Edward Glaeser and the Stimulus

Edward Glaeser wrote an interesting and a little scary column titled, "Who should get the federal stimulus funds," for boston.com.  There is both acknowledgement of the failure of traditional tools to stabilize the economy, and resignation to a fiscal stimulus despite manifest problems in implementation when he writes,

Until last year, the economic consensus was that monetary policy could smooth the business cycle with greater speed and less waste than countercyclical taxes or spending. Fiscal policy has made a comeback, not because its flaws have disappeared, but because the alternatives don't seem to be working.

To emphasize that monetary policy is, perhaps was, generally considered more effective than fiscal policy, consider two quotes.  The first is from the abstract in Christina Romer's NBER Working Paper  3829, titled, "What Ended The Great Depression?  it reads,

A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. The finding that monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.

Similarly, Brad DeLong writes in the Journal of Economic Perspectives, "The Triumph of Monetarism?"

Under normal circumstances, monetary policy is a more potent and useful tool for stabilization than is fiscal policy...Any sound approach to stabilization must recognize the limits of stabilization policy, including the long lags and low multipliers associated with fiscal policy...

If these are not normal circumstances, and the economy is not self-correcting, or government can speed self-correction through sound policy, what should a fiscal stimulus look like?  Glaeser provides some insights

The country needs to invest steadily and wisely on infrastructure, not rush hundreds of billions of dollars out the door. Really expensive projects, like the Big Dig, can take many years to plan, permit, and build...The country should take infrastructure investment seriously, but infrastructure spending is unlikely to be sound stimulus...

The best way to make sure that a vast stimulus package doesn't turn into a federal boondoggle bonanza is for that money to go directly to private citizens and local governments. Reducing payroll taxes for middle- and lower-income people harkens back to the Jacksonian idea of small-government egalitarianism. Shoring up the balance sheets of state and local governments would help ensure that those governments don't make the downturn worse by cutting spending during a recession.

According to Glaeser, even if the tax cut portion of the stimulus does not ease the recession, it might ease its burden on the poor, and, I might add, increase the progressiveness of the tax code, a policy Mr. Obama endorsed in the campaign. 

For other economists, their doubt about the wisdom of a fiscal stimulus still outweighs their desire to act, particularly in support a policy based on weak empirical evidence.  Perhaps there is little that we can do collectively through the government.