A great question from Russ Roberts:Here are three $750 billion stimulus plans. All three are financed by borrowing:
- Give every American a "tax rebate" of $2500.
- Hire 10,000,000 Americans and pay them $75,000 to dig a ditch for six months and spend the next six months filling it back in.
- Hire 10,000,000 Americans and pay them $75,000 to build bridges and sewers and landscape parks and highways for a year.
Do any of these stimulate the economy? If yes, is there a difference between which does a better job at stimulating the economy? You may continue your answer on the back of the page.
Extra credit: Combine 1 and 3. Give every American $1250 and hire 5,000,000 Americans to build bridges etc. Same effects? Different? Why?
Which one would you pick and why?
(HT Nathan Snow)
3 comments:
Wow, $10,000 for my family of four. I could pay off my car loan and free up $400/mo in cash flow.
Oops, that would not be stimulative according to conventional wisdom.
First, the stimulus plan being discussed is not for just 1 year, nor would the jobs created necessarily last for just 1 year.
Second, there are long lasting economic benefits, beyond the immediate job creation, to infrastructure improvements, such as building bridges, highways, etc.
For instance, no one would dispute the economic benefits of Eisenhower building the interstate highway system in the 1950's.
Add in the fact that much of our infrastructure is in a decayed state and is in bad need of repair. We see the economic costs when bridges collapse, levies don't hold, etc.
Third, the stimulus plan being discussed involves much more than roads, bridges, etc...it also involves bringing broadband to far more citizens, making much needed improvements to our schools, investments in energy efficiency and innovation, a digital electricity grid, etc. Again, all of these have long lasting economic benefits.
The current economic problem is so deep that it most likely requires a multi-faceted approach, hence the desire to include many types of tax cuts along with increased spending.
my answer, c/p from ch
1,2,3: stimulus FAIL.
(see: unseen, a la bastiat)
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