My, My, Those Tax Cuts Look Big - The Plank

The general consensus among left-of-center economists these days is that government spending, rather than tax cuts, represent the most efficient way to fight recessions. Among other things, people who receive tax cuts don't always spend the money right away. More affluent people, in partciular, tend to put that money into savings--a move less likely to generate economic activity in the short term. (For more on this, see Hilzoy's post over at the Washington Monthly blog.)

On the other hand, coming up with $600 to $700 billion in well-timed government stimulus may not be as easy as it sounds. For a while now, Obama advisers have been warning that there are only so many ready-to-go infraustructure programs--and only so many social needs the states are prepared to meet quicky. To give you a sense of scale, total non-discretionary, non-military spending this year is only around $500 billion. As Paul Krugman explains on his blog,

...there’s a problem with a public-investment-only stimulus plan, namely timing. We need stimulus fast, and there’s a limited supply of “shovel-ready” projects that can be started soon enough to deliver an economic boost any time soon. You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress--unemployment benefits, food stamps, etc.. And you can also provide aid to state and local governments so that they don’t have to cut spending-avoiding anti-stimulus is a fast way to achieve net stimulus. But everything I’ve heard says that even with all these things it’s hard to come up with enough spending to provide all the aid the economy needs in 2009.

Still, economic logic isn't the only reason Obama is going for such large tax cuts. Political necessity, or perceptions thereof, figure prominently as well. Senate Minority Leader Mitch McConnell and his colleagues have been complaining about the stimulus, saying it involves too much government spending. By tilting the stimulus more in the direction of tax cuts, Obama and his advisers hope to make speedy passage easier.

It's this line of thinking, as much as the package itself, that has Krugman--and others, like Kevin Drum, at Mother Jones--concerned.

My, My, Those Tax Cuts Look Big - The Plank