The Stimulus Debate, Revisited
By Arnold Kling
Mark Thoma is raising the issue that it is too soon to back away from economic stimulus. See, for example, Paul Krugman, Robert Reich, Tim Duy, and other recent posts. All of these appeared before this morning’s employment release, which reinforces the view that the economy remains weak.
You may recall that when this year’s stimulus bill was being debated, I pointed out the oddity that one of the arguments for a big stimulus was the fact that there is a consensus that many countries at different times have tried small stimulus, which failed. An interesting question is whether these stimulus efforts were thought to be small at the time, or whether “small stimulus” is what you call a big stimulus after it fails.
Did this year’s stimulus fail? I think it is too soon to tell. My biggest complaint about this year’s stimulus has always been that while the bill was enacted this year, most of the spending takes place in the out years. If stimulus works, its effects should be cumulative. If it starts slowly, the effects will accumulate slowly.
If we try to address the weak economy of 2009, and the likely weak economy of 2010, by enacting a big spending boost for 2012 and 2013, that would not be good policy. I hope we can all agree on that.
Given how difficult it is for government to spend money both quickly and efficiently, I would hope that those who wish to see more stimulus would at least be open to the idea that Bryan suggested and that I tried to promote, which is eliminating, for some indefinite period, the employer contribution to the payroll tax (explicitly putting more IOU’s into the Social Security trust fund, if you are worried about that). We need private sector job creation. Let’s have a stimulus that focuses on that goal, rather than on other goals.