From Ethan Pollack, at the Economic Policy Institute:
As money is spent, it creates beneficial ripples through the entire economy. The evidence is that most of the money from the recent tax rebate was saved rather than spent, thus blunting its stimulative benefit.1 By comparison, other options—such as infrastructure spending, aid to states, food stamps, and unemployment insurance (UI) benefits—are much more cost-effective because they target the needs most likely to channel money back into the economy. Mark Zandi from Moody’s Economy.com estimates that each dollar of refundable tax rebates only boosts GDP by about $1.26, while each dollar of infrastructure spending could provide a $1.59 boost. Not only are many of these stimulus options more effective, but they also have the added benefit of assisting those hardest hit by the downturn and tackling long-standing infrastructure needs that would lower transportation costs, decrease traffic, and increase business productivity.
Zandi’s analysis also shows what doesn’t work as stimulus: a variety of tax breaks for corporations and wealthy individuals, which cost over twice as much as they return to the economy.
It’s interesting … this seems so obvious and intuitive, and yet we’ve been following the false gospel of the supply-siders for almost my entire lifetime.
—Myca
So my notion of a massive public works program to rebuild America’s passenger rail system (from the rails up) really isn’t a bad idea, it would seem …
Now that you mention it, why did we fight Communism by trying to fulfill one of Marx’s fantasies?
Infrastructure spending is necessary, and specifically right now there is a lot of infrastructure in America that needs building and rebuilding. But it should be noted that one major advantage of giving the poor money over infrastructure spending is that the foresight and competency of the government is far less an issue. Some infrastructure projects can turn out to be a complete waste of money, and the rich and powerful will always have a much bigger say in what gets built, by whom, and whose homes are destroyed to make way for the project. Conversely, you give cash to the poor – and for those who need it, food stamps are virtually the same as cash – and, as a group, they will consistently deliver the same results to the economy. Refundable tax credits can be better targeted to the poor by using them as replacements for current tax deductions and non-refundable credits, and if they are counted against income when determining need for food stamps and other welfare benefits, they could eventually replace the degrading welfare system which currently requires beuracrats to run the lives of the poor.
Does the infrastructure chart look to the benefits of actually using the infrastructure, or does it only look to the economic benefit? I.e. do they attempt to put a value on the convenience benefit i would get from new rails leading to better public transportation, or are they only concerned about the increased fees i pay to use them?
One nice thing about infrastructure is that, depending on what it is, it is available to and/or directly benefits a pretty good hunk of the population.
I heard someone, unfortunately pain killers are affecting my memory so can’t remember who, actually talk about raising social security benefits which have stayed effectively flat for years to both stimulate the economy and help older folks and people with disabilities. This seems like a more effective and direct way to stimulate the economy to me than infrastructure spending much as that is also needed. Any rise in Social Security benefits is going to be spent immediately in the U.S. economy as well as reducing food insecurity among older folks and folks with disabilities. And I say that as someone hoping to get off disability finally in time now that I have just had a kidney transplant. Course my timing could have been better economy and job-wise :). But there is no bad time for a transplant.
infrastructure spending takes a long time to impact the economy. Stimulus is no good if it’s felt after the problem is over. The chart doesn’t show that.
The end of the economy that needs stimulating depends on where the economy happens to be.
Reagan’s tax cuts were absolutely the best thing going at the time, and had it not been for the deteriorating state of the US Military, the deficit would have been much smaller. However, Reagan, and then Bush The Elder, neglected to start moving the stimulus from the supply-side to the demand-side. The result was what we’ve seen — the rich have gotten richer, and the poor have gotten poorer, and the disconnect between the afluent and the working class has widened to the point that someone failed to notice working class families were defaulting on debt.
What’s needed now is a very carefully crafted policy that maintains the working class through the hard times, without punishing small to medium businesses, or the middle class. This is pronounced “soak the rich”, with liberal credits for job creation — get the money out of all its hiding places and into creating jobs.