Leo Panitch: Stimulus not solving underlying problems like consumer debt or broken infrastructure
PAUL JAY, SENIOR EDITOR: So the stimulus package that’s being proposed, $150 billion stimulus package, where it might create some government work projects, there might be some government-subsidized jobs, some tax reductions might create a little bit of extra purchasing power, but will it address this underlying problem of consumer debt and what’s been fueling the economy?
LEO PANITCH, PROF. POLITICAL SCIENCE, YORK UNIVERSITY: Well, what it does show is, just as governments are very active in encouraging this whole process in deregulation, financial speculation, and so on, so they’ve been very active in trying to keep each crisis that this financial volatility causes within bounds. And they’ve been quite successful. The Fed, the American Treasury, which are the most powerful state agencies in the world, coordinate with the European Central Bank, and the Bank of England, the Bank of Canada, and the Bank of Japan, and most recently with the sovereign wealth funds of the Gulf states and of China. So they help bail out the banks every time that there is a problem. Well, they now are very committed as well, as they have been, to supplement that kind of role on the part of the central banks with fiscal stimulus. And they don’t want a recession. And it’s possible that their efforts will have some effect. But I think what you mentioned is very important here. For the most part, what they are proposing and what they’re able to do has to do with very short-term, for the most part, tax-cut measures. That’s what they proposed, which doesn’t help those who aren’t in a tax bracket at all, very much, if you’re the poorest. And what they’re not able to do—this is very significant—is anything much in terms of infrastructure spending. They don’t have the capacity or the time to get that going. So if the tax cuts don’t work, then the kind of thing that’s very much needed in the United States—the rebuilding of the dams that broke when Katrina hit; the rebuilding of America’s bridges, so the collapse of the bridge in Minneapolis doesn’t reoccur in another place—that kind of massive infrastructure spending they’re not ready to do, they don’t have the capacity to do. They’ve had the capacity to intervene around, you know, interest rate cuts and so on, but not this deeper kind of intervention. In that sense, the capacity of states has been undermined. That’s very, very important. And there’s another element going on here, which is that just as Paulson and Bush announced they’ll engage in a fiscal stimulus, out in California Schwarzenegger announces that because he’s losing so much of his tax revenues by virtue of property values declining, he has to cut back on expenditures. And he announced massive cutbacks to the education system. They’re letting out prisoners early. As they let out prisoners early, that’s going to mean a layoff in prison guards in those California towns where prisons were built to keep those towns going. And this is happening across the United States, especially at the municipal level, who are so dependent on property taxes. So this can counteract the fiscal stimulus, and it may be a factor in making it much more difficult to get out of the recession. There will be a recession; the question is how long it will be.
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