Economic stimulus
Ben Bernanke may have painted a big bullseye on the Federal Reserve when he spoke last week in Jackson, Wyoming, about the Fed providing additional stimulus if the economy needs it.
I hate to pile on to Brian Riedl after both Brad DeLong and Matthew Yglesias do a pretty good job debunking his latest in National Review Online.
But...
There's much in Brian's piece that requires criticism, but here's the graph that is the most offensive:
The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy. No new demand is created; it’s a zero-sum transfer of existing demand.
You can't help but wonder if Rupert Murdoch knows about this.
Deborah Solomon at the WSJ today:
U.S. Economy Gets Lift From Stimulus
WASHINGTON -- Government efforts to funnel hundreds of billions of dollars into the U.S. economy appear to be helping the U.S. climb out of the worst recession in decades.
GOP House Whip Eric Cantor on CNBC yesterday:
It's really nice having Don Marron in the blogosphere.
This is something we all need to remember when talking about the stimulus. Here's the money quote:
...I get the sense that some users of Recovery.gov do not realize that its figures cover only the spending side of the stimulus story, not the tax side.
The total impact by the end of June of the stimulus was closer to $100 billion than the $60 billion in spending shown on the website. Another $40 billion in tax cuts has to be included to get the full picture.
A friend of mine remarked over the weekend that when she first heard the phrase, "Cash for Clunkers," she thought it was the outlandish bonuses being paid at Goldman Sachs. It is, in fact, something only slightly different, which could go by two other names, one of them from classical economic pedagogy and another from several prior posts on this blog.
I know and truly like Clive Crook. We were colleagues for a while when I wrote for nationaljournal.com, and the BTW and I have joined Clive and his wonderful wife for dinner a number of times. He is smart, perceptive, funny, and a gifted writer.
And that's why I'm surprised that Clive would use a truly ridiculous statistic like this when posting about the economic stimulus plan:
Republicans have a point when they complain about the inordinate length of the bill–1,400 pages or thereabouts...
Would a shorter bill have made it better? At less than 3 pages and at a cost of $700 billion, was the original version of the TARP that Hank Paulson sent to Congress a gem? Should the legalese needed to make the changes in the stimulus bill been dropped or shortened so that many provisions would have been subject to court challenges and the money never spent?
I've been asked this question every day this week, usually by reporters: Does the stimulus bill include the right combination of spending cuts and tax increases?
The answer is actually very simple:
- There is no generally agreed-upon formula for combining tax cuts and spending increases in a stimulus bill.
- Economic policymaking is at least as much an art as it is a science.
- The right ratio of tax cuts to spending increases is whatever it takes to get the bill enacted.
- It looks like this bill is going to be enacted.
- Therefore, by definition, the mix in this bill is correct.
Most people reading this won't like it. They want more of something and less of something else; want the spending increases or tax cuts to be different, want the bill to be larger or smaller, insist that it reflect a certain theory or ideology, or prefer some combination of all of these.
But at some point theory, ideology, theory, and personal perferences have to give way to the practical. In this case, that means that the legislation has to be enacted.
We've all been there. Stuck in a highway traffic jam, we hear an ambulance approaching from behind. We do our best to squeeze over to make room, finally connecting the traffic jam to an accident up ahead that we can't quite see. We are grateful that we're not the ones needing the ambulance, and then grief turns to anger as we see that one jerk who decides that it is just fine to sneak into the wake of the ambulance to drive ahead of the rest of us.
This is how I view the legislators who have loaded up the stimulus bills moving their way through Congress with giveaways, whether useless projects or unnecessary tax cuts.
Here's my column from this week's Roll Call.
U.S. Economy Needs Steady Rehab, Not ER Treatment
February 10, 2009
By Stan Collender
Roll Call Contributing Writer
I see much of my grandparents in the current fight over how to cure the economy. They thought of every medicine as a “physic”: They expected one dose to work immediately and became angry when a prescription (they called it a “script”) didn’t instantly begin to take care of whatever ailed them.
If they didn’t start to feel better immediately, they would say the doctor didn’t know what he (it was always a he back then) was doing, the pill or injection (the “jab”) was the wrong thing to do, or modern medicine simply didn’t work. They would then refuse to take any more of what had been prescribed, and my father would have to win another argument before they would go back to doing what the doctor recommended. Of course, after they let the medication work, they soon became much better, although their opinion of the doctor never seemed to recover.
Paul Krugman doesn't believe that the stimulus bill is likely to be enough to get the job done and seems almost despondent about the fact that the compromise that will allow something to pass the Senate made it even smaller. Krugman thinks this bill will be it, nothing more will get enacted, this was a one-time all-you-can-eat offer, etc. Here's the money quote:
The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.
I have no quarrel with Krugman's numbers, just his reading of the political tea leaves. In fact, and as I'm planning to discuss in more detail in my "Fiscal Fitness" column this week in Roll Call, even if the president doesn't make a request for additional fiscal stimulus, there will a number of already scheduled opportunities for more stimulus to be enacted. I'm even willing to predict that more will be adopted in the not too distant future if it is needed.
