The top Keynesian economists are near unanimous in their belief that there must be a second stimulus. Folks like Paul Krugman and Brad Delong always felt that the first one wasn’t big enough, and the continued weak economy — most notably the bad employment picture — has them screaming for a second one. They want Obama to level with America and admit that the first one just wasn’t enough.
But there is one obvious problem: Even if we accepted that the government needed to go further into debt to get the economy moving, it’s not clear what you’d spend the money on.
Felix Salmon, for one, says he’s unconvinced by calls for a second stimulus, and he makes a very easy to understand point:
But the problem is that spending trillions of dollars is actually extremely difficult, and it’s even harder if you try to front-load it. Government, by its nature, moves slowly, and I get the impression that the “easy” spending — and then some — was all included in the initial stimulus bill. The “shovel-ready projects” have already been funded, and any extra stimulus might well take years to kick in.
See, you can’t say the problem with the first stimulus was that it’s too small, when it’s literally impossible to spend it quickly. And it follows that any newly-authorised money would also go unspent for quite a while.
But there is one way to get money to consumers fast: that’s tax cuts. You don’t need a spare shovel and a ditch laying around to get cash into the hands of a consumer via tax cuts. You just cut the payroll tax and voila. Done! Some might say that consumers will just save their money (possibly, maybe probably), but given how much of our problems revolve around bad debt and lack of savings, that could be very useful.
So how about it Krugman? We join with you in calls for a second stimulus, but you agree that for it to work now, it absolutely must be a tax cut. Nothing else could have that instant effect.
Paul, if you email us at jweisenthal -at – businessinsider -dot – com we can put out a joint statement.
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