We got to do it for the kids. Since most of us are pretty sympathetic towards children and young people, saying that something must be done for the kids is an effective way to get people to do things, especially if they wouldn’t otherwise. For instance, even after insisting that I didn’t want to spend my Halloween night waiting in line to go through a frat-house-turned-haunted-house, when told that my attendance would help out the kids, I felt a little bad. Doing it for the kids also makes one feel better about themselves. After all, don’t we all want to be like Trick Daddy and be able to declare that “Trick Loves the Kids”?
Considering the kids applies to more than just haunted houses and Southern rappers — it is also a good way to think about economic policy. In conventional political conversation, it’s often presumed that the policy that matters most to young people is the deficit. After all, if there’s a mismatch between revenues and spending that cannot go on forever, it will be young people and future generations who end up making the painful sacrifices to put the country’s budget back in order. So, when it comes to the most pressing economic policy debate, whether or not the government should continue to stimulate the economy through deficit spending, anyone thinking of the kids should prefer to cut down the deficit, right?
Wrong. Here’s the thing — deficits are bad, but an economy floundering with unemployment hovering around 10 percent is even worse. If there is a short-term tradeoff between larger deficits and lower unemployment due to increased government spending, we should err on the side of spending more to get unemployment down.
An economy where unemployment is high won’t grow fast enough to help eat back at deficits through increased tax receipts. If the economy’s output is higher and wages go up, it will be easier to reduce the deficit in the future. The first stimulus, which Obama’s own economic advisers thought was too small, is probably responsible for much of the recent 3.5 percent jump in GDP which officially signaled the end of the recession and kept unemployment from potentially spiraling out of control. But just because we are not in an official recession does not mean the economic situation — especially unemployment — is no longer dire. For instance, the last time unemployment was this high, following the 1981-1982 recession, it took six quarters of 5 percent plus growth just to get down to 7 percent unemployment.
Decreasing unemployment and getting the economy back on track, even if doing so creates higher deficits, is not just good economic policy for everyone, but it’s essential for the kids as well. That’s because people who enter the job market during a recession see decreased wages for their entire time in the labor force. Also, young workers tend to have the least skills and experience, so they are the least likely workers to get hired and the first to get fired during a downturn. If anyone cares about the economic welfare of college students and recent graduates, they should be committing all their efforts to decreasing unemployment.
Government stimulus, of course, is not a solution to all our problems and certainly is not the preferred method for keeping unemployment low in the down-turn. In a world, however, where all other tools to goose the economy have been exhausted — namely lowering real interest rates — then stimulus spending is all that’s left.
But there’s a more immediate concern associated with large deficit spending, especially when it’s used to employ more people and buy more stuff — inflation. If, at the end of the day, inflation just bites back the gains from stimulus, then it was all pointless. But, oddly enough, if you’re really thinking of the kids, a little inflation might be a good thing.
I’m not arguing for the double digit inflation of the late 1970s, but instead that we are perhaps a bit too inflation-obsessed. Chris Hayes of the New America Foundation has argued that America is incredibly saddled down by debt — both personal and national — and that steady economic growth will not be able to resume until the value of this debt is lowered. And the best way of decreasing debts is through inflation; because loans are issued in set dollar amounts, if the dollars become less valuable because of inflation, then the loans are easier to pay back. If you view the issue of low versus moderately low inflation through “what’s best for the kids,” the answer becomes even clearer. The kids will benefit from moderate inflation if it means more economic growth, less unemployment and a lower value for their often crippling credit card and student debt.
So, if you hear anyone advocating more stimulus and less concern about the possibility of modest inflation, you have to remember that even if they didn’t growed up the way Trick did, they love the kids.