Monday, January 12, 2009

Stimulating Packages

hehe, I said package.  Anyhow, Paul Krugman worries that the stimulus package as it is currently contemplated is too small and conservatives will swoop in and blame Obama for the economy and use the failed stimulus as evidence that keynsian economics is discredited.  I think the problem with making the stimulus as big as Krugman would like (in excess of $1 trillion) and in the manner he would like it (government spending on bridges and stuff) is that it is simply not tenable.  I do not mean that we have everythig that we want already, just that those things that are worthwhile (medical health records, a smart grid, rail-intercity and high speed rail, mass transit) all need some lead time.  Any building will require substantial lead time as there will be eminent domain issues, rights of way, and environmental impact statements.  I think this is why the stimulus package is tax heavy, taxes are one way of putting money into the system now.  One can certainly argue that the taxes as proposed are less than ideal.  

With regards to infrastructure spending we should sear into our minds the old saying "haste makes waste."  I think it would be much better for Obama to deliver a smaller fiscal stimulus in the current year but plan infrastructure expenditures in the out years.  Liberals may decry that postponing spending is a waste of recession.  However, I fear that this criticism will ultimately be undermined by a prolonged recession, thus giving rise to plenty of opportunities for clamoring for more spending.  In the meantime, it would be better to wait for some of the worthier projects to become "shovel-ready" than plow ahead and repave all of West Texas in search of the vaunted fiscal multiplier.

update: I retract what I said about Krugman.  Here is an op-ed where he also advocates spending over the next several years.

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