Multiple Choice: Economics

The New York Times has an interesting multiple choice question regarding how to spend money to help stimulate the economy,

If you wanted to help the economy and you had $14 billion to bestow on any group of people, which group would you choose:

a) Teenagers and young adults, who have an 18 percent unemployment rate.

b) All the middle-age long-term jobless who, for various reasons, are not eligible for unemployment benefits.

c) The taxpayers of the future (by using the $14 billion to pay down the deficit).

d) The group that has survived the Great Recession probably better than any other, with stronger income growth, fewer job cuts and little loss of health insurance.

The New York Times notes that the Obama Administration has decided to go with option d. And this spending will follow a 5.8% cost of living increase from this past year. Now granted, Social Security recipients are scheduled to get no cost of living increase next year, because they received such a large one this year, but still is this the best way to spend $14 billion? Give it to people who are not productive and have already gotten a nice raise? Especially when we have options a and b out there?

I have to agree with Rosanne Altshuler, this is nothing more than “pure pandering to the elderly”. Change you can believe in.

FILED UNDER: Economics and Business, Government, Social Security, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Dave Schuler says:

    I was thinking about posting on Leonhardt’s comments but you beat me to the punch. Of course, I agree with the policy recommendations.

    However, I think there’s another way to look at it. It’s a sort of stealth Keynesian stimulus. We’re going to increase spending and borrow to do it. It fits the definition perfectly and it’s savvy politics.

    I’d prefer if it were means-tested to ensure that the multiplier effect is as large as possible but if you’re bound and determined to pump out more stimulus (I’m not), this is as good a way as any, harder to fight against, and will get you farther politically.

  2. Of course, the true cost isn’t $14B. That’s only the initial outlay. As deficit spending, who knows how much this will really cost before it is ever paid back.

    Anybody want to bet it won’t be paid back in my lifetime? Maybe some enterprising State’s Attorney would like to go after the US Congress for some variant of usury or loansharking. Their offenses here greatly exceed those of Citibank, Bank America, etc.

  3. Oh, and, um, please explain in item c how deficit spending can be used to pay down the debt.

  4. The choice was not between those four options. Politically the choice was between a one time buyoff and a legislative fix to increase the COLA. So, a one time increase or a permanent increase. In that sense, as distasteful as it is, the current plan is marginally less bad.

    I know that accepting political realities is a sign of being an anti-American, libtard, big-government stooge… but there it is.

  5. odograph says:

    I agree with Bernard that it is a phoney multiple choice, but I’m surprised at you Steve, throwing that “not productive” in there, or for that matter “[people] who have already gotten a nice raise.”

    From a stimulus standpoint we care what each group will do with the money, not so much who they are, how productive they are, or how nice their raises have been.

    To stimulate the economy they should spend … probably in small scale retail purchases. Will the seniors do that? I don’t know … data not given.

    (That Obama can get you worrying about $14B, out of a trillion or two probably does demonstrate a political victory on his part.)

  6. odograph says:

    BTW, I think the meta-question is why “another stimulus” or “a few more stimuli” have political power in the first place.

    Either Washington doesn’t buy recovery stories, or Washington doesn’t think voters have bought recovery stories.

    Somehow we have retreated from “green shoots.”

  7. mike says:

    a great boon to the slot machines industry in Vegas and Altantic City. Super large buffet here i come.

  8. steve says:

    Clearly a makeup for threatening to take away Medicare Advantage. I suppose it is conceivable we could get a POTUS who would challenge the AARP crowd in their second term, but Congress will never pass it.

    Steve

  9. Drew says:

    Let’s set aside for the moment that I’m not a fan of fiscal stimulus………

    Steve is correct, this is a simple pander to a reliable voting contingent.

    If I were King I’d direct money disproportionately to “b.” These are people who have proven to be viable in the workplace. They generally have families and homes. When back on their feet they will continue to be productive entities. I wouldn’t let them rot in the interim, and I suspect they would spend in the interim.

    Why subsidize the relatively unaffected? (d) Why subsidize the relatively unproductive? (a)

    Bernard gives us his usual: Well, nothing you can do about it. Its politics. So just sit back and relax while bad policy has you raped. Was it the “Eloi” in the Time Machine movie who had this philosophy? Chomp, chomp.

    odo – BTW, I think the meta-question is why “another stimulus” or “a few more stimuli” have political power in the first place.

    Absolutely correct. They know this is a head fake. We are headed for another splat. It didn’t work.

  10. Steve Verdon says:

    The choice was not between those four options. Politically the choice was between a one time buyoff and a legislative fix to increase the COLA. So, a one time increase or a permanent increase. In that sense, as distasteful as it is, the current plan is marginally less bad.

    What do yo mean Bernard, according to the article Social Security does have a mandatory COLA with a floor at zero.

    I agree with Bernard that it is a phoney multiple choice, but I’m surprised at you Steve, throwing that “not productive” in there, or for that matter “[people] who have already gotten a nice raise.”

    What? They aren’t contributing to the economy in a direct way, by that standard they are unproductive. And yes, they got a 5.8% COLA this year which is far higher than actual inflation, so its very much like a “raise”.

    From a stimulus standpoint we care what each group will do with the money, not so much who they are, how productive they are, or how nice their raises have been.

    Right, which is why we should have the government just give it to heroin junkies. Or distribute it via helicopter tossing it over the side. So long as the money is spent, who cares.

    Next up: Obama’s plan to build three large pyramids that do precisely nothing.

    To stimulate the economy they should spend … probably in small scale retail purchases. Will the seniors do that? I don’t know … data not given.

    Right and the people in group b wont spend the money? Nor the young adults in group a?

    (That Obama can get you worrying about $14B, out of a trillion or two probably does demonstrate a political victory on his part.)

    Amusingly when I did point out that the AIG bonuses were chump change compared to the waste, fraud and abuse we’d see with the stimulus, I was told I was being silly. Now, when I point to something specific and smaller, I’m again called silly. Would you people please make up your minds ffs.

  11. Steve, but the pyramids are shovel ready!

  12. Grouse about it all you want. Seniors are a huge voting bloc, and they want their loot. We live in a system where that matters. I’m not saying it is good, but it is what it is. And in this case, the debate was between a one time payment or an increase in the COLA for this year which would have had increased the the amount that would have been affected by next year’s COLA if there is one.

    Heck, if we could get a few years of lower COLAs with small sidepayments we could actually bring down the long-term costs of Social Security over a decade.

    But whatever… as I say, I know ideological purity is more valuable than political realism to some.

  13. sam says:

    I’m serious about this–If I get it, how do I give it back?

  14. Drew says:

    One wonders if Bernard was a lamb, and found himself in a closed pen with five hungry wolves debating the dinner options if he would casually observe, like a detached academic:

    “Grouse about it all you want. Wolves are a huge voting bloc, and they want their dinner. We live in a system where that matters. I’m not saying it is good, but it is what it is.”

  15. sam says:

    I object to be the wolf simile–my teeth are not nearly as strong as they used to be.

  16. odograph says:

    Steve, show me that seniors contributed to systemic risk to the same degree, and I’ll group them with AIG executives.

    “Splat” Drew? If so, our exit strategy becomes that much more complicated. And ugly. A second and wider home buyer’s credit looks like a desperate bid to reinflate the housing bubble. If that is really the lesser evil … we are in a bad spot.

  17. odograph says:

    In other news, Geitner wants to make TARP a permanent feature of the Fed toolbox?

  18. Steve Verdon says:

    Steve, show me that seniors contributed to systemic risk to the same degree, and I’ll group them with AIG executives.

    Social Security and Medicare are certianly contrinbuting to the long…well medium term fiscal imbalance like nothing else…well that is unless Obama gets the health care reform he wants.

    Not quite what you were asking for, but probably a far larger problem in the end.