What about a deficit-neutral stimulus? by mattsteinglass
November 29, 2009, 8:11 pm
Filed under: Uncategorized

Matthew Yglesias points to Louis Uchitelle’s article in yesterday’s NY Times on the shortage of giant infrastructure projects in the US and notes:

The perversity of this is that you’re really unlikely to find better times than 2009, 2010, and 2011 to spend a bunch of money on large-scale projects. Most of the time, this kind of spending would involve a short-term economic cost in exchange for a long-term economic benefit. But faced with such a weak labor market, it’d be a short-term benefit with even more benefits over the long-term.

Here’s another thing that doesn’t make so much sense to me: why are we obsessed with the idea that stimulus spending in a recessionary environment has to be deficit spending? The reason we have a recession is that the propensity to spend has fallen: consumers are hoarding cash because they’re afraid they’ll lose their jobs or won’t be able to pay off their debts, and businesses and banks are hoarding cash because they don’t see any good investment opportunities. In that environment, wouldn’t it raise spending and thus help get the economy out of its doldrums if the government taxed more of people’s money away and spent it? Obviously this wouldn’t be as direct a shot in the arm as deficit spending, but doesn’t it still work? I mean, if Republicans force the administration to abandon deficit-financed stimulus because of perverse budget concerns, isn’t the second-best solution to go ahead with tax-financed stimulus?


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Mr. Steinglass,

The problem is politics. Who is going to raise taxes? Conservatives, D’s, I’s, and R’s, are dead set against it and liberals are scared to death of it. Tax rates are the lowest since the 1920’s but no one is ready to risk losing an election.

Comment by davidlosangeles

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