People who oppose an income tax cut or a payroll tax cut or holiday say "we can't afford it", but we can afford it as much as we can afford the stimulus and bailout bills.
Others who oppose it look to people like Krugman. Apparently they think because he did important work on trade for which he got a Nobel prize (and maybe because he loves to bash Republicans and esp. Bush) that he's an unassailable perfect expert on how to deal with economic downturns, despite the fact that no one is close to being such an expert, and the fact that the work that got him a Nobel was in another area.
Krugman thinks that in times of moderate to high unemployment, you get a high multiplier from government spending, that if the government spends money then besides the increase in government debt, its not just a free lunch, but produces extra GDP. Something like "spend a dollar", and the economy get a GDP increase of $1.50, because you have a multiplier of 1.5.
But the reality is we may have a multiplier of about zero, or even slightly negative, particularly if your measuring for more than the short term. Zero in this context means that if you take a dollar from the private sector, then you don't increase or decrease the GDP, just change where its spent. .5 would mean that government spending only effectively costs us half the amount we spend, 1 would mean it was a free lunch, and greater than one means the more the government spends the more the private sector has as well, its the ultimate "have your cake and eat it two", and if it applied to any level of government spending it would be something like an economic perpetual motion machine.
1.5 is IMO just nonsense. We might get a small positive multiplier in the short run, but we can't even count on that. Sure we can probably count on measured GDP being higher than it otherwise was, but inflating the GDP without actually increasing economic well being of most people doesn't really help us, esp. since it leaves us with so much debt.
Some on the left criticize the stimulus because it doesn't include enough "long term investment", by which they mean the government taking over more of the economy to make things "greener", or to provide more government payment for and control over health care or health insurance, or other methods for the economy to be directed politically rather than through individuals making their own choices in the free market. That would be even worse than the stimulus bill that actually passed, even though it has some movement in that direction. |
