stimulate me!

I haven't written about the great Keynesian experiment that we are undertaking for a couple of reasons. One is that on matters of hard economic policy, your time (and mine) is better spent reading people who know what they are talking about.

The other reason is that my opinion on this is rather lacking in nuance, and therefore doesn't make for interesting writing or discussion.

But I will say this much, now that some concrete figures are available. In 2006 (latest data easily obtained via the IRS website) there were 138.4 million individual tax returns filed, of which 53.3 million were returns of married couples filing jointly. That gives us (to a first approximation) 191.7 million income tax filers (not necessarily net payers) in the United States. If you divide $787 billion by that figure, you get just over $4000 per person. This is roughly equivalent to the annual federal income tax liability on $45,000 of income (if that's all you make...obviously, the liability on the highest $45K of $500K is substantially more.)

I'm not particularly interested in arguing over this or that component of the stimulus, mainly because I think that a vastly superior plan to anything that would have come out of congress and the White House would be to issue a check for $4000 to every individual income tax filer ($8000 per jointly filing couple). Why?

1) Simplicity--the database of recipients exists (did you file in 2007? Fantastic, here's your check), the infrastructure for distribution is already in place (fire up the printing press for those refund checks) and as a result, there is a minimum of dead-weight loss on the actual cost of distributing the stimulus. I have no idea what it costs to distribute $787 billion to a thousand different projects and entities, but I'm certain it is not trivial.

2) The wisdom of crowds--I frankly trust 192 million people making 192 million decisions on allocating small amounts of money than 535 people beholden to their contributors making one decision on allocating a huge amount of money.*

Of course, the important question is would this actually accelerate economic recovery? My intuition is that this approach would be substantially more effective, or at worst, a wash. But the only honest answer is that I have absolutely no idea. The thing is...neither does anyone else, about this or the stimulus plan that we actually have.

And that's what makes this so scary. Because "we" never had a serious discussion about whether massive state intervention in the economy is a good idea in the first place, if the stimulus fails to deliver the boost to the economy that has been promised, the likely explanation from its proponents will be that it simply wasn't big enough.

Perhaps you would like a check for $10,000?

*I realize that ultimately a lot more people will be involved in this (state and local governments, etc. But I think the basic principle here holds)


Gino said...

i was expecting a post about Birmingham.

but this was a good one,too.

but you left out: this wasnt about stimulus as much as it was about political payoff to liberal interests groups.
the economy was just an excuse.

Brian said...

I don't think I left it out so much as took it as a given.

Though I don't think it was a payoff to "liberal" interest groups so much as to interest groups generally, since the big ones give to both parties. Unless you consider government spending generally a "liberal" interest (which I suppose you could.)

chris said...

If the "Keynesian multiplier" for gov't spending is greater than 1, then it's governments duty to spend a bajillion dollars a day.

Realistically I think that the multiplier is less than 1. And I pray to whatever supreme being that may or may not exist that it's not less than zero.