The Edmond Sun


July 6, 2012

Stimulus should be government's focus now

EDMOND — “This is a spending-driven crisis,” (U.S. Rep.) Lankford said. “We spend too much.” This was a tweet posted on the NewsOK Politics Twitter account during U.S. Rep. James Lankford’s recent town hall meeting in Oklahoma City. It is not surprising that the congressman would make such a comment, which came apparently amidst a discussion of our national debt. After all, this statement reflects on oft-repeated meme among conservatives.

However, “oft-repeated” is not synonymous with “true.”

In this case a careful review of the evidence finds that Rep. Lankford’s statement is not even close to being true. First, the main economic crisis we face today is the intolerable level of unemployment, which continues to hover above 8 percent 28 months after the economic recovery began. This crisis, though, was caused by the 2008 financial crisis and not any subsequent increase in government spending.

In fact, the evidence shows that the increase in government spending in recent years has helped mitigate the recession and reduce unemployment significantly. According to the highly trained economists at the Congressional Budget Office the 2009 stimulus bill increased employment by up to 5.1 million new jobs (midpoint estimate of 3.6 million jobs) at its peak.

Second, even if Rep. Lankford was expressing concern for our rising national debt, it’s hard to make the case that the U.S. is facing a debt crisis. While the national debt will exceed $1 trillion again this year, capital markets are certainly not showing any signs of concern. In fact, the world is literally paying us money to borrow more.

The latest data from the U.S. Treasury indicates that the U.S government this week borrowed money for the next 10 years at an interest rate of 1.62 percent. However, the money the government must repay in 10 years will be worth less due to inflation. This is why economists calculate the true cost of borrowing money over time by subtracting the expected inflation rate from the interest rate — giving us what we call the “real interest rate.”

While the current 10-year treasury rate is 1.62 percent, the expected inflation rate is higher. In the past 12 months the inflation rate has exceeded 1.7 percent (in the last five months it’s been much higher). Looking forward, market expectations are for the inflation rate to hover between 2-3 percent.

What does this mean? It means that the money the U.S. government (and by extension taxpayers) must repay in 10 years will be worth less than the money it borrows today. Essentially, the world is paying us to borrow more. Yet Congress continues to look this gift horse in the mouth.

However, despite the incredible deal the world is offering, Congress has been unwilling to step up. Instead of cutting spending, now is the time for Congress to make huge new investments in infrastructure and education, the type of investments that not only are affordable today (due to negative real interest rates) but also will provide lasting economic benefits for decades. Congress also can provide additional aid to state and local governments — governments that have been forced to shed 650,000 jobs during the economic recovery. If Congress had been providing that aid all along, the unemployment rate would be well below 8 percent today.

Instead, Congress has been pressing for austerity instead of stimulus. As a result of the debt ceiling debacle last year, congressional Republicans insisted on a new round of “austerity” — a combination of spending cuts and tax increases that will reduce next year’s budget deficit by more than $600 billion (according to the Congressional Budget Office). The CBO also predicts that this package — set to become effective at the beginning of next year — will send the economy spiraling back into a recession.

Right now, with more than 12 million unemployed Americans, we face a significant challenge. We don’t need members of Congress making alarmist statements about a debt crisis that does not exist. The world is paying us to borrow more. We have infrastructure and education needs that need to be funded. And we have millions of unemployed Americans eager to get back to work.

Now is the time to fix this but we need to place our focus on jobs not debt. Essentially, we need our leaders to refocus today, on solving today’s problems.

MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy. EDITOR'S NOTE: Rep. James Lankford is up for re-election on the Nov. 6 general election ballot against Democrat Tom Guild and Independents Pat Martin and Robert T. Murphey.

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