Let's Not Build Stuff, Let's Have A Depression Instead!

Via Matt Yglesias here comes a link to an op-ed in the Politico by Minnesota Gov. Tim Pawlenty who wants to "Cut up the credit card" of the federal government at exactly the wrong time. In his blueprint outlining "steps the Republican Party must do to again become the national majority party" his prescription is "fiscal responsibility — living within our means like most Americans do."

Now this sounds like it makes sense, but this an area where common sense lessons that everyone derives from experience with microeconomics leads to extremely wrong notions about macroeconomics. Credit is fine when your personal economy is operating well and the ability to pay off the debt in a timely manner is both likely and foreseeable. If you lose your job you SHOULD reduce expenses. Debt is especially bad because the chances you will compound your problem by not being able to pay it off is high AND the rates you will be charged will be higher due to your lack of resources.

BUT, as discussed previously, the US Government is VERY different from you! The US Government lives forever, it has the ability to confiscate property of its citizens and corporations to pay off debts, it has a very good credit rating, etc... In an economic downturn it's both cheap and necessary for the government to borrow and spend. As Matt says:

At a time of economic slowdown, tax revenues will fall. Pawlenty would have the federal government offer no aid to state and local governments, forcing them to slash services and raise taxes, further deepening the slowdown. And then we’d need to cut the federal budget sharply, even further deepening the slowdown. And then next year tax revenues would come in even lower, and we’d need another round of counterproductive cuts.

Now "cutting up the credit cards" is not always bad. In times of economic expansion, the government should increase taxes and seek to "live within it's means." Had Gov. Pawlenty courageously urged his party to increase taxes and reduce spending 5 years ago when they controlled all three branches of government, truly he would be a fiscal conservative. But this? This is fiscal foolishness.