Spurring the economy…until it bleeds

Posted by Marc Hodak on February 3, 2008 under Invisible trade-offs | Comments are off for this article

The stimulus debate rages on. Here is the current level of the debate:

“Every economist will tell you that stimulus spending will get into the economy much quicker than a tax rebate,” says Sen. Charles Schumer, D-N.Y.

Mark Zandi, chief economist at Moody’s Economy, estimates that every dollar spent on extending jobless benefits will generate $1.64 in new economic activity. Income tax rebates, he said, generate $1.26 of economic activity for every dollar they cost the Treasury.

“It is hard to think of a group of Americans who are more likely to spend the marginal dollar than families that have been forced by job loss to scale back their normal standards of living,” said Alan S. Blinder, a Princeton University economics and public affairs professor.

The Republican opponents to the particular stimulus of extending unemployment benefits make a cogent point, but one hardly likely to convince the bleeding hearts:

“Most people find a job in the last two weeks of their unemployment,” Gregg said. “That’s human nature. They stay on unemployment almost until the end and then they find a job. If you extend it another year, those folks who could be productive, producing a job, creating economic activity by having a job will stay on unemployment even though there may be a job out there that they could take.”

I prefer the all-purpose argument against the effectiveness of “stimulus”–it’s like taking water from one end of the pool, pouring it into the other end, and hoping the overall level rises. For the animal lovers out there, “spurring” the economy should bring images of an unhealthy, short-term solution for a sick horse. It’s an appropriate image if you consider that the money taken by the government to spend on stimulus necessarily comes from the most productive part of our society, the part most likely to bring the economy back to health.