Stimulating
Sebastian Mallaby says we need some stimulus:
The fastest and fairest way to help ordinary people is via a budget stimulus package. Part of the extra spending should be distributed to state governments, which are having trouble maintaining Medicaid and other programs as recession eats into their tax revenue. Part of the extra spending could go to infrastructure projects, though this tends to be a slow way of getting cash into the economy. But much of the stimulus should be in checks made out directly to citizens. Wall Street is getting its bailout. Main Street deserves one also.
I would much rather do what Mallaby is suggesting here than continue to do nothing. But I think his proportions are a bit off. Of the things on his list, an aid package for state governments would be the fastest acting. Signing an aid package for state government into law would effect state spending levels immediately, since you could revise the budget plans even before the actual cash arrived. And absent the speed rationale, sending out flat checks isn’t an especially compelling way of doing stimulus, simply because a largish proportion of the money isn’t actually going to get spent in the right way. Having the government sell bonds to cut a check to a prosperous person who’s been selling stocks and buying bonds in order for him to buy more bonds is pointless. Better to target the money at needy people through things like boosting food stamps and/or to spend money on projects — infrastructure and others — that are useful on their own merits.
26 Responses to “Stimulating”
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October 10th, 2008 at 1:40 pm
Wrong Capitol in the photo.
October 10th, 2008 at 1:41 pm
I get it. Give loot to the states. Apologies.
October 10th, 2008 at 1:46 pm
Exactly right. And now that the inability of cities and states to borrow on their accounts receivable is becoming a part of the crisis, a first step could be making bail-out funds directly and immediately available to states and cities as loans against future tax revenues.
Unfortunately, taking reasonable steps will wait until there is a Democratic president. Kinda like if the officers of the Caine hadn’t removed their skipper from duty.
October 10th, 2008 at 1:50 pm
Wrong Capitol in the photo.
FYI, It’s probably one of the state capitals referred to in the post.
October 10th, 2008 at 1:51 pm
Wisconsin state capitol not the U.S. capitol… why?
October 10th, 2008 at 1:51 pm
Universal health care is my bailout plan.
October 10th, 2008 at 1:53 pm
Agreed, Matt. Or the fed gov’t could guarantee state bond issuances, or the Fed/Treasury can just purchase state bonds directly.
October 10th, 2008 at 2:21 pm
Why aren’t there stimulus spending contingency plans ? Keynes only developed his theory 70 years ago ! Keynes’s observation was that private spending declines during a depresssion (now the euphemism is “recession”) so government spending must increase to offset that decline. Giving private parties more money (e.g., tax cuts, stimulus checks) won’t suffice because the recipients will continue to curtail their spending (i.e., the best strategy for each individual, economizing, is disastrous if everyone does it).
The federal government should give state & municipal governments money to modernize & upgrade their office technology, maintenance/upgrades of parks and facilities, and other types of spending targeted at sectors of the economy besides the construction industry.
October 10th, 2008 at 2:44 pm
According to an economist at Moody’s (not exactly some liberal or radical group), direct aid to states, infrastructure improvements, temporary increase to food stamps, and extending unemployment insurance are the best stimulus. This analysis pre-dated the first stimulus package. It is at the end of this blog post in chart format.
The most effective tax cut, those were all spending ideas, is a payroll tax holiday.
October 10th, 2008 at 3:53 pm
Cutting out most of the unfunded federal mandates that are weighing states down would help, too.
October 10th, 2008 at 6:08 pm
H-bob, does anyone still believe in Keynes?
Keynesian economics is based on the magical thinking that if you consume a lot , someone more will be produced out of the ether.
It is also based on not understanding the “broken window fallacy.”
October 10th, 2008 at 8:36 pm
Yep, Rule #1 of a stimulus is to make sure the money is actually spent, not used to retire debt or otherwise saved. So, giving it to cash-strapped local governments or poor people is good, and giving it to rich people with debt to retire or the ability to save is bad.
October 11th, 2008 at 12:58 pm
DTM – applying the same reasoning to environmental issues as to economic ones, I suppose you believe that the way to improve the environment is to stimulate it with more drilling and strip-mining? Obviously, conservation will just keep the environment stagnant. What we need to do is to stimulate it with lots and lots of consumption.
October 12th, 2008 at 1:19 am
TH Says:
“Wisconsin state capitol not the U.S. capitol… why?”
Cuz WISCONSIN ROCKS! GO RUSS!!!
October 12th, 2008 at 5:11 am
Better to target the money at needy people through things like boosting food stamps and/or to spend money on projects — infrastructure and others — that are useful on their own merits.
I’ll agree with that. Make-work projects to stimulate the economy are a ridiculous idea (the broken window fallacy on steroids). If we are going to go for Keynesian stimulus, far better to support projects where there is something to show for it.
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