"“We are not that stupid. We are not that desperate in Japan,” he said. "

Wow. Check out the stimulus debate in Japan. I thought it was a done deal. From the FT:

"Yosano rejects increased public spending

By David Pilling and Mure Dickie in Tokyo

Published: November 30 2008 20:02 | Last updated: November 30 2008 20:02

Kaoru Yosano, Japan’s minister for economic policy, has attacked calls for higher public spending.

He said Japan could not afford to add to its gross public debt, already about 180 per cent of national output, the highest in the advanced world.

Mr Yosano told the Financial Times in an interview: “We are already deep in debt, so to create effective demand for instant pleasure would not be wise.”

The minister said the government was unlikely to find many worthy targets for stimulative funding."

I wonder how Yosano would do here.

"Constructing more public buildings – a favoured economy-boosting method in the past – would be “stupid” since maintenance costs would be a long-term burden, he said.

Faster expansion of the national Shinkansen high-speed rail network looked like a decent option, the economy minister said.

But policymakers in the ruling LDP party are not keen.

“We don’t have very good public works any more,” Mr Yosano said."

This guy's a barrel of laughs.

"Some may disagree. The government has been attacked for cutting incentives for private spending in technologies such as solar power that would help protect the environment and reduce greenhouse gas emissions.

Direct government investment could, for example, play a vital role in building the recharging infrastructure needed to make electric vehicles more commercially viable. Mr Yosano did urge more spending on unemployment benefit, saying the government could mitigate the social effects of recession by, for example, doubling to a year the period that benefits could be paid.

Conditions were unlikely to become as bad as 1929. “These difficulties are not impossible,” he said."

Thanks for the six months Yosano.

"Teizo Taya, special counsellor to the Daiwa Research Institute, said Japan had learnt that deficit spending was dangerous, and western economies would find that running big deficits could lead to uncontrollable inflation.

“We are not that stupid. We are not that desperate in Japan,” he said."

I'm definitely worried about inflation, but Taya and Yosano have me beat by a wide margin. Apparently, we are that stupid and desperate.

"However, Shijuro Ogata, a former Bank of Japan official, attacked what he said was Japan’s overly passive response.

“These people are so fatalistic. They are always talking about the world’s impact on Japan, not Japan’s impact on the world.”

He said Japan could not be a locomotive for the global economy but it could take bolder emergency fiscal measures and try to stimulate personal consumption in the medium term."

It doesn't sound like the Japanese are Keynesians.

"Spend money on projects that will enhance the long-term economic health of the country even without a crisis. "

David Brooks makes some good points in his post today in the NY Times:

"That’s not a recipe for doing nothing. It’s a recipe for skepticism. And it leads to some guiding principles for those designing the $500 billion stimulus plan the next administration seems set on: Don’t just throw more money into the sugar rush. Spend money on projects that will enhance the long-term economic health of the country even without a crisis. Do what you would do anyway, just do it faster."

This makes sense.

"I asked Porter how this short-term crisis might serve as an opportunity to address those long-term problems. First, he said, the Obama team will have to avoid a few temptations: Don’t just try to throw out money as fast as possible to stimulate demand. Don’t spread the spending around too thinly. Don’t try to save jobs that are going to disappear anyway.

Then he threw out a bunch of ideas that could be part of a stimulus package:

Send federal money to the states, but make sure a lot of it goes to state universities. There’s going to be increased demand for their services at the same time their budgets are cut. We can’t weaken that link in the social mobility chain. ( Fine )

Extend unemployment insurance, but also create vouchers and loans so workers can get the skills they need to move on. ( Fine )

Extend the Cobra period another 12 months to head off a rise in the uninsured during the recession.( Fine )

Adjust the capital gains rate to give people the incentive to become long-term investors. Right now there’s a tension between the real economy, which is gradual, and the financial system, which is manic. Low rates shouldn’t kick in until an investment is held three to five years. ( Very Good )

Accelerate depreciation on energy efficient goods and services. Increase tax credits for energy efficient buildings and appliances.( Fine )

Porter’s basic message was that President-elect Barack Obama should do nothing in the short term that doesn’t serve a long-term goal.

To which I would add just one idea: Create a network of social entrepreneurship investment banks. These regionally operated semi-public funds would invest in the best local community organizations, so they could bring their ideas to scale.( Fine )

These funds, first proposed by the group America Forward, would supplement the safety net and employ college grads entering a miserable job market. They’d have a powerful psychological effect on a country that desperately wants to feel mobilized and united.

This is a mental recession as well as an economic one. Solving it means getting more and more people involved in a fundamental rebirth. "

I would probably choose other programs, but that' not the point. The stimulus money, since we need to spend it, should be spent, as much as possible, on investments that will pay off in the future. This has serious risks, of course, since we can't really predict the future, but, again, it's less a call for perfection, than making a concerted attempt.

I also agree, perhaps emphasizing it more than he does, that this is a psychological crisis, which needs a Human Agency centered approach to defeat it.

"But waiting to get that done right is no excuse for failing to pass an emergency stimulus now. "

Robert Kuttner makes a good point:

"So first, there should be immediate relief for state and local governments, to the tune of at least $100 billion. The value of that approach is that it doesn't require complex strategies of new job creation; it simply prevents avoidable job loss. If Washington sends a check to cities, towns, states, and counties, not a single pending public project need be deferred and not a single public worker need be laid off.

Second, unemployment insurance should be increased and extended. And third, Congress can pick up the state portion of Medicaid, so that states can expand rather than reduce health coverage. Congress could also provide funds for energy audits and retrofits, so that existing programs can be expanded and homeowners can save on energy bills. This will also provide jobs for construction workers in a homebuilding industry facing a depression."

I don't consider these actions as part of a stimulus. These are part of our social safety net which we are increasing in an economic downturn. If you call it a stimulus, it gets lumped in with infrastructure spending, targeted tax cuts, and anything else you do specifically to increase spending in the economy to attack the downturn.

They should be judged separately, and so the social safety net spending should be passed now.

"So let’s talk about stimulus math, as I see it."

Paul Krugman thinks large about the stimulus in the NY Times:

"So what kinds of numbers are we talking about? GDP next year will be about $15 trillion, so 1% of GDP is $150 billion. The natural rate of unemployment is, say, 5% — maybe lower. Given Okun’s law, every excess point of unemployment above 5 means a 2% output gap.

Right now, we’re at 6.5% unemployment and a 3% output gap – but those numbers are heading higher fast. Goldman predicts 8.5% unemployment, meaning a 7% output gap. That sounds reasonable to me.

So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if it’s too small. What’s the multiplier? Better, we hope, than on the early-2008 package. But you’d be hard pressed to argue for an overall multiplier as high as 2.

When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion."

Here's my comment:

If we’re going to end up spending this amount we might as well do it now.

However, are you including things like UI in your figures? What’s the mix?

I mean, surely on what and where you spend the money is as relevant as the total number? Or are you simply assuming that the money goes out and that’s it? Is this organic or mechanical?

— Posted by Don the libertarian Democrat

Here's Alan Blinder's number:

"Next up, after reforming the bailout plan, is the Economic Recovery Act of 2009. Given the likely severity of the economic slide, a large dose of fiscal stimulus — amounting to perhaps 2 percent of G.D.P., or roughly $280 billion — is needed either in the lame-duck Congressional session this month or soon after Inauguration Day. "

German Stimulus Talk

A German stimulus plan on Bloomberg:

"The Cabinet already has agreed to a cut in unemployment- insurance contributions, the provision of subsidized loans to stimulate private-sector investment, and a higher tax-free allowance for parents, Steinbrueck said last week. Increased housing subsidies for low earners and tax deductions from health- insurance contributions were also agreed on, he said. "

So far the plan includes:
1) Cut in paying for unemployment
2) Loans to businesses
3) More money for parents
4) Housing subsidies
5) Cheaper health insurance premiums

Also being considered:

"Possible stimulus measures include a two-year tax break on purchases of cars with lower-than-normal carbon-dioxide emissions, greater tax relief on household repairs and funds for improving the energy efficiency of buildings, according to the document. "

1) Tax break on car purchases with green aspect
2) Tax break for fixing home
3) Tax break for energy efficiency

These look more like directed tax cuts.

"Nov. 2 (Bloomberg) -- The German government plans a two-year program of investments and incentives to provide a 50 billion- euro ($64-billion) boost to the slowing economy hit by the freeze in global credit markets. "

2 years, $64 billion dollars.

But look at this:

"Economy Minister Michael Glos, a member of Merkel's Bavarian sister party, the Christian Social Union, favors tax cuts to spur growth. Social Democratic Party Finance Minister Peer Steinbrueck has rejected the need for a ``broad'' stimulus package.

``A broad-based, economic stimulus program financed through debt would only burn taxpayers' money,'' Steinbrueck said last week. ``After a couple of years, at the latest, middle-income people would have to pay for it through higher taxes.''

The CSU wants tax breaks, while the SDP doesn't want a huge stimulus that increases the debt at all. Wild.

Here's Japan's tentative plan.

"estimates of how effective various types of economic stimulus plans would be."

Catherine Rampell in the NY Times on the power of various stimulus expenditures:

"This chart shows the bang for the buck that the government can expect to get from various stimulus proposals. For each dollar spent on food stamps, for example, real gross domestic product is likely to rise by $1.73. For each dollar spent on aid to state governments, G.D.P. is likely to rise by $1.36. (This is what economists refer to the as the multiplier effect.)"

Check the chart in the post. Here's my comment:

I believe that Food Stamps and UI should be extended just as a matter of helping the needy through a recession, but I also believe that falling oil prices and some other commodities can be seen as a kind of stimulus, so that the focus should be on infrastructure.

However, I also believe that infrastructure should be targeted to areas with high unemployment.

— Don the libertarian Democrat