Friday, January 23, 2009

A case against stimulus

by Kevin Murphy, who presents a nice equation to determine value of stimulus output, after accounting for inputs and deadweight loss.

Some of his views:
  • Government is inefficient, and the haste in implementing stimulus will make it less efficient
  • Attempting to make stimulus investment will also make government less efficient
  • Positive Keynesian multipliers assume that only "idle" resources are exploited, which is not the case in real life
  • With government borrowing, taxpayers will save instead of spend in order to pay future taxes
In sum, Murphy is not optimistic about the stimulus plan from Congress.

Thanks to David Henderson for the pointer, who also summarizes a point by John Cochran, that given that the problem is a lack of investment, having the government spend money that it borrows must crowd out some investment.

UPDATE: As long as we are on the topic of less efficient government, Megan continues her series on deadweight information technology.

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