Posted by Kenneth Anderson: What Would Happen if We Canceled the Remainder of the Stimulus? http://volokh.com/archives/archive_2009_08_02-2009_08_08.shtml#1249322308
I am not trying to be snarky here. This is a genuine question. Suppose, by assumption (as some reports have it) that a recovery is now getting underway - this might be true or false, take it as true by assumption. Unemployment, let us also take by assumption, will continue to rise as a lagging indicator. The recovery as currently projected will be weak. But a vast amount of the stimulus money has not yet gone out the door. I also understand that a large part of that has not even been committed, at least not in a firm way (I'm being squishy here, I realize: do I mean legally committed by contract, committed by legislation or earmark or something similar, what is 'committed' or 'spent' exactly?). My non-snarky, technocratic policy question is - suppose we concluded that the recovery is actually starting, and we decided to not spend any more money on stimulus that was, in principle, aimed at classic demand-side stimulus? What would be the likely consequences? Would an explicit, upfront decision, for example, not to spend more tank the incipient (and for purposes here, assumed) recovery because, for example, everyone's plans were premised on this continued spending? Or because the recovery at this point just is stimulus spending and the anticipation of more of it; it is not actually the private economy auto-generating its own profits but instead effectively merely recycling government recovery funds? And the effect on monetary policy - deflationary pressures, for example? Other monetary effects, good or bad? Or, alternatively, would canceling the rest of the stimulus rev up the private economic sector, currently fearful of tax increases and interest rate hikes down the road and all the long term drag on private economic activity created by the stimulus itself? Unleash the 'animal spirits' and all that? Or would the effect be something altogether different? Finally, what would happen if we decided to slash stimulus spending drastically, but still use a chunk of it in the ways that some proposed back when the stimulus was being debated: Fund greater and longer term unemployment benefits and subsidize COBRA or related health insurance protection for individuals and families, but not undertake vast new government spending on infrastructure, etc.? My interest here is in trying to puzzle out where alternatives might lead. It is not an invitation to rant or make merely political speeches. Please give me reasoned arguments, preferably looking to upsides and downsides to each of these policy alternatives. _______________________________________________ Volokh mailing list [email protected] http://lists.powerblogs.com/cgi-bin/mailman/listinfo/volokh
