What Would More Stimulus Look Like?

Paul Krugman and Brad DeLong both had good items yesterday discussing the desirability of additional stimulus. The politics still aren’t there yet, but in the interests of moving the ball forward it’s worth thinking about what additional stimulus might look like.

In an ideal world at this point what I’d like to see is more aid to state and local governments. Probably this should just be done in a very crude way—some flat per capita disbursement that could be implemented very rapidly at the federal level and kick specific decisions to someone else. Some of the money would be wasted or used in bad ways, but it wouldn’t be congress or the executive branch doing the wasting, so it’d be someone else’s problem. That kind of thing would work quickly, would be highly stimulative, and would allow structural shifts in the private sector to proceed apace.

In terms of political reality, though, I think we’d realistically be looking at something heavily shifted toward tax cuts. Which would be okay, I think. At this point I think the concern that money disbursed via tax cuts would be saved rather than spent looks a bit misguided; insofar as people might use tax cut money (in the form of reduced withholdings from their paychecks) to pay down credit card debt, I think that still moves us closer to recovery. In the wake of the asset bust, there’s a lot of need for “household balance sheets” to repair themselves, and to an extent shifting debts off individuals and onto the government is a good thing since the government pays a much lower interest rate.