Advancing a Free Society

Three silly stimulus arguments

Tuesday, September 27, 2011

Here are responses to three silly stimulus arguments I hear frequently.

Argument: This fiscal stimulus will increase economic growth and create jobs.

Response: As John Taylor points out, even if you believe this, you can’t forget the word temporarily.  The Administration refuses to produce their own estimates of the projected impact of the President’s new stimulus proposal, presumably because they burned themselves with their January 2009 estimate of the first stimulus.  They are instead leaning heavily on two private forecasts, by Macro Advisers and Democratic economist Mark Zandi.  (I frequently use MA’s forecasts in my work.)  The Administration forgets to mention that both these forecasts project only a temporary increase in GDP and employment growth from the President’s proposal.  Both predict that with the President’s new stimulus proposal, the economy would be stronger than it otherwise would be in 2012, but weaker than otherwise in 2013 and 2014 after the new policies have ended.

Both forecast a decline of at most 1 percentage point in the 2012 unemployment rate.  Many conservatives are skeptical the impact will be even that large.

Q:  Should Congress enact a proposal that includes deficit-increasing policies of $450 B that will, at best, temporarily reduce the unemployment rate by one percentage point for one year?  Whatever spending cuts and/or tax increases are enacted to offset this deficit increase could otherwise be used to reduce future budget deficits.

Argument: Temporary bonus expensing will help the economy grow.

Response: The same is true of temporary “bonus expensing,” in which Congress provides the ability for a firm to deduct from taxable income more business investment in the next year.  Like the President’s proposal, this is a timing shift.  As a temporary proposal, it would accelerate business investment into 2012 that would otherwise occur in 2013 and 2014.

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