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Martin Feldstein on the stimulus

Harvard economist Martin Feldstein was chairman of Ronald Reagan's Council of Economic Advisers, where he was known as one of the White House's most unrelenting deficit hawks. Later, he was one of the key economists urging George W. Bush to privatize the Social Security system. He is, in other words, no liberal. So it's worth passing along his take on the stimulus from this morning's Fiscal Choices conference.

Before the election, I wrote an op-ed saying it doesn't matter who's going to win. Whoever it is needs to get the ball rolling on stimulus. I didn't recognize how big the hole was going to be yet. But when it finally got rolling, instead of asking what annual level of spending they needed, they asked themselves how big the number could be politically, and they decided it needed to be in the billions rather than the trillions. For all sorts of reasons, it was poorly designed, but in the end, it just wasn't big enough, and I think we all recognize that now.

As his comments suggest, Feldstein was critical of the stimulus bill that ultimately passed. But, as his comments also suggest, the necessity of debt-financed stimulus is not a position that necessarily divides conservative and liberal economists. It is, at this point, a position that divides Democrats and Republicans, but that has to do with the incentives of political parties, not serious disagreement over whether the government needs to step in when demand collapses. As Feldstein says, the stimulus was too small, and the proper argument now is over how to do more of it, not whether we should do more of it -- or, even worse, whether we should have done it at all.

By Ezra Klein  | October 5, 2010; 1:49 PM ET
Categories:  Stimulus  
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Comments

young man, at this late date, you've got to be kidding: there is plenty of actual intellectual opposition to the idea of further stimulus (just because feldstein isn't completely nuts doesn't mean plenty of his colleagues aren't).

i happen to think the intellectual case these folks proffer is shoddy and verges on the nihilistic (keynes, after all, pointed out that we were all dead in the long run in order to call for action, not passivity). many of the people who proffer it seem to see economics as a profession whose key requirement is to justify whatever exists as the best of all worlds.

but it is out there, it isn't only a matter of republicans opposing stimulus because thney don't want obama to succeed in growing the economy.

Posted by: howard16 | October 5, 2010 2:09 PM | Report abuse

"the proper argument now is over how to do more of it"

1. The recession ended 16 months ago.

2. Congress would throw all sorts of garbage into the stimulus package.

3. The stimulus would take a long time to kick in.

4. Forgive me for not believing that now is the time to plan to throw a large wad of money down the toilet a couple of years from now.

Posted by: ostap666 | October 5, 2010 2:16 PM | Report abuse

thank you ostap666 for making my point: there are professional economists who think exactly the way you do and they're out there.

now your actual arguments? that's another story: there are some very easy near and medium term stimulus measures.

in the near-term, a payroll tax holiday and state sales tax holiday (subsidized by revenue sharing) would put more money in the pockets of people with a high propensity to spend the marginal dollar.

in the medium term, our rotting and collapsing infrastructure offers a ton of opportunities.

and, of course, the actual stimulus spending we saw did kick in very rapidly.

so the arguments, as i note, are shoddy, but they are widely held and believed: this ain't merely a political issue.

Posted by: howard16 | October 5, 2010 2:27 PM | Report abuse

Oh great, looks like Glenn Beck will need to add another step between Obama and Hilter. Now it apparently goes: Obama -> Feldstein -> Che Guevera -> The Beatles -> JKF -> Woodrow Wilson -> Hilter. Now, you may be thinking "but Klautsack, didn't Woodrow Wilson come BEFORE Hilter?" Well, if that's your reply, all I have to say is I weep for today's youth. Learning facts out of books from people who have spent time thinking about those things is the surest way to Gomorrah!!!!!! Ah!!!!! Ah!!!!!

Posted by: klautsack | October 5, 2010 3:53 PM | Report abuse

The liberal nature of 'stimulus' consists of payouts to the unions and health care payouts to their base.

There's no infrastructure built either way. That's a complete strawman.

Posted by: krazen1211 | October 5, 2010 3:56 PM | Report abuse

Wow, excellent catch Ezra.

How can we blast this post all over the Internet?

How can we get Obama and Feldstein to issue some kind of joint statement and then blast THAT all over the Internet?

Posted by: paul65 | October 5, 2010 5:04 PM | Report abuse

krazen1211 -

So all of those people in orange vests and heavy machinery next to the highway are what, exactly? Nurses?

Posted by: klautsack | October 5, 2010 5:04 PM | Report abuse

krazen1211, i'm going to go a step further than klautsack; your comment makes no sense at all. whatever are you getting at?

Posted by: howard16 | October 5, 2010 5:17 PM | Report abuse

"krazen1211, i'm going to go a step further than klautsack; your comment makes no sense at all. whatever are you getting at?"

I thought it was quite simple.

Ezra here cries about the need for 'infrastructure' spending, and then supports a stimulus bill where <10% of payout is to infrastructure.

Back in the 1950s, we had lots of infrastructure spending, and limited to no government public sector and government health care spending. That's why, of course, budgets were balanced despite tax revenues much lower than today.

In the 1990s-2000s, state governments decided that unions needed their payout. They got it, and infrastructure lagged. Come to New Jersey and see for yourself.

Given a choice, Democrats will always choose union payouts and government health care benefits for their base over 'infrastructure'. Just look at the stimulus.

Posted by: krazen1211 | October 5, 2010 5:50 PM | Report abuse

"krazen1211 -

So all of those people in orange vests and heavy machinery next to the highway are what, exactly? Nurses?"

Union contractors getting a payout. At least they're doing useful stuff, though, in some places, though not around where I live.

Posted by: krazen1211 | October 5, 2010 5:54 PM | Report abuse

krazen1211, you've got to be kidding. you think that's an insight? good grief.

because the obama administration (like too many other people) underestimate the severity of the recession, they dictated that stimulus funds could only go to shovel ready projects.

at any given moment, there aren't that many shovel-ready projects, which is why it was never possible to construct an entire stimulus package out of infrastructure spending.

and that's why ezra, today, isn't specifically calling for infrastructure spending, he's calling for more stimulus through whatever means available. i happen to be calling for more infrastructure spending, and i'm calling for it in the medium-term to reflect the fact that there isn't a pile of shovel-ready projects, so it will take a certain amount of time to plan, design, engineer, bid, and permit a bunch of infrastructure projects.

your comments about payouts to union bosses are simply asinine and not worth another second's attention.

and as for balanced budgets, perhaps it escaped your notice that we were balancing budgets in the late '90s perfectly well, although i will say this: i'll be happy to go back to eisenhower-era marginal tax rates, adjusted for inflation any time you want to convince your local congresspeople of same....

Posted by: howard16 | October 5, 2010 7:15 PM | Report abuse

"because the obama administration (like too many other people) underestimate the severity of the recession, they dictated that stimulus funds could only go to shovel ready projects.

at any given moment, there aren't that many shovel-ready projects, which is why it was never possible to construct an entire stimulus package out of infrastructure spending.

and that's why ezra, today, isn't specifically calling for infrastructure spending, he's calling for more stimulus through whatever means available. i happen to be calling for more infrastructure spending, and i'm calling for it in the medium-term to reflect the fact that there isn't a pile of shovel-ready projects, so it will take a certain amount of time to plan, design, engineer, bid, and permit a bunch of infrastructure projects.

your comments about payouts to union bosses are simply asinine and not worth another second's attention.

and as for balanced budgets, perhaps it escaped your notice that we were balancing budgets in the late '90s perfectly well, although i will say this: i'll be happy to go back to eisenhower-era marginal tax rates, adjusted for inflation any time you want to convince your local congresspeople of same...."

Yeah, for about a year or two, in a bubble, out of 8........

Even then, the government was spending much less on education and health care than today, at all levels.


You want medium term projects? Good. Let's take the $1 trillion in PPACA spending from 2014 onward and build some stuff. Deal?

Posted by: krazen1211 | October 5, 2010 7:40 PM | Report abuse

"and that's why ezra, today, isn't specifically calling for infrastructure spending, he's calling for more stimulus through whatever means available. i happen to be calling for more infrastructure spending, and i'm calling for it in the medium-term to reflect the fact that there isn't a pile of shovel-ready projects, so it will take a certain amount of time to plan, design, engineer, bid, and permit a bunch of infrastructure projects.

your comments about payouts to union bosses are simply asinine and not worth another second's attention."


And yet, China managed to put in a lot more infrastructure spending. Ezra points that out all the time.


It's obvious Obama had different priorities, which is why Medicaid gets $300 billion a year.......

Posted by: krazen1211 | October 5, 2010 7:45 PM | Report abuse

Klein’s last sentence is incorrect. There is a valid argument (and I read the economic history literature as showing it's sound) that increased government spending can provide some boost to the economy in the short term, but that such stimulus should still not be attempted. The literature indicates that it takes immense government spending to produce just a small decrease in unemployment and improvement in the overall economic condition in the short term. Consider our current experience: since mid-2008, the U.S. has implemented fiscal stimulus equal to almost 10% of GDP (plus all sorts of monetary stimulus measures) -- yet we still have nearly 10% unemployment and economic stagnancy. Part of the reason for this is that government demand is very different from consumer demand, so it's hard for government demand to reallocate a lot of the idled capacity (construction workers and realtors can't become windfarm techs overnight, and besides, windfarms and roadwork rely much more on capital than labor as compared to the public works projects of the New Deal). All of this further blunts the effectiveness of fiscal stimulus. Given the high cost and minimal return on fiscal stimulus, there is a reasonable argument that *fiscal stimulus simply ain't worth it* as compared to letting consumer demand reestablish itself and restructure the economy naturally. That doesn’t mean there should be no government intervention – a reasonable safety net and a rational retraining program seem appropriate – but calls for grandiose stimulus seem to be driven more by religious fervor than serious economics (which may explain why testing the effectiveness of fiscal stimulus doesn’t seem to have a falsification criterion).

Posted by: tfirey | October 6, 2010 9:43 AM | Report abuse

sheesh, krazen1211, try to make a good argument, wouldya?

china is a very poor country with a much large amount of infrastructure needs than we have, a much smaller defense budget, and a much different regulatory environment. talking about what china is doing on infrastructure is, in short, completely and totally irrelevant to the situation in the united states.

as for your comment on medicaid: what in the world is wrong with you? you think that's an argument? he didn't "choose" to spend $300B on medicaid in lieu of stimulus for god's sake, so what's your point?

i'm perfectly happy to critique obama, but it's got to make some sense.

Posted by: howard16 | October 6, 2010 10:45 AM | Report abuse

sheesh, krazen1211, try to make a good argument, wouldya?

china is a very poor country with a much large amount of infrastructure needs than we have, a much smaller defense budget, and a much different regulatory environment. talking about what china is doing on infrastructure is, in short, completely and totally irrelevant to the situation in the united states.

as for your comment on medicaid: what in the world is wrong with you? you think that's an argument? he didn't "choose" to spend $300B on medicaid in lieu of stimulus for god's sake, so what's your point?

i'm perfectly happy to critique obama, but it's got to make some sense.

Posted by: howard16 | October 6, 2010 10:45 AM | Report abuse

Tfirey

Retraining is one of the worst choices for the stimulus. First, because you really have no idea what jobs will be in demand tomorrow. No one does. Second, because those jobs on the unemployment list today are there because the demand is down, not because the job is obsolete. When the demand comes back up are you going to train a whole new group of people for those jobs?

Training for the long run is good. Retraining as a short term solution is dumb.

Letting the economy recover "naturally" is also foolish. People are suffering today. The future of today's children is being damaged, perhaps beyond recovery. Ever know any children of the Great Depression? They had a mind set that lives in constant vigilence against another collapse. Hoarding is considered a mental problem today, to them it was a survival tactic.

And remember, we don't have the chance of a world war to pull us out of another depression.

Thanks to Reagan/BushI/BushII we don't have much in the way of resources to pull us out, so we have to start early and hit it hard to avoid falling any further. At that the stimulus has proven to be a success. The only problem has been not enough stimulus.

Posted by: bobfromdistrict9 | October 8, 2010 10:24 AM | Report abuse

Tfirey

Retraining is one of the worst choices for the stimulus. First, because you really have no idea what jobs will be in demand tomorrow. No one does. Second, because those jobs on the unemployment list today are there because the demand is down, not because the job is obsolete. When the demand comes back up are you going to train a whole new group of people for those jobs?

Training for the long run is good. Retraining as a short term solution is dumb.

Letting the economy recover "naturally" is also foolish. People are suffering today. The future of today's children is being damaged, perhaps beyond recovery. Ever know any children of the Great Depression? They had a mind set that lives in constant vigilence against another collapse. Hoarding is considered a mental problem today, to them it was a survival tactic.

And remember, we don't have the chance of a world war to pull us out of another depression.

Thanks to Reagan/BushI/BushII we don't have much in the way of resources to pull us out, so we have to start early and hit it hard to avoid falling any further. At that the stimulus has proven to be a success. The only problem has been not enough stimulus.

Posted by: bobfromdistrict9 | October 8, 2010 10:24 AM | Report abuse

"i'm perfectly happy to critique obama, but it's got to make some sense."

And there you have it right. There is a lot I am critical of Obama for, but the criticism I see here is off the wall. Out of left field from right wingers as it were.

Posted by: bobfromdistrict9 | October 8, 2010 10:39 AM | Report abuse

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