THE BASIS POINT

Krugman On $775b to $1.2t Obama Stimulus

Paul Krugman is always clear and concise … and confounded. But at least it’s because he’s thinking, which is more than we can say for some of the politicians deciding how to fix the economy. And it certainly is confounding to reconcile conservative vs. liberal views of how to help:

Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

…Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.

Stimulus options are currently being debated and include tax cuts and infrastructure spending. Total cost: $775 billion to $1.3 trillion.