I was going to let this one pass, but the newspaper that told us the economy was just fine back in September felt the need to spew nonsense into the debate on stimulus. The basic story on stimulus is simple -- you want to spend money. Someone better say that slowly for the Post's editors because they can't seem to understand the concept. The Post is unhappy because the bill gives $4 billion for equipping and paying police. The Post tells us that this spending "might be a good idea, but writing checks to individual households for the same amount would do more to stimulate the economy." it then adds, "ditto for $16 billion in Pell Grants for college students, $2.1 billion for Head Start and $50 million for the National Endowment for the Arts." Is that so? Does the Post have any evidence to support this assertion? The standard estimates of multipliers on government spending (even spending that the Post doesn't like) is 1.5. Multipliers for tax cuts usually start at 0.9 and go down, depending on the type of tax cut being considered. Perhaps the Post got its assessments of multipliers from Donald Luskin, the author of its column saying that the economy was just fine. The Post then complains that: "for sheer irrationality, it would be hard to top the $4.19 billion the bill would give to the Neighborhood Stabilization Program, on top of $4 billion authorized last year. This program gives local governments money to buy and rehabilitate homes that have been foreclosed on -- thus giving lenders an incentive to foreclose on more houses." Okay, get out the arithmetic here. We are going to give cities $4.19 billion to buy foreclosed homes. How will this give banks incentives to foreclose? Well, this money could raise the price of foreclosed homes. How much impact can $4.19 billion have ? The total value of residential housing in the United States is around $20 trillion. Try to find the impact of $4.19 billion, an amount equal to 0.02 percent of the housing stock. If the Post is worried about driving driving up the price of foreclosed homes, the Fed's efforts to cut mortgage interest rates would almost certainly be far more important.
--Dean Baker
