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The Problematics of Efficient Stimulus

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"The Problematics of Efficient Stimulus"

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(cc photo by Ezra Velazquez)

(cc photo by Ezra Velazquez)

Annie Lowrey explores the waxing and waning stimulative impact of the 2010 Census:

This is far from the most efficient way to tally U.S. residents. Social scientists and small-government supporters argue that an extensive telephone survey supplanted with some physical counts would do the same job, perhaps more accurately, at a fraction of the cost. And many cost-saving technological advances have failed. In 2000, the Census let respondents answer over the Internet. In 2010, they did not. [...]

All that spending meant that the Census has a noticeable and measurable impact on the economy. Measured quarterly, the Census boosted annualized real and nominal gross-domestic product by 0.1 percent in the first quarter of 2010 and 0.2 percent in the second. It reduced GDP growth by similar amounts in the third quarter, even though, last month, Census still flushed $250 million of new government spending into the economy. And it knocked a few tenths of a percentage point off of the April and May unemployment rates, essentially preventing those rates from drifting higher.

The Census actually came in under budget, by about $1.6 billion. Commerce Secretary Gary Locke noted that part of the reason the Census went so smoothly was because of the higher-quality workforce it attracted: Due to the massive number of unemployed persons, the Census attracted more-qualified applicants for jobs. “That highly skilled workforce came up with efficiencies on their own and ideas that were then incorporated community-wide and then system-wide,” Locke said. He noted that a number of Census employees had canvassed for Obama.

This highlights one of the main problematic aspects of fiscal stimulus in general. When the economy is functioning healthily, you increase prosperity by finding more labor-efficient ways of doing things. Voicemail, cell phones, and email mean you don’t need as much administrative support staff to run an organization so the people formerly employed filling out little message cards go do something else with their time and overall production increases. But when your problem is an economy wracked by idleness and excess capacity and you’re trying to put people to work, this logic is turned on its head. The correct way to dig the foundation for a new building is to use a lot of machines. But if you’re merely trying to maximize employment to stabilize the economy, it’d be better to just rely on a huge number of guys with shovels.

It’s genuinely difficult for public officials to get the balance right on the fly, and the experience of 2009-2010 should only re-enforce our pessimism. In addition to everything else, politicians face intense and pressure not to “waste” stimulus money. This, however, pulls in two contradictory directions. On the one hand, a high dollars to jobs ratio looks like waste. But on the other hand, the only way to ensure a low dollars to jobs ratio in an advanced modern economy is to deliberately do things in an inefficient way. What’s really needed from fiscal policy for the next time is a much better and more robust set of automatic stabilizers—some planned-in-advance way of dealing with Unemployment Insurance and something to prevent tax hikes and layoffs at the state and local level.

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