Thursday, October 08, 2009

My thoughts on a second stimulus

Some economists and politicians are advocating a second economic stimulus package. Here are my thoughts on a second stimulus.

State governments likely have a better idea than Congress regarding what are high value spending projects within each state. On the whole, pre-existing state spending was likely already going to the highest value projects available. Since state governments are now being forced by circumstances to drastically cut back at a time when Congress's stimulus package is in effect, this suggests that Congress massively misallocated capital with the first stimulus.

If Congress creates a second stimulus package, it should only consist of more aid to the states and extended unemployment benefits. Congress should avoid a bunch of bells, whistles, and pet projects. Stuff like cash for clunkers and subsidies to transfer existing homes from one person to another are just real-life examples of the broken window fallacy.

Warren Buffett described the first stimulus package as a mix of Viagra and candy. Aid to the states and extended unemployment benefits would be pure Viagra. Most other spending options would be candy.


  1. I would like a rent credit. How about a lousy $1000 credit? That would stimulate me. And maybe increase rents to make landlords wealthier.

  2. its unfortunate that political considerations forced a very poorly structured stimulus. I'm basically in favor of a second stimulus but only if its actually structured very differently. Otherwise we're probably better off with nothing. State aid and unemployment extension are no brainers while the housing credit is completely ridiculous.

  3. I dont care either way. Im always in the demographic that doesnt ever get help. Either I make too much, or not enough...or Im the wrong race, sex, height, weight or state of health.

    Nobody wants to help me, so I therefore dont care about them either. Im a true American in every sense of the word. At any rate, another stimulus will go through and my taxes will pay for it. Such is life.

  4. When the first stimulus package was released, I thought to myself a second one will most likely follow the first. Once again, with the stimulus they will just be putting a bandage over the wound.

    The first one was pretty much useless IMHO. A total waste of taxpayers money. What it did was pretty much an attempt to stir up consumption when people are losing jobs, money, equities, and debt kept piling up. They need to fix the source!

  5. They haven't spent the first one yet on the real job producing projects. A lot of the spending, like the tech-related, takes months of planning and they're just beginning to get this set up. The money was only approved 7 months ago.

    If we're on a turnaround, then hiring should pick up by the middle of next year. If it doesn't.... who knows because it'll be over 10%

  6. The first one was pretty much useless IMHO. A

    Cool. So on one hand we've got pretty much every legitimate economist across the political spectrum, and weighing in on the other side is Mr J.


  7. "So on one hand we've got pretty much every legitimate economist...etc"

    yeah the same ones that couldn't see the freight train coming straight at their nose. I only trust an "expert" if they are ACTUALLY and expert. Self proclaimed gurus who cant do their job aren't all that "legitimate" in my book.

  8. oboe said...
    "Cool. So on one hand we've got pretty much every legitimate economist across the political spectrum, and weighing in on the other side is Mr J.

    If you are trying to say that pretty much every legitimate economist across the political spectrum supported the stimulus package, then you've only been paying attention to one side of the debate. Greg Mankiw (Harvard), Robert Barro (Harvard), and Eugene Fama (U. Chicago) are some of the top economists in the world, and they have all opposed the stimulus package. In fact, support of the stimulus package has been pretty much dependent on political ideology.

    I support a stimulus package if and only if the spending is done wisely. I'm not willing to harm long term economic growth just to avoid short term pain. On the other hand, if states are forced to cut useful investment spending (e.g. education and infrastructure), then it will harm the economy in both the short term and the long term.