Posted by Kenneth Anderson:
David Wessel on the Stimulus:
http://volokh.com/archives/archive_2009_08_16-2009_08_22.shtml#1250779865
Economics editor of the WSJ, David Wessel, has a [1]fine column today
on p.2 talking about why the stimulus has been growing in
unpopularity. I raised the policy issue of the stimulus earlier in the
summer in a post asking whether we should simply cancel the rest of it
- a discussion, it seems, that a lot of folks have also been having,
at least informally or in their own heads. The comments to my post
were very interesting, which is why I'm revisiting the issue here.
Wessel's column seems to be partly a reaction to [2]polls published in
USA Today and elsewhere, there is also this reporting on new polls
showing that most people don't see the stimulus working and doubt that
it is doing anything for them or that it will. And there is also this
poll, cited by Wessel:
The fiscal stimulus, however, is increasingly unpopular. When The
Wall Street Journal/NBC News poll asked in January if the stimulus
was a good idea or not, respondents said yes by 43% to 27%. When
the question was asked in July, only 34% said yes and 43% said no.
The point of the column is to say that, perception aside, the stimulus
is doing approximately what it was supposed to do:
The case that fiscal stimulus was a mistake altogether is weak. A
decade ago, economists counseled that politicians should leave
recession-fighting to the Federal Reserve and its interest-rate
cuts. With the average length of a post-World War II recession at
10 months, downturns usually ended before Congress acted.
This time was, truly, different. The recession was more than a year
old when Mr. Obama took office, the Fed already had cut interest
rates to zero and the economy was still in free fall. "If ever
there was a case for a fiscal stimulus, this was it," says Alan
Auerbach, a University of California, Berkeley, economist who will
kick off an appraisal of the stimulus at this weekend's Fed retreat
at Jackson Hole, Wyo.
The problem, Wessel says, is really marketing - marketing the stimulus
to the public - rather than the policy itself:
Marketing, it turns out, matters. Promising that the stimulus would
save or create 3.7 million jobs, as the White House did, was bound
to backfire, and it has. As Citigroup's Steven Wieting observed
recently, the first installment of the stimulus -- about $75
billion in tax cuts and one-time payments for individuals -- is
widely assumed to have had no effect. But a $1 billion "cash for
clunkers" program gets credit for turning around an auto industry
that was selling so few cars that an upturn was inevitable at some
point. Maybe Mr. Obama should have mailed coupons instead of
reducing the tax bite on paychecks.
I think Wessel is obviously right - and that Auerbach is right and
that most economists would agree - in saying that there was a strong
case for stimulus. January (or, really, earlier) was it. But beyond
that, the article is mostly talking about the right way and wrong way
politically to market a stimulus, and on that, I don't think Wessel is
quite as persuasive. The reason is that one can describe it as
"marketing" and then, as the article does, talk about whether the
stimulus was "owned" by Congress or by the President, and all sorts of
other public-perception issues. But the fundamental issues were (are)
three - tightly interrelated with each other. They run not to
marketing, and not to perception, but to underlying policy and
purpose.
The first is whether stimulus spending is intended to be genuine
demand-side stimulus or, instead, whether it is intended to be some
long-term investment in supply, whether in the form of public or
private infrastructure that, on this view, boosts productivity down
the road. The former is what is meant by stimulus in the textbooks;
the latter might be true on some set of arguments, but requires a
different rationale.
The second is whether the stimulus spending is intended to be received
and spent by private actors or public ones. The most important debate
over the nature and design of the stimulus was over whether it should
simply put money into private hands, immediately and as cash, or
whether it should be spent over a longer period of time by public
agencies via Congress (and much of it by the states). The arguments in
favor of immediate private spending were that it could happen much
more quickly and that if immediate demand was the real purpose, the
quickest way to do it was simply stop collecting, for example, social
security and other taxes for some period, among other things. No need
to send out checks or delay - just stop collecting the taxes and leave
that much more money in people's pockets.
The principled (and perhaps winning, but perhaps not) argument against
was that an over-indebted public would use the funds to pay down debt,
not to pick up demand. The (unprincipled) political argument was that
if the money was simply left in private hands, Congress would not get
to say how it was spent, with the many 'public choice' issues raised
over how Congress and the administration would use the funds to reward
favored constituencies. That argument was decisively answered by
Congress, unsurprisingly, in favor of public, rather than private
spending, and in favor of it, rather than individual consumers,
deciding what to spend money on.
The third is a spin-off from the earlier two. Is stimulus spending
intended to be, as it appears, public rather than private, rather more
long-term than short-term? (Or perhaps to use the anticipation today
of future long-term spending as a substitute for actual spending
today? Is that realistic in an environment set by a massive credit
crunch?) And is the nature of this long-term public spending to be
justified not as (merely) propping up demand, but instead as an
"investment" in infrastructure? Not - 'you guys dig holes, and you
other guys fill them up, and here, everyone gets paid, so go spend' -
but instead projects that are justified in part because they are
supposed to repair long-neglected public infrastructure and lay the
foundation for longer-term productivity growth. The long-term public
infrastructure argument can certainly be made, and in my view can have
a certain merit, up to a point - the problem is that as a rationale it
is radically different from stimulus arguments.
It tends to lead to a worst-of-both-worlds, a sort of bait-and-switch:
When I want you to answer my objections that the stimulus needs to
happen fast (e.g., don't collect taxes for a while), you say, well, we
need to spend on projects that don't just spend money, but do so in a
way as to give us a long-term productivity return as well. When I
wonder whether all this money appropriated by Congress in haste can
possibly be well spent to produce those public infrastructure
investments that actually enhance productivity down the road, you say,
well, this isn't really about that, it's about quick spending, don't
ask questions about long term productivity costs and benefits, this is
just about spending money to create demand.
I suspect that the public dimly senses this bait-and-switch argument,
and that this is part of what drives its skepticism. Public skepticism
says, in effect, I don't really get all these complicated arguments,
but I'm suspicious of the sense that, somehow, they always come back
to saying, spend whatever and on whatever Congress and the
administration say. What they say, though, always turns out to be
public and long-term, and if I don't buy one rationale for it, here's
another, and then back again. An increasing amount of the public seems
to be saying, even if we mere civilians don't understand all this,
there's an alternative answer to what feels too much like a
bait-and-switch game, and the alternative answer is to reject both.
That is, say on the short-term stimulus rationale - yeah, but it isn't
that, at least not any more. And then say to the long-term public
infrastructure rationale - yeah, but that's not how you allocate money
for things if they are really supposed to justify themselves as
productivity gainers over the long term, not in an instant debate
characterized as a national economic emergency.
I think that's part of the public's inchoate concern - it's certainly
mine. If that's the case, however, the problem is much more than
marketing. It is a question of whether the stimulus is actually
designed as a stimulus or not, and whether the remaining zillions of
spending presumed to happen in the next few years in its name are
actually about stimulus at all, propping up the economy or instead
(one might at least wonder) propping up Congress. It seems to me that
this is the debate that needs to happen concerning the remainder of
the stimulus spending, not about whether the administration and
Congress have explained themselves well to the public or not. There's
a genuine public debate to be had - but it's not about perception and
marketing, it is genuinely about the nature of the policy, and the
nature of the stimulus, now and going forward.
In that context, Wessel's column frames a different kind of question.
He frames the question mostly as a matter of skepticism as to whether
there should have been a stimulus at all, which allows for an easy
answer, at least according to most economists and one which certainly
I share. But that's a different question from asking whether this
"stimulus" is that, currently and over the next few years - and even
if the public doesn't know now to frame that question, it is not
answered by saying, of course there had to be a stimulus.
It is quite possible to say, yes, there needed to be a stimulus, but
whatever stimulus effect, in a pure demand sense, well, it either
happened by now or it didn't. There is at least room for a genuine
question and debate over whether spending all the rest of it has
anything to do with stimulus arguments in the classic demand sense -
or is instead about either public infrastructure arguments or
Congressional public choice or both. You don't get at that - current -
question by framing it as a question as to whether there should have
been a stimulus in the first place.
References
1.
http://online.wsj.com/article/SB125070781745443839.html#mod=todays_us_page_one
2. http://www.usatoday.com/printedition/news/20090817/1astimulus17_st.art.htm
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