Wednesday, December 08, 2010

C + I + G

This is an interesting analysis by Dave Leonhardt. The underlying question is how stimulating this sort of stimulus will be. Of course, you have to eat and have shelter. The UI extension surely will stimulate. But for the fully employed who are still indebted, the reduction in the payroll tax may simply go to the creditors. If the creditors are already sitting on a pot of cash, that doesn't seem very stimulative to me. Fiscal policy of this sort then may be thought of as pushing on a string rather than pulling the economy out of the doldrums.

Public works projects, the obvious alternative to this approach, seem politically infeasible at present. They make more sense to me, however, in that they clearly would be stimulating. The choice of Democrats in Congress now seems to be either to accede to the deal as this editorial suggests, because it is the best feasible alternative, or block it and expect the economy to get even worse but for that to change the political climate in favor of more government spending, particularly of the public works kind. This is not a happy choice, for sure.

No comments: