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The cost of stimulus

Scott Jagow Feb 11, 2009

Two well-respected economists have a column in the Wall Street Journal on the stimulus package. Gary Becker and Kevin Murphy say Congress should think very carefully about what it’s doing. The bottom line of their argument is this:

It is very hard to spend wisely large sums in short periods of time. Nor can one ever forget that spending is not free, and ultimately it has to be financed by higher taxes.

Here’s my take on the stimulus package and the question taxpayers should be asking:

Is the risk of doing nothing greater than the burden of a somewhat inefficient solution? The stimulus package will not be super-efficient, that’s for sure. In most cases, the government does not do things efficiently. But if the government does nothing, how long does the economy keep bleeding jobs and how much of that can it stand?

Democrats lean toward government spending as a solution. We have a Democratic president and Democrats control Congress. We’re going to have a stimulus package. It won’t be perfect. Will it create enough jobs to justify the price tag? That’s the $800 billion question. Trusting the economy to corporate America at this point also seems to be a very shaky proposition. Business is generally more efficient, but in its weakened state, maybe not so much. We’ve given the banks massive amounts of money and have little to show for it so far.

Becker and Murphy make some very good points. The stimulus package probably isn’t going to give us as much bang for the bucks as we’d like. But as painful as it sounds, given the alternatives, we may have little choice but to deficit spend our way toward a stronger economy.

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