Here is his pathetic defense of the size of stimulus, while an attack on the stimulus itself. Reminds me of those who supported the invasion of Iraq, but it was just the Bush goons who messed it up... As we know, in late 2008, Marty advocated a stimulus of $800 billion, or $400 billion over two years, saying that any more was unneeded. Many liberals noted that states and local governments would be cutting $200 billion or more each year, so that the net stimulus would be roughly only $200 billion a year, vs. an output gap of nearly $2 trillion. Hence, even though $800 billion sounds like a big number, it was patently obvious, even when Marty was writing before, that it wasn't enough.
Now it's even clearer, so what does Marty say? The package was the right size, but Congress just blew it on the wrong things -- things which only made things worse by making the deficit larger.
For example, says Marty, instead of those instant stimulus checks (of which roughly 40% got spent and much of the rest went to pay down credit card debt), he advocated permanently lower taxes. Of course, permanently lower taxes means a permanently higher deficit. And then there's the timing issue -- the Dow was crazily bottom feeding when those initial stimulus checks went out. Although I think that too much of the stimulus was tax cuts (40%), cutting some big checks immediately was probably smart, given that infrastructure spending isn't likely to start immediately. And consumer spending in Q2, 2009 was much better than consumer spending in Q1, 2009, so I'd like to see clear evidence that none of the checks got spent.
Marty writes that "with too much emphasis on redistributing income and preserving public-sector jobs and not enough on raising economic activity."
What? Aid to states was $79 billion out of a $775 billion stimulus! Just 10%. But, since aid to states was so small, some 40 states ended up cutting their budgets and many laid off workers, in addition to raising taxes. Several states were paying workers with IOUs, and public worker furloughs became the norm all across the US.
Think about California, which found itself with a $40 billion budget hole for the current fiscal year. It cut spending by $15 billion, raised taxes by $14 billion, used $5 billion in stimulus money, and issued $5 billion more in debt.
What Marty is arguing is that we should have spent that $5 billion in stimulus money on the army, and instead had california cut an extra $2 billion in spending, raise taxes by $2 billion, and issued $1 billion more of high interest debt.
OK, we might have been ever so slightly better off, but the difference really pales in comparison to what would have happened had California got a full $40 billion. Then, no budget cuts, and no tax increases. And GDP in this past year would have been about $60 billion bigger than it was -- that's 2-3% higher GDP for California...
As if his article couldn't get any worse, he ends it with a big scare story about the national debt, predicting that deficits will "absorb virtually all of the nation's household and business saving." How much do you want to bet that that won't happen?
The problem with the stimulus was the size. The problem was that Obama listened to Larry Summers, who doesn't know what he's talking about, and so Summers listened to his thesis adviser, who also doesn't know what he's talking about.
I'm going to go out on a limb and say that Harvard Economics Professors lack the inate ability to do economic policy. Before anyone gets mad and accuses me of prejudice, let me remind you that I'm not saying anything about how smart they are on average, I'm just saying that the tail properties of the distribution is such that none actually know WTF they are talking about...
They were both horribly wrong. Millions of Americans are out of a job because of it.
In Defense of the Conventional Wisdom
35 minutes ago