The Economics and Politics of Stimulus

James Surowiecki of the New Yorker has a very nice piece on the stimulus in the latest issue.

Here are some excerpts:

When President Obama unveiled an array of new tax-cut and spending proposals last week, one word was noticeably missing from his speeches: “stimulus.” Republicans, meanwhile, energetically set about decrying the plan as “more of the same failed ‘stimulus’ ” and as simply a “second stimulus”—as if the word itself were a damning indictment. The idea of using countercyclical fiscal policy to help get a weak economy moving is hardly radical. But in Washington stimulus has become the policy that dare not speak its name.

This wouldn’t be surprising if we were talking about a failed program. But, by any reasonable measure, the $800-billion stimulus package that Congress passed in the winter of 2009 was a clear, if limited, success. The Congressional Budget Office estimates that it reduced unemployment by somewhere between 0.8 and 1.7 per cent in recent months. Economists at various Wall Street houses suggest that it boosted G.D.P. by more than two per cent. And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower. The weight of the evidence suggests that fiscal policy softened the impact of the recession, boosting demand, creating jobs, and helping the economy start growing again. What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment.

Politically, however, none of this has made any difference. Polls show that a sizable majority of voters think that the stimulus either did nothing to help or actively hurt the economy, and most people say that they’re opposed to a new stimulus plan.

I'd argue that this part is not surprising - it was clear to me that this would always be a political loser, without the counterfactual you could always claim it was wasteful spending no mater what the economy looked like at the 2010 elections. I think it was a brave and necessary decision to push forward with the stimulus bill despite its political risks and I agree it has been successful.

But the most interesting aspect of the stimulus’s image problems concern its design and implementation. Paradoxically, the very things that made the stimulus more effective economically may have made it less popular politically. For instance, because research has shown that lump-sum tax refunds get hoarded rather than spent, the government decided not to give individuals their tax cuts all at once, instead refunding a little on each paycheck. The tactic was successful at increasing consumer demand, but it had a big political cost: many voters never noticed that they were getting a tax cut. Similarly, a key part of the stimulus was the billions of dollars that went to state governments. This was crucial in helping the states avoid layoffs and spending cuts, but politically it didn’t get much notice, because it was the dog that didn’t bark—saving jobs just isn’t as conspicuous as creating them. Extending unemployment benefits was also an excellent use of stimulus funds, since that money tends to get spent immediately. But unless you were unemployed this wasn’t something you’d pay attention to.

This is all true, but it ignores all of the high-profile infrastructure projects, adorned with large billboards, that were a major part of the stimulus. So it wasn't all absent of political considerations. In fact, I would suggest that they were trying hard to find the balance between what was most effective economically and what was most effective economically.

He addresses this a bit below:

The stimulus was also backloaded, so that only a third was spent in the first year. This reduced waste, since there was more time to vet projects, and insured that money would keep flowing into 2010, lessening the risk of a double-dip recession. But it also made the stimulus less potent in 2009, when the economy was in dire straits, leaving voters with the impression that the plan wasn’t working. More subtly, while the plan may end up having a transformative impact on things like the clean-energy industry, broadband access, and the national power grid, it’s hard for voters to find concrete visual evidence of what the stimulus has done (those occasional road signs telling us our tax dollars are at work notwithstanding). That’s a sharp contrast with the New Deal legacy of new highways, massive dams, and rural electrification. Dramatic, high-profile deeds have a profound effect on people’s opinions, so, in the absence of another Hoover Dam or Golden Gate Bridge, it’s not surprising that the voter’s view is: “We spent $800 billion and all I got was this lousy T-shirt.”

And this, I think, is the best evidence yet of the efficacy if the stimulus - the swooning economy coincides suspiciously with the dwindling stimulus spending. But Surowiecki seems to be trying to have it both ways here - the stimulus was backloaded EXACTLY BECAUSE they were pushing so many big infrastructure projects and it is hard to get them all done immediately. I think it is a little disingenuous to say that the stimulus is unpopular because they focused on what was economically sound and not what was politically popular. If they wanted an effective stimulus that was also immediate, block grants to the states were (and still are) both immediate and have real stimulus effects.

Anyway the underlying message here is that the stimulus was a good idea and probably saved us from a depression. As we have seen in many developing countries once downward momentum starts it can be extremely difficult to stop. The stimulus arrested the fall, now it is time for the private sector to lead the way up and out of the hole we are in.

Did the Stimulus Work? Two Economists Say 'Yes.'

The New York Times reports on a study by Alan Blinder and Mark Zandi:

Like a mantra, officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.

Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.

“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.

...

But the new analysis might not be of immediate solace to officials in the Obama administration, who have been trying to promote the “summer of recovery” at events across the nation in the face of polls indicating persistent doubts about the impact of the $787 billion stimulus program.

For one thing, Mr. Blinder and Mr. Zandi find that the financial stabilization measures — the Troubled Asset Relief Program, as the bailout is known, along with the bank stress tests and the Fed’s actions — have had a relatively greater impact than the stimulus program.

...

Told about the findings, another leading economist was unconvinced.

“I’m very surprised that they find these big impacts,” said John B. Taylor, a Stanford professor and a senior fellow at the Hoover Institution. “It doesn’t correspond at all to my empirical work.”

Mr. Taylor said the Fed had successfully stabilized the commercial paper and money markets, but he argued that its purchases of $1.25 trillion in mortgage-backed securities have not been effective. And he said the Obama administration’s stimulus program has had “very little impact and not much to show for it except a legacy of higher debt.”

Stimulus or Austerity?

My little, but highly scientific, poll closed last night and 80% of you indicated that you favor more stimulus over austerity.  There has been a lot of debate in policy circles lately about what the appropriate policy should be right now, but it appears that the more stimulus side has the weight of evidence on their side at the moment.

This was highlighted today as the new US jobs report came out for June and it is dismal. Only 83,000 private sector jobs created isn't even enough to keep up with natural labor force growth let alone make any headway toward recovery.  The graph, taken from the New York Times' Economix Blog, shows the magnitude of this recession compared to other recent ones.

State budgets are also in tatters and a huge number of layoffs are looming unless the states receive some immediate help.  Home sales and home construction are tanking, consumer spending and confidence are waning.  I don't think we will do a double dip, for we haven't risen at all.

On the flip side of the coin, US debt is still very cheap, meaning markets have not yet begun to worry about the US deficit - something Krugman has been harping on for some time.  So his question is why should we worry if markets aren't.  Critics suggest that we need to take a longer view and markets will start to punish us if we wont soon show restraint.

The counter-argument that we are on an unsustainable debt path does not make sense to me - we are talking short-term here. Yes, the long term fiscal picture demands that actions be taken, but not in the depths of a recession.  The other argument that government stimulus is hard to do and wasteful has some merit in my opinion, but right now, the simplest thing to do, and the most effective, is to give block grants to the states.  That is easy, immediate and effective.

Some good federal news on that front is the effort to give $10 billion to the states for education, but that is now mired in a debate about reducing Race to the Top funds.  I think the Obama administration is wrong in their threat to veto the bill if such a reduction is included.  Just as stimulus spending is an extraordinary measure for extraordinary times, so too should they view their efforts are education reform.  The first-order problem is funding, worry about reform next year.  Ironic to note that this $10 billion of all of America's public schools is in a $80 billion war spending bill.  Another lesson in opportunity cost.

The Anti-Stimulus That's Bigger Than the Stimulus

I am back, but still in semi-vacation mode, so I'll punt this one to James Surowiecki of the New Yorker. He makes the point I have made many times - without block grants to the states to counter their collapsing revenues, the federal stimulus is simply a weak swimmer against a strong tide. There is one small silver lining he does not emphasize: if we are left with a better infrastructure, this will, in some small way, aid the recovery.

The most interesting part of the article to me is this bit:

Much of the tens of billions of dollars that will be spent on roads, for instance, will be funnelled through the states. As a result, a disproportionate amount of the money will be spent in rural areas (which exert disproportionate influence on state governments), leaving cities—which happen to have most of the people and most of the traffic—shortchanged. The top eighty-five metropolitan areas in the country are responsible for about three-quarters of the country’s G.D.P. Yet less than half of the road money will be invested there.

I have an economist friend whose pet peeve is all the ways we, as a country, subsidize rural living - no doubt this will displease him. But I wonder, goods have to get from metro area to metro area, so don't they often travel through rural areas? I am not sure a comparison of GDP is the right metric here. I am not convinced that rural stretches of interstate are less important than urban stretches.

The Compromise Stimulus Bill

The cutting of most of the $40 billion in aid to states from the US Senate’s version of the federal fiscal stimulus bill was a triumph of politics over economics. Senators that claimed that this money does not represent stimulus have exposed themselves either to be woefully ignorant of the basic economic concept of stimulus or more concerned about political considerations than the welfare of the nation and its citizens. Either one is inexcusable.

This transfer to states represents the very best type of stimulus. It will fill in for lost state revenue, so it will begin to be spent immediately; it will go to existing programs, so it will be spent effectively; and the spending will go to the most vulnerable populations, the very people who are most adversely affected by the economic downturn. Additionally, much of this money would go to save off cuts in education funding - the very best investment we can make in the future prosperity of the country.

In exchange what did we get? Well, $70 billion spent on fixing the Alternative Minimum Tax for one. The AMT might be a bad thing in need of a fix, but a fix is terrible stimulus. It increases income of relatively well-off families and a good portion of this income can be expected to be saved so won't do much to stimulate the economy.

So at the time states are cutting spending and, in some cases, increasing taxes - very direct and powerful anti-stimulus, the federal government is responding with...an AMT fix that provides only a fraction of an antidote. Amazing. Imagine what spending this $70 billion in block grants to states would achieve?

I am very seriously starting to wonder if this bill will do more harm than good. An ineffective bill that saddles us with a huge debt burden is worse than no bill at all.

What is Stimulus?

I had an epiphany the other day whilst talking to a reporter about the confusion over spending and stimulus. The reporter was asking me about spending and jobs. It is quite possible that I am very dense about these things and that others have made this connection before, but for me it suddenly made sense why economists' message is not being understood. I think there is a widely held perception that federal spending that you would call stimulus has to be directly linked to a job. So if government says, we are going to hire ten people to fix potholes, or we are going to pay a firm to hire ten people to fix potholes, then people are ready to understand this is stimulus. They also make the link between these particular jobs and the claim of job creation. So if the state claims it will spend money and create 3,000 jobs, I think people think that this number refers to the actual jobs for the actual projects. [And, in fact, the state might be thinking this way]

But this is not what economists talk about when we talk about job creation through stimulus. We are talking about any spending by government regardless of whether it is directly linked to a job, and the job gains we are talking about refers to overall, permanent job creation that comes as a result of increased economic activity. Creating specific jobs in, say, the construction industry directly is nice, because it helps a distressed population and we would expect this population to have a high propensity to consume from their income which helps the multiplier effect - meaning they are likely to spend most of what they earn. Government spending that prevents cuts at the state Department of Transportation by filling in budget holes does exactly the same thing. The difference is that while there will be lags in getting new people hired to fill potholes, the state DOT is ready to go today. Even spending on things like a national health information system is stimulus. It is new spending that will become income for workers, computer manufacturers, software engineering firms, etc. It is the increased economic activity that comes from this stimulus that creates the jobs that helps lift us out of the recession.

Is it That Centrists Don't Understand Stimulus or Don't Care?

The compromise Senate stimulus bill has shaved $40 billion for state aid. This cutting was done to 'appease' centrist Democrats and Republicans who claim that this is not stimulus. Come again?

Stimulus requires quick and effective spending of borrowed money. States, constrained by law to limit deficit spending, are quickly cutting back on essential services. Federal money would immediately stop some of this cutting - it would get spend right away - and it would prevent cuts to enormously effective programs, like education - so it would be spent effectively. This is precisely what good stimulus spending does. In fact this is so effective that I think it should be priority number one. In addition, as I have said repeatedly, we cannot sacrifice our future prosperity by shortchanging our children's education. A good chunk of this $40 billion would have gone to education, which is exactly what we need most. So this $40 billion represented quick and effective spending for a public good that promotes future growth.

So are centrists just economically illiterate and truly just don't get it, or are they more worried about politics and perceptions in the midst of the biggest economic crisis since the great depression? Either one is inexcusable.

The Stimulus Plan in Crisis

I am beginning to wonder if the US government can really pull this off - at a time when the economy is in total meltdown, politics seems to be trumping good governance. Even if a good stimulus plan were to be passed and signed today, I wonder if the government can really handle spending all that money without a huge amount of waste. I am starting to think our government has become almost totally incompetent. We are on the verge of a deflationary episode that could spark a real depression and our own 'lost decade.' We cannot wait anymore and simply must act now. By the way, if anything the stimulus package is too small, so the latest efforts to trim $50 to $200 billion is a waste of valuable time.

Why is Washington falling into the old partisan routine and letting political concerns overwhelm concern for the welfare of Americans?

I don't know, but I hope it stops. Perhaps the latest unemployment report, due tomorrow at 8:30 am will be a wake-up call.

Is College Aid Stimulating?

Andrew Taylor of the Associated Press had a 'news analysis' this weekend that states that $15 billion for college scholarships is not stimulating the the economy (this was published in The Oregonian on Saturday). As someone who has been sounding the drumbeat for education spending I take issue with this statement.  

I would argue that rather than being no stimulus, this is the very best type of stimulus. This money would go immediately to consumption spending and would also be an inexpensive way to keep unemployment down (working age adults that take this money and enroll in college would stay out of the labor market - not the same as job creation but limiting the supply of job seekers helps those left in the labor market).  As a bonus it is a huge investment in the nation's human capital and thus its long term growth prospects, more important and more long-lasting than infrastructure.  Money spent on college will translate into jobs in academics so I see no reason to expect the multiplier to be lower in this area then in infrastructure.

I am not really sure why this reporter doesn't think college scholarships is stimulating - after all, think of all the stimulated minds that will eventually drive the economy forward.

Stimulus: Public and Private Goods

The Oregonian is reporting on a competing stimulus plan by Oregon's republican contingent in the state legislature that would give tax credits for remodels, bigger if they involve green things like solar panels.

Is this a sensible idea? Sure, these tax breaks only come if you spend the money, so it can be expected to stimulate consumption to a greater degree than income tax cuts, only a fraction of which will translate into new consumption. Promoting green home improvements is also beneficial to society. So this can be expected to lead to an increase in consumption spending and to have a stimulus effect which will help reduce unemployment.

But is it better than the democrats plan to spend on construction projects? Direct spending on construction will also have the same positive effect on consumption. So is it a wash? Well, the key difference is in the fact that the democrats plan focuses on public goods while the republican plan is on private goods.

Public goods are those for which there are at least partially non-excludable and non-rival: anyone can use them and using them does not leave less for others to consume. Roads are a prime example. The key to public goods is that they confer benefits on many people beyond the person responsible for their existence. This means the public benefits are much higher than the private benefits and when left to individual economic agents, the private cost-benefit calculation will often lead to the under-provision of public goods. This is why government provides these goods.

Construction on roads and schools are improvements in public goods, a large swath of society benefits from these investments while private remodeling only benefits the owners of the property (save for the small socially beneficial effect of more efficient homes). In other words, the initial stimulus can be expected to be similar for a similar outlay (assuming, of course, people take advantage of these tax incentives), but the long term benefits of providing more and better public goods will provide much greater benefit to society than better kitchens in private houses.

Stimulus and Discrimination

As I was busy embarrassing myself on KGW's "Live @ 7" (yes the ampersand is part of the title) last night, the host, Stephanie Stricklen relayed a interesting question from a viewer who asked, in essence, "if infrastructure construction is traditionally male-dominated (think road crews), will federal fiscal stimulus that concentrates on such projects be gender biased?"

I tried my best to provide a quick answer to the question (video is above - but I am going by memory because I can't stand to watch), but thought I would take this opportunity to expound here.   There are two main reasons for the observation that construction tends to be male dominated: it could be because of discrimination, or it could be the result of self-selection.  

Discrimination means that employers hire men ahead of more-abled women because they simply have a preference for men and thus more men are in construction than women.  Self-selection means that the employers are picking the best workers among the people who apply, but as most applicants are men, most of the hires are men as well.  I don't claim to know which it is (though I suspect both).  Also there is probably some endogeneity involved, if there is discrimination, discouraged women will not bother to apply so it may look like self-selection when it is not.  

If there is discrimination in construction then the viewer is correct, fiscal stimulus dollars will end up going to firms that discriminate and there could be even more and the growth in employment will be gender-biased.   

If it is self-selection, however, then there maybe a larger pool of women applicants as other opportunities that they might prefer are not available (if the only hiring going on is in construction) then we should see more women in construction.  [With an important caveat: as there will likely be more men than women with experience and specific skills in construction, we could still see a disproportionate number of men being hired even without discrimination]  

Now you try saying all of that in 30 seconds.

And, by the way, in an act of shameless self-promotion, if you are interested in discrimination, see this paper that I wrote with a colleague where we use a unique data set and novel statistical test to reveal racial discrimination in the NFL. 

The Fiscal Stimulus Plan Analysis from the Obama Camp

An economic analysis of the Obama fiscal stimulus plan. Remarkable for its even handedness - the work of professional economists not political operatives (what a nice change).

Here is the picture that says it all:



What is scary about this picture is that with or without stimulus, unemployment is not predicted to return to under 6% until 2012.

I think the question is not is it too much, but is it enough? As an economist I would like to see a bit more, but as a realist, I realize that getting it done politically is a challenge and there is no time to waste.

Fiscal Stimulus and Oregon

In the opinion section of Sunday's Oregonian, Bill Conerly makes a number of inaccurate and misleading statements in his attempt to argue against fiscal stimulus. The most egregious example is the claim that most economists believe that the economy will turn around by the third quarter of 2009. Most economists believe that with a stimulus package the economy will turn around by the Fall of 2009. In fact, most economists believe that without stimulus the downturn will be significantly more severe and prolonged, perhaps not returning to positive growth until late 2010 or beyond. Furthermore, economists arguing for stimulus do not believe that there will be a multiplier of 4 or 5. In fact, most empirical evidence suggests we should see a multiplier of about 1.5. It is true that the positive effects of stimulus are temporary and, in fact, we should see a drag on growth in the future from having to service the debt incurred with stimulus. But the very idea of stimulus is to arrest the downward spiral of the economy and get it moving in a virtuous growth cycle again – a temporary jolt to the economy. Lags are a concern for all economists leading to the stressing of the need to avoid projects that would take time to roll-out, but the magnitude of this crisis is so great that even with significant lags, economists believe that fiscal stimulus would still do a lot of good.

Conerly’s description of how an economy self-corrects is also lacking: the current systematic collapse of credit markets has rendered standard Fed policy ineffective, even the multitude of non-standard programs have yet to get any real traction. Eventually Fed policy will gain some traction, yes, but how long are we willing to wait as our economy melts down? And the claim that consumers are not spending but eventually will is naïve: with unemployment rates skyrocketing to levels not seen in 30 years and still going up quickly, there is no reason to believe that consumer spending will rebound any time soon. Finally, leakages exist in all state spending, this is not new nor is it a reason to not spend – the multiplier estimates take these leakages into account. Money spent could be directed to programs that have the shortest time lags and the greatest local impact. Leakages overseas are minimal and leakages from Oregon to other states would be matched by leakages from other states to Oregon.

Conerly’s advice to essentially wait out the economic crisis is not particularly helpful to those 8.1% of Oregonians who cannot find a job. Add in the number of people who have given up searching and people involuntarily working at less than full-time and the number is likely to be well over 14%. These Oregonians cannot wait for two or three years for the economy to self-correct. There is always the risk that stimulus will not be as effective as we hope, but the risk of doing nothing is much worse.

Is Investing in Weatherization a Good Stimulus Plan?

An editorial in The Oregonian this morning touts a plan proposed by Joe Cortright to invest in weatherization of private homes as a way to stimulate the economy.  But is this really such a good idea?

Sure weatherization is good: saving money on energy costs and dependence on fossil fuels, reducing the carbon footprint of the state and injecting money into the economy in a downturn are all noble pursuits.  But is this plan the best way to address the very serious economic crisis in the state of Oregon?

The problem with this proposal is that the public goods aspect of this plan is minimal at best.  These are investments in which the costs and benefits are almost all private and thus there is not much justification for governmental involvement.  By contrast, investments in transportation infrastructure, education, and creating an infrastructure for a sustainable energy industry all have very strong public good aspects, the benefits are enjoyed by everyone, not just (in the case of weatherization) the private home owners.  The difference between something that basically replaces private investment and one that adds new public investment is precisely the difference in real stimulus versus little to no stimulus. In economic terms, the multiplier effect of this type of spending, on something that replaces private investment, is likely to be low.   By way of contrast, the governor's proposal to attack deferred maintenance at public colleges and universities has the same attributes of being quick to implement and a strong potential to suck up excess labor supply in construction, but it also represents a large and lasting public goods investment.    

Sure there is a social cost to the use of fossil fuel based energy and this is a problem.  But if you want private home owners to make these kinds of investments there are much more effective ways to do it - tax incentives, for example, or, even better in my view, a carbon tax on fossil fuel-based energy.  It is important not to confuse other goals with the immediate problem of fiscal stimulus in a horrendous downturn in the economy.  There is a way to align the two goals - like the aforementioned investment in sustainable energy infrastructure - but just because something is easy and sounds good, does not make it good economic policy and The Oregonian does itself no favors by not asking the hard questions when analyzing a proposal like this. I am actually fairly surprised that an economist has proposed this because in my view it does not survive the economics litmus test.

What troubles me most is that this is exactly the type of kind of nice sounding policy that becomes politically popular but that is actually damaging in that it stands in the way of better policy options and has the potential of, therefore, prolonging our misery in this terrible economic crisis.

Is Deferred Maintenance Spending a Good Idea?

Our Governor has proposed to President-Elect Obama that the federal government give us some dough to spend on deferred maintenance at our state universities.  Is this a good idea?

Well, if it means that outside construction contractors that are otherwise out of work would be employed to do a lot of it then it seems like a pretty good idea to me. Especially because right now with labor and machines being idle, we should be able to do the work at a pretty good price. If it is true that there is no advance planning that needs to be done ad that work could start tomorrow, then again, it seems like a god idea.  If it helps with the education of the state's college students, then its even better (it is not clear to me how much, but if science labs and such are a part of this then I can see some benefit). I am happy to volunteer my office to be the starting place.  

However, if the money is just transfered to universities who will use their already employed staff and divert other monies elsewhere, it is probably a bad idea.  Why, because then the multiplier effect of this spending will be severely muted and universities might benefit but not so much the Oregon economy.

Even better, I would like to see a discussion of the entire range of possible projects - university deferred maintenance, roads and bridges, scholarships, etc. -  the positive impacts of the projects themselves and the expected multiplier effect of the spending.  Let's make sure that if we spend money, we do it wisely.

Fiscal Stimulus: Smart and Dumb

With all due respect to Governor Kulongoski, (and the Oregonian's Editorial Board) while fiscal stimulus in the form of government spending on public works projects is probably a good idea in this time of deep economic malaise, you can do it in a smart way or in a dumb way and, well, let's just say that his plan does not make a lot of sense.

Before I get too negative, I will admit that it is partly not is fault. State fiscal rules that insist on balanced budgets leave no room for real counter-cyclical policy. [The legislature did a tremendous favor for Oregonians in establishing the rainy-day fund, which allows for exactly this kind of counter cyclical fiscal policy but the ability to run a deficit would be much better] He is also a skilled politician and knows more about the reality of policy implementation than I. That said, just where in "fiscal stimulus 101" does it make sense to tax in one part of the economy and spend in the other? Taking money out of consumers hands in one area and putting it into another set of hands does not necessarily boost the economy. I suppose that there is a marginal propensity to spend argument: that the extra money collected from car registrations, for example will lead to a lower negative impact on consumer spending than the positive impact on spending that will come from employing construction workers who will likely spend it all. But I don't buy it. Think of the raw material purchases, equipment rentals, etc., that coincide with road and bridge projects. This is money that is going to businesses that may not lead to any extra spending than would leaving it with car owners. As a make-work project, it may help employ a particular population, but I am skeptical that overall employment will be much affected.

My other problem with his plan is the focus on road infrastructure. Again, this may be politically expedient as a job creation mechanism, but it is not terribly inspired. Investing in infrastructure to support automobiles is just plain short-sighted and will hamper our efforts to become more energy independent. Energy independence is perhaps the one thing Americans can agree on (if not how to go about achieving it): it is the trifecta of being critical to our economy, our environment and our national security - in other words to our future. Equally important to our future is a population of well educated and skilled workers. So why can't we invest in mass transit projects, renewable energy projects and education? It is true that new mass transit projects (as an example) take a long time to plan and get going, so this might not be appropriate for an immediate boost from fiscal policy, but renewable energy projects can be done quickly. So can things like tackling deferred maintenance in schools, more school programs and a longer school year, projects at public universities and tuition grants to those wanting to attend college. The common link to all of this is the eye on the future. Fixing essential transport links is fine and necessary but building bigger and more roads just creates an incentive to drive more in cars. [As a contrast, Portland Mayor-elect, Sam Adam's plan seems to be a lot better in its focus on the future - though he has a head start in mass transit projects that are already planned]

Here is an idea: how about a new tuition credit for college? This would get a lot of potentially unemployed young Oregonians in school, which would not only reduce unemployment (they would not be looking for jobs) but be an investment in their future productivity which will benefit all Oregonians long into the future.

Here it is in a nutshell. Fiscal stimulus 101 calls for deficit spending in the time of recession to add new money into the economy, not for shifting money around through taxes and transfers. Without the ability to do deficit spending, any tax and transfer policy should emphasize investment that will pay off in the future, not just the employment of same at the expense of others. It is pretty clear what the high priorities for investment are in the 21st Century: education and energy independence. If we are going to fight this recession, lets do it in a smart way.

Note: it turns out that persons more eminent than I are pretty smart as well.