Tuesday, January 15, 2008
- cost-effectiveness, in terms of what it does to demand relative to what it does to the budget deficit if no other changes are made;
- effectiveness lag, the time that elapses between the time you enact a stimulus and when it takes effect on the economy; and
- effectiveness uncertainty, meaning how sure are you that it will stimulate?
If what matters most is the quickness of the stimulus -- you need it now, right now! -- you would argue either for a tax cut that begins now in 2008 or for extending unemployment insurance or food stamps. But the share of people unemployed more than 26 weeks isn't any higher than it was two years ago. Not sure how that helps.
Everything else in the proposals out there has a variety of issues as well, as the report points out. So the one thing nobody is arguing for -- tax cuts today, on top of the Bush cuts -- appears to be the one that gets a relatively certain effect quickly. But that is probably too expensive for most legislators to bear. No wonder most people are looking instead for monetary policy to help instead.
Menzie Chinn takes a different look at some fiscal proposals, and argues as well that any permanent tax cut is probably not fiscally sustainable. Brad DeLong wants tax refunds, but he admits they aren't well targeted, so their effectiveness uncertainty is large.