Nobel Prize winning economist Paul Krugman has an Op-Ed piece at the New York Times that you really should read right now.
But if you don’t, here’s the takeaway message:
- People are lying about how much the Obama stimulus plan costs per new job created. You can’t take a multi-year investment and divide it by the number of new jobs created in just one year of the plan to get the cost per job. To do so is dishonest and/or ignorant.
- No economist* believes that a dollar of tax cuts is more stimulating than a dollar of government expenditure unless they have a political motive. (See Spending Multiplier Statistics). If anyone is telling you that a dollar of tax cuts stimulates the economy more than a dollar of direct spending, you should count that person as either lying to you or speaking out of ignorance.
- Finally, ignore anyone who says we ought to use monetary policy rather than fiscal policy (that is control the money supply rather than mess with government spending or tax structures). Ordinarily this isn’t a dishonest argument. What someone who argues this doesn’t realize is that we have already exhausted our monetary policy toolbox. The interest rates the Fed controls are effectively at zero. They can’t make them negative. There’s no more stretch left in that elastic.
To summarize the summary: don’t believe the undisputedly false arguments being made against the spending stimulus plan being made only for ideological reasons.
Something not mentioned in the article that I think should be is that this spending-stimulus plan is an investment in our crumbling infrastructure. If we just cut taxes, after 2 years we’d be left with debt and nothing to show for it. If we spend on shovel-ready infrastructure programs (which abound and are not frivolous), we’ll be left with debt and a 21st century infrastructure. A modern infrastructure enables higher efficiencies and stimulates the economy in and of itself.
In short, our kids’ kids are going to pay for this either way. Don’t you think they’d less begrudgingly pay off a loan on a smart grid and public transit system that they’d still be using rather than what amounts to a night of hookers and blow for their great great grandparents?
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*See also: Dr. Brad DeLong on What are Chicago’s Economists Thinking? and Krugman again in today’s NYT Op-Ed on A Dark Age of Macroeconomics.
I’ll have to go read the whole article… I don’t know if I can trust your non-ideologized summary of summaries.
Did you hear the Democracy Now interview with David Korten yesterday? Really interesting stuff….
[...] Ultimately, we want to get the biggest bang for the buck and the way that is measured is by the associated multiplier: The government spends a dollar on building a road, so a firm gets a new dollar. That firm hires two extra people and pays them each $0.40 from that dollar. Those people each have $0.40 extra from that dollar and use it to spend another $0.20 they wouldn’t have otherwise spent. That spending goes to another firm and the process repeats. Ultimately, we’ve bought more than a dollar’s worth of stimulus with our dollar. It works similarly with tax cuts. But which one has a higher multiplier? Direct Government Spending! (See the previous post on this subject.) [...]