Is the North Country a cautionary tale for the Federal stimulus?

The debate over the Federal stimulus has gone down the rabbit hole of political hysterics. Lost in the “socialism” melodrama are some big questions with some potentially scary answers.

First, let me say that I’m convinced that we needed a huge, debt-driven infusion of cash late in 2008 to keep the economy going and to prevent states like California and New York from tipping into insolvency.

There’s a lot of hand-wring over 10% unemployment, but without the stimulus we might easily be pushing into the 15-17% range.

What’s more, I think the bank and car-maker bailouts helped prevent a Depression-scale economic catastrophe.

But all the good news (or, rather, happily mediocre news) doesn’t settle the two looming quandaries that still remain.

1. Will America mire itself in so much public debt that we’ll drown any future prosperity?

2. Is government simulus spending masking the fact that our economy is fundamentally broken?

On the first point, I think — Paul Krugman aside — a growing number of economists think we’re approaching a dangerous horizon.

There is a very real potential, especially if interest rates spiral upward, that the U.S. could find itself in a Third-World style debt crunch.

But I think this worry is secondary to the core problem of a broken economy. And here’s where the North Country comes in.

When most economists talk about stimulus spending, the underlying assumption is that the national economy is relatively sound and healthy.

All that’s needed is a little pump-priming, perhaps a few regulatory tweaks, and we’re ready to cycle upward back to full production and employment

That is, arguably, what happened after the Great Depression.

The New Deal and the deficit spending that fueled the Second World War primed the national pump on a massive scale.

But there’s a wrinkle. The stimulus of the 1930s and 40s only worked for parts of the country where the underlying economy was healthy.

In much of rural America, it simply didn’t work.

A half-century later, many small towns are still mired in depression-level poverty — masked in some cases by government spending.

The North Country, where we live, is a case in point.

This region has benefited from half a century of massive government infusions of cash, most of it provided by taxpayers living elsewhere.

But despite an endless cycles of stimulus spending, we still rely on government spending for nearly half of our take-home salaries.

In our dependancy-economy, government remains the region’s single largest provider of investment capital.

So why didn’t the pump-priming work here?

Put bluntly, it’s because our private sector doesn’t create products and services that enough consumers want to buy.

On the contrary.

More and more of our factories and mills have shut down, because the same products can be made cheaper elsewhere, or because demand for those products no longer exists.

My fear is that America writ large is beginning to look like the North Country.

Once the stimulus money is gone, will there be enough factories and labs and farms and mills producing enough goods and services to keep the economy rolling forward?

Or will we find whole states — California? Michigan? — stuck with the kind of chronic double-digit unemployment and lackluster private investment that have long afflicted rural America?