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Monday, July 19, 2010

Deficit Neutral Stimulus

I certainly can't disagree with this -- I posted a similar recommendation a few days ago in response to the question of whether the Bush tax cuts should be allowed to expire:

Obama's Fiscal Priorities Are Right, by Alan Blinder, Commentary, WSJ: ...Let the upper-income tax cuts expire on schedule at year end. That would save the government an estimated $75 billion over the next two years. However, it would also diminish aggregate demand a bit. So, instead of using the $75 billion to reduce the deficit, spend it on unemployment benefits, food stamps and the like for two years. That would surely put more spending into the economy than the tax hike takes out, thus creating jobs.

How much more? Getting a numerical estimate requires the use of a quantitative model of the U.S. economy. In recent testimony before the House Budget Committee, Mark Zandi of Moody's Analytics used his model to estimate that extending unemployment insurance benefits has almost five times as much "bang for the buck" as making the Bush tax cuts permanent.

Based on his estimates, the budgetary trade I just recommended would add almost $100 billion to aggregate demand over the next two years—without adding a dime to the deficit. That translates to about 500,000 more jobs each year. Maybe Mr. Zandi's numbers are high. But the direction is clear: Redirecting money from the Bush tax cuts to unemployment benefits would be a net job creator. ...

    Posted by on Monday, July 19, 2010 at 07:29 PM in Economics, Fiscal Policy, Taxes, Unemployment | Permalink  Comments (16)


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