Joseph Stiglitz’s op-ed in the New York Times this morning is a grab bag of proposals to get as much bang for the buck as possible some of which I agree with and with some I disagree. For example,
We should begin by strengthening the unemployment insurance system, because money received by the unemployed would be spent immediately.
sounds pretty prudent to me but
The federal government should also provide some assistance to states and localities, which are already beginning to feel the pinch, as property values have fallen. Typically, they respond by cutting spending, and this acts as an automatic destabilizer. Federal assistance should come in the form of support for rebuilding crucial infrastructure.
doesn’t ring true to me. Here in Chicago and Illinois our polticians haven’t responded by cutting spending. Rather, they’ve been caught between raising taxes and cutting spending rather like the donkey who starved to death, unable to decide on which bail of hay to eat. That local revenues would, at least, fail to meet expectations when property values stopped rising was obvious. I’ve been predicting it for years and you can find it stated on this blog any number of times so I would think that politicians should have known this time would come. In my view the underlying problem is that state and local governments expanded as revenues expanded. They need to be prepared to contract when revenues contract. Fiscal sanity in Illinois and Chicago requires it. I think a better prescription would be sharp decreases in state and local spending coupled with a decrease in the sales tax (it’s 9% here in Chicago). Of course, they’ll never do that.
Stiglitz goes on the propose a number of federalization measures:
More federal support for state education budgets would also strengthen the economy in the short run and promote growth in the long run, as would spending to promote energy conservation and lower emissions. It may take some time to put these kinds of well-designed expenditure programs into place, but this slowdown looks as if it will last longer than some of the other downturns in recent memory. Housing prices have a long way to fall to return to more normal levels, and if Americans start saving more than they have been, consumption could remain low for some time.
Much the same result could be achieved simply by dropping money out of an airplane.
All of the measures proposed would act to boost consumer spending. I continue to believe that the key problem with our economy is that we’re excessively dependent on consumer spending. What I’d like to see are a few measures targeted at increasing capital expenditures by businesses and keeping those expenditures in the U. S.
I think you’re right, what we view as “stimulus” is kind the way a junkie views their next fix. However, I agree with Stiglitz’s overall point that we need to get the money in the hand of the people and localities who need to spend it. “Trickle-down” only works if there’s really a trickle.