Sense and Nonsense About Stimulus

Thu, 22 Jan 2009 14:38:48 +0000

I have this strange sense of deja vu. A year ago, we were told that the stimulus had to be "timely, targeted, and temporary." All sorts of projects, like badly needed infrastructure repair and expansion, were dismissed as inappropriate because they would take too long to get going. By the time they took place, the recession would be over. I thought this was a ridiculous argument then and said so.

Six months ago, in the swing of the Presidential campaign and after more bad news on the economy had come in, we heard Republican advisers again criticizing even small infrastructure proposals for not being "timely and quick." In response, I wrote:

It is true that infrastructure projects are less timely and quick in their impact than lowering corporate taxes ...

We should not use the availability of unemployed factors of production as an excuse to spend money on things that are not needed.

It is evident that we need infrastructure repair and modernization. We should have moved those projects forward in January when the first round of stimulus discussion occurred. Had we done so, some of those projects would be in progress now and others would be starting up. And since those projects were eventually going to have to be done anyway, they are closer to being "paid for" than tax rebates and the like.

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Another six months have elapsed, with even more bad news on the economy and no movement on the infrastructure front. And lo and behold, we have rediscovered that infrastructure projects take time. From the WSJ:

As President Barack Obama's $825 billion economic-recovery package began making its way through Capitol Hill, congressional budget analysts suggested a key plank of the plan may not provide as big a near-term lift for the economy as expected.

The nonpartisan Congressional Budget Office projected less than half of the $355 billion that House Democrats want to spend on highways, bridges and other job-creating investments is likely to be used before the end of fiscal 2010. The CBO said the balance would likely be spent over the next several years, after the recession is projected to end.

This has predictably caused Republicans to insist that the deficit spending should come in other forms and for Democrats to wonder if they are deficit spending enough. This is ridiculous -- over the past year, we should have been moving these projects forward. We should stop the delay and move forward in a deliberate way.

What are we getting instead? The Associated Press has an overview. Here are my reactions:

There is no need for specific tax givebacks during a recession. As a person or company's income falls during a recession, its tax bill does, too. This is why I consider most of the tax changes in the list unnecessary.

Just ask yourself the question: Suppose we have done all of this stimulus and the economy recovers. Will you then authorize the necessary infrastructure spending? If the answer is "yes," then you should explain why you didn't do them sooner, when factors of production were idle and available more cheaply. If the answer is "no," then you should explain why you believe that the government should not perform one of its essential functions regardless of the economic environment.