Martin Feldstein has excellent credentials as a Harvard economist, and he is calling the current “stimulus” bill “an $800 billion mistake.”
Feldstein says even the tax cuts in the legislation are poorly designed. His alternative:
Instead, the tax changes should focus on providing incentives to households and businesses to increase current spending. Why not a temporary refundable tax credit to households that purchase cars or other major consumer durables, analogous to the investment tax credit for businesses? Or a temporary tax credit for home improvements? In that way, the same total tax reduction could produce much more spending and employment.
Postponing the scheduled increase in the tax on dividends and capital gains would raise share prices, leading to increased consumer spending and, by lowering the cost of capital, more business investment.
He also is unimpressed with the spending side of the bill, which includes an extraordinarily long and expensive list of projects, programs and bail-outs that just lay there, doing nothing for years, or doing nothing ever.
If rapid spending on things that need to be done is a criterion of choice, the plan should include higher defense outlays, including replacing and repairing supplies and equipment, needed after five years of fighting. The military can increase its level of procurement very rapidly. Yet the proposed spending plan includes less than $5 billion for defense, only about one-half of 1 percent of the total package. …
All new spending and tax changes should have explicit time limits that prevent ever-increasing additions to the national debt. Similarly, spending programs should not create political dynamics that will make them hard to end.
The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit. It is worth taking the time to get it right.
Feldstein isn’t alone. The University of Chicago’s Gary Becker, John Cochrane and Kevin Murphy, New York University’s Thomas Sargent, Harvard’s Greg Mankiw, George Mason University’s Don Boudreaux are especially skeptical of the spending plans.
Weirdly, most of the news coverage on this monster of a debt package is focusing on whether Congress is passing it in a bipartisan manner, rather than in an economically effective manner.
The question isn’t whether the bill serves bipartisanship. The question is, considering how we’re borrowing $800 billion for it, will the bill work?
Frank Warner
* * *
See also: ‘Stimulus’ bill: Some economists ignore all data.
See also: The ‘stimulus’ bill looks like a bad last bet.
See also: Larry Summers rules: Stimulus must be ‘timely, targeted, temporary.’
Comments