I like his examples of companies that are more innovative than the DMV: Apple, Intel, and Space X. Leaving Apple aside let's look at Intel, a world leader in chip design. When you say Intel one of the first words that comes to mind for me is DARPA. Especially in the early days one of the main drivers of innovation in the computing business was DARPA. They provided a tremendous amount of investment in cutting edge technologies that was absolutely essential in getting this industry onto its feet and running. Even today the really cutting edge tech is still mostly targeted at government purchasers (ie research labs and defense) with the private sector eventually enjoying the innovation once it is better developed and costs have come down. The second thought that comes to mind for me when you say Intel is Silicon Valley. Why does Intel operate out of the Silicon Valley? Two reasons: the large amount of DARPA projects and research labs in the region and the presence of a large number of universities (mostly public) churning out the workforce they need.
Space X is an even worse example. Their business model is simple. (1) Build hella cool rockets. (2) Get government contracts. (3) Profit! I am certain that Elon Musk would very much like to know exactly what Coburn would like to cut from the federal budget. If Coburn isn't careful he could easily innovate Space X into bankruptcy hearings.
It is important to remember that a lot of private sector innovation is the result of public financing, be it via education dollars, the DARPA spending that was of tremendous importance to the computing industry, or a tanker contract that allowed Boeing to dominate the commercial aviation industry for decades.
Coburn specifically names Paul Krugman but never addresses what Krugman has been saying these past few years. To try to channel my inner Kthug the problem we face most today is the
Paradox of Thrift. Individual virtue becomes common vice. Battered homeowners who have just watched their equity immolate are trying to save more money and spend less. Battered businesses looking at the weak economy and the risks of expansion decide to save more and spend less. This doesn't work mathematically. For every creditor their must be a debtor. We can't all save more and spend less. All that happens is that effective demand plunges, GDP weakens, incomes drop, and in addition to creating a sucky economy we also mostly thwart our own efforts to save more and spend less. Nor are traditional economic tools to resolve a situation like this effective today. Interest rates have been floored without gaining any traction and unconventional monetary policy has proven mostly ineffective.
Back to Coburn. He claims that "artificially expanding the public sector at the expense of the private sector is a recipe for disaster". That is wrong because expansions in the public sector right now do not come at the expense of the private sector. For one we have high unemployment and slack labor markets. Hiring more public employees today is not offset by a reduction in private sector employment. If the public sector does not hire them they simply will not be hired. Nor will an expansion of public employment drive wage inflation due to the amount of slack in the labor market. The second reason that Coburn is wrong is because the private sector is trying to save more and spend less. There is too much money chasing too little debt today. As a result the
price of safe debt is currently insane. That sort of saving is the equivalent of parking your money under the mattress. Government debt is currently being financed with dollar bills that would otherwise not be circulating in the economy at all. Therefore utilizing debt-financed fiscal expansion to improve the economy doesn't come at the expense of the private sector.
Debt-financed fiscal expansion also doesn't just provide a paycheck for more Americans. It puts dollar bills that would otherwise be stuffed under mattresses back into circulation. That money gets spent at grocery stores and restaurants improving business prospects in the private sector. By utilizing the government as the debtor of last resort we can resolve the Paradox of Thrift. We can offset the propensity of households to save more and spend less with a public effort to spend more and save less thus allowing Americans to rebuild their balance sheets while not being a drag on the economy, and we prevent the Paradox from undermining their efforts to become financially healthy again.
Unfortunately with the gridlock that is our current Congress, we are not going to get serious action on fixing the economy anytime soon. But at least we aren't trying to emulate the disaster of European-style austerity programs. Not yet at least.
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