One thing that I think gets a bit lost in discussions of stimulus multipliers and so forth is that this kind of argument doesn’t capture the substantial range of opinions that exists about the actual value of public sector projects. When you’re doing GDP calculations, you’re basically just looking at the price of doing the work. So if it costs $12 million to build a bridge, then all else being equal building the bridge adds $12 million to GDP. That’s the right way to do the national accounts data, but it’s not actually the right way to think about a project. In part, this can even get a bit imponderable. The Golden Gate Bridge looks really cool. When planning your future bridge, you could elect to spend extra money on ensuring that you wind up with an awesome-looking bridge and it would be hard to say definitively whether or not it was “worth it” to spend the extra cash. Someone might look at what you’re doing and say your project is full of “waste.” Alternatively, you might reply that the economy is in need of “stimulus” so it’s smart to do the bridge in the most expensive plausible way. But nobody could quite say whether or not the improved aesthetics are actually improved enough to justify the price. It’s just a decision.

By the same token, you can raise GDP a lot by building pointless crap — giant monuments in the middle of nowhere would be stimulus. But it’d be a bit strange to say you were actually adding to the nation’s wealth by doing that. On the other hand, people like the Gateway Arch and Mount Rushmore and the Eiffel Tower even though all that stuff’s pointless from one point of view. Conversely, public projects can increase well-being by far more than their cost. The New York City Police Department is an expensive undertaking, but to try to save money by eliminating it would be idiotic. Similarly, while we have some schools in this country that are spending a lot of money and accomplishing very little, we have other schools that are creating enormous value by educating children. This difference isn’t well-captured by looking at the difference between the schools’ contributions to GDP.

Thus, one thing people are disagreeing about when they disagree about the stimulus is about the value of public sector activities. I’m told that Amity Shlaes was on Bill Bennett’s radio show earlier and told him “the thing that you might want to do on your website is post those pictures of those cement posts of Japan after its multiple infrastructure programs that doubled unemployment.” That’s perhaps a compelling argument against building cement posts. But Japan entered its “lost decade” with infrastructure that was in many ways much more advanced than America’s. The abysmal quality of our current passenger rail service means, for example, that there’s a lot of low-hanging fruit that would improve things. And it seems to me that increasing the energy efficiency of federal buildings and doing repairs on our schools would be extremely valuable. After all, for decades now the country has been persistently governed by folks ideologically predisposed to underinvestment in the public sector. Individual projects are, however, always going to be subject to debate. What most conservatives seem to be doing, however, is just kind of pounding the table and insisting that any public sector undertaking is, by definition, “pork” and/or “waste” and that’s just not a tenable position.

The FT‘s Martin Wolf continue to make the case for bold action of cleaning up the banking sector, and makes the point that if the United States were dispensing advice to a supplicant nation, we’d be urging them off the kind of wishful thinking that seems to be governing a lot of policymaking:

Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.

The stimulus bill has attracted the bulk of the commentary because I think most people feel more competent to talk about those issues. But I think the banking system issue is ultimately more important and more fundamental.

A bunch of folks asking about this. It seems the centrist Kadima Party will narrowly beat the right-wing Likud. But the broader right-wing bloc of Likud plus far-right Yisrael Beitenu and National Union looks set to have more seats than the center and left.

Consequently, it’s very hard to tell what will actually happen in terms of formation of a government. Tradition dictates that President Shimon Peres should give the opportunity to form a coalition to Kadima’s Tzipi Livni but putting a majority together would probably require her to somehow peel off a party of the right. In that case, you’d have a coalition whose main leaders are open to a peace deal but who couldn’t possibly make any such deal without collapsing the coalition. Alternatively, you could have a right/far-right alliance whose leadership would be opposed to dealmaking. Basically, the Palestinians will find that they’re without a serious partner for peace. Just as the Israelis have been complaining, leaders will either be too weak to make peace or else too opposed to peace to bargain with.

One of about a thousand elements of the “centrists” re-write of the stimulus package for which we’ve heard no convincing policy rationale was the appropriation of an additional billion dollars for nuclear weapons. That’s pretty clearly not a productive investment in America’s future. Nor is it clear why you’d think it’s especially stimulative. As CAP’s Andrew Grotto observes, nuclear weapons questions need to be treated in strategic context and it makes no real sense for congress to be conducting freelance nuclear policy ahead of the formal Nuclear Posture Review. This is money that would be much better spent on general aid to states or food stamps or school construction.