Tuesday, July 6, 2010

"Krugman Says U.S. Economy Is Facing a ‘Long Siege’" and Whatever Happened to "Shovel Ready?"

A twofer. First up, Bloomberg:
Nobel Prize-winning economist Paul Krugman said the U.S. should have a “kitchen-sink strategy” that uses all fiscal and monetary policies possible to prevent the economy from sliding back into a recession.
“We are looking at what could be a very long siege here,” Krugman said in an interview today in Princeton, New Jersey, with Carol Massar of Bloomberg Television’s “Street Smart.” “We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this.”

At a time when European countries such as Germany are calling for austerity measures to rein in budget deficits, Krugman is calling for more stimulus to prevent a repeat in the U.S. of Japan’s decade of economic malaise in the 1990s.

“The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people,” he said. “We are deep in the hole here, and you need to be unconventional to get out of it....MORE
And from Cafe Hayek:
Shovel-ready, revisited
According to Recovery.gov, the government has now paid out $415 billion of the stimulus funds. Tax rebates account for $163 billion. Of the $252 of direct spending, the Department of Transportation has paid out $14 billion. That’s 5.5%.
Maybe it would have done more stimulating if the spending had actually been directed at projects that use shovels.

But if you’re a Keynesian, spending is spending. It’s all part of aggregate demand. Keynesians believe it’s better to do something productive with the spending but even digging ditches and filling them back in boosts aggregate demand. (I heard Joseph Stiglitz say this in response to a question during Congressional testimony.)
Googling to find out how much money was supposed to be spent each year in the stimulus legislation brought up Iowa State University’s accounting of their stimulus funds:
About 70 percent of the $31.6 million in education federal stimulus funds awarded to Iowa State this fiscal year will be used for personnel expenses, including about $10.6 million that is paying salaries and benefits for employees whose positions are expected to continue — on another revenue source — after June 30.
Companion amounts — $5.9 million and $5.8 million, respectively — will be used to pay employees participating in the first retirement incentive option and those whose positions will be eliminated by June 30....MORE

Here's Hayek's Nobel Prize Lecture:

The Pretence of Knowledge