"That's where the money is" was what Willie Sutton was famously supposed to have said when asked why he persisted in robbing banks. Now that banks apparently have little or no money left, one is left to wonder where, in fact the money is these days.
And this question becomes all the more vital now that the federal government is proposing to spend (and in fact already has spent) a few trillion dollars of nonexistent money in what looks like an increasingly frantic attempt to stave off complete economic collapse.
It all seems a bit touch and go at the moment as to whether they will succeed, but I don't really see a lot of alternatives. If invading armies were poised on our borders, I don't think there'd be too much anguished debate about whether we could afford the weapons necessary to repel them, and the current economic crisis is probably as much a threat to our survival as a nation as any of the wars we've waged in recent memory.
When I was at Berkeley, our Political Economy class had a guest speaker in the person of former Navy Secretary John Lehman, who lectured us on the microeconomics of military spending. This was at the time when there was much (understandable) outrage over the $200 hammers and gold-plated toilets the Pentagon was continually being caught wasting taxpayers' money on, and I didn't expect him to be able to provide any credible defense for this kind of waste.
But to some extent he did: military spending, he argued, exists in a different context altogether, in that - at least or especially in times of war - it's the sort of spending where saving money is necessarily one of the lowest priorities. A lot of good it will do you, he pointed out, to have got those bullets at a knockdown price from an off-brand supplier if in the course of searching out bargains you have been overrun and conquered by the enemy.
In war, he claimed, there is one standard of success and one only: victory. Any other outcome and the cost, whether exorbitant or economical, becomes irrelevant. Hence the question: does our present predicament constitute the fiscal equivalent of war? If so, then the Obama administration is undoubtedly justified in throwing everything, kitchen sink included, at the problem. As enormous as the national debt we've run up already is, it still hasn't approached the levels - as a percentage of GDP - that it did in World War II, and yet rather than leaving us indebted and struggling for decades afterward, the war's end set off one of the longest and biggest economic expansions in history. Isn't it possible that a sufficiently large investment in infrastructure, no matter how heavily mortgaged, could do the same again?
It's been pointed out to me, however, that the difference between the post-WWII era and our present condition is that following the war, most other developed countries apart from the USA were in ruins, with their working-age population decimated, and that this in turn gave the USA an enormous advantage. And yet, many of the countries which suffered most - Germany and Japan in particular - not only recovered quickly, they soon came to rival the United States itself in economic terms.
Much of Europe and Asia's success following the war seems, then, to have gotten a kickstart from the USA's generous (or canny, depending how you look at it) aid (or investment), which not only helped those countries to rebuild their infrastructures, but produced a fast-growing market for US goods and services. Ultimately, everybody benefited, and it's not clear to me why a similar principle couldn't apply even if we don't blow everything up first.
So barring any other obvious possibilities, I'm very much in support of Obama's budget, and would in fact like to see even more spent on vast public works projects, with high speed rail and renewable (especially solar) energy sources being near the top of my own wish list. But where does the money come to pay for it?
Well, as a general rule, I'm not in favor of raising taxes, especially not in a time of straitened economic circumstances, but again it looks as though Obama has got it just about right. There are quite a few Americans who grew extremely prosperous during the recent boom years. Whether you feel they did so honestly - I think in most cases the answer is yes - or through bubble financing and corporate gouging - there's been a fair bit of that as well - doesn't so much matter: the grim fact is that that's where the money is.
You can't raise taxes on the middle or working classes, not just because it wouldn't be fair, but because they simply haven't got the money to pay them, but as for the upper and upper middle classes, well, they may not have nearly as much as they had a couple years ago, but they've still got plenty, enough so that a relatively minor tax increase isn't going to greatly inconvenience them, let alone impinge on their ability to enjoy life. If this was a war, everybody's taxes would be going up, and goods would be rationed as well.
For the poorer classes, rationing is already in effect by virtue of their inability to pay for many of life's necessities, let alone luxuries. The well-to-do can not only afford to pitch in, it's their duty - and should be considered a privilege and an honor - to do so. In fact, as Biden was unjustly maligned for saying during the campaign, it's downright patriotic. If Bush hadn't put his ill-conceived and ineptly waged war - not to mention his equally ill-conceived and ineptly applied tax cuts - on the national credit card, chances are we wouldn't be in this predicament today, but he did, we're broke, and somebody has to pay the bill.