John Irons's Blog


Economic News, Data and Analysis

Stimulus, UI, Infrastructure

DeLong has moved towards stimulus (see below).
To be most effective, however, the Senate still needs to add on 1) unemployment insurance, 2) aid to states, and 3) direct job creation via school and bridge repair.
UI may be added today. State aid is not part of the mix, but I suspect will come up before too long as more states feel the revenue pinch. And unfortunately infrastructure spending is not part of the mix.
On the last point. Critics often argue that infrastructure spending takes too long to impact the economy. But…

  1. If we spend the $ on repairs – there is little to no planning needed. We already know which bridges are unsafe, and what schools need to get spruced up.
  2. The planning lag is much shorter than in the past. Remember the Minneapolis bridge collapsed last August? There are already boots on the ground, workers are pouring concrete for the footing of a new bridge.
  3. Even if the spending takes longer (say a year or so), we will likely still see higher unemployment. The last 2 recessions show that employment takes significantly longer to recover than the end of the official recession.
  4. And so what if we’re slightly late? These are projects we will need to do anyway – so lets just speed them up a bit.

Grasping Reality with Both Hands: Economist Brad DeLong’s Fair, Balanced, and Reality-Based Semi-Daily Journal

More on the Stimulus Package
On the phone just now, Larry Summers just moved me appreciably toward enthusiastic support of the stimulus package by arguing, roughly:
* The big arguments against the stimulus package are two:
o It will become a destructive lobbyist Christmas tree
o It will increase the deficit and yet fail to stimulate the economy
* We appear to have dodged the bullet on the first argument
* The second argument is incoherent because:
o The U.S. government is not going to go bankrupt
o Hence the reason to fear increasing the deficit is the fear that increasing the deficit will reduce national saving
o But if the stimulus package fails to boost spending, it will be because people save their tax rebate checks, in which case the stimulus will have no effect on national saving. Hence you can believe:
+ Either that the stimulus package will be ineffective as a stimulus but will not reduce national saving–in which case it is a zero.
+ Or that it will be effective as a stimulus–in which case it will be both good for employment and probably good for national saving as well, because few things are worse for national saving than a recession.
+ But the argument that the stimulus package is bad because it will be ineffective at boosting demand and will reduce national savings is not coherent

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