In Defense of Stimulus Waste

Some time ago, I remarked that one problem with Kevin Murphy’s argument against the idea of fiscal stimulus was that he was working with the wrong conception of “efficiency” when alleging that government is inefficient. That probably could have used more explanation. Fortunately, Jon Chait’s article on what’s wrong with conservative allegations of waste in the stimulus cashes the idea out brilliantly:

Second, by emphasizing the worthiness of his spending proposals, Obama has allowed the debate to revolve around the merits of each project. Normal spending is judged on those terms — whether the goods or services justify their cost. The point of stimulus spending, by contrast, is simply to spend money — on something useful if possible, wasteful if necessary. Keynes proposed burying money in mineshafts, so that workers would be hired to dig it out. (Imagine what the GOP could do with material like that.) World War II was an effective stimulus that, economically speaking, consisted of 100 percent waste. If war hadn’t broken out, we could have enjoyed the same economic benefit by building all those tanks and planes and dumping them into the ocean.


In other words, when the primary point of spending money on something is to get the thing you need to worry a lot about efficiency. You don’t want “wasteful” procurement wherein you overpay for stuff, or spending on stuff that doesn’t work. For the purposes of fiscal stimulus, however, while it’s better to spend the money in an efficient way on useful items, it’s not essential to do so. Which doesn’t mean we should totally throw caution to the wind and pay people to dig holes. But it does mean that it makes perfect sense to relax our criteria for what counts as useful and what counts as efficient. The efficacy of stimulus as stimulus just has to do with how quickly the funds cycle into private hands and then out into the wider economy and has relatively little to do with “efficiency” in an ordinary sense.