Saturday, October 30, 2010

A View, From Harvard, of the So-called Stimulus

Almost a trillion dollars:

I argue here, however, that the structure of a fiscal stimulus is crucially important and that the package Congress adopted was far from ideal, regardless of the merits of the Keynesian model. Whether countercyclical fiscal policy is beneficial is a more difficult question, but it is not the critical issue if a stimulus package is properly designed. In fact, the Administration could have created a package that stimulated the economy in the short term while improving economic performance in the long term. This package, moreover, would have been immune
to criticism from Republicans. The stimulus adopted was a missed opportunity of colossal proportions.

That the Administration and Congress chose the particular stimulus adopted suggests that stimulating the economy was not their only objective. Instead, the Administration used the recession and the financial crisis to redistribute resources to favored interest groups (unions, the green lobby, and public education) and to increase the size and scope of government. This redistribution does not make every element of the package indefensible, but even the components with a plausible justification were designed in the least productive and most redistributionist way possible.

This, and the fact that it was "paid for" entirely with borrowed money, is why conservatives were against it--not because of the president's skin color.

Update: further in comes this statement, which explains the difference between American conservatism and liberalism:

Another way to describe the choice between spending and tax cuts is to note that under increased spending, the political process decides how to spend the money, whereas under tax cuts, consumers and firms get to decide how to spend the money. Thus, the crucial difference between the two approaches is not whether one accepts the Keynesian model but whether one believes governments or markets make the best decisions about allocating resources.


mazenko said...

And the "American Recovery Act" was nearly 40% tax cuts and rebates.

So that means what?

Darren said...

Read where the tax cuts and rebates went. Did you see any? I didn't. Did anyone else in the middle class see them? Doesn't look like it.

It's not enough to have a tax cut, any more than it's good enough to spend money. It has to be a "useful" or "good" or "productive" tax cut, and a useful or good or productive expenditure of money, for the stimulus to stimulate. The author of the linked essay says that neither the tax cuts nor the expenditures could be expected to have had any stimulative effects.

Instead of just tossing out sound bites, tell me where you disagree with him.

mazenko said...

And the conclusion of the 01/03 tax cut stimulus was that the rebates and tax cuts for the upper 20% of income earners were "saved" and used to "pay down debt."

If the very subjective term "best decision" is based on its ability to "stimulate" spending, then the economics is not even arguable. Tax cuts and rebates can be "saved." But infrastructure spending and payments to state governments can "stimulate" and "maintain" employment - people who earn, spend, and "pay taxes" back on that "investment" which was used to "save" or "create" their jobs.

mazenko said...

Yes, I saw tax cuts? Who does your return?

And I didn't see nearly as much as the top 20% of the income bracket because that is where the GOP leaders like Boehner demanded (and then voted against) the tax cuts go - to the "small business owners" who would "hire people."

Great idea with that one, Johnny. Let's put him in charge of the House. That should help unemployment. Especially after voting against 20 other tax cuts for "small business owners."

The lack of economic wisdom guiding that perspective is staggering.

Darren said...

I read the guy's entire essay, and it made perfect sense to me.

mazenko said...

Yes, I know. We all read with our own biases.

That includes me.