I quite liked this article:-
We’re starting to hear more talk about “stimulus.” I put “stimulus” in quotes, following my usual practice of placing a latex barrier around other people’s ideas, so nobody gets infected. Just the word, “stimulus,” carries certain assumptions and expectations which are often flawed from the beginning. It implies that the economy is sort of lagging around due to its own difficulties, and that the government is an independent savior, an economic paramedic or something like that. Smells like more metaphor economics. Very often, the problems are caused by the government itself, through taxes, regulation or mismanagement of the currency. Also, it tends to lead to certain short-term “solutions” that rarely achieve anything at all except to distract policymaker’s attention during the time that it takes to devise a plan, pass it through the legislative process, implement it, and wait and see what the results are. There’s 12 or 18 months right there, during which the government could have been thinking about real solutions, but instead is distracted by “stimulus.” Then, when the “stimulus” is deemed to have been somewhat ineffective, what comes next? Usually, more “stimulus.” In this way, months stretch into years, and perhaps years into decades. The Japanese government has been so fascinated by “stimulus” over the years that they still haven’t figured out that they helped blow up the property sector themselves with huge tax increases in the early 1990s. Maybe they should do something about that hmmmm? (I have some hope for the new prime minister, Taro Aso, because Aso is indeed the one and only upper-rank Japanese politician I know of that correctly identified the huge tax hikes as a major contributor to the collapse of the property market in Japan — the short-term capital gains tax rate on property went to 90% for several years, if I recall — and recommended returning to the successful property tax system of the 1980s.)
I was just watching an interview with Paul Krugman (unfortunately no link) where he said that yes, the government needs to spend some money quickly on “stimulus.” However, he cautioned against any sort of long-term, complicated plan — like investment in rail infrastructure perhaps? — that would take a long time to work out the details and implement. We need the “stimulus” right now! Also, the stimulators typically want things that are sort of self-contained. If all you’re looking for is a pop in the next quarter’s GDP, you don’t want to get involved in a multi-year investment project. This is all a recipe for something that accomplishes absolutely zero. It’s a movie I’ve seen before. Over time, they may even conclude that it makes the most sense to just mail out some checks in the mail, again, which would have roughly the same effect as the last round of checks in the mail. (I didn’t notice anything. Did you?) After a few years, we might discover that all those repeated “stimulus” efforts added up to jack squat, and another half-trillion to a trillion in extra debt (could be more at this rate), when we could have had a nice rail system instead.
Check out the full article.