How to spend the stimulus

Here is a NYT symposium of economists, including yours truly.  I very much like Andrew Samwick’s point:

If I had my druthers, the word ‘stimulus’ would be expunged from
public discussion, along with ‘bailout’ and ‘rescue.’ These words
convey the idea that, because we have so mismanaged our economic and
financial affairs, we are somehow able or entitled to conjure up
additional funds out of thin air to fix our problems.

Elsewhere, here is a passage from Megan McArdle:

Is the government going to guarantee approximately 70 million
owner-occupied homes in America against a 25% price drop?  No, because
that’s $3.5 trillion dollars, if my mental arithmetic serves.  Or is it
only going to give the money to the least responsible homeowners:  the
ones with small (or no) downpayments, houses they could only afford at
short-term teaser rates, and a long string of missed payments?  The
numbers, and the political arithmetic, don’t add up.  Indeed, any such
program would positively encourage people to default, in order to get
the government to cram down their loans.

In other words, don’t spend the stimulus on the housing market.  From another angle, Angus reports:

I guess I’d rather give my money to people who are going to use it to
try to make more money (i.e. save/spend it in the market system) than
give it to people who are going to use it to try and get re-elected.

And here’s more from Greg Mankiw.


Yes, It would be best just to give this money to consumers and let them decide where and what to spend it on. Even if they most of it, just keep giving them money until they start to spend.

I think the payroll tax holiday plus huge infrastructure spending are the only two ideas that can save us now. We need a better internet and better grid, we need more public transportation in our dense cities.

Because infrastructure spending does go to "people who are going to use it to get re-elected", it is going to be wasteful and much of it spent on stupid projects. However, as Tyler just pointed out, even the most productive of us waste 40% of our time. And anyone who has ever worked in business knows that oodles of money is wasted on the dumbest stuff, and the stupid people that spend this money stupidly are given chance after chance to make more bad decisions. I estimate my former CEO has blown through about $300M of other people's money, over a course of 5 jobs. The only one who has walked away with any profit is him.

It stinks to see other people waste your money and time. However, it is part of life. Complaining at any point that the government is wasteful is a nice gesture, but we've seen what happens when crusaders against waste go to Washington to clean it up. They spend money on stupid projects, too. So there isn't a real way to contain this waste other than to try to get some long term beneficial results from the wasteful spending.

So we are forced to build things that last a long time and lots of people need and want if we want to get any benefit from our wasteful spending. Like for example, a smart grid, a better public transit infrastructure in our large cities, better internet, and doing "big dig" like improvements to our highways. Note that When PT was built in NY and Chicago, it has made these cities better places to live for over a century now. The interstate highway system has made suburban life possible. These were hugely wasteful projects, whose long-term benefits cannot be accurately calculated in dollars.

We should be asking ourselves why our cities with beautiful neighborhoods have fallen into disrepair, and trying to fix that problem. I think the benefits of the wasteful spending to fix this problem would last a century or so.

Also, what ever happened to the future of the 50's, where we had cars that drive themselves and huge geodesic domes covering the cities, or we just rebuilt east Saint Louis? Could spend $1-2-3-4T on engine and fuel research and have it payoff with gas prices at $.30 using sea water as a catalyst with no emissions but sea water vapor? Note this last project is extremely wasteful, but the long term benefits are probably worth it...

The money should be given back to the taxpayers from whom it was stolen. Then these geniuses can calculate how much under 1 (i.e., into negative territory by the opportunity cost of the pilfered taxes) the "Keynesian multiplier" acutally is.
No hand waving or Keynesian bloviating required.

Why is "do nothing" not up for discussion?

We need to legitimize failure. It's the only road to success.

The ideal plan: get the 50 Billion back from Madoff and 1/12th of your plan is fixed whatever you do. Sometimes we should think it is not necessarily only fault of Ponzi. That money apparently was not very productive either.
The end of capitalism: Ponzi and Marx are still alive

If you give it to needy people then they will presumably buy the things they need. Shopkeepers are presumably trying to make money. So perhaps that would be a good way to get the money into the hands of people who are trying to make money?

Or is it only going to give the money to the least responsible homeowners

Because only the least responsible *bankers* and *finance execs* are entitled to free money.

It is only just beginning to sink in with me that the United States Government gave HUNDREDS OF BILLIONS OF DOLLARS, for *free*, to various banks ... with no strings attached on how they spent the money.

The essence of Republican governance. A fitting conclusion to the Bush administration. And of course, the Democrats rolled over and went along, because they Didn't Want to Seem Obstructive.

Would a true economist stand up and say "Take the Hit". Bailouts, tax rebates, exessive government spending.... this is just like taking cocaine to stay awake.

What we need to do is to take the recession, stop spending and come out stronger.

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