If We Build Three Really Large Pyramids…
This is the thinking of many when it comes to the stimulus spending. What we spend it one doesn’t really matter so long as we spend the money. Consider this argument for the stimulus spending from Prof. Brad DeLong. Implicit in Prof. DeLong’s argument is that it doesn’t really matter what the money is spent on just so long as it is spent.
Now we are attempting to do the same thing once again—but this time with the government as the leading spender. A boost to spending by the government should have the same effects as the boosts to spending by luxury consumers and the defense department and homebuilders in the early 1980s, as the boost to spending by the high-tech sector in the late 1990s, and as the boost to spending by homebuilders in the mid-2000s. The government’s money, after all, is as good as—is the same as—anybody else’s.
So, we should take the stimulus money and build three really large pyramids out in the middle of nowhere that will get the economy going again. “Jump start it” as the President says.
I suppose you could argue that we should target the spending, but then we start to run into the problem of timing. If targeting takes time, then what will happen is that in 6 months, 12 months, 18 months, etc. spending on various programs takes place. To the extent that spending takes place after the recession is over that spending is no longer stimulus spending to address the recession and probably shouldn’t take place given our fiscal outlook with regards to Social Security, Medicare, and deficits for the next several years as tax revenues initially fall and rise due to the recession.
Yes, in a theoretical world we could target spending by the government to not only help lessen the severity of the recession but also provide a boost to long term productivity. However, in that same theoretical world we also have an economy where the market produces an outcome where the only way to make one person better off is to make another worse off. In other words, we don’t live in a theoretical world.