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Good stimulus, bad stimulus

bang_for_the_buck_for_various_stimulus_methods_(LARGE).png

To draw out one of the points in Dylan's excellent post on various stimulus policies, not all stimulus is created equal. But the distinction that people are comfortable drawing is not the distinction that's actually relevant for stimulus.

Normally, people think about government on a waste/not-waste spectrum. A dollar of Medicaid funding, or bridge building, is not-waste. A dollar of volcano monitoring in Alaska is waste, at least unless you're an Alaskan and don't want to die in a volcanic eruption.

But for stimulus, a dollar that's spent, say, building a museum about Woodstock is as good as a dollar spent building a bridge to get people to a museum about Woodstock. From a stimulus perspective, waste happens when a dollar is saved rather than spent, as that dollar doesn't immediately stimulate the economy. That's why tax cuts are often ineffective: If you give a middle-class worker a tax break at a time when he's not unable to pay the bills but is trying to replenish his gutted 401(k), he'll save it. And that, from the stimulus's perspective, is waste.

One of the failures of the stimulus was that it included an enormous amount of tax breaks. Roughly a third of the total, in fact. And some of those breaks, like the $70 billion AMT patch, were not effective stimulus under any definition of the term. But they were there to get votes, and to show Obama was being bipartisan in his construction (though in Jon Alter's book "The Promise," Obama says that giving these breaks up-front rather than negotiating with the Republicans for them was a massive mistake). The problem is that they made the stimulus less effective than it could've been, and that made it easier for Republicans to attack down the road.

All of this is background to the fact that the Senate and the House are currently trying, and failing, to pass Medicaid aid to the states. So far as stimulus goes, nothing makes more sense than Medicaid funding for the states (Tyler Cowen even suggests federalizing the program, and I couldn't agree with him more). That Medicaid money would be spent, and quick, as it's replacing money that is already needed. It would also be buying something of value, at least if you believe that health care for poorer people makes sense. So on both the saved/spent spectrum and the waste/not-waste spectrum, it's good policy. Much better, in fact, than policy Congress has already passed.

By Ezra Klein  |  June 18, 2010; 11:28 AM ET
Categories:  Stimulus  
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Comments

To say that "A dollar of Medicaid funding, or bridge building, is not-waste" is only partially (and periodically) true.

Consider the dollar spent on the Medicaid recipient who contributes nothing to GDP -- the unemployed crack addict who has no intention of ever participating in society, for example. Consider the Medicaid dollar spent on a sling purchased from a retailer demanding 400% profit and using that profit to fund off-shore investment. Consider the Medicaid dollar which reimburses an unemployed crack addict for taking care of a purportedly home-bound member of his fictional family.

Almost all Medicaid dollars are waste, fraud, or abuse in the strictest sense; however, I'd agree that some of such wasted Medicaid dollars build the economy as much as do other unlawful activities such as criminal immigration, prostitution, sales of illicit drugs, and other forms of racketeering. Heck, if one ignores the rule of law, every wasted Medicaid dollar is "helpful" in that it builds the payroll of government employees needed to manage and police the program.

Gee, by that logic, if the government simply wastes more and more, thereby growing bigger and bigger, all of our economic problems would be solved! Too bad it doesn't work that way.


Posted by: rmgregory | June 18, 2010 12:03 PM | Report abuse

You are Right on the Money. Tax Breaks to buy products made in Asia and Europe is not the same as Targeting Industries to Create Jobs and Reduce the Billion Dollars sent every day to the Middle East and Supporters of Terrorists.

Facts are facts; 99% of Americans pay less in Federal Taxes and less for Food and Gasoline that when Bush and Cheney were in office. We are all still subsidizing Oil, Coal and Livestock Pollution and that has to Stop. I’d rather pay more in taxes to creat new Jobs and Industries that in turn attracts private investment and creates new tax revenue, than to subsidize Pollution that should be paid by the Polluters.

Clean Energy Technologies creates Jobs, Private Investment and Tax Revenue while Producing Products we can sell to the world. China is happy to keep subsidizing our debt so we can purchase products made in China and Create Jobs and Industries in China.

Every week Soldiers are coming home in Body Bags while shoppers flock to buy Chinese products which funds new Jobs and Industries in China.

The USA has 5% of World Population, uses 25% of the world’s Oil, and has only 2~3% of it. 70% of our Oil use is in the Transportation sector. No amount of Domestic Drilling (Onshore and Offshore) will Adjust that number Even a Single Percentage Point or have any effect on the price of Oil on World Markets.

What will have the greatest effect on Reducing USA Dependence on Oil, Saudi Arabia, Iran, Iraq, Venezuela and OPEC is “Using a Lot Less”.

We can Use less and Create Jobs making Products we can sell by;

• Taxing All Imported Oil
• Enacting a strong Renewable Energy Portfolio Standard of 25% by 2025,
• Pricing Carbon from Large Scale Polluters
• Decoupling Energy Utility earnings from increased Sales
• Developing Freight Rail (such as along the I-81 corridor);
• Ending Wall Street Energy Derivative speculation that drives up the Price of Oil;

These actions provide the greatest Bang-for-the-Buck for Energy Jobs and Investment without sacrificing other Multi-Billion dollar industries and White Sand beaches.

Posted by: liveride | June 18, 2010 12:06 PM | Report abuse

While China invests in the Clean Energy Jobs and Industries of the future we continue to use 25% of the worlds Oil and rely on the Job Limiting Energy Industries of the past.

Job Growth is too Slow because we are not making enough Investment in the Fastest Growing Industries while China, Japan and South Korea are making Massive Investments in Clean Energy Jobs and Industries. This is where the Jobs will be if we continue to sit on the sidelines while they Economically Arm themselves. We cannot sell Warships costing Hundreds of Billions but they can Sell us Hundreds of Billions of Windmills and Solar Panels.

The USA, is Paying **Trillions** for Civilian and Military Expenses that we Borrow Money from China and Europe to Pay for. It makes no sense to Borrow Money to Support Tax breaks for the most Wealthy of Americans. The Wealthiest Love to Complain while others Starve:

* $2 Trillion in Bush Era Tax Breaks
* $2 Trillion annually for Social Security, Medicare & Medicaid
* $693.6 Billion and rising in annual Defense Spending ($722 Billion for 2010)
* $184 Billion for AIG
* $200 Billion for Fannie Mae and Freddy Mac
* Hundreds of Billions for Doctors Medicare payments, State Jobs, Unemployed, etc.,

Where do you think this money comes from? We need to produce products we can sell abroad to pay these bills. We also have to stop giving a free ride to the most Wealthy, and to the Polluting Oil, Coal, and Livestock Industries. Limit any new Billion Plus Spending to Programs that will Make Money, Provide Jobs, and Save us Money over the long term such as Energy Efficiency and Renewable Energy Technology.

China invested $100 Billion for High Speed Rail in 2009 and $120 Billion for 2010. China invested $35 Billion in Clean Energy Production in ’09 versus USA investment of $18 Billion. China is investing its Trade Surplus into Chinese Jobs. The USA Defense Budget for Products we cannot Sell was $693.6 Billion for '09 (& $722 Billion for '10) while China’s is roughly $150 Billion.

We have to use a lot Less Oil and Tax all Imported Oil .50~$1/gallon to invest in Clean Energy Jobs. We have to stop sending Billions to the Middle East and Terrorist supporters.

End Bush era $2 Trillion in tax cuts, End the $15 Billion a year in Feedstock and Cotton Subsidies to Rich Farming Companies, End Billions in Fossil Fuel Subsidies for Multi-Billion dollar profiteering Oil companies; and Tax Large Scale (Oil, Coal, Livestock) Polluters and Imported Oil to Pay for new Jobs legislation.

Posted by: liveride | June 18, 2010 12:17 PM | Report abuse

Can someone please explain this to Scott Brown.

Posted by: Mazzi455 | June 18, 2010 12:17 PM | Report abuse

Can someone please explain this to Scott Brown. No, Brown has it right. Your not stealing anymore money from my state to pay for stuff in a different state!

Posted by: obrier2 | June 18, 2010 12:24 PM | Report abuse

Liveride has it right. Every dollar spent on subsidies to corn and wheat and rice and cotton producers is not only creating distortions in our economic system, it is crippling poor countries who can't compete with our subsidiized farm products. This is waste of the first order.

Another form of waste is spending on military systems that the miltary doesn't want but which create jobs. Since the stuff these jobs create is not something that people can use but rather is used to destroy people and property in other countries, it is a worse form of jobs program than building infrastructure or green tech jobs here at home that copntribute to ourt well-being. These are the kinds of distortions that have to stop.

But as I keep saying, Congresspeople are woefully ignorant about economics and only respond to the needs of their donors and richest constitutents.

And that goes double for those scurrilous New York House members who put the needs of the banksters and hedgies above the needs of those of their constituents who were seriously harmed by the predation and recklessness of those very banksters and hedgies. Shame on them.

Posted by: Mimikatz | June 18, 2010 12:38 PM | Report abuse

The first problem in the word "stimulus" is that its use covers a number of diverse functions.
Clearly, one current issue concerns aide to states with budget problems. If those buget problems are the result of short term loss of tax revenue from a transitory exceptional economic contraction, that aide is good. On the other hand, if those budget problems are the result of decisions that assume the tax streams reaized in exceptional booms will last forever, that aide just defers the needed adjustments.
Another set of difficult issues concerns the level of unemployment. There is still a widespread denial of the obvious reality that a significant part of that unemployment is due to structural problems that have been building up for a decade or more. Appropriate policies to deal with that unemployment are largely in uncharted terrain, subject to great uncertainty in outcome, and sure to be the source of major political conflict both because of differences in ideology and differences in real interests.
Then there is stimulus that is basically intended as an investment. The more slack in the economy can be exploited for productive investment the better. Government debt from investments that produce a tax stream that more than pays off the debt are a virtue. Of course, the unfortuanate reality is that the payoff from investments is always uncertain and government's track record in that area is not too good.
Finally, there is stimulus in the narrow Keynesian sense. This area is where denial is pervasive on all sides. Between the oil price bubble, the recent history of the American savings rate, the perpetually rising American trade deficit, and the general level of debt within the US economy, one would have thought that most people with even modest intelligence would have grasped the reality that demand for consumption is not our problem. Trying to cure our economic problems by stimulating consumption is like trying to put out a fire by pouring gasoline on it. Unfortunately, the continued focus on standard counter cyclical economic policies that have obviously not worked for a decade is probably a measure of how little potential there is for any kind of consensus around some more constructive way of getting better control over our economic future.

Posted by: dnjake | June 18, 2010 12:58 PM | Report abuse


How is an oil drilling moratorium that costs 250,000 jobs helping the Nation recover from this Democrap disaster?

How is killing the Gulf jobs that feed a million Americans going to help defeat the Obunker Depression?

End the Ostinker mindlessness NOW.

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Posted by: wapowacko | June 18, 2010 1:26 PM | Report abuse

Crews idled from Oil Exploration should be working to Clean up this Oil Industry Spill. There is no reason for these men to be Sitting Around and Complaining. Join America in Cleaning up this spill. These are the Jobs that the Gulf Coast needs right now.

If an Oil company or workers Job Results in Destroying our Land and Water then you should NOT have your Uninsured butt Drilling in our Waters.

1. Require all Oil Companies Proof of Insurance to Drill in USA Waters. Oil Companies must get insurance to prove their Drilling Safety preparation. Let Private 3rd Party Insurance Companies bring the power of Private Industry to help insure safe operations. Homeowners and Car owners get Insurance and so should Oil Drillers. Dangerous Activity that Risks Lives and Hundreds of Billions worth of USA Resources should be Insured.

2. Order BP or another Company to Bring in Oil Supertankers to suck in the Oil and Post Smaller Skimmer Boats closer to the Shore to get out of their way. Supertankers sit lower in the water than Skimmers. It worked in the Persian Gulf and it can work here!

3. Order Barges to serve as Barrier Walls with Suction Pumps and Separators to Suck the Oil off the water and Dispose of it in Refineries along the coast.

4. Order a Massive Manpower effort with Hazmat Suits and Training to lay Millions of Oil Absorbing Hay Bales and Smart Sponges ( http://www.abtechindustries.com/ ) which Absorb Oil while Repelling Water and Float for easy retrieval, Vacuums to suck up on shore Oil and Sand-Sifting machines, which are capable of cleaning long areas of beach in minutes rather than the hours it takes to do the work by hand.

5. Require Secondary Relief Wells for all Current and Future Deep Sea Drilling. It's Crazy to allow Current Drillers to not have Secondary Relief Wells and potentially create a Duplicate Disaster.

Get Insurance and Invest in Safety Preparation and Prevention Jobs. Jobs in Maintenance and Inspection, Safety Equipment, Oil Cleanup, USA made Oil Platforms, and USA made Carbon Fiber Drilling Pipelines. There are Thousands of Jobs needed and available now for Clean Up operations, making Sand Sifter machines, Laying Boom, Hay, Smart Sponges, manning Barges, Pumps and Separators and other Oil Cleanup Technologies.

Clean it up, Create Jobs, and Get 3rd Party Insurance.

Posted by: liveride | June 18, 2010 1:43 PM | Report abuse

Even if you don't believe "that health care for poorer people makes sense," taking Medicaid off state budgets makes a lot of stimulative sense.

First, it lets states continue paying for the same LEVEL of services under Medicaid. While Medicaid is a national program, states don't all offer the same level of services. During a recession -- with lots of newly eligible folks and a scary revenue crunch -- a lot of states will respond by reducing the level of services they offer. Compensating for this will mean that a lot of docs and health systems (and, by extension, drug & device manufacturers, medical coders, and all the various necessary support people) continue to get paid.

Second, states don't have to slash other parts of their budget to deal with their mandatory Medicaid spending. So not only does it keep private docs paid, it protects cops, firefighters, and other government agents too.

Notice that all of this is TOTALLY separate from the functional economic benefit of helping lower income people stay healthy.

Posted by: NS12345 | June 18, 2010 2:34 PM | Report abuse

How about requiring everyone on unemployment in the south to clean up the mess? Two birds, one stone.

Posted by: FormerMCPSStudent | June 18, 2010 2:57 PM | Report abuse

"From a stimulus perspective, waste happens when a dollar is saved rather than spent, as that dollar doesn't immediately stimulate the economy."

Does this mean that a dollar saved at a bank, even though it will eventually be re-lent out, won't do so for a little while and so won't "immediately stimulate" the economy?

I think this argument about a dollar of government stimulus and how it's applied is a really good one, but before I make it to anyone, I want to make sure I understand why a saved dollar isn't simply reinvested by the bank where it's being saved (or if that's factored into the less-than-a-dollar formula).

Posted by: aarhead | June 18, 2010 7:11 PM | Report abuse

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