In my ongoing effort to convey the insights of genuine economics experts, rather than pretend I'm such an expert myself, economist and blogger Brad DeLong has what seems like a smart take on the stimulus debate.
Like Paul Krugman and others, he is skeptical that proposal under discussion is sufficiently large. But he also cautions that crafting a larger package isn't as easy as it sounds:
I agree with Paul that this fiscal boost plan is too small, but I do want to admit that doing this well is harder than it looks. The tax-cut part does not look terribly effective as a stimulus--it is a step toward compensating for higher income inequality and a political play to make it more likely that Republicans will lose politically by trying to block the package rather than a significant boost to employment. Thus I do not think you would want to make the tax-cut part larger. And it is hard to find a lot of additional spending projects that can be ramped up quickly and do a lot of good--relatively soon in that endeavor the short-term fiscal multiplier falls below one. They are trying their best.
Nevertheless, I agree that there best is almost surely not enough. I also believe that conventional monetary policy is tapped out, and unconventional monetary policy is of doubtful efficacy. So I am in favor of doing something else on the banking/finance side. My favorite idea right now is that of nationalizing Fannie Mae and Freddie Mac completely and unleashing them to buy up every single mortgage in the country at market rates. Their ability to borrow at the Treasury rate means that they should be able to make money by doing this. When they own mortgages they can renegotiate and refinance them all with the public interest in mind. And as they squeeze banks out of the mortgage business the fact that banks are looking for yield should push other financial asset prices up--and make it possible for those businesses that should be expanding to get financing right now on terms that make expansion profitable.
So at the moment my preliminary judgment of the Obama fiscal boost is that it is a good first bid, but that the administration ought to be doing a lot more.
I report, you decide.
P.S. Be sure to check out the analysis from my colleague Noam Scheiber, who actually does know a thing or two about economics.
--Jonathan Cohn