StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



On the Need for More Stimulus

07 Jul 2009
Posted by Andrew Samwick

Do we need a second stimulus?  Bruce Bartlett says not yet.  Paul Krugman says yes.  Donald Marron reminds us how to count to three.  For my two cents (before multipliers, that is), the word stimulus is completely unhelpful -- it has come to mean spending money we don't have on stuff we don't need, just for the sake of spending it "quickly."  From December of last year:

If I had my druthers, the word "stimulus" would be expunged from public discussion, along with "bailout" and "rescue."  These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems.

I think we are now 18 months behind where we should be in moving forward with sensible government spending plans.  We should have pulled the fiscal policy ripcord in January 2008 with a public investment plan designed to repair our aging infrastructure.  I'd rather have the 18 months back -- as would the millions of unemployed workers who could have been collecting a paycheck if we had started sooner -- but the proper course of action today is the same as it was then.

This stimulus talk is just

This stimulus talk is just one more reminder that the only real way to keep our economy strong is not by raising taxes, but by keeping taxes low, fair and simple.

I've been looking for a way to take action and contact our legislators and sign petitions and found some good policy the U.S. Chamber of Commerce backs (here). I don't have a lot of money or time, but I figure this will help other people do good.


A Stimulus with a Contingency

Instead of the Justin Fox approach (stimulus if things are still bad), let's go with a second stimulus UNLESS things are much better (based on employment, not [preliminary] GDP numbers).

That way, the I/S projects get done so long as there is an excess labour supply.


Everyone knew that a tax cut

Everyone knew that a tax cut would be effective immediately in putting money in people's hands, if perhaps at a "lower multiplier" due to savings.

Of course, perhaps the economy could use some more savings to pull people out of negative-home-equity situations to reduce foreclosures and bankruptcies. A payroll tax cut would have also made hiring more immediately attractive as well. Instead, we sat back and let the minimum wage creep up, and wonder why the unemployment rate keeps rising.

So we passed a spending-only stimulus, and it takes 12 months to get the money flowing and crank up the economy. Well, OK, maybe it will never crank up the economy because stimulus doesn't work at all, but I'll give the benefit of the doubt.

Some people argued that perhaps the expectation of spending fits their Keynesian theory, and the facts show THE EXPECTATION THEORY WAS WRONG.

Alternatively, the expectation of higher taxes due to the deficit-funded stimulus spending, carbon cap & trade costs, and the costs of the mystery must-be-done-yesterday health plan offset the expectation of the stimulus.

I suggest the President declare a two-year moratorium on legislation that raises taxes, minimum wages, or other business costs. Do a payroll tax cut. End the war on drugs. Perhaps de-regulate health insurance, and swap the employer health insurance tax break with more payroll tax cuts. End the embargo on Cuba.

Just do those pro-business things that don't scare people from doing business.


Dear Mr Econ:

What you recommend is precisely what the Cheney-Bush team did for eight years. That is, they sharply cut taxes on the rich, and they did away with all governmental regulations (including banking regulations).

You can see around you what are the results of tax cuts and no regulation.

Plus American corporations do not pay taxes now. (In theory they do, but the lobbyists have put in so many loopholes that, in practice, they don't.) I guess you want to send them all a check. (As Obama already did with the big banks and other speculators.)




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