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Politics

The conventional wisdom on the left-hand side of the mediasphere seems to be that Barack Obama should have asked for a larger stimulus package in the first place. Specifically, the argument is that:

1) Republican/centrist opposition to the bill was inevitable; they never had any incentive to compromise, and

2) Republican/centrist opposition to the bill was liable to be somewhat unrelated to the magnitude of the package. That is, if Obama had asked for $1 trillion, Republicans would find a bunch of stuff to complain about, and use their filibuster power in the Senate to reduce the package to, say, $900 billion. Conversely, if Obama had asked for $600 billion, Republicans would complain, and use their filibuster power in the Senate to reduce the package to, say, $500 billion.

3) Therefore, Obama should have asked for the $1 trillion, or whatever the economically correct number is.

I’m sympathetic to this argument, versions of which I’ve made myself. But, I think it may be overly simplistic. Specifically, there are probably diminishing marginal returns to every additional dollar of stimulus. With each additional dollar that you spend, the more likely you are to spend a dollar that: (i) isn’t spent particularly well, i.e. has a lower multiplier, or (ii) is spent well, but facilitates long-run rather than short-run growth, or (iii) is spent well, but is politically infeasible, thereby undermining the chances for the remainder of the bill to pass. Although clearly many of the Republican objections to the bill were frivolous, and although just as clearly money seems to have been left on the table that could have been wisely spent in areas like science funding, it’s not self-evident that you could have added, say, another $400 billion to the package without encountering one or more of these problems.

Perhaps the administration should have sold the bill more literally as a recovery and reinvestment package. That is, there is a recovery component, presumably the majority of the bill, which is money that is necessarily spent quickly and with an eye toward job creation, and then there is also a reinvestment component, which is money that is not necessarily spent immediately but consists of “down payments” in areas like education, infrastructure and clean energy and seeks to bolster long-term economic growth. Perhaps the reinvestment component would have come under attack, but because things like education, infrastructure and clean energy happen to be quite popular, Obama would have been on relatively firm ground.

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