Cal Berkeley Democrats

Allow Me to Retort

"What does Marsellus Wallace look like?"

I seem to have incurred the wrath of Robbie for a piece I wrote last night.

Specifically, I said the following:

Yes, unemployment is rising, but that doesn’t mean the stimulus is a failure. It wasn’t designed to stop job loss altogether. Rather, it was designed as a backstop. Don’t ask what unemployment is now, ask what it would have been without the stimulus (FYI, most economists estimate it’s boosted GDP ~3%)

To which Robbie responded:

I’m sorry, but I’m pretty sure that’s a completely hollow argument. In an ideal world, why would we not want to stop job losses as much as possible? Why would not want to fill the output gap completely?…What is the virtue of doing much less than we are capable of doing to fix the economy?

I’d like to defend myself with three points:

• First, I’d like to see the output gap closed as much as anyone else. However, taking action does have costs. While the deficit should be put in perspective, it is a legitimate economic concern.

• Second, perceptions of the deficit matter. If the stimulus incurred too much sticker shock, it would have undercut investor and consumer confidence.

Granted, I think the stimulus should have been bigger, to the tune of $900 billion. It also should have allocated more money to states, but that’s another story. Still, a $1.2 trillion bill would have worried investors / consumers and furthered the Great Panic.

• Even if the stimulus was substantially bigger, doling it out would’ve been a bottleneck. Orszag alluded to this  in the New Yorker article, and we’re seeing a small bit of it even now. There’s no use spending a ton of money if half of it will be disbursed too late.

Don’t get me wrong, I love and always have loved the stimulus. But, like most things, it’s only good in degrees.