What Mark’s Stimulus Primer Glosses Over

Mark’s primer is basically right but a more advanced treatment would acknowledge that the three dimensions interact. The microeconomic allocation effects can easily affect future macroeconomic variables. Macroeconomic variables easily affect both allocation incentives (for example the investment decision based on capacity utilization) and distribution.

Mark’s primer is right as far as it goes.

But there is the wrinkle that today’s “microeconomic” effects on the allocation of economic activity can affect macroeconomic performance in future years. This is true beyond growth theory’s split between spending on capital stock vs. consumption. Thus if weatherization and investment in alternative energy reduces oil and coal consumption required for a given level of GDP, that can increase the (full-employment) potential GDP of the economy by reducing the tendency of a boom to cause oil price spikes that choke of aggregate demand, and require higher carbon rights costs (or tax) in order to moderate global warming. If we invest in health care technologies that control costs and otherwise accelerate the transition to a universal health care scheme that takes the burden off employers, we may increase our industrial competitiveness and thus potential GDP. In essence, the microeconomics of how the money is spent can effect the multi-year multiplier of the initial stimulus.

Similarly, macroeconomic variables easily affect both microeconomic incentives (for example the investment decision based on capacity utilization) and distribution (full employment always helps those otherwise discriminated against).

So the primer is useful, but an advanced text would allow for more complex interactions than the tri-partite schema would suggest.