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Librarians and Other Keynesians

November 12, 2008

By Steven Malanga

Recently the American Library Association issued a press release that declared: "ALA seeks $100 million in stimulus funding as U.S. libraries face critical cutbacks, closures."

The press release informs us that the group is asking Congress for "stimulus funding to aid the nation's working families during the economic crisis" [my emphasis] in order to stem "the bleeding of critical library services." Later the association observes that, "For every dollar invested in the public library the community receives a return of $5.50...Known as the multiplier affect [sic], every dollar spent in the community will ripple through the economy."

Now, before I go any further, I should point out that I have not made up this press release. Nor is this something I lifted from the website of the Onion, the satirical newspaper which specializes in printing outlandish fake news stories.

That I had believed this was satire when I first read it just shows that I am only slowly adjusting to the new spirit of the times in which "bailout" and "stimulus" are the hottest buzzwords in policy circles. If I had been paying closer attention, for instance, I would have noticed that around the same time that the ALA issued its plea, various state governors implored the federal government to come up with $14 billion in new infrastructure stimulus spending for them.

Meanwhile, providers of green energy equipment were applauding inclusion of tax credits for renewable energy sources in the Emergency Economic Stabilization Act of 2008 because of the potential stimulative effect of so many businesses and residents running out to install wind, geothermal and biomass energy products. Not to be left behind, developers and owners of commercial real estate warned that the government needs to expand its next economic stimulus package, set to be debated in early 2009, to include them, or else risk having a slump in the commercial market drag the overall economy down further. I’m sure one reason they see nothing unusual about this request is because the auto industry is asking for a $25 billion bailout from troubles that started decades ago—not during the current crisis. After all, General Motors and Ford collectively lost some $10 billion on their North American operations in 2005, when the rest of the U.S. economy was humming along.

What we are watching is the rapid evolution of the meaning of words like "bailout" and "stimulus," and we'll certainly be poorer for it in the long run. When the federal government first seized control of Fannie Mae and Freddie Mac, then engineered the merger of Bear Stearns and JPMorgan Chase and saved AIG, we were so shocked that many of us accepted the explanation that these actions amounted to rescues necessary to save our financial system from serious, long term damage. But the word "bailout" has now been used so many times that it is slowly coming to mean simply offering aid. And everyone seems ready to line up for it.

This is where the word "stimulus" comes in. The term "bailout" has provoked such a backlash that the only way panhandlers rattling their cups in Washington can justify their requests is to pretend that they cost nothing. That's why all of these bailouts are somehow stimulative, too. And thus, for every dollar we invest in libraries, we'll get back more than five dollars. That's a return-on-capital that you can't find on most investments, although the ALA doesn't explain how it arrived at its wonderful numbers, and I'd love to see the research that produced them subjected to peer review.

Perhaps by trying to convince us that all of this spending will pay for itself—and give back even more—the panhandlers hope we won’t ask tough questions about who is really responsible for the mess each is in. Some states and local governments, for instance, have used up much of their bonding authority on extravagant, unwise and sometimes downright silly projects like massive subsidized convention centers, sports arenas and stadiums. States also spent money liberally during the go-go years and find their budgets pinched today. So, they complain that Washington isn't providing enough money to help with essential building and repairing of local roads, bridges and tunnels and demand $14 billion of stimulus aid. If this kind of building is so stimulative, however, you have to wonder why the states and cities haven't rushed to take money from elsewhere—say from earmarks or from rich public employee contracts—and diverted it into infrastructure projects instead of waiting for Washington to act.

Bailout money may not truly stimulate, but it does insulate. If states can rely on billions from Washington, they won't reform their budget processes, refocus their own borrowing, or tap innovative sources of capital, like private equity pools around the world that are investing in infrastructure. If struggling private industries can rely on aid from Washington to prop up assets and failing operations, prices won't fall enough to attract new investors and innovative and efficient new firms. Both scenarios are a prescription for a society of sclerotic public and private institutions.

Still, expect plenty of groups to line up with their tin cups when Congress reconvenes and begins discussing the next stimulus package, which may very well lower the mortgage principal of millions of subprime borrowers and spread assorted other aid around, especially to constituencies which get a stronger hearing with a new presidential administration. $100 million here. $14 billion there. $25 billion there. These days, it's what panhandlers call "spange," that is, spare change.

Original Source: http://www.realclearmarkets.com/articles/2008/11/librarians_and_other_keynesian.html

 

 
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