Thinking about the stimulus
David Leonhardt marshals some evidence that the stimulus worked much as it was expected to work, and tries to caution people against reading too much into an analysis of one program or another. But I think it's worth talking a bit more theoretically about the sort of confused conversation that's gone on around the American Recovery and Reinvestment Act.
ARRA was a collection of individual programs that all did specific things and that, in the aggregate, were supposed to have a magnified impact on the economy. To understand this, it's useful to think of unemployment insurance. Unemployment insurance is supposed to help the unemployed pay their bills. In the context of ARRA, though, it had a secondary intent: The unemployed would pay their bills and that money would then go to someone else who would spend it and so on, so that your one dollar in unemployment insurance meant more than one dollar in total economic spending.
A lot of arguments about the stimulus get confused about whether they're criticizing the program or the stimulative effect of the program. You might think, for instance, that it was great that the government spent $10 billion on the National Institutes of Health programs but that that spending didn't have enough stimulative bang for their buck. Maybe the money spends slowly, or maybe it went to people who were wealthy enough that they saved it rather than spent it. In that case, the program was good but it wasn't as stimulative as you wanted.
Conversely, you can think that we shouldn't have had $27 billion for highway and bridge construction because that doesn't fit with clean energy goals. But you might also think that the money did a good job getting into the economy, as the builder paid workers and the workers bought coffees and the coffee shop paid rent and so forth. In that case, the program was bad but it was stimulative.
Either way, it would be useful for people to be pretty clear, when they're criticizing the stimulus, about what exactly they're criticizing. It's a lot of programs, all of which can be evaluated both in terms of their worth on their own and in terms of their stimulative impact. You could have a great stimulus full of bad programs or a terrible stimulus full of great long-term investments or, as I think, a pretty good stimulus -- albeit too small -- filled with mostly worthwhile programs. The inclusion of the AMT patch, however, is still galling.
Graph credit: The New York Times
June 11, 2010; 5:36 PM ET
Categories: Economic Policy
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