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32 flavors of stimulus, ordered by deliciousness

20091201-de4knj8t9h6juy8my1gcisbad5.jpg

The table above comes from CBO's most recent report (pdf) on the stimulus, by way of Brad DeLong. What you're seeing -- and click on it to see it larger -- are estimates of the multipliers on various stimulus projects. Estimates, in other words, of how much stimulus the government gets for its dollars. Before we get into it, it's worth tossing this CFRB graph showing the composition of the stimulus package:

Leading the list of high-multiplier items is direct spending by the federal government, infrastructure aid to states and localities, other types of aid to states and localities, and transfer payments (think unemployment insurance and food stamps) to individuals. At the bottom of the list are corporate tax cuts, the new homeowner's tax credit and individual tax cuts.

Of course, of that list, the only policy we've rushed to expand is the homeowner's tax credit, which turns out to be among the two worst approaches if you're worried about stimulus. The good news is that Kent Conrad says there's support for expanding aid to states and localities in the Senate, but I'll believe that when I see it.

By Ezra Klein  |  December 2, 2009; 11:41 AM ET
Categories:  Charts and Graphs , Stimulus  
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Comments

Kind of implies the US should just be buying up high labor-intensity goods like mad, huh?

One option might be to just flat out go for "green jobs" on its own sake, rather than code for "cap and trade." Buy up lots of wind & solar power components, shift the federal fleet over to low-emission vehicles, etc...

I'd also like to see some more effort to speed up the infrastructure projects. Sweeteners for fast projects would be great, as would accelerated "demonstration projects." The important thing is to get money out of the bureaucracy and out onto the ground.

Posted by: NS12345 | December 2, 2009 12:44 PM | Report abuse

If only the People Who Matter cared about this stuff. Right now, most of them are thinking, "How am I going to avoid taxes on my 67% capital gain for the year?"

Posted by: bmull | December 2, 2009 1:07 PM | Report abuse

If we can't even tell whether the multiplier was greater than 1 or less than 1, these numbers are essentially useless for determining whether a particular expenditure was useful or not, right? If we expand transfer payments to the states and the multiplier is actually less than 1, then we're throwing money away.

Posted by: tomtildrum | December 2, 2009 1:22 PM | Report abuse

Of course it may depend on factors masked by collapsing this into a single line item.

Like, stimulus to a well-managed state may have clear multiplier effects that stimulus to a state like, say, Illinois might not.

Posted by: NS12345 | December 2, 2009 1:45 PM | Report abuse

An extremely important component of stimulus deliciousness is investment value.

Many stimuli are extremely high return projects of the kind the free market will grossly underprovide due to long established in economics free market problems, like externalities, inability to patent, asymmetric information, etc., etc. (for more on this see: http://economistsview.typepad.com/economistsview/2008/08/tax-cuts-and-go.html). Examples include alternative energy, other infrastructure, basic science, and education.

And with a very high return, these projects actually lower government debt over the long run substantially as a percentage of GDP, and even in many cases in absolute terms.

Posted by: RichardHSerlin | December 2, 2009 2:11 PM | Report abuse

Speaking of stimulus mutiplier effects, I wonder why we haven't tried to implement a German-style kurzarbeit/short-work program, in which firms can temporarily cut hours/pay and a portion of the pay cut is offset by payments from the federal government.

I took a look recently at the data and the level of unemployment in Germany, a country with a population of 80 million, has increased by roughly the same value - 300,000 - as it has in the U.S. state of Ohio which has only 11 million people. In terms of the unemployment rate, unemployment in Germany is 8.1% today vs. 7.6% at the recent trough in 2008. This is despite a greater GDP drop in Germany than the U.S. (much of the difference probably associated with the trade collapse and the relatively higher proporation of exports in German GDP vis-a-vis US GDP).

This is a real program, already in place in Germany - we could ask them for insights on how to set it up and potential pitfalls they've encountered. And it's cheap. A short-worm plan which provided a benefit of $7,000/yr to 3 million workers (keeping those workers employed) would only cost $21 billion/yr less taxes paid due to higher incomes of those with saved jobs. Note that 3 million workers is the number of jobs that the original stimulus was designed to create or save, at a total price tag of over $700 billion.

Posted by: justin84 | December 2, 2009 4:43 PM | Report abuse

For a quick description of how short work could function, consider the following example:

Let us say that there is a job that pays $40,000/yr for 40hrs/wk, and the employer is considering cutting that position. Now let's say short-work is implemented, to plug 70% of the gap between cut pay. The worker's hours are cut to just 30/wk, saving $10,000 in labor costs (outside of taxes, etc) for the company, but the worker receives $7,000 over the course of a year to fill in the gap. The alternative option is to be unemployed for a year with unemployment insurance at $200/wk.

The employer is better off because it still receives valuable productivity - and because hiring/firing can be expensive, but gets to pay much less in wage costs.

The worker is better off, receiving over 90% of his original pay, not to mention not having a resume hole nor seeing his skills deteriorate.

The places the worker buys from are better off because his demand won't fall off of a cliff.

The banks are better off because this guy can keep paying his mortgage.

The government is better off because the $7,000/yr benefit from short-work is less than $10,400 for a year's worth of unemployment - and it will be taxed at a higher marginal rate/taxed in general. Of course, there will probably be some degree of business tax lost as the firm has more wages to write off against taxes, but I think on net the government is better off.

I'm sure there are some potential pitfalls but so far the program appears to have worked well in Germany and I don't see why we can't implement it here.

Posted by: justin84 | December 2, 2009 4:45 PM | Report abuse

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