to hoard money, social welfare programs to rot, and bad mortgage products to proliferate (regardless of whether we allow borrowers to suffer for their financial miscalculations or rescue them "from themselves").  Indeed, what else is the logic of ARMs but to give me the lowest possible interest rate now so that I can keep spending; be damned – by higher monthly payments, by owing more money than I borrowed, or by paying too early – whatever might come after.
In an incisive New York Times op-ed, Jared Diamond pointed out that the rate of consumption in the United States will inevitably decline.  But, more importantly, he noted that living standards will not suffer a similar fate.  Indeed, Western Europe’s rate of consumption is considerably lower than that of the United States, while nearly all measures of quality of life – those monikers of the truly middle class – such as life expectancy, health, infant mortality, financial stability after retirement, access to medical care, post-retirement benefits, vacation, public school quality, and support for the arts – are in fact higher.

This is all to suggest that the economic stimulus package signed into law last month was at best insufficient and at worst purposefully misguided.  An alternative stimulus measure – proposed as an amendment to the first package, kicked around as a concept at least since last August, and endorsed by Senators Clinton and Obama – highlights the continued myopia associated with equations of consumer spending and economic stability.

As an economic stimulus, ambitious, yet calculated, federal infrastructure projects stand starkly opposed to inducements to consumer spending.  Such projects require foresight and forbearance on the part of politicians and constituents, alike.  They demand consideration of long-term regional and national goals that range from transportation to sewage to drinking water.  They compel consensus on issues as popularly amorphous as climate change and as strangely divisive as freight transport.  Such projects at once transcend political opportunism and at the same time are subject to the worst vagaries of influence peddling.  These projects ask the question: where should we be in forty years?      

Federal spending on big, significant infrastructure projects in order to stimulate the economy would be an admission that the creation of quality jobs, not the perpetuation of a spending habit, is what must, what will, cure the economy.  Certainly, one worries that the federal government often spends unwisely.  While this may be true, spending public money on public projects that benefit all or most or even many Americans – even unwisely – seems greatly preferable to abandoning our public health to an inexorable cycle of spending and debt.

The comparison – or opposition – of consumer spending and federally financed infrastructure spending might seem forced or arbitrary.  Instead, why not shore up SCHIP or NCLB or any number of federal acronyms that have been hollowed out or mandated without sufficient funding?  After all, it is these programs – not infrastructure projects – that most obviously exist to provide those struggling at the bottom of the economic pool with the entitlements that permit them a "quality life".  Still further, federal spending on infrastructure projects is likely to fail the well-accepted three-T test for an effective economic stimulus (targeted, timely, and temporary).  

Yet, unlike recommitment to programs (rightly) designed to account for failings of the competitive market, a commitment to federal infrastructure spending would telegraph a comprehensive vision for economic development in a United States increasingly reliant upon its metropolitan areas.  In a way that individual entitlement programs cannot do, garnering public support for an overhaul of the nation’s "modally siloed" and "rigidly stovepiped" transportation policy, for its aging sewage systems, for its cracking bridges, for its port entries and its canals and its broadband connections, would require the engagement of the American public in a long-term strategy for prosperity that would create jobs, improve economic efficiency, and nod approvingly at the simultaneous globalization and urbanization that currently define the United States’ economy.  No doubt many Americans will struggle less or, no less justly, will enjoy themselves more, if only for a short time, when their rebate checks arrive.  Fine.  We deserve this, and much, much more.

Originally posted to Harry DMI on Wed Apr 02, 2008 at 08:18 AM PDT.

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