Even those in the White House have admitted the stimulus bill probably isn't enough to do the job. But this was just a single bill. More work will be done in most every bill passed by congress this year.
And yes, I really do mean most every bill. Remember those efficiency numbers everyone posted last month? Tax cuts for the rich do almost nothing but more money for the poor and middle class do a lot. Even if you are revenue neutral, every policy choice that directs money away from the richer and towards the poorer people helps the economy. The health care money put aside in Obama's budget, for instance, will be a big stimulus itself.
Although I'm not quite so sanguine as Mark (state budget cuts are going to be a bitch to offset), this is a very important point. In rightwing mythos land, every tax cut is always good for the economy--the product of not really thinking through all the effects it will have, including the opportunity costs of not putting that money to potentially much better uses. But in reality, money that goes to poor people does a helluva lot more good.
That's only the first step, however, as can be seen in this blog post Paul Krugman wrote back in mid-January:
Paul Rosenberg :: The Exorcism of Voo-Doo Economics
Bang for the buck (wonkish)
Mark Thoma says he was thinking about thinking about this; I was actually thinking about it. Anyway, it's true: the cost of an effective fiscal stimulus, in terms of adding to the government's debt, can (and should) be much less than the headline cost.
Okay, I'm cutting out the wonkish heart, and rephrasing it: Textbook economics says--in a simplified model--that stimulus spending has a given multiplier, given certain assumptions. Say it comes out to 1.5--that is, $100 billion in spnding raises GDP by $150 billion.
Kruigman continues:
But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck - increase in GDP per dollar of added debt - is 3, not 1.5.
That's double the multiplier. That's huge!.
As Krugman notes:
Since the main concern about stimulus is that it will add to government debt, it's this bang for the buck measure, rather than the multiplier, that's relevant. And 3 sounds a lot better than 1.5.
And yet, that number never got into the public discourse!
Krugman continues:
Take this a bit further: $150 billion is about 1 percent of GDP, which Romer and Bernstein say means a million jobs; so this says $50,000 per job, which is a much better number than the critics have been throwing around (plus many more workers with full-time rather than part-time jobs).
Again, where was this in the public discourse? MIA.
Finally, Krugman noted, in another wonkified part, that "Bang for the buck also heightens the contrast between effective and ineffective stimulus policies." A tax cut with a 0.75 multiplier (1/2 the multiplier for spending) only gives a bang-for-the-buck of 1, which 1/3 of the bang-for-the-buck of spending.
Clearly, these two arguments--Mark's above, and Krguman's just now--can be combined: every shift of government spending that puts more money in poor people's pockets will also bring more money back in as taxes. It will have a higher multiplier, and in addition a higher bang-for-the buck.
This is the exact opposite of what supply-side/trickle-down/voo-doo economics tells us. And it will only become more and more important over time for all of us to understand it.
And yes, I really do mean most every bill. Remember those efficiency numbers everyone posted last month? Tax cuts for the rich do almost nothing but more money for the poor and middle class do a lot. Even if you are revenue neutral, every policy choice that directs money away from the richer and towards the poorer people helps the economy. The health care money put aside in Obama's budget, for instance, will be a big stimulus itself.
Although I'm not quite so sanguine as Mark (state budget cuts are going to be a bitch to offset), this is a very important point. In rightwing mythos land, every tax cut is always good for the economy--the product of not really thinking through all the effects it will have, including the opportunity costs of not putting that money to potentially much better uses. But in reality, money that goes to poor people does a helluva lot more good.
That's only the first step, however, as can be seen in this blog post Paul Krugman wrote back in mid-January:
Paul Rosenberg :: The Exorcism of Voo-Doo Economics
Bang for the buck (wonkish)
Mark Thoma says he was thinking about thinking about this; I was actually thinking about it. Anyway, it's true: the cost of an effective fiscal stimulus, in terms of adding to the government's debt, can (and should) be much less than the headline cost.
Okay, I'm cutting out the wonkish heart, and rephrasing it: Textbook economics says--in a simplified model--that stimulus spending has a given multiplier, given certain assumptions. Say it comes out to 1.5--that is, $100 billion in spnding raises GDP by $150 billion.
Kruigman continues:
But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck - increase in GDP per dollar of added debt - is 3, not 1.5.
That's double the multiplier. That's huge!.
As Krugman notes:
Since the main concern about stimulus is that it will add to government debt, it's this bang for the buck measure, rather than the multiplier, that's relevant. And 3 sounds a lot better than 1.5.
And yet, that number never got into the public discourse!
Krugman continues:
Take this a bit further: $150 billion is about 1 percent of GDP, which Romer and Bernstein say means a million jobs; so this says $50,000 per job, which is a much better number than the critics have been throwing around (plus many more workers with full-time rather than part-time jobs).
Again, where was this in the public discourse? MIA.
Finally, Krugman noted, in another wonkified part, that "Bang for the buck also heightens the contrast between effective and ineffective stimulus policies." A tax cut with a 0.75 multiplier (1/2 the multiplier for spending) only gives a bang-for-the-buck of 1, which 1/3 of the bang-for-the-buck of spending.
Clearly, these two arguments--Mark's above, and Krguman's just now--can be combined: every shift of government spending that puts more money in poor people's pockets will also bring more money back in as taxes. It will have a higher multiplier, and in addition a higher bang-for-the buck.
This is the exact opposite of what supply-side/trickle-down/voo-doo economics tells us. And it will only become more and more important over time for all of us to understand it.
