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Since I've already linked to Ezra Klein a few times today, I might as well make it an Ezra Klein kind of day.
Let's start with the graph. As it should make clear, not all stimulus is created equal, and, despite the hooting and hollering from the right wing, tax cuts are an enormously inefficient way of delivering stimulus.
I'll let Ezra take it from here:
One of the failures of the stimulus was that it included an enormous amount of tax breaks. Roughly a third of the total, in fact. And some of those breaks, like the $70 billion AMT patch, were not effective stimulus under any definition of the term. But they were there to get votes, and to show Obama was being bipartisan in his construction (though in Jon Alter's book "The Promise," Obama says that giving these breaks up-front rather than negotiating with the Republicans for them was a massive mistake). The problem is that they made the stimulus less effective than it could've been, and that made it easier for Republicans to attack down the road.
All of this is background to the fact that the Senate and the House are currently trying, and failing, to pass Medicaid aid to the states. So far as stimulus goes, nothing makes more sense than Medicaid funding for the states (Tyler Cowen even suggests federalizing the program, and I couldn't agree with him more). That Medicaid money would be spent, and quick, as it's replacing money that is already needed. It would also be buying something of value, at least if you believe that health care for poorer people makes sense. So on both the saved/spent spectrum and the waste/not-waste spectrum, it's good policy. Much better, in fact, than policy Congress has already passed.
But, as you know, the serious and responsible thing to do is tighten our belt...
Intrigued? Go, read.
Speaking of taxes, the number-crunching, research-master intern Dylan Matthews, over at Ezra Klein answers the question Do millionaires flee high-tax states?:
[I]t would be going too far to say that state tax rates have no effect on cross-state migration. However, you have to balance that against evidence that the revenue generated by state tax increases on high earners overwhelms that lost from taxpayers' leaving.
Presumably, there's a point at which tax increases would push people away faster than the increase in revenue could bear; nevertheless, I think it's fair to say that, if these number hold, republican governors who wring their hands because they're afraid of pissing off the rich.
I might point out that the rich generally lead lives with a great deal less friction than, say, the poor. That is, it's easier for someone with money to move in order to avoid x than it is for someone without money. So, if those who can move don't, then those face a great deal more friction, when faced with an increase in taxes or cuts in services, how can they possibly hope to do something about it?
There's the often-tacit assumption, implicit in many right-wing arguments, that people live frictionless lives--that, if the poor live in an area without access to a certain service, they can simply move to an area that does. Clearly, if this doesn't apply to those who live lives with much less friction, then there's definitely going to be something amiss with arguments about how the people who live in food ghettos should just go somewhere else.
Intrigued? Go, read.
In other news, David Brooks is wrong. Again. Here's Brooks in his column at The New York Times, making some noise:
In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.
Ezra Klein responds:
Small businesspeople might be unnerved by deficits, but they're also unnerved by GDP contraction. A small coffee shop might not like government spending in the abstract, but they really don't like closing because there are no more construction workers around to buy coffee, and so they may quite like the effect of deficit-financed tax credits for home buyers. Consumers might not like the idea of deficits, but nor do they like hearing that their kid is in a class that's twice as large this year, or that the construction on the road they take to work is going to simply stop for a while while the local government waits out the recession.
The question, in other words, is not whether anyone likes deficits. it's whether they like what would happen in the absence of countercyclical deficit spending even less.
I, too, am skeptical of Brooks's claim, both for the reason Klein laid out, but for another reason as well. How does Brooks purport to know that "deficit spending doesn't make consumers feel more confidant"? How does he know that "Deficit spending doen't induce small businesspeople to hire and expand"? Brooks makes these claims and doesn't bother to provide anything close to empirical evidence for them.
Indeed, the rest of the column was spent pointing out that "there’s a general acknowledgment that we know relatively little about the relationship between fiscal policy and job creation." Granting that, Brooks seems to think, means that we should focus on the psychology of how people react to deficit spending.
It seems to me that much of economics is spent trying to detail the relationship between fiscal policy and job creation. I know of very few disciplines concerned with the way small business owners feel about deficits. Brooks, in his attempt to move past the epistemological difficulties with economics has stumbled into the even murkier swamp of psychology--and he doesn't even bother to present evidence (though, any evidence put forward would be tenuous at best) for his claims.
Granting the myriad problems with evidence, allow me to give you a tidbit from Bloomberg (via Ezra Klien, of course): Consumer confidence just hit a two-year high. It's true, of course, that Brooks could be right, and consumer confidence could be sagging as a result of the deficit. That would mean that there's some other cause for the heightened consumer confidence. The causal relationships between economic factors are complicated, and I'm trying to claim that the Bloomberg report is some kind of take-down argument against Brooks.
That said, it's weak evidence against Brooks's claim--which is, by Brooks's own lights, unsupported.
Intruiged? Go, read.
Lastly, it seems that things are looking good--for some people anyway. First off, Ezra Klein shows that the super-rich are recovering nicely. No one else is though; inequality is back to record highs.
And, I'd be remiss if I didn't point out the silver lining from the oil spill (from Ezra Klein:
Annie Lowrey notes a J.P. Morgan Chase analysis suggesting the BP spill will actually raise the country's GDP, at least in the short term. "Cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said," summarizes Luca Di Leo. "The bank cites estimates of 4,000 unemployed people hired for the cleanup efforts, which some reports have said could be worth between $3 and $6 billion."
This is a nice object lesson in the inadequacy of GDP as a measurement of societal well-being. I could blow up the biggest building in every city in the country and the resulting reconstruction effort could mean a big temporary increase in GDP. But blowing up buildings is not a sustainable way to grow your economy. GDP, of course, has its uses, and as Bruce Bartlett points out, it provides a rich source of historical data and we wouldn't want to abandon it completely. But there's no reason we couldn't also use more comprehensive measures, and this Urban Institute report (pdf) gives a nice overview of what they would look like.
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