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Brooks Wilson's Economics Blog: November 2010

Tuesday, November 30, 2010

A Candid Moment From Al Gore

Too often Americans assume that candidates for elected office run on policy platforms that they believe promote the public interest.  More common is the candidate who adopts a platform designed to garner the most votes within her regardless of the cost to the economy as a whole.  Subsidies of ethanol production and mandates for its use are examples of policies with few benefits and high costs.  In a candid moment, former Vice President and current environmental activist Al Gore acknowledges the policies’ deficiencies as his own reasons for supporting them (“Al Gore's Ethanol Epiphany”).

One of the reasons I made that mistake [of supporting ethanol subsidies] is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President.

Politicians will give the electorate what they want and special interest groups will have more knowledge of what they receive than the average taxpayer or consumers do of what they pay.  Politicians double down on these policies by concentrating a program’s benefits in their district while spreading the cost through the nation.  A good Congressman or Senator, one who brings home the bacon, will bring more federal funds into his district than extracted from the district through taxes.  The result will be unnecessary, inefficient programs that bloat the government budget. 

As a partial remedy, the income tax code could be calibrated so that the funds a district receives equals the taxes it pays.  Districts that receive more than they pay would be subject to higher tax rates than districts that receive less than they pay.  The tax rates should be calibrated so that the funds a district receives equals the taxes it pays.  It is not a perfect solution.  The beneficiaries of the tax benefits are still likely to be more aware of the benefits than the taxpayers in the districts but a Congressman or Senator will need to justify higher tax rates to voters due to programs favoring special interests to remain in office. 

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Wednesday, November 24, 2010

Cowen on Immigration

Tyler Cowen presents evidence that immigration has a net positive impact on the economy in “How Immigrants Create More Jobs.” 
Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore.

The study, “Immigration, Offshoring and American Jobs,” was written by two economics professors — Gianmarco I. P. Ottaviano of Bocconi University in Italy and Giovanni Peri of the University of California, Davis — along with Greg C. Wright, a Ph.D. candidate at Davis.

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.
Cowen also presents evidence that immigration does not cause unemployment. 
We’re all worried about unemployment, but the problem is usually rooted in macroeconomic conditions, not in immigration or offshoring. (According to a Pew study, the number of illegal immigrants from the Caribbean and Latin America fell 22 percent from 2007 to 2009; their departure has not had much effect on the weak United States job market.) Remember, too, that each immigrant consumes products sold here, therefore also helping to create jobs.

When it comes to immigration, positive-sum thinking is too often absent in public discourse these days. Debates on immigration and labor markets reflect some common human cognitive failings — namely, that we are quicker to vilify groups of different “others” than we are to blame impersonal forces.
These results fall into the mainstream of economic thought.  Immigrants, both legal and illegal, are resources.  They expand the production possibilities frontier, what we as a nation can produce.  With a little time for adjustment, markets utilize resources.   

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Tuesday, November 23, 2010

Law and Economics

I found the David Friedman quote in “The Pursuit of Justice: Law and Economics of Legal Institutions” and thought that it was worth passing on.

[Suppose you] live in a state where the most severe criminal punishment is life imprisonment.  Someone proposes that since armed robbery is a very serious crime, armed robbers should get a life sentence.  A constitutional lawyer asks whether that is consistent with the prohibition on cruel and unusual punishment.  A legal philosopher asks whether it is just.  An economist points out that if the punishment for armed robbery and for armed robbery plus murder are the same, the additional punishment for murder is zero—and asks whether you really want to make it in the interest of robbers to murder their victims (Friedman, “Law's Order: What Economics Has to Do with Law and Why It Matters”).

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Monday, November 22, 2010

An Open Letter to Ben Bernanke

The following letter was signed by economists, investors, and political strategists.  The Wall Street Journal (“Open Letter to Ben Bernanke”) notes that most of them have close ties to the Republican party.  It should be noted that Chairman Bernanke was appointed to the Board of Governors by a Republican.  Many of the economists who signed specialize in banking and monetary policy. 
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued.  We do not believe such a plan is necessary or advisable under current circumstances.  The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.”  In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
The Fed spokeswoman responded.
As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee’s recent actions reflect those mandates.  The Federal Reserve will regularly review its program in light of incoming information and is prepared to make adjustments as necessary.  The Federal Reserve is committed to both parts of its dual mandate and will take all measures to keep inflation low and stable as well as promote growth in employment.  In particular, the Fed has made all necessary preparations and is confident that it has the tools to unwind these policies at the appropriate time. The Chairman has also noted that the Federal Reserve does not believe it can solve the economy’s problems on its own.  That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector.
Greg Mankiw, who also has ties to Republicans, explains why he did not sign (“QE2”).
My view is that QE2 is a modestly good idea.  I say it is a "good idea" because, like Ben Bernanke, I am more worried at the moment about Japanese-style deflation and stagnation than I am about excessive inflation.  By lowering long-term real interest rates below where they otherwise would be, QE2 should help expand aggregate demand.  I include the modifier "modestly" because I don't expect these actions to have a very large effect.

Moreover, I do see some potential downsides.  In particular, the Fed is making its portfolio riskier.  By borrowing short and investing long, the Fed is in some ways becoming the hedge fund of last resort.  If future events require higher interest rates, the Fed will end up making losses on its portfolio.  And even if doesn't recognize these losses (by not marking to market), it could end up paying more interest on newly expanded reserves than it is earning on its newly acquired portfolio of long bonds.  Such a cash-flow deficit could potentially undermine the Fed's political independence (which is already not very popular in some circles).  Yet if the Fed tries to avoid these losses by failing to raise rates when needed, inflation could indeed become a problem down the road.  I trust the team at the Fed enough to think they will avoid that mistake.

So, in the end, I judge QE2 to be a small but risky step in the right direction.

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Saturday, November 20, 2010

The Utah Compact

If I had to summarize the economic impact of illegal immigration I would conclude that it is a net benefit to the U.S. economy.  Illegal immigrants are a resource to our economy.  They produce goods and service that native born Americans enjoy.  They pay property taxes, sales taxes, and many pay income and social insurance taxes.  The economic literature is not clear on their net burden on taxes.  They may take out more tax revenue than they pay into the system or they may not.  They lower the wages of low skill workers, but there is evidence that they raise the wages of native born low skill workers.  It is more correct say that they expand goods and service offered within our economy rather than that they take resources from others.   

Illegal immigrants often live in households with American citizens.  Many illegal parents have legal children.  Some parents have legal and illegal children.  How can a compassionate nation divide these families?  It is not even clear how a cost conscious nation should deal with illegal immigration to minimize costs.  Should we deport illegal immigrants and place their children in foster care?  Would it be cheaper to send their American children to Mexico and allow them to return to the United States with little or no education, or knowledge of our country, English, and qualified for benefits of the welfare state?

In Utah, a group of Republican and Democratic politicians, businessmen, and religious leaders have signed a framework for a political settlement of the immigration issue, that I believe would be useful in the national debate (“Community leaders urge moderate approach to immigration reform”).  It has been named the Utah compact.  The Church of Jesus Christ of Latter-Day Saints, and the bishop of the Catholic Diocese of Salt Lake have both endorsed it.  The compact reads (“Official text of Utah Compact declaration on immigration reform”)
FEDERAL SOLUTIONS: Immigration is a federal policy issue between the U.S. government and other countries — not Utah and other countries. We urge Utah's congressional delegation, and others, to lead efforts to strengthen federal laws and protect our national borders. We urge state leaders to adopt reasonable policies addressing immigrants in Utah.

LAW ENFORCEMENT: We respect the rule of law and support law enforcement's professional judgment and discretion. Local law enforcement resources should focus on criminal activities, not civil violations of federal code.

FAMILIES: Strong families are the foundation of successful communities. We oppose policies that unnecessarily separate families. We champion policies that support families and improve the health, education and well-being of all Utah children.

ECONOMY: Utah is best served by a free-market philosophy that maximizes individual freedom and opportunity. We acknowledge the economic role immigrants play as workers and taxpayers. Utah's immigration policies must reaffirm our global reputation as a welcoming and business-friendly state.

A FREE SOCIETY: Immigrants are integrated into communities across Utah. We must adopt a humane approach to this reality, reflecting our unique culture, history and spirit of inclusion. The way we treat immigrants will say more about us as a free society and less about our immigrant neighbors. Utah should always be a place that welcomes people of goodwill.

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Friday, November 19, 2010

Quantitative Easing: Rules Vs. Discretion

The use of monetary policy such as quantitative easing, the purchase of securities by the Federal Open Market Committee, is standard theory in Macroeconomics.  The policy can be implemented using discretion of Fed officials or through the use of rules like the Taylor rule and this is the source of controversy among economists.  Former Fed Chairman, Alan Greenspan, outlined many issues of the debate “Rules vs. discretionary monetary policy,” a speech delivered in 1997. 
Policy rules, at least in a general way, presume some understanding of how economic forces work. Moreover, in effect, they anticipate that key causal connections observed in the past will remain fixed over time, or evolve only very slowly. Use of a rule presupposes that action x will, with a reasonably high probability, be followed over time by event y.

Another premise behind many rule-based policy prescriptions, however, is that our knowledge of the full workings of the system is quite limited, so that attempts to improve on the results of policy rules will, on average, only make matters worse. In this view, ad hoc or discretionary policy can cause uncertainty for private decision makers and be wrong for extended periods if there is no anchor to bring it back into line. In addition, discretionary policy is obviously vulnerable to political pressures; if ad hoc judgments are to be made, why shouldn't those of elected representatives supersede those of unelected officials?The monetary policy of the Federal Reserve has involved varying degrees of rule- and discretionary-based modes of operation over time. Recognizing the potential drawbacks of purely discretionary policy, the Federal Reserve frequently has sought to exploit past patterns and regularities to operate in a systematic way. But we have found that very often historical regularities have been disrupted by unanticipated change, especially in technologies. The evolving patterns mean that the performance of the economy under any rule, were it to be rigorously followed, would deviate from expectations. Accordingly we are constantly evaluating how much we can infer from the past and how relationships might have changed. In an ever changing world, some element of discretion appears to be an unavoidable aspect of policymaking.

Such changes mean that we can never construct a completely general model of the economy, invariant through time, on which to base our policy. Still, sensible policy does presuppose a conceptual framework, or implicit model, however incompletely specified, of how the economic system operates. Of necessity, we make judgments based importantly on historical regularities in behavior inferred from data relationships. These perceived regularities can be embodied in formal empirical models, often covering only a portion of the economic system. Generally, the regularities inform our interpretation of "experience" and tell us what to look for to determine whether history is in the process of repeating itself, and if not, why not. From such an examination, along with an assessment of past policy actions, we attempt to judge to what extent our current policies should deviate from our past patterns of behavior.
The current policy of monetary easing is discretionary and has a political problem not identified by Greenspan.  It is widely unpopular with leaders in exporting countries who view it as an attempt to devalue the dollar relative to their currency reducing their exports to the United States and increasing the attractiveness of our imports in their countries.  Will these countries use discretionary policy to reduce the value of their currencies and ignite a trade war through monetary debasement?
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Banning Sugary Drinks from Food Stamp Purchases

New York Mayor Michael Bloomberg and Governor David Paterson are requesting permission from the U.S. Department of Agriculture to add sugary drinks to the list of goods banned by the food stamps program in an effort to lower health costs for the poor related to obesity (“N.Y. Seeks to Ban Sugary Drinks from Food Stamps Buys”). 

Gay men have shorter life expectancies than straight men, in part due to the increased likelihood of contracting aids.  Aids is an expensive disease to treat.  Would the Mayor and Governor suggest that the government ban sex between poor gay men?

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Wednesday, November 17, 2010

Republicans, Fannie and Freddie

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE’s) that, at the urging of many Congressmen, were at the heart of the expansion of sub-prime lending, purchasing sub-prime loans, and mortgage backed securities.  It is the dual nature, part public, part private that is the genetic weakness of any GSE; its management must satisfy investors and elected officials.  In Fannie and Freddie, politicians saw the opportunity to funnel dollars to favored constituents through the private sector, off government books.  The GSE’s traded agreed to increase the scope of sub-prime lending for weak regulation.  Perhaps I have reversed causality.  Maybe the GSE’s bribed Congressmen with money for their districts for weak regulation. 

Sub-prime loans and mortgage backed securities clogged the economies financial system, and in 2008, blocking financial flows and the real economy seized as the nation plunged into the Great Recession.  Democrats Barney Frank and Christopher Dodd are often noted as elected officials who pushed the GSE’s to lower loan quality, and expand sub-prime lending but many forget the role of Republicans. 

A Wall Street Journal editorialist does readers a great service in “The Fannie Mae Republicans” by naming three Republicans, Gary Miller, Randy Neugebauer, and Spencer Bachus, who supported the loosening of credit standards and continued weak regulation of the GSE’s.  As the Congress prepares to reform the GSE’s, all three Representatives sit on the House Financial Services Committee in key minority positions.  The editorialist recommends Ed Royce chair the committee rather than Bachus.  Royce had the economic foresight to oppose the GSE’s expansion into sub-prime markets and support tougher regulation during the housing boom and before the financial crisis.  He seems a better candidate to guide meaningful reform through Congress than his three Republican peers. 

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Monday, November 15, 2010

Staurowsky and Sack on the Use of the Term Student-Athlete

In “Reconsidering the Use of the Term Student-Athlete in Academic Research (Journal of Sport Management, Vol. 19, 205) Staurowsky and Sack argue for discontinuance of the term “student-athlete” by scholars who write about high school and college sports.  They also argue for the adaption of the Drake Group’s proposals that are designed to treat college athletes like other students.  They begin by tracking the history of the term “student-athlete.”
In order to appreciate the importance of this revelation, one must examine the events that led to the creation of the term itself. The stated purpose of the NCAA, from its inception in 1906, has been to maintain intercollegiate athletics as an integral part of the educational program and athletes as an integral part of the student body (National Collegiate Athletic Association, 2003). The NCAA’s early opposition to athletic scholarships reflected this concern, that athletes be regular students rather than skilled athletic specialists recruited and subsidized primarily on the basis of athletic ability. Much to the NCAA’s credit, it remained steadfast to this fundamental amateur principle for the first 50 years of its existence. By the 1950s, however, the pressures of rampant commercialism and the widespread practice of paying the educational and living expenses of athletes in defiance of the NCAA’s amateur code led the NCAA to reverse its position on athletic scholarships. This decision represents a watershed in the history of collegiate sport in America and can be viewed as the first of a number of NCAA rule changes that have made scholarship athletes virtually indistinguishable from employees.
Although the NCAA continues to present itself to the public as a defender of time-honored amateur principles, rule changes since the 1950s have cut the NCAA adrift from its amateur moorings. In 1957 the NCAA formally incorporated professionalism into its bylaws by allowing athletic scholarships that pay the room, board, tuition, fees, and laundry expenses of athletes who have no financial need or remarkable academic ability (National Collegiate Athletic Association, 1956).  Walter Byers, executive director of the NCAA at the time, has recently described the scholarship system in his book Unsportsmanlike Conduct as a nationwide money-laundering scheme whereby money formerly given to athletes under the table can now be funneled through a school’s financial aid office (Byers & Hammer, 1995). 
At first NCAA rules allowed athletic scholarships to be awarded for 4 years.  In other words, athletic scholarships were gifts to talented athletes to help them further their education.  Athletes could arguably withdraw voluntarily from sports and retain their scholarship aid. In the 1960s many athletic directors were concerned that athletes were accepting 4-year grants-in-aid and then refusing to participate.  One athletic director in that period complained to Walter Byers that “approximately 10 students who accepted their scholarships to compete in our program . . .have decided to not participate. I think it is morally wrong.” He then argued that “regardless of what anyone says, this is a contract and this is a two-way street” (Smith, 1966). It is clear from this quote that at least some athletic administrators wanted athletic scholarships to be binding contracts rather than educational gifts.

In 1967, the NCAA passed a rule that allowed scholarships to be withdrawn from athletes who voluntarily withdraw from sports, thus making athletic participation a contractual obligation. This rule, referred to as the “fraudulent misrepresentation rule,” has appeared in the NCAA Manual ever since and makes it clear that students who withdraw from sports or who reject the directions of athletic staff members can lose athletically related financial aid immediately (National Collegiate Athletic Association, 1968). The rule also applies to athletes who make only token appearances at practice or who do not show up at all. Whether one thinks such a rule is necessary or appropriate in collegiate sport, it seems clear that by making athletic performance a contractual obligation and allowing withdrawal of financial support for insubordination, athletic scholarships take on some of the trappings of an employer–employee relationship. 

Once the athletic scholarship system was established, colleges began to fear that athletes might be identified as employees by state industrial commissions and the courts. According to Walter Byers, the term student-athlete was created by the NCAA to convince workers’ compensation boards, as well as the general public, that scholarship athletes are students just like any others. It was, of course, true that athletic scholarships were a significant departure from time-honored amateur principles (Byers & Hammer, 1995). By retaining the word amateur, however, and by insisting that the word student always be coupled with the word athlete, Byers hoped to maintain a clear distinction in the public consciousness between college athletes and paid professionals, even though making that distinction was becoming increasingly problematic.
The Drake Group Proposals read
1.  Retire the term student-athlete.

2.  Make the location and control of academic counseling and support services for athletes the same as for all students.

3.  Establish university policies that emphasize the importance of class attendance for all students and ensure that the scheduling of athletic contests not conflict with class attendance.

4.  Replace 1-year renewable scholarships with need-based financial aid (or) with multi-year athletic scholarships that extend to graduation (5-year maximum).

5.  Require students to maintain a cumulative grade point average of 2.0 each semester to continue participation in intercollegiate athletics.

6.  Ensure that universities provide accountability of trustees, administrators, and faculty by public disclosure of such things as student’s academic major, academic advisor, courses listed by academic major, general education requirements and electives, course GPA, and instructor.
The proposals ignore two important facts, both related to the students’ roles as athletes.  First, some athletes earn their universities millions of dollars and are paid a small fraction of that amount.  I can think of no other group of students that are so severely exploited.  Second, for elite athletes, their most valuable education comes in practices and games, not in the classrooms.  The Drake Group proposals offer little benefit and potential harm to these elite athletes by forcing them to take and complete classes that have little value relative to their athletic activities.  Th are simply not typical students.

Any attempt to deal fairly must begin with a higher wage for high-value athletes.  Colleges should bid for their talents as they do for professor and other employees.  For some, the contracts may run into the millions and for others, the contracts may only cover books.  Competitive bidding would end the economic exploitation college athletes.  It would also limit the cross subsidization of athletes and sports that do not turn a profit.  It might limit quality and scope of competition.  I can live with that.   
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Friday, November 12, 2010

Quantitative Easing

On November 3, the Federal Open Market Committee announced a plan to implement a second round of quantitative easing, an idea floated by Fed Chairman Ben Bernanke in his speech at Jackson Hole on August 27, 2010.  The Fed will increase its holdings of bonds by $600 billion before the second quarter of 2011.   
Economists are not certain of exactly how quantitative easing increases economic activity, but those who support it illustrate how it works by lowering interest rates throughout the economy using the following story. 

The value of any asset is equal to the discounted value or present value of all payments earned from that asset.  In the formula, PV represents the present value or market value of an asset and it is equal to the sum of the annual payments (P1 through Pn) and the sales price of the asset (Sn) discounted by the market interest rate ((1+i).  For a bond, dividends represent the annual payments and the sales price, the value of the bond in the nth year.

When the Fed buys bonds, it must convince current bondholders who were satisfied holding bonds at the existing market price to sell.  It does this by offering a higher price than the current market price.  To keep the present value in balance, the part of the equation to the right of the equality sign must increase.  Because the payments are fixed, and because the Fed has little ability to control the sales price of the bond for reasons I will not explain here, increases in the right-hand side of the equation must come through a decrease in the market interest rate, i.  Lower interest rates affect not only bonds, but all other assets in the nation’s investment portfolio as well.  Prior to the Fed’s quantitative easing, individual investment portfolios were in equilibrium, meaning that investors were satisfied with the risk/return tradeoffs of the investments they held.  As bond prices rise, current bondholders earn higher than expected profits on their bond investments if they sell.  They are left with cash holdings which earn little, and because of the flood of new cash into investor portfolios from the sale of bonds, the interest earned on these holdings fall.  Investors reexamine investment alternatives, and given current conditions in the bond and cash holdings market, find other investments such as stock or real estate relatively more attractive.  Investors bid up the prices of the other investment to induce the current owners to sell, thus forcing down market interest rates for these assets.  Increases in wealth encourage people to spend and invest more.

Not all investments will be from the purchase of existing assets.  Some will be made in the production and sale of new goods and services or the construction of new assets which become  more profitable because of lower interest rates throughout the economy.

Quantitative easing also affects the interest rates because it increases the probability of inflation as demonstrated with asset prices.  The nominal exchange rate (e) is the amount of a foreign currency we can buy with a dollar.  It is equal to the real exchange rate (RE), the real or inflation adjusted amount of foreign currency we can buy with a dollar, multiplied by the ratio of a foreign price index and dividend by the U.S. price index (PF/PD). 

Because policy does not affect the real price index and does not directly affect foreign prices, increases in domestic prices lower the real exchange rate; the dollar now purchases less foreign currency than before.  Conversely, foreign currency can buy more dollars.  Because foreign currency if more expensive, foreign goods, our imports, are more expensive, and our exports are cheaper in foreign markets.  If other countries through their central banks do not respond by lowering their interest rates, our exports will increase, expanding economic activity at home.

I will reserve criticisms of quantitative easing for future blog posts. 

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Wednesday, November 10, 2010

Miron’s Alternative Stimulus

Jeffrey Miron, and Harvard professor and the author of “Libertarianism from A to Z” suggests a counterfactual stimulus that would have earned Republican support, improved prospects of long-run economic growth, and perhaps added immediate stimulus to the economy in “The Case Against the Fiscal Stimulus.”  Miron accepts basic assumptions of the Keynesian model along with standard criticisms of that model to describe weaknesses of the stimulus package and to craft a Keynesian stimulus that would have been appealing to Republicans.  The article is an easy read and is well annotated.  Miron concludes,
The Administration should have endorsed a stimulus package based on a repeal of the corporate income tax and reductions in employment taxes. This policy would have accomplished its stated goals, and the budgetary implications would have been less negative than those of the package ultimately adopted because this alternative plan would have enhanced rather than detracted from economic efficiency. This approach would also have been difficult for Republicans to oppose.

Yet the Administration did not take this approach, presumably because its true goals were not just economic stimulus.  Instead, the Administration wanted to reward its constituencies (unions, environmentalists, public education) and increase the size and scope of government. This tactic is consistent with the Administration’s policies in general. Across the board, it has taken a big government, redistributionist approach, whether regarding housing, unions, health, the auto industry, trade, antitrust, or financial regulation. The Administration’s view appears to be that government is better than individuals at deciding how taxpayers get to spend their money and that government should engineer large transfers from richer to poorer.

Whether the Administration’s stimulus package will be successful is still to be determined. If the extra spending ends up being productive, then the impact of the stimulus might be positive on net. My own prediction, however, is that the programs adopted will generate large distortions and substantial waste, with minor stimulus impact. This is a pity because much better alternatives were available.

I agree with Miron’s economic assessment.  I would not have attributed the administration’s policies as a desire to “reward its constituencies” but rather to enhance “fairness” in the American economy.  It just happens that his constituencies benefited from that enhancement.  Quickly restoring full employment may be beyond the reach of any policy making alternative policies that attempt to achieve other objections, like increasing fairness, logical and while selling these policies as pro-growth may be a little disingenuous, such misdirection is the political norm.
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