Stimulus
A few minutes ago, I watched two top economists, Mark Zandi and John Taylor, debate whether the government's massive fiscal and monetary stimulus was effective on the PBS Newshour. The video will be posted here tomorrow. Wednesday, Zandi and Alan Blinder published a Moody's macro simulation that estimated 8.4 million more jobs and 6.6% of real GDP would have been lost 2010 without either stimulus. Taylor argued that much of the stimulus was ineffective, that the economy revived because of business investment, and that now we are saddled with massive debts which will burden future growth. It's hard for an experienced economist to come to an informed choice between these two positions, so most viewers tonight came away with one conclusion: Economists can't agree on anything, just like our political leaders.
I have been asked a lot recently by Wall Street economists about where Washington fiscal policy is headed. In short, I don't expect much change. We'll stay stuck at around $1 trillion of annual deficits in FY10, FY11, and probably FY12.
It's too early to get our hopes up for sustained Senate bipartisanship, but just before 6 p.m. tonight, five Republicans joined 57 Democrats to invoke cloture on Senator Harry Reid's (D-NV) amendment to the House jobs bill, H.R.2847. Newly elected Scott Brown (R-MA), Kit Bond (R-MO), Sue Collins (R-ME), Olympia Snow (R-ME), and George Voinovitch (R-OH) voted with the Democrats. Ben Nelson (D-NE) was the only Democrat to vote with the Republicans. Not voting were Frank Lautenberg (D-NJ), who is hospitalized for stomach cancer, and eight Republicans, who ducked the vote. So far, Reid's amendment would be limited to $12 b. FY10-FY12, and it's "paid for" over 10 years, but amendments could add to that, and it will grow larger in any compromise with the House's $65 b. FY10-FY19 bill.
I formulated the first first-time homebuyer credit back in 1975 when I was a revenue estimator on the Joint Committee on Taxation. I didn't like the idea then, and I don't like it now. The credit rewards those who would have bought a home anyway, most of whom have higher income than the taxpayers who are paying for it. The taxpayers are mostly renters and get no tax breaks at all. The only justification I can see for the homebuyer credit is that it may accelerate home purchase from next year to this year. The overall number of homes purchased this year and next won't change much. Check out this Urban-Brookings Tax Policy Center analysis, which makes these arguments in more detail. This Congressional Research Service analysis shows how small the economic effect of the homebuyer credit is likely to be (See pages 7 and 8 for the results.).
