Monday, January 21, 2008

Krugman On The Stimulus

For Bush's plan to stimulate the economy, the money has to be spent. So if you are going to take your check, and just throw it in the bank, you're not doing you're part to help Bush out. You need to take that check and spend it, all of it, as fast as you can. This gets money flowing through the economy, multipliers kick in and build up the effect, everyone's happy. If you want the money spent, you give it to those most likely to spend it right? People Paul Krugman might describe as liquidity-constrained.

But — you knew this was coming, didn’t you? — it seems that the Bush administration wants to restrict the plan to income tax rebates. This means excluding the people most likely to be liquidity-constrained — because people having a bad year probably won’t owe income taxes that year — and shying away from any aid to direct government spending.

The point is that the debate over exactly how the $145 billion or whatever gets allocated is not, as some might think, a second-order issue. It’s probably at the heart of whether this plan has any real effect.
I know, I was shocked too when I found out the Bush team hadn't thought this one through all the way, or perhaps they did, and their real goal isn't to stimulate the economy, but rather to give money away. After all, it's not like we're fighting a war or anything.

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