Thursday, July 23, 2009

Debate on Second Stimulus

Commenters: I would like your input. Would a second stimulus be in the public interest? Why? or Why not?

Posted by Casey B. Mulligan at 3:52 AM
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5 comments:

Tino said...

A second stimulus is in the public interest for two reasons:

1. Pedagogical lesson. The public need to be reminded of the problems associated with socialist policies. (This is based on the premise that ideology does matter). Currently there are very strong statist ideological tendencies, especially among young people who have no memory about Carter or communism. 18-29 years old are leaning strongly left on economic issue. According to the National Election Study 78% of young people believe that "We need a strong government to handle today's complex economic problems". Where 62% of Americans overall view the federal government as wasteful and inefficient, just 42% of young agree (Pew 2007). Of the young only 37% prefer capitalism vs 33% for socialism, (only 13% of older Americans prefer socialism).

http://www.rasmussenreports.com/public_content/politics/general_politics/just_53_say_capitalism_better_than_socialism

These people need to live through government failure and learn. (of course the risk is that when the economy inevitably recovers out of it’s own the media will attribute it to the stimulus having “saved” it).

2. Alternative cost. The stimulus mostly does one time damage. Even if we assume that the value of every dollar spent is 1, the excess burden of collecting each dollar is realistically 0.7-1 dollar. So say that the cost of another 1 trillion stimulus is a one time 700 billion.

But enacting a large bill would take time and political capital from Obama and congress other agenda, which includes socializing health care, Cap and Trade, unionizing the economy through Card Check. All these policies are associated with long term distortions to the economy, and are hard or impossible to reverse if enacted, whereas the stimulus is mostly a one time cost.

July 23, 2009 at 8:33:00 AM CDT
Greg said...

It's somewhat pointless for me to write this mostly because I agree with Casey on a great deal. Here's three things:

1) Any multiplier will be necessarily reduced (a lot) by government inefficiency. The need to move rapidly on "shovel ready" projects will exacerbate the problem.

2) Government spending will not be targeted at idle resources. There will be some crowding out.

3) The stimulus will inevitably be paid for with more taxes. This tends to deter capital formation and encourages the Ricardian equivalence phenomenon.

July 23, 2009 at 12:14:00 PM CDT
Anonymous said...

There are worse things congressmen could be doing than handing out pork - and if they are not handing out pork, they will doubtless be doing them.

July 23, 2009 at 10:47:00 PM CDT
Unknown said...

Payroll Tax Cut

July 24, 2009 at 7:54:00 AM CDT
Boomer said...

Depends on what you mean by stimulus. If you mean another bill packed with things that only stimulate Democratic partisans, then no, a second stimulus is not in the national interest. If, on the other hand, you mean reduced government spending and reduced tax rates, especially on capital, then yes, it is in the national interest. Unfortunately, I don't think anyone in Congress has my view of stimulus.

July 24, 2009 at 11:43:00 AM CDT

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