How Close To The Mark Is Feldstein?
On these points, that is. Anybody have any idea? To my shame, I'm ignorant of economics (though trying to remedy that in my copious spare time...) and know little about Feldstein beyond the bumper stickers (economist; Harvard; Conservative; Reagan).
But he seems to be making a fair bit of sense here. (Though--details to the side--isn't it remarkable how often spend more on the military is the right solution according to our friends across the aisle?)
I have to say, I simply assumed that any stimulus package put together by the Dems would include lots of stuff like teaching therapeutic deconstruction to the transgendered teenage children of illegal immigrants. I'd like to see Obama use the sane Republicans to squeeze the crazy out of the package...though I'm about as ignorant of such things as a grown-up person can be.
So...anybody got any informative links on this?
On these points, that is. Anybody have any idea? To my shame, I'm ignorant of economics (though trying to remedy that in my copious spare time...) and know little about Feldstein beyond the bumper stickers (economist; Harvard; Conservative; Reagan).
But he seems to be making a fair bit of sense here. (Though--details to the side--isn't it remarkable how often spend more on the military is the right solution according to our friends across the aisle?)
I have to say, I simply assumed that any stimulus package put together by the Dems would include lots of stuff like teaching therapeutic deconstruction to the transgendered teenage children of illegal immigrants. I'd like to see Obama use the sane Republicans to squeeze the crazy out of the package...though I'm about as ignorant of such things as a grown-up person can be.
So...anybody got any informative links on this?
posted by Winston Smith at
7:17 AM
5 Comments:
OK, so this link will take you to The Corner (!), but Sullivan recommended it the other day and I have to say that it doesn't seem *too* overly wingnuttish. Worth a read:
http://corner.nationalreview.com/post/?q=NDBiYjY3OWJjOWMyMWFjYmZjMjU2MTAwNDg1OGExNTA=
-w
sane Republicans to squeeze the crazy
and that would be who exactly?
I saw this a couple of weeks ago, though by now it's very likely a little out of date. However, I think it's a good place to start.
However, I have my own two cents to add. I took a class in Evolutionary Systems a couple of semesters ago; it not only was very interesting, but also extremely relevant and helped me understand Jurassic Park better. Anyway, what I am seeing as far as the economy is concerned is self-organized criticality (i.e. avalanche behavior), a feature of complex systems. And if we're in the process of undergoing an avalanche, from what I've learned at least, there's not a damn thing we can do about it except ride it out until it self-stabilizes again. And in that case, using the stimulus money to "jumpstart" the economy is completely useless.
BUT, I do see the positives about using the money on infrastructure, green energy, and domestic spending. Tax cuts, on the other hand, I doubt will do much of anything and will likely be a waste of money and loss of revenue. Not that I know a whole lot about these things.
Try this and especially this. Feldstein is not without his good points, but I think he's wrong on the speed of the outlays.
Feldstein says, in short:
1) The tax cuts are not helpful as a stimulus
2)"Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs."
3) "Will these vast sums [of unrestricted grants to the states] actually lead to additional spending, or will they merely finance state transfer payments or relieve state governments of the need for temporary tax hikes or bond issues?"
4) Paying health premiums for the unemployed will encourage businesses to lay people off.
5) Enough of the money won't be spent before the end of 2010 [when Feldstein thinks it is needed]
6) Increasing DoD procurement, in contrast, is spent in the US and can happen quickly.
From the top:
1) Feldstein sounds like Paul Krugman or Brad DeLong here. Criticizing these tax cuts seems to be sound economics (which, in turn, is beginning to sound like the antonym to "conservative economics").
2) Maybe Feldstein is right that computerizing health records won't create as many jobs as other methods (although he could have cited a source for the assertion). However, it will provide some jobs and stimulus, and it will certainly pay back in the mid- to long-term with savings. Those savings will be reaped as the debt incurred for the stimulus is coming due, so this is a way for the stimulus to offset some of its expense. Thus, the program may not be perfect, but it is certainly a good and prudent thing to include, IMHO.
3) Many states have major budget shortfalls for the current fiscal year alone, never mind the upcoming FY. The Center on Budget at Policy Priorities states that 13 states have a $23B shortfall, and 11 others anticipate "budget problems". Upcoming fiscal years are looking far worse. (And then there is the case of California ...)
It is quite clear that many (if not most) of the states need relief, and, given federal support, will use the money to continue programs that would otherwise be cut. Cutting state programs means laid off state employees.
The 'transfer programs' he is worried about is Medicaid. Spending the $100B means the poor who qualify for Medicaid will have money to spend on health care. Feldstein is afraid that these poor will then be able to actually save some money. I think it is more likely that those benefiting will (primarily) use any extra $$ for things like paying rent and utility bills, or getting more of their food from stores and less from food banks.
BTW, it is odd to hear a Republican complain that the states might not have to institute a tax increase, even a temporary one. Why does Feldstein believe that a temporary increase in the state taxes would be good for that state's economy during a recession?
4) I simply don't see how the existence a program to pay the health insurance premiums for the unemployed can change the decision to lay off employees. If my business is losing money I have to cut my expenses. If the best way to do so is to lay off employees, I lay them off. Once they are laid off, I do not need to pay health insurance premiums for them (even if the former employees choose to extend their coverage under a COBRA). What am I missing?
5) Feldstein asserts that "A large fraction of the stimulus proposal is devoted to infrastructure projects that will spend out very slowly", but we have no reason to believe that his examples (energy and water projects) are characteristic of all infrastructure spending. From what I know of such projects, they are more likely to be slower than road projects (although perhaps comparable to bridge-building projects). It is curious that Feldstein didn't give the corresponding figure for all infrastructure construction spending. The Leonhardt article (LL's first link in the prior comment) include a link showing 51 transit systems with service cuts and/or fare increases. Leonhardt states: If these cuts go through, they will make it harder for people to get to work (or look for work), and they will undermine one of the long-term goals of the stimulus package: laying the groundwork for a greener economy.
Also, in contrast to Feldstein's simple assertion that the end of 2010 is when the stimulus stops being helpful, Krugman argues that spending through the end of 2011 will certainly be a helpful stimulus.
Why? Since the Fed rate is effectively zero, stimulus spending is the only option left. Therefore, we should be willing to keep stimulus spending going until the Fed is able to raise its rate above zero. For the last two recessions the Fed kept cutting interest rates for more than two years after the recession officially ended and economic expansion had resumed. Therefore, we should expect that it will take over two years after the recession ends for the Fed to be able to start increasing interest rates again.
6) Feldstein may be right, but having been involved in DoD procurement contracts (on the contractor side) I don't share his faith in the Pentagon's ability to quickly spend money. The recent history of the DoD trying to spend quickly and efficiently in Iraq only feeds my skepticism. However, I may very well be wrong here.
It seems to me that we should increase DoD recruitment. Recruiting standards have slipped significantly because of a lack of qualified applicants. As a result, we have taken people into our armed forces who would have been summarily rejected 10 years ago. Now is the time to tighten up our standards and recruit a better military (and, where appropriate, weed out those who don't belong and never did belong).
Now is also the time to ensure that our veterans are getting the full benefits they deserve, in contrast to the Bush/Republican practice of saving money by delaying or denying veteran's benefits.
Best,
Jim Bales
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