To the Editor,
I’m writing in response to Jason Canavan’s piece in last week’s Phillipian. Canavan wrote in response to my own commentary article, written two weeks ago, regarding Governor Jeb Bush’s visit. I appreciate that Canavan holds a different political perspective than my own. However, I believe that he makes a number of misleading assertions that deserve a response.
Canavan makes the assertion that “President Obama’s stimulus did not stimulate the economy the way $800 billion should have.” As I wrote in my own piece, economists have estimated that the stimulus created $2.10 of economic output for every dollar spent. One would be hard pressed to find any recent government stimulus with the same efficacy. By comparison, economists have estimated that making the Bush tax cuts permanent would create only $0.29 of economic output for every dollar spent. As far as government spending goes, the Recovery Act of 2009 has been remarkably effective.
The crux of Canavan’s argument is posed in the form of a question. He asks, “If a stimulus was successful, why is it that Americans are still jobless or underpaid, the housing market is still in shambles and the cost of education and gasoline are higher than they ever have been?” The stimulus, however, was never meant to address any of those issues, nor were they areas where any of the president’s policies could have much effect.
First, housing prices are the lowest in years because the previous decade’s high prices were driven by a speculative bubble. It is absurd to suggest that because housing prices are below historic highs, the president’s economic policies have been a failure.
Secondly, the notion of a president being able to control oil and gas prices is frivolous. In the past four years, U.S. crude oil production has increased every year, yet gas prices have increased. The truth is that government policy has a limited effect on oil prices. Richard Thaler of the University of Chicago’s Booth School of Business conducted a survey of 41 of his fellow economists, asking if they agreed with the statement, “Changes in U.S. gasoline prices over the past 10 years have predominantly have been due to market factors rather than U.S. federal economic or energy policies.” Not one of the surveyed economists disagreed with that idea. Thaler points out that United States consumes 20 percent of the world’s oil, but holds only 2 percent of its reserves. Domestic energy prices are dictated by price movements in global markets, not the policies of any administration.
Lastly, on the education issue, the government doesn’t control the price of tuition. Reforming the structure of higher education to deliver a better education at a lower price is a policy area that the government has limited influence in. The current administration has attempted to reform the nation’s student loan system by cutting $60 billion in subsidies from banks. Out of the savings, $36 billion was redirected towards increasing Pell Grants, effectively doubling the program’s funding. The President may not be able to single-handedly stop tuition increases, but I believe that his policies have gone a long way in addressing the issues of college affordability.
Canavan also addresses the issue of “government venture capitalism.” He states that the current “administration has defied free market principles by investing in various companies.” I wholeheartedly disagree. Government should invest in industries where the cost-reward structures do not yet attract private investment. It was government investment that drove development of space technologies that later ushered in commercial rocketry, and it is government-funded medical research that has discovered breakthroughs in fighting disease and extending human life.
It is true that these government-backed ventures sometimes fail. Solyndra and A123 are reminders that sometimes a good idea is not enough to be commercially profitable. Yet, we should evaluate government investment as a whole. Specifically on energy, the Department of Energy has a $16.1 billion loan program for clean-energy companies. Even with failures like Solyndra, the overall default rate is less than 3.6%, much lower than the 12.85% rate the program’s architects had prepared for. Initiatives like the loan guarantee program have doubled the United States’ wind and solar production in the past four years. Renewable energy now accounts for 9% of our national energy consumption, up from 7% in 2008. Government should never pick winners and losers. Unprofitable companies should be allowed to fail. Still, I believe that government investment in promising companies has yielded impressive results in the past, and will continue to do so in the future.
I appreciate that Jason Canavan took the time to respond. There are ideological reasons for why one might oppose stimulus or government investment. Again, the debate over the role of government provides much room to explore. I believe however, that any such debate should grounded in reliable facts.
Jeremy Chen ’13