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How Badly Do Progressives Want Fiscal Stimulus?

By Matthew Yglesias on August 22, 2011 at 12:16 pm

"How Badly Do Progressives Want Fiscal Stimulus?"

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Badly enough to take the deal suggested by the Financial Times?

In broad terms, the needed elements are plain: further short-term stimulus combined with credible longer-term fiscal restraint. Cut the payroll tax, extend jobless benefits and subsidise new jobs; then curb entitlement spending by raising the retirement age.

In my view, raising the retirement age is basically the worst possible form that credible longer-term fiscal restraint could take. The way this works is that if you’re rich, the benefit cut in dollars and cents terms is very small since your life expectancy at 65 is already high. But if you’re poor, the benefit cut is much more severe. Except in real psychological terms it’s even more regressive than that, since poor people are more likely to have jobs that are physically taxing and generally unpleasant. So it sounds like a stinker of a deal to me.

But I do wish that more people would recognize that these kind of issues are what makes the politics of fiscal stimulus in the United States so tough. We have in this country a vigorous disagreement about the appropriate size and scope of federal spending that’s much more settled in countries such as Sweden and Germany. Consequently, proposals to do significant fiscal stimulus end up getting held hostage to these debates about the long term. Then on top of that, we have political institutions that put an unusually large premium on obtaining cross-party support for initiatives.

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