Martin Wolf at the FT writes, "Unfortunately, what is coming out of the US is desperately discouraging. Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused."
Paul Krugman writes, "As a wise man recently said, failure to act effectively risks turning this slump into a catastrophe. Yet there’s a sense, watching the process so far, of low energy. What’s going on?"
The picture above nicely depicts my answer to Krugman's question (which although typically viewed as mocking New Yorkers, I always suspected was in fact New Yorkers' way of mocking those of us who live in the tiny world beyond Manhattan in a way they figured we wouldn't get). But I digress. My point is that this picture nicely represents the typical Congress person's view of the world--just substitute "My congressional district" for 9th and 10th avenues (and maybe shrink the world outside considerably more). If you're British, I think the equivalent lies in the apocryphal but still amusing headline, "Channel Fog Thickens; Continent Cut Off."
All of which is just to say that the typical Congress person has a strong incentive to do things that he or she thinks will be good for his or her district and absolutely no incentive to think about much less do things for the world beyond. When you put 435 (or 255) of these similarly incentivized individuals together in a room, you don't magically wind up with a macroeconomist who has an incentive to care about "fiscal stimulus." You get 435 (or 255) individuals who ask "what's in this for my district." The result is exactly the bill the House passed, which in summary form is 13 single-spaced pages of spending on backlogged projects in (I bet) 244 districts (and I can only hope that the "Davis Bacon" provision is named for the man who proposed it rather than an ironic salute to the nature of the bill. Are representatives as sophisticated as New Yorkers?).
A relevant question, posed by a student in my class (Logan), is whether these District-driven spending plans aggregate into something that approximate the impact of an effective fiscal stimulus package. Krugman and Wolf seem to think not.
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Thursday, February 5, 2009
Posted by Thomas Oatley at 12:17 PM . Thursday, February 5, 2009