Answer: All of it?
Don’t they have anyone on staff besides Paul Krugman who has taken Economics 1?
From the paper of record’s “News Analysis” piece on the stimulus, today, entitled “Components of Stimulus Vary in Speed and Efficiency:”
Then there is the risk that the projects themselves have little or no long-term economic value and simply drive up the budget deficit. Democrats bowed to Republican pressure on Tuesday and stripped from the bill a $200 million provision for National Mall restorations.
Let’s be clear — long term value is a nice two-fer, and important to increasing the potential of the economy after recovery, but it has NOTHING to do with stimulus per se. During a severe recession, a make-work stimulus can REDUCE the budget deficit if it gets the economy going.
All you want is to add to domestic final demand. If you get people to consume domestically produced goods, that is C (consumption). If the government spends directly, that is G. If somehow you convince business to imagine that there will be final demand for its products enough for it to invest in new capacity or innovation, and credit is available and cheap, that is I. The sum is final demand. If you’re generous and worried about the global economy and not just the US, then maybe you don’t worry about whether the money “leaks” to our trading partners.
Sod (and other repairs) on the Mall is G. It adds to final demand directly. Then all contractors and laborers who are paid spend money they wouldn’t otherwise, producing the “multiplier effect” (because the economy is well below full employment, the multiplier is greater than one — at full employment the Fed acts to slow the economy and the multiplier can be zero). So if the money is spent during the recession, it stimulates. Even if the sod only lasts a month.
Yes it’s much better if the sod is something of real value and obviates later expenditure or lowers the cost of some important other activity, and increases the full employment potential of the economy (like productive investment in infrastructure and human capital). But this is good policy for the long term, and separable from the question of what’s an effective short-term stimulus.
Was that so hard? Can’t Larry Summers have the President say this?
The author also addresses “automatic stabilizers” such as unemployment insurance and food stamps (and medicaid and the progressive tax system) but completely misses the point that because of how many of these programs are financed and the reality of the State government budget constraint, they are not at all as automatic as they should be (or as they used to be). Budget support to states and localities is probably the surest and fastest mechanism for saving jobs, and if it’s slow in getting there it’s for technical reasons that can be overcome.
Finally, thirty-five years ago it was common parlance among economists that there should be a list of government projects fully designed and ready to go (“shovel ready” in today’s terms) to aid in macroeconomic management. How fast you can spend money is not a physics constant, it’s a result of policy. The Bush administration has prepared for the current recession about as effectively as it dealt with Katrina.
Update A reader takes me to task for my rhetoric about only Krugman at the Times having taken Ec 1; in particular this reader likes the work of David Leonhardt. My point was if the Times has economics knowledge on staff, why isn’t this reflected in the analysis it publishes?
Update Another reader picked up my reference to a shelf of ready-to-go public investment projects and discusses a 1921 bill “To prepare for future cyclical periods of depression and unemployment by systems of public works.” I had been too lazy to look into the history of this idea.