More on the Stimulus

I’ve been a bit quiet here for a few days, but have still been active elsewhere, mostly talking about a subject you’ve heard me say plenty about: the need for another fiscal stimulus. Most recently, it was a debate on CNN, with Reihan Salam:

It turned out to be a funny debate: despite coming from very different starting points, Reihan and I ended up agreeing on just about everything, although he was easily more articulate. (Okay, I was basically dreadful, but to be fair, trying to debate in a dark studio where you can see nothing but a light and your own reflection can be pretty weird.) On the substance, Reihan provided easily the best conservative-friendly argument for a stimulus I’ve heard, arguing:

The bigger thing is, there is a danger when people are unemployed for six months or longer. They get disconnected from the mainstream economy. And a job is the best kind of social program. We need to emphasize job creation as directly as possible.

He’s dead right.

I also spent Tuesday of last week debating the stimulus with Harvard’s Jeffrey Miron, for Marty Moss-Coane‘s wonderful NPR program Radio Times. The full hour-long debate is available here. And full credit to Jeff for giving what I thought was the most articulate libertarian argument against the stimulus that I’ve heard. The discussion is useful largely because Jeff is completely honest — willing to articulate just what it is about the evidence that leads him to a different conclusion.


To my thinking, "stimulus" has come to mean "throwing money at the problem." There surely is a more wise, considered, beneficial way to move the economy.

Instead of billions to prop up banks, why wouldn't the gov't take that same money and say, match a certain percentage of needy homeowners' mortgage payments for a few months? That way, the banks stay solvent--and so do the people!

Or for that matter, have the gov't "guarantee" 20% of ALL new loans that banks make, so long as those loans are within guidelines? That gets loans moving, help people, and limits some of the risk to banks.

Or, as in one e-mail I received, why not pay people over a certain age to retire? Give them a certain amount of money to retire, but make it contingent upon doing at least two things: buying a new home and buying an American car?

With a little more thought, we could help BOTH customers and business, and not just hope that helping businesses trickles down to the people (it does, but a bit slowly).

It's almost like we reinvent the wheel every time we face a financial/economic crisis. Are there no "best practices" we have learned from the Great Depression?

As someone who has been unemployed going on six months, I feel the pain acutely. One thing often unsaid is that it is easier to get a job when you HAVE a job than when you don't. The sole solace I have is that I have been able to spent many, many more hours with my family.



If there is further need for stimulus it is NOT a need for further printing press money and debt. It would help if the government would ease the banks' hands out of the taxpayers pockets and clamp down on egregious credit card and bank account fees that are choking every person with an open account.
Help should come when the government claws back excessive bonuses and pay from greedy 'investment bankers' who profited from specious trading.
Then Obama should push to allow persons with 401(k).retirement plans to make direct payments to credit cards balances: what good is retirement money to those who will have to work forever (assuming they can keep the job) if credit card companies and banks can "fee them to death" (or charge 27% interest)?


Stimulus is only meaningful if the government keeps a surplus during boom times and defecit spends briefly during times like now. Instead we stimulate even when the economy is strong.

How can another stimulus help when so much of the first one was wasted, delayed, spent on useless pork projects? It's time for anothe tea party.

Dr. Tonic

I have 3 main problems with the stimulus:

If pumping godly amounts of money into the system helps, then why stop at 1 trillion, why not 100 trillion? The multiplier has and will never be above 1.00.

Why are we trying to stimulate? To get to where we were? A place we couldn't sustain - a place we borrowed to get to.

We are broke - our children are now broke. Even if the stimulus is the perfect solution - we didn't balance the budget, we have no money. A sump pump would really help in my basement; I'm broke so I work on the land around my house and use a shovel and bucket when it rains.


Why not just give the stimulus money directly to the public as a tax-rebate?


The only stimulus money we need is long-term funding for better education in this country - particularly ethics, economics, and mathematics - so that we can reduce the amount of overlending and overborrowing that got us to where we are.

If it sounds to good to be true it probably is.....


The only way to get things back on track is to lower interest expenses and increase incomes. "Stimulus" does the opposite. It props up interest rates and mostly moves money to people who are connected or don't know how to manage it anyway.


"We need to emphasize job creation as directly as possible." Amen. I would hope that everyone agrees about this larger point, but I don't get the feeling that they do.

Rodger Malcolm Mitchell

The Great Depression began in 1929. But massive federal spending led to a recovery that continued into 1936. However, believing further recovery was inevitable, and fearing the greatest enemy was potential inflation, President Roosevelt tightened the money supply and raised taxes, instituted tough penalties for tax avoidance (now known as "loopholes"), increased the power of unions and increased the minimum wage - essentially another tax on business - all of which led to a second, far more serious depression, the terrible downturn in 1937. Ultimately, only the massive spending of WWII bailed us out.
If all this sounds familiar it essentially is identical with the stated Obama plan: Now that he believes further recovery is inevitable, and fearing the greatest enemy is potential inflation, he plans to tighten the money supply, raise taxes and eliminate "loopholes", increase the power of the unions and increase the minimum wage. Perhaps we then will have to wait for a WWIII to bail us out.
Note to President Obama: The recovery is not inevitable; to continue, it will require continued financial stimulation. Even small tax increases will cut growth; larger tax increases will cut growth seriously or eliminate it altogether. Increasing the minimum wage during a recovery, exacerbates unemployment. And contrary to popular wisdom, deficit spending has not been the cause of inflation (which for the past 50 years has been associated with oil prices, not money supply).
So Mr. President, please learn from history. Don't repeat the mistakes that lengthened and worsened the Great Depression.

Rodger Malcolm Mitchell



I see Reihan Salam, and I think "James Carville".

"It's job creation, stupid."

I don't know whether his thoughts really hold together or not, but he does a darned good sound bite.

Bobby G


As I'm sure you know, there are more than one considerations to think about when trying to decide if government intervention in a market is a good thing. Most of these debates deal only with the tip of the iceberg on government intervention.

First of all, there must be a market failure. Is there really a failure affecting the labor market? That's the first issue to decide upon.

Secondly (and these go pretty much in order), if there is a market failure, is it theoretically possible for a best-case intervention to solve the market failure? If there is a failure, most of the time the answer to this one is, "yes."

Third, do we know if intervention will make things better? This is tricky because it is quite possible for government intervention to inherently make things worse. This question is also the one that is the topic of these debates over stimulus, but it is not the only question in what should be a series of tests before intervention is enacted.

Let's say we decide upon an intervention scenario that should benefit the market and thus society. The next and possibly most crucial discussion is whether or not the government will get it right. There are many many incentive structures at play within the government and politics in general that go against ideal solutions. How confident are we that the government will ignore those incentives to cheat a little bit here and there, do a favor here and there, swing a vote along the way etc etc and maintain overall efficiency? I for one am very skeptical. Add on top of that the innate inefficiencies within the public system that lessen the benefit of government intervention through dead weight loss.

On top of all of this is the fact that once something gets going in the government, a tax or a subsidy or whatnot, it becomes very difficult to reverse it... in fact it takes a very long process with some majority opinions along the way. Given the present value of future income (or utility), will programs created by this intervention begin to hurt us more than they benefit us before we are able to shut them down? That's another consideration.

All of these factors should be play a part in the debate on any form of government intervention, not simply adherence to an economic principle, rule, or theory. Even if we can decide upon the first three questions, most of the time, in my opinion, the follow up questions negate most government intervention.