Wednesday, April 10, 2013

Build your own stimulus package

Could the stimulus package have been bigger and better?


Like most things in life, it depends. Or really, what does that question mean at all? There is no such thing as a perfect stimulus plan. There is also "no such thing as a shovel-ready project" to quote President Obama. Everything takes time and everything is a combination of trade-offs. How you want the package designed is based off of your values and political priorities. No one will be happy all the time and therefore there will always be room for criticism. Here are a few questions that have to be asked:  

- How effectively do you want the money spent (fiscal multiplier target) on stimulating the economy?
- How much should be spent on long-term investments?
- How fast do you want the money spent? 
- How much of an allowance do you give for fraud, waste, and abuse? 

What accomplishes one goal, does not necessarily accomplish the rest. Some program will have the biggest bang-for-your-buck, while others will ensure the money is spent quickly. China is able to spend hundreds of billions more than we are on infrastructure in record speed, because they have a ridiculously high tolerance for corruption. Is that something we would have been okay with considering the circumstances? 

Keep all of this is mind when if you hear arguments that the stimulus was poorly-designed. What would you have done differently? Would you have done an all-of-the-above approach, like the Obama Stimulus, or would you have focused on a single type of spending?

Unemployment Benefits: 
Fiscal Multiplier: Very High
Term: Very Short
Speed: Very Fast
Fraud/Waste: Very High

Public Works:
Fiscal Multiplier: High
Term: Long
Speed: Slow
Fraud/Waste: Low

State and Local Government Aid:
Fiscal Multiplier: Medium
Term: Medium
Speed: Medium
Fraud/Waste: Low

Tax Cuts:
Fiscal Multiplier: Medium
Term: Short
Speed: Very Fast
Fraud/Waste: Medium

Straight Checks:
Fiscal Multiplier: High
Term: Short
Speed: Fast
Fraud/Waste: Low

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