Will Any Plan That Puts People Back to Work Actually Stimulate the Economy?
Question/Comment: Everyone seems to have an opinion on what will stimulate the economy and what won’t. Won’t anything that puts people to work stimulate the economy, and are there entities, and their analyses, that can project stimulatory effects of different spending plans?
Paul Solman: Right you are: “anything that puts people to work stimulate(s) the economy.” And yes, lots of folks project the stimulatory effects. The main metric is the “multiplier”: how much new money ultimately circulates for every dollar the government puts out there.
But this is economics, an imperfect science that studies imperfect creatures in a probabilistic universe, so who knows what will really work. Or how quickly.
MIT’s Simon Johnson, our guest vetter, goes moderately Keynesian: Something of a nasty fight has broken out among two of the world’s leading economists on exactly this topic: Paul Krugman and Robert Barro.
I’m sticking with the middle-ish ground, which is where I pitched my November testimony to the Senate Budget Committee. You can find various reasonable multipliers there.
I really hope Paul Krugman doesn’t blog about me.