"The Mankiw Stimulus"
As a blogger, I can’t help but respect the sheer impracticality of Greg Mankiw’s stimulus ideas:
I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.
In addition to being wildly impractical, this is a pretty good idea. Relative to, say, the House bill it’s probably less effective short-term stimulus on a dollar-for-dollar basis. But the definitely temporary nature of the deficit spending makes it better for the long-run, and the swap of payroll taxes for gas taxes would be good for long-run growth completely apart from the economic crisis. Those superior long-term features mean you could probably boost the topline cost significantly higher than the House bill does to compensate for the somewhat lesser efficacy of the stimulus.
But in addition to being a pretty good idea, it’s wildly impractical. I actually think that in general political commentators spend too little time talking about impractical ideas. It’s important to expand the conversation and also important for commentators to not overestimate their efficacy in impacting short-run events. But a fiscal stimulus measure is a situation where time really is of the essence and it would be pretty irresponsible for the President or his team to send congress a proposal that so outside the ballpark of what congress is prepared to consider. I would hope that as a former top White House aide Mankiw could appreciate that point—public officials have a certain responsibility to be dull and practical.