Monday, February 09, 2009

I actually agreed with Krugman before I disagreed with him

Krugs is right (see here and here ) that many of the things being cut in the Senate's version of Porkulus are those more likely to give a short term stimulus (or avoid a further short term de-stimulus). He is also right that tax rebates and transfers disguised as tax cuts will not do much stimulating.

Where I think he is wrong is in his stubborn insistence in viewing the bill as a stimulus bill. I just don't see how you can look at it and the way it was constructed and keep arguing that the sole or even primary intent of the bill is to produce a fast acting economic stimulus.

It seems to me there are three major components to the bill: Shoveling dough to Congressional Democrat's pals, implementing Obama's rebuild America vision, and the stimulus.

Now all these can be seen as interlinked; as Obama pointed out stimulus = spending, but philosophically I think they are different.

#1 is business as usual and probably would have increased anyway just given the new political power alignment. It's just pretty convenient for the Dems to lump it into a "save the world" bill and be done with it. Plus once it's in the budget, it's the new baseline. #2 should be done carefully and slowly on a cost benefit basis, not on a which is ready to go sooner basis. The rush will cause a lot of money to be wasted. And even shovel ready projects take a fair amount of time to complete. #3 should be done in a serious way. Tax rate cuts, not rebates. No further subsidies for housing, in the short term the best thing is for the Government to buy stuff they can take immediate delivery of (and possibly even somehow use).

Note that I am not advocating a stimulus be done, I am just saying if we were going to do it seriously we'd get input from experts and do it technocratically, Bryan Caplan style.

Finally, I think it's a tactical mistake by the Republicans to insist on cuts/modifications to the bill. If it works, they aren't going to get any credit at all. If it doesn't they could well get blamed for having been too stingy.