Economics Topics

The drumbeat for another economic stimulus package continues to get louder. An editorial in today's New York Times (No End in Sight) describes the conventional wisdom on what the package should do:

The next package has to focus ...

One of the big questions of the policy season is surely “Did the $100 billion of tax rebates distributed to households in May, June, and July actually work?” “Work” in this case means “stimulate consumer spending.” You may want to sit down before I tell you this, but ...

The Post ran a lengthy piece in the Sunday Outlook section about the plight of the Wall Street investment banks and the millionaires and billionaires who run them. According to the article, without the sleaze practices of the last decade, they just can't make any money.

It's touching to see ...

Matthew D. Shapiro and Joel Slemrod of the University of Michigan wrote the pre-eminent paper on the government’s 2001 stimulus payment. They have examined the preliminary data from the Bureau of Economic Analysis, and come to the conclusion that most of the 2008 stimulus payments went into savings. In ...

Here are a few reactions to Martin Feldstein's recent WSJ commentary on the effectiveness of the stimulus package. He says it wasn't cost effective because only around 10%-20% of it was spent on goods and services, and he uses this as evidence against Obama's proposed $1,000 tax rebate:

For the ...

Efforts to shore up liquidity in the wake of the subprime collapse are better suited to help the economy than those aimed at boosting consumer confidence and demand, two economists concluded in a National Bureau of Economic Research paper.

“For the subprime mortgage crisis, our analysis ...

Martin Feldstein, a proponent of the recent fiscal stimulus, said it didn't work.

Here are the facts. Tax rebates of $78 billion arrived in the second quarter of the year. The government's recent GDP figures show that the level of consumer outlays only rose by an extra $12 billion, or 15% ...

What do you think about this proposal?:

A Modest Proposal: Eco-Friendly Stimulus, by Alan S. Blinder, Economic View, NY Times: Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here’s my humble suggestion: “Cash for Clunkers,” the best stimulus ...

Some harsh words on the economic stimulus checks, from a Wall Street Journal op-ed written by Ernest S. Christian and Gary A. Robbins, both former Treasury Department officials:

Washington can be counted on to create a crisis—usually by sheer incompetence. Then it rushes to the rescue, often doing more harm ...

The combination of eye-popping headline inflation of 5% year over year and dramatic expansions of the Federal Reserve's lending activities to limit the credit crunch raise a key ...

Congress is looking to put together a second economic stimulus package (see below). This one may include funding for national infrastructure including roads, bridges and schools.

An often-heard criticism of this approach is that spending on infrastructure can come too slowly to have an impact.

One counter example ...

Paul Krugman says if Barack Obama wins the election, one of his first priorities should be to push through a stimulus plan that is "bigger, better, and more sustained than the one Congress passed earlier this year":

L-ish Economic Prospects, by Paul Krugman, Commentary, NY Times: Home prices are in ...

Difference of opinion on a second stimulus: Obama has suggested additional infrastructure investments (in roads, bridges, etc) could make rebuild our aging structures while providing stimulus. McCain disagrees.

I agree with Zandi below that combining stimulus with infrastructure can meet both long-term challenges while stimulating the economy in the short run.

Some Democrats in Congress are pushing for a second economic stimulus package as the labor market sags and fuel prices surge, suggesting weak growth into next year. But they’re not going to get support from Ben Bernanke.

Even before this morning's bad employment numbers came out (see previous posting), talk had already started in Washington about yet another stimulus package. According to the Wall Street Journal:

Already, Lawrence Summers, the former Clinton Treasury Secretary, and ...

The reality of the subprime situation, augmented by the energy crisis, at least suggests that we’d better get ready for another round of rebates. There is little talk of it now, but we should be putting ...

Robert Shiller says the stimulus checks don't provide enough insurance against the possibility of a recession, and much more is needed:

One Rebate Isn’t Enough, by Robert Shiller, Economic View, NY Times: Tax rebates ... will eventually put more than $100 billion into the hands of consumers. The hope is ...

When the Democratic Congress and President Bush both started talking up the idea of sending "stimulus checks" to most Americans, they deliberately ignored the administrative nightmare they would inflict on the Internal Revenue Service.

The IRS does not fill out our tax returns, and thankfully, it is not charged with keeping ...

Levy Institute Strategic Analyses have always stressed the relevance of the linkages between conditions in financial markets and the real economy. In our last Strategic Analysis (Godley et al. 2007), we reported a simulation showing a high probability for a recession and an increase in unemployment in 2008, conditional ...

You may have to wait until May to see your economic stimulus check, but some retailers already have their sights set on how you will spend it.

Both Kroger Co., one of the country's largest grocers, and department ...

Pete Davis at Capital Gains and Games:

Housing Stimulus Bill to Pass the Senate Next Tuesday With Hardly Any Help for Homeowners, by Pete Davis: Yesterday afternoon, the Senate cleared the way to pass a $14.9 b. housing stimulus bill ... that won't stimulate housing much. They did that by ...

The Treasury Department, following a report showing a decline of 80,000 in nonfarm payrolls in March and a jump in the unemployment rate to 5.1%, said the recently enacted economic-stimulus bill could create up to 600,000 jobs by the end of the fourth quarter, with gains ...

Despite the bipartisan support for the rebate, few economists have supported the idea. They note that we have tried rebates in the past — most recently in ...

Bruce Bartlett says we should cancel the rebate checks and use the money in other ways:

Stop Those Checks, by Bruce Bartlett, Commentary, NY Times: With unusual speed and cooperation last month, George W. Bush and Democrats in Congress agreed to a tax rebate set ...

President Bush, his staff and many lawmakers are counting on rebate checks to boost the ailing economy. For that to happen, they also need to hope higher oil prices don’t wipe out the effect of their $168 billion stimulus package.

The rebate checks to 130 million individuals — ...

Recent calls for fiscal stimulus in the United States have been based in part on papers that claim that targeted fiscal stimulus can boost economic activity more rapidly than monetary policy with less impact on inflation. In this brief, I evaluate that claim in the context of several well-known ...

Hillary and Barack, listen up!

In this video from August 13, 1962, when the highest marginal individual income tax rate was 91% and the highest marginal corporate tax was 52%, President John F. Kennedy announced his ...

Kiplinger.com has an online calculator to determine the amount of the stimulus tax rebates being sent out this spring:

http://www.kiplinger.com/tools/rebate/index
.php

Tax Foundation commentary on the stimulus package is here.

The Federal Reserve Bank of Philadelphia released its latest survey of professional forecasters and panelists were divided on when the effects of a government fiscal stimulus package would be apparent and how large the effects would be.

Thirteen economists reported an effect beginning in the second ...

The Wall Street Journal's Mark Gongloff quotes Lehman economist Ethan Harris in this morning's "Ahead of the Tape" column:

In the rush to enact a timely package, politicians may have stopped a 2008 recession, but they have ignored a risky letdown -- after the election. [The U.S. faces ] another ...

What do Milton Friedman, Ronald Reagan, and the current US Congress have in common with Joseph ...

WASHINGTON, Feb 08, 2008 /PRNewswire-USNewswire via COMTEX/ -- The National Association of Realtors congratulated the U.S. Congress for quickly passing a national economic stimulus package and thanked President George W. Bush for his leadership and willingness to promptly enact legislation that will help thousands of families, the housing market, ...

Matthew Bandyk at US News interviewed me for a column he wrote on how the Stimulus Package will impact small business in our economy. I told him that I doubted the package would work and that a recession was probably going to happen either way. On the ...

With respect to fiscal policies, a discretionary fiscal loosening in EU countries should be avoided. There is ample evidence that activist fiscal policies were not effective in stabilising European economies but rather ...

At the last meeting of the FOMC, I voted against lowering the federal funds rate—the target rate we set for ...

Richard Fisher, president of the Federal Reserve Bank of Dallas, explains at a speech today in Mexico City why he dissented in the Fed’s vote last month to cut its interest-rate target half a point to 3% even though he supported the earlier wave of easing. Mr. ...

As you know, I'm not enthusiastic about a fiscal stimulus plan.� What we need is a stimulus plan that does not increasing the budget deficit or waste taxpayer funds but that does increase the incentive to produce output.� So what would I do?� Here's a new idea.

The IRS ...

Bill Gross's Feb 1 Investment Outlook is worth a look. Echoing Paul Krugman, Gross suggests that we now need some deep Keynesian stimulus, not the 'Stimulus Lite' fare being bandied about by the Bush Administration and the Congress. Implicitly, but without any real plan to make it happen, Gross ...

Here is his non-excerptable attempt, via Brad DeLong.� Still I am not convinced.� Using the Law of the Excluded Middle, yes you can get me to agree that the stimulus package is unlikely to do direct economic harm.� I still see the stimulus plan in terms of larger symbolic ...

Critics of fiscal stimulus come in two varieties. One type of critic discounts goal 4 entirely because they are ...

Have you noticed how the stimulus bill is shifting? Only in Washington can there be two definitions of what $150 billion means. The House and the White House wanted $150 billion stimulus in 2008 but ...

The plan, approved 385-35 after little debate, would send at least some rebate to anyone with at least $3,000 in income, with more going to families with children and less going to wealthier taxpayers.

This morning I was interviewed on Wall Street Journal Radio discussing the Bush stimulus package.� You can listen to the interview here.� This link is to a 35 min segment of the program.� My interview takes place about 5min 15sec into the program.

The fiscal stimulus train is speeding — especially by Washington standards — through Congress. And several big-name economists are cheering the politicians on. But not all of them. Greg Mankiw, the stimulus foe who chaired the White House Council of Economic Advisers early in President Bush’s term, ...

Still, pressure from the elderly and labor unions - both politically potent forces - is spurring senators from both parties to call for the extras. The House plan leaves out some 20 million seniors, according to the AARP ... Some senators also were pressing to ...

Roughly ten days ago, I discussed the differences in the policy debates concerning fiscal stimulus on both sides of the Atlantic in this blog, stating that there is an enormous intellectual gap between the European and US debates. While US economists are becoming increasingly comfortable with using discretionary fiscal ...

A roundup of economic news from around the Web.

Beyond Stimulus: In the Financial Times, Lawrence Summers says more is needed beyond fiscal stimulus to repair the economy. “Along with macro-economic stimulus in the U.S., there is the need for further policy development in three other areas — repair of ...

If every American saved the rebate and invested it in equities, we might be (ever so slightly) better off.� Government can borrow at a low interest rate for us.� Of course we're being told to spend the money.

Most fundamentally, more aggregate demand is not the answer because insufficient aggregate ...

The stimulus package seems near a done deal, and the critiques are abounding -- as they should be. Greg Mankiw says no fiscal stimulus package is necessary, given the current state of the economy. Andrew Samwick says implementing a stimulus package ill conceived given that excessive deficits are ...

In today's Washington Post, Steve Landsburg speaks much good sense about so-called "economic stimulus."� Here are the closing sentences:

Ultimately, the only solution to unemployment is for displaced workers to get retrained and find their way back into the workforce. The new stimulus package only delays that process by propping up ...

What is "savings"? I understanding taking the check over to Walmart.

Steven Landsburg on the stimulus package. My comments along the way:

Why the Stimulus Shouldn't Stimulate You, by Steven E. Landsburg, Commentary, Washington Post: As a general rule, economic policies command bipartisan support only when they're incoherent. Take, for example, the fiscal stimulus package ...

Steven Landsburg eviscerates the "stimulus" package. And in doing so, he issues this memorable line: "As a general rule, economic policies command bipartisan support only when they're incoherent."

You knew it was coming. It was only a matter of time before�one of the�biggest interest groups in the country weighed in on the fiscal stimulus agreement reached between the White House and the House leadership. The AARP is pressuring senators to expand the fiscal stimulus so that more ...

Dodd said he would like to see infrastructure spending in the package leaving the Senate and said Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) have also expressed an interest in ...

I'm getting pretty tired of Democrats caving in on important issues rather than standing up and fighting for their core principles:

Stimulus Gone Bad, by Paul Krugman, Commentary, NY Times: House Democrats and the White House have reached an agreement on an economic stimulus plan. Unfortunately, the ...

There are some good posts about whether or not to have the federal government play Keynes and stimulate the economy.� See, for instance, Greg Mankiw, Russ Roberts, and Don Boudreaux.

I'm not a macroeconomist, nor do I play one on TV.� And I don't think I could ...

As long as we're talking about the so-called "stimulus" package the Congress is considering today, we should also consider why what the government is considering may be ineffective at achieving its goals in fighting off a recession.

Fortunately, for us, Doc Palmer is on the case! Here's ...

In a classic case of too little, too late, the administration and Congress have reached a deal on a stimulus package.

by Philip Jenks and Stephen Eckett. At our online bookstore it's �13.99 + postage, nearly a third off the normal price.

The tactics, strategies and insights relied on by 150 of the world's most respected financial experts are revealed in this short, digestible book, which is a no-nonsense list of ...

Even if Congress meets its goal of finishing a stimulus bill before March, it is likely to take until June for the government to start sending out the millions of rebate checks that would be the plan's centerpiece. It would take a couple more ...

Calculated Risk has launched a competition to see just what the worst ideas being floated about are with respect ...

Although some House Democrats are taking about “paying for” any fiscal stimulus with offsetting spending cuts or tax increases in later years, the odds are that are fading to near zero. Not only is the Bush administration opposed to any bill that includes tax increases in subsequent years, but ...

The Senate Finance Committee held a hearing this morning on economic stimulus and the report on the topic that CBO issued last week at the request of the House and Senate Budget Committees.

The notes I used for my oral remarks at the hearing are posted below.

The Tax Foundation has estimated what the revenue impact of an income tax rebate of the 10% rate would be in 2008. Media reports suggest this may be one component of President Bush's plan to stimulate the economy. Taxpayers would receive a rebate check, likely based on their 2006 ...

As the decoupling thesis becomes more and more tenuous [1], and the rest of the world exhibits greater evidence of a slowdown [2], [3], [4], leading to predictions of a more persistent and deeper slump in the US than previously anticipated [5], I wonder -- ...

With all the talk about passing legislation that will cause a stimulus for the economy and put a cash infusion into the economy, including possible tax rebate checks (which are actually more like prebates), there is one point�that seems to have been�overlooked: this spring, billions of dollars of tax rebate ...

Over the past weeks, the economic environment has significantly clouded on both sides of the Atlantic. In the US, odds have risen substantially that the economy will slip into recession. At the same time, the European economy has also developed signs of weekness: Consumption seems to have flat in EMU ...

Those who read the Washington Post's measured editorial on stimulus one week ago, whose sub-head was "Fiscal stimulus may eventually be needed, but there are pitfalls," may be surprised to read today's editorial with the subhead "Everyone agrees the economy needs a government boost ..."

Wow, what a ...

So my overall conclusion runs something like this. Under normal circumstances, monetary policy is a far ...

Bruce Bartlett says temporary tax cuts may not have much of an impact on the economy:

Feel-Good Economics, by Bruce Bartlett, Commentary, WSJ: With remarkable speed, Congress, the White House, Republicans, Democrats and even the Federal Reserve have come to a consensus on the need for economic stimulus... It seems ...

I considered appending this to the last post as an update, but decided it was already long enough. This will be brief.

Tomorrow's NY Times has an article on the disagreement among economists about how best to implement fiscal stimulus. The usual arguments against it have been hashed ...

It did not take long for the stimulus/rebate discussion to take on a life of its own. Why it was just earlier this week that the presidential candidates were telling us how they would stimulate the economy. As if any of this would be timely or meaningful by ...

Elizabeth Holmes reports from Reno on the presidential race.

Republican presidential hopeful Mitt Romney is set to release an economic stimulus and tax-cut plan Saturday that would reduce taxes for both individuals and businesses.

Mr. Romney’s ...

President Bush's 2001 tax rebate eventually got mostly good reviews, even grudging praise from the Washington Post editorial board. And so it's unsurprising that the president would now propose that a new fiscal stimulus be administered the same way: by cutting the lowest income tax rate for the current year, ...

What does the literature say about the efficacy of incentives for investment?

Bloomberg News has some details of the kind of fiscal stimulus George Bush is looking for:

The administration is considering a plan that may include $800 rebates for individuals and $1,600 for households as well as tax breaks to encourage businesses to invest, people familiar with the package said.

This ...

President Bush has put forth a stimulus package designed to increase short-run consumption in the macroeconomy. Something is likely to happen given that the Democratic leadership in Congress appears to be on board with trying to stimulate the weakening economy.

But does it work? Under a pure rational expectations economic ...

Bush said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product ... around $145 billion ...

"Letting Americans keep more of their money should increase consumer spending," he ...

Everybody else seemed to hear Bernanke say he was in favor of fiscal stimulus as one approach to our economic problems. But I instead heard him articulate very intelligently the potential pitfalls of the strategy.

One of the big economic stories today is, of course, Ben Bernanke's support of fiscal policy measures. Most commentary I have seen has focused on Bernanke's remarks that fiscal policy should, among other things, be targeted and temporary, and has noted that this is an implicit argument against Republican ...

Bernanke is said to support stimulus (NYT): "If Mr. Bernanke opposed Congressional action on the ground that spending increases and tax cuts would increase the budget deficit, the Fed might restrain its own effort to stimulate the economy with lower interest rates. Mr. Bernanke wants to keep the ...

Here is my commentary from NPR's All Things Considered on why a stimulus package is unlikely to stimulate. The link will take you to my newly designed site where I am archiving all my essays and related material.

Federal Reserve Chairman Ben Bernanke walked a political tightrope on tax cuts in House Budget Committee testimony as he hopes to keep his nonpartisan cred. Democrats wanted to get him to say that the Bush tax cuts shouldn’t be made permanent as part of the stimulus, while ...

A number of analysts have raised the possibility that fiscal policy actions might usefully complement monetary policy in supporting economic growth over the next year or so. I agree that ...

Been busy with the day job - lot's to do thinking about economic stimulus. The link below contains a stimulus proposal, congressional testimony, blog posts from colleagues, etc. I will try to post some media appearances as time allows...

EPI Recession Watch | EPI

Strategy for an economic rebound Because the ...