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Brooks Wilson's Economics Blog: Miron’s Alternative Stimulus

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.


  1. April Matos/Econ 230112/11/10 10:47 PM

    Is one of the ideas behind the stimulus package to inject money into the economy thereby starting inflation and creating a new monetary equilibrium where money demanded equals money supplied and the economy is brought into balance.
    April Matos/Econ 2301

  2. The first order of business to release money into the system should be lowering taxes. Eliminate the IRS, use a consumption tax for revenue creation at a flat rate. This will create a level playing field those being paid “under the table” Illegal immigrants, drug cartels and the law abiding citizen will all finally be paying their fair share. Businesses can use the savings to expand creating a larger consumer base by reducing unemployment.

  3. The problem that occurred with the stimulus payments from a few years ago was that the individuals who received them often used the money to pay off bills rather than make other purchases. Had the money been used to purchase extras and get the money into the market, the policy would have been much more effective. However, many of those individuals used the money to pay utilities, credit card debt, and other bills. Since they were paying down on those bills, the money was essentially taken out of the market and the policy didn't accomplish what it was meant to do.