More Stimulus Silliness

Sun, 01 Feb 2009 01:52:39 +0000

In his latest column, David Brooks recognizes that there are some things the government can do quickly and some things that it can do well. He urges policy makers to forgo the latter in favor of the former. Why he opts for speed over value is a mystery to me. Here is his conclusion:

The best course is to return to the original Summers parameters — temporary, targeted and timely — thus making the stimulus cleaner and faster.

Strip out the permanent government programs. Many of them are worthy, but we can have that debate another day. Make the short-term stimulus bigger. Many liberal economists have been complaining it is too small, so replace the permanent programs with something like a big payroll tax cut, which would help the working class.

Add in a fiscal exit strategy so the whole thing is budget neutral over the medium term. Finally, coordinate the stimulus package with plans to shore up the housing and financial markets. Until those come to life, no amount of stimulus will do any good.

This recession is scary and complicated. It’s insane to try to tackle it and dozens of other complicated problems, all in one piece of legislation. Leadership involves prioritizing. Those who try to do everything at once will end up with a sprawling, lobbyist-driven mess that does nothing well.

Is Brooks supposed to be the conservative writing for The Times? Not in my book. A conservative should be hammering away at two key points:

First, the are countercyclical policies already built into the budget process. When income falls, tax collections fall. When unemployment increases, spending on unemployment insurance rises. There is a cyclical widening of the deficit, and when the economy is growing, there will be a cyclical narrowing of it. All of those policies are in fact stimulus to the economy relative to the counterfactual -- on display in many states at the moment -- of not being able to widen the deficit in a downturn. You cannot get more timely than an automatic stabilizer. You cannot get more temporary than a policy that follows the business cycle and leans against it. And being targeted is not a feature but a bug -- it is what creates special interests and the lobbyist-driven mess that Brooks abhors.

Second, as I will continue to blog until I am blue in the fingers, the appropriate course of action when the economic downturn appears like it will be unusually severe is to bring planned capital projects forward in time. Doing so allows them to be done more cheaply. That politicians cannot make sensible policies under the pressure to be timely is obvious. But the warning signs (and the idiotic mantra of temporary, targeted, and timely) have been evident for over a year. Had we started to accelerate capital projects then, we would be seeing those projects kick in by now, and we would be on our way out of this mess. Instead, we are repeating this year -- on a grander scale and with a leftward tilt -- the lunacy of last year's stimulus package.