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Politics : Formerly About Advanced Micro Devices
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To: Tenchusatsu who wrote (367332)1/18/2008 4:25:55 PM
From: TimF  Read Replies (2) of 1574478
 
Against Fiscal Stimulus

As the economy slows many people from Larry Summers to Martin Feldstein are calling for a fiscal stimulus. I am not convinced. Spending and tax decisions can rarely boost an economy.

First, the money for any new spending or tax cuts has got to come from somewhere, right? Thus there is usually substantial crowding out of any stimulus.

Second, by the time the new spending or tax cut gets through the political process the economy has moved on and the stimulus is no longer relevant except by accident.

Third, there just isn't that much discretionary spending to play with and even a large increase in spending, say tens of billions, is too small to make much of a difference in a 13 trillion dollar economy.

Fourth, in their desperation to "do something" politicians will often do something foolish. If a spending increase or tax cut isn't worthwhile on its own merits then it's highly unlikely to be worthwhile once we add in the benefits of "stimulus." Thus, it's one thing to argue for extending unemployment benefits as a matter of welfare it's quite another to think that an increase in unemployment benefits will so increase spending as to reduce unemployment! (The implicit view of Larry Summers.)

Economists may call for "temporary," "conditional," and "targeted" stimulus but they won't be the ones designing the plan. Spending increases and tax cuts are policies with long term consequences that we need to think about carefully.

Thus, I do not favor a fiscal "stimulus" package.

Posted by Alex Tabarrok on January 8, 2008 at 07:23 AM

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