My esteemed colleague David Frum recently weighed in on the stimulus debate, defending Republicans who supported President Obama earlier in the year.
What alternative policy should have been adopted back in the spring, when interest rates had been cut to almost zero and the economy was still collapsing? Are vague bromides about big government anything like an adequate response to the worst economic crisis experienced by any American under age 80? …
A few days ago, I was talking to a roomful of young conservatives about the crisis. All agreed in denouncing both the bank bailouts done under TARP and the stimulus. I asked: OK fine—what was the alternative?
There was a short pause, and then somebody laughed: “I guess it’s lucky that we weren’t in power.”
It may be a good thing that those particular young conservatives were not in power, but there are others with better ideas. In today’s Wall Street Journal, Michael Boskin acknowledges that the president’s plan did have an effect, but writes:
The stimulus bill surely ranks dead last compared to the natural dynamics of the business cycle, the Fed’s zero interest rate policy, and the automatic stabilizers in the tax code (which have reduced taxes proportionally more than income) as far as explanations for the improvement in the economy.
Dead last might have been acceptable, had there been no alternative. But there was. Boskin goes on to write:
My Stanford colleague Pete Klenow and Rochester economist Mark Bils estimated that cutting the payroll tax by six percentage points (of the 12.4% Social Security component) would, under standard assumptions, increase employment by three million to four million workers—an amount equal to all the job losses since the stimulus was passed.
Such an approach could have been implemented far more quickly than the drawn-out spending plans of President Obama’s bill. It would not have afforded much opportunity to fund favored projects—a political downside, but a public policy perk.
Lest this idea seem like 20/20 hindsight, my colleague John Makin advocated for just such a payroll tax cut in December 2008.
Frum’s story illustrates not the paucity of alternative ideas, but the challenge of espousing and disseminating them in the midst of raucous political debates.