Tuesday, January 13, 2009

Fiscal Stimulus Skeptics: Jonah Goldberg Outdoes Kevin Hassett

Just one day after my nomination, I have to rescind and give my nomination for the dumbest criticism of the Obama fiscal stimulus to Jonah Goldberg. After 7 paragraphs of Goldberg’s typical meaningless ramblings, we finally get this:

That might overstate it a bit, because some naysayers can be heard. Economist Kevin Hassett of the American Enterprise Institute, for example, notes that whatever the benefits of the proposed stimulus, they probably don't outweigh the enormous costs of the debt we would incur. As a result of the stimulus, the deficit this year would equal the total cost of the federal government in 2000. That's on top of $7.76 trillion in bailouts pledged by the government, according to Bloomberg News. The real reason the stimulus package will be gigantic is not that the smartest people with the best ideas say it needs to be. It's that Obama's real priority is to get the bill out as quickly as possible, which means every constituency gets something, including Republicans.

Where to begin? Hassett never did offer an estimate the estimated benefits but Obama’s own economists have – and the benefits can be readily measured at the estimated reduction in the enormous GDP gap that we would have if this fiscal proposal is not passed. To suggest running a transitional deficit is more costly that having a large GDP gap must have Art Okun rolling over in his grave!

Hassett did offer an estimate of the 2009 deficit - $1.2 trillion. I guess Mr. Goldberg is not aware that Federal spending is running at an annual clip in excess of $3 trillion. Of course, the nominal expenditures of the Federal government were less in 2000 – they were only $1.86 trillion. Now in real per capita terms, the difference between 2008 and 2000 spending wasn’t that large but there is no way any knowledgeable person can write “the deficit this year would equal the total cost of the federal government in 2000”.

As far as the amount of funds pledged for bailouts – these represent asset trades not expenditures. Again - any knowledgeable person who has followed this story would have known that. But then Jonah Goldberg has proven countless times, he does not qualify as a knowledgeable person.

As far as the crack about the smartest people with the best ideas not arguing we need a stimulus package as large as what Obama has proposed, most of the economists I’ve been reading are saying that the fiscal stimulus should be larger not smaller. But then again – Jonah Goldberg is infamous for not reading up on a topic before his writes one of his op-eds on it. I used live in Los Angeles and was generally proud of my hometown newspaper so I often questioned why the Los Angeles Times would embarrass itself with the serial stupidity that comes from the pen of Jonah Goldberg. His latest is just another example of what made me wonder.

Update: One of those smartest people who Mr. Goldberg apparently never bothers to read has a bang for the buck piece that provides rough estimates of the reduction in the GDP gap per dollar of fiscal stimulus:

But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck - increase in GDP per dollar of added debt - is 3, not 1.5. Since the main concern about stimulus is that it will add to government debt, it’s this bang for the buck measure, rather than the multiplier, that’s relevant. And 3 sounds a lot better than 1.5 ... Bang for the buck also heightens the contrast between effective and ineffective stimulus policies. Stay with c = 0.5, t = 1/3, and look at the effects of a tax cut; the multiplier is 0.75, half that for public investment, but bang for the buck is 1, only 1/3 that for investment.

If one is concerned about how much the deficit has to rise to get on back on the path towards full employment, then one should favor increases in government purchases over tax cuts according to this analysis. Some conservatives pretend to care about the deficit but then they also tend to favor the tax cut route. Me thinks these conservatives haven’t exactly thought this one through very carefully.

1 comment:

Shag from Brookline said...

It would take a whale of an economist to swallow Jonah. The apple of his mother's eye (remember Monica?), he didn't fall very far from the tree. On the west coast Times he balances Billy (the unfunny) Kristol on the east coast Times as bicoastal neocons.