Matt Yglesias

Chart of the Day: Capacity Utilization vs Unemployment

Mark Thoma offers this:

From a forecasting point of view, I think it’s not totally clear how you want to interpret this. I think it’s noteworthy that capacity utilization at our last peak was actually pretty low—similar to the early-nineties recession level. I take that as evidence that global policy leaders haven’t learned how to fully take advantage of developed world economic progress. In the aggregate, the planet earth is getting much, much, much better at making stuff and we’re distributing it effectively.

The Unavoidability of Long-Term Austerity

Edmund Andrews surveys the fiscal policy debate and says “If I were king, the plan would allow for another round of stimulus spending but call for real belt-tightening around 2015.” Sure, me too. But one thing that I really think needs to be emphasizes is that the need for medium-term belt-tightening has nothing to do with the argument over short-term stimulus.

By which I mean, whether we make the short-term deficit smaller or larger we still need to tackle a serious longer term problem. And we would still need to tackle that problem even if the recession hadn’t happened. It’s a real problem. And a big one. But the shape of the problem is very simple and it looks like this:

1. The public sector has assumed responsibility for financing the health care of old people.

2. The cost of health care relative to the rest of the economy is rising.

3. The proportion of old people relative to the rest of the population is rising.

This trend bodes ill for our fiscal future. And thinking about solving it is enough to make one’s head hurt. As we saw during the debate over the Affordable Care Act, it’s very difficult to pass measures that reduce the incomes of doctors, the profits of medical device makers, the profits of pharmaceutical firms, or the incomes of hospitals. And yet it’s difficult to see how you could reduce health care without reducing the revenue flows that go to medical professionals and the firms that employ them. It’s a big problem.

But the problem doesn’t get any smaller if we refuse to extend stimulative tax breaks. And the problem doesn’t get any bigger if we think up a public works employment scheme for the long-term jobless.

UK Austerity

To try to show that I’m not an unreasonable person, let’s note that while I think austerity budgeting for the United States is nuts, the harsh cuts being planned for the United Kingdom are grounded in a plausible theory: “Clegg and colleagues such as Danny Alexander, Treasury chief secretary, share the Tory view that fiscal consolidation will allow the Bank of England to hold interest rates – currently 0.5 per cent – down for longer and that the private sector will pick up the slack.”

That is a real and specific reason to think that austerity is needed. If not austerity, rate hikes. The theory makes sense logically. How does it look empirically? Here’s recent inflation history in the UK:

This chart seems open to multiple readings. On the one hand, the inflation rate is falling so the case for rate hikes is weak. On the other hand, the inflation rate is above the target level, so the case for rate hikes isn’t all that weak. The Clegg/Tory view that high deficits will prompt rate hikes is far from an open-and-shut case, but the belief has some basis. If I were prime minister, I would move more judiciously with the short-term cuts than Cameron seems to be—and of course I’d be more attentive to the interests of the poor and less attentive to the interests of the rich in designing the package—but the British seem to be in the “meaningful tradeoff between policy options” zone.

The United States, by contrast, is not. Inflation is low and falling and has been low and falling for some time. Rising inflation is both unlikely and desirable. There’s no reason to raise rates and no reason to worry that it will be necessary to raise rates in the near term.

The Cove vs The Japanese Right

Last year, a pretty good movie called The Cove came out, a documentary about cruel treatment of dolphins in Japan. It’s not the kind of thing you expect to get wide release anywhere, but if anyone should be interested it’s Japanese people. But apparently so far no theaters will agree to show it:

And if Shuhei Nishimura and his compatriots on Japan’s nationalist fringe have their way, none ever will.

In a country that shudders at disharmony and remains wary of the far right’s violent history, the activists’ noisy rallies, online slanders, intimidating phone calls and veiled threats of violence are frightening theaters into canceling showings of “The Cove,” which not only depicts dolphin hunting in an unflattering light but also warns of high levels of mercury in fish, a disturbing disclosure in this seafood-loving nation.

Bad times. Ultimately digital distribution and the trend toward everyone having bigger TVs should reduce the gatekeeper role of movie theaters, which will be good news for this kind of controversial film.

The Rice Market in Haiti

Really interesting story from Planet Money:

There are lots of problems with Haiti’s rice market. Since the earthquake, free rice from foreign aid groups has made it harder for Haitian farmers to sell what they grow.

Even before the earthquake, they had a hard time competing with foreign rice, which is produced using high-output, modern farming techniques that aren’t available in Haiti.

As we noted last week, some rice farmers find themselves forced to choose between keeping enough rice for their children to eat, and selling enough rice to pay for their children to go to school.

All reminders, among other things, that foreign aid and economic development are hard. Also reminders that while stuff (free foreign rice) is good, opportunities are better. Foreigners putting up the money for free schools—universities even—wouldn’t have the same kind of market-distorting impact. In the case of Haiti, it’s still the case that there’s a lot Western countries could do to make it easier for Haitians to sell goods to western markets or for Haitians to move to Western cities and do work. And of course as nations like China and India and Brazil become a larger and larger share of the world economy they to have an obligation to allow less fortunate countries to sell their products.

China Giving Ground on Currency

There’s been a long running dispute about whether it will be necessary for the United States to formally threaten sanctions on China unless they revalue their currency. The answer now seems to be “no” as China is conceding the need to allow for more flexibility on exchange rates. The precise details are somewhat unclear, and the Chinese are cautioning the world not to expect rapid appreciation, so there will doubtless continue to be conflicts around this.

One thing I note here is that RMB appreciation is in part a form of tighter monetary policy in China. Which is good, China needs tighter monetary policy. And so do India and Brazil, all of which are likewise tightening. But no country is an island. Tightening in the three largest developing countries is the correct policy, but it makes looser policy in the U.S., E.U., and Japan all the more urgent. Likewise, fiscal contraction does seem to be the right policy for some European states (though not for Germany) but this again enhances the need for looser monetary policy from the European Central Bank.

Shocking True Tales of Immigration Enforcement

This story of a woman who wrote a letter to Barack Obama pleading for help in her effort to prevent her husband from being deported only to have federal agents arrive at her house to arrest him is pretty terrible stuff.

But pull away from the specifics a bit. A judge in Baltimore ruled that Hervé Fonkou Takoulo of Cameroon is not a legitimate candidate for political asylum. That’s why he’s got to go. But asylum aside, Takoulo is also a 2008 graduate of Stony Brook University with credentials that apparently got him job offers in the engineering field, offers he had to decline since he lacks proper documentation. He’s not a terrorist. He’s not a criminal. He’s a bright 34 year-old guy from Africa who went to college and wants to do useful work in exchange for money. How does it help me for my tax dollars to be spent trying to deport him? How does it help you?

It’s all well and good to say that immigration laws need to be enforced, but our immigration laws also ought to make sense. We should be eager to get as many law-abiding, English-speaking college graduates as possible into our country. The fact that the United States of America is the kind of place that Takoulo wants to live is a great strength of our country, and we ought to be taking advantage of it.

Mark Kirk’s Pattern of Dissembling

I haven’t been paying a ton of attention to Mark Kirk’s Senate campaign in Illinois but he sure seems to have trouble keeping the facts straight. His misstatements about his military service record are all pretty minor, but he’s come up with a wide array of them, not just one, to the point where you wonder what he’s thinking. And now he’s running around the state doing something quite original for a politician—pretending that he used to be a nursery school teacher.

The motive seems clear enough, he was hoping this will help him get an Illinois Education Association endorsement, but it also seems pretty pathological. Who does this stuff?

House Going After Strategic Defaulters

Annie Lowrey writes about efforts underway in the House of Representatives to penalize those who “strategically default” on their home mortgages. I note as background something that others have pointed out before: In a business context, this whole issue is viewed different. If a firm is paying interest on a loan in a situation where it would be more profitable to simply suffer the consequences of default (reduced future borrowing ability, etc.) the firm’s managers are seen as having a responsibility to do the right thing for their shareholders’ interests. Just on a prima facie level, it seems to me that the same reasoning should apply to households. Resources are best allocated across society when firms and households alike make maximizing financial decisions.

Beyond that, I agree with Lowrey that “[t]here are better ways to deal with this problem than to have the FHA attempt to identify and punish strategic defaulters, particularly if Congress does nothing to ameliorate the underlying issue of homeowners being underwater on their mortgages.” There’s just always been a desperate need for an orderly legal process whereby the value of homes and the value of home loans can be systematically written down (”cramdowns” is the lingo) in response to the system-wide re-estimation of what real estate is worth. Failing to do this is, among other things, introducing a large amount of geographic rigidity into the labor market. We need some people to move away from the worst-afflicted areas and migrate to places where there are more opportunities. People who can’t afford to sell their houses are basically “stuck in place,” disproportionately in the very places where it’s hardest to find jobs.

Millionaires vs the Unemployed

Temporarily cutting taxes on the children of multi-millionaires would have a minor stimulative effect. But it’s not well-targeted, and the effort to reduce taxes on the kids of multi-millionaires is about permanent tax cuts anyway, which don’t stimulate anything. Yet the very same Senators who said deficit concerns wouldn’t allow them to vote for targeted job creation tend to support budget-busting giveaways to the kids of the very rich. Debbie Stabenow vented a bit about this yesterday, specifically targeting Senator George LeMieux:

I note that Senator LeMieux’s indifference to the unemployed is particularly hard to understand. You can chalk some of the congressional politics of stimulus up to regional variations in the labor market, but Florida is one of the highest-unemployment states. His constituents are in desperate need of help.

Avoiding the Resource Curse

Chana Joffe-Walt has a worthwhile podcast about one solution for countries facing the resource curse: “Take all money that comes in from foreign companies — for lithium in Afghanistan, oil in Nigeria, natural gas in Bolivia — and give it to the citizens. Literally have a government official sit down with piles of cash, maybe with some international oversight, and divvy it up.”

There are a lot of merits to this, but one downside is that it still doesn’t do much of anything to alter the exchange rate impacts associated with so-called “Dutch Disease.” Imagine a poor country with low productivity and lots of poor people working in sweatshops making t-shirts. Now along comes the oil find, foreign cash starts pouring in, and the government distributes it via rebates. People have more money (which is good) but they haven’t become any more productive. So when the inflow of foreign funds causes the currency to appreciate and the price of sweatshop goods sold abroad to rise, now the factories have become uneconomical and need to be shut down.

Now being a poor, unemployed person living off welfare checks from your oil rich government might be considered preferable to being a poor person working long hours in brutal conditions in a t-shirt factory so this isn’t necessarily a terrible scenario. But it’s not an ideal one either. Countries can move up the value chain from lowest-end manufacturing and get richer and richer. Those oil checks won’t grow.

I think the better idea has been pioneered by Norway. Here you note that even if you took the money that foreign firms pay for the right to mine your lithium and threw it all in the garbage, the country would still gain economic benefits because there’d be increased employment associated with operating the mine and performing services for the foreign experts brought in to supervise the project. Of course throwing the money in the garbage would be dumb, but you can pool it into government-run investment fund that uses the revenue to purchase foreign financial assets. Those asset purchases will minimize currency appreciation and allow your non-extractive industries to remain competitive. Then once the fund has built up a bit, you can start using the income from the fund (rather than the principle derived from payments for your resources) to finance your public pension system. This allows for either lower taxes or else higher spending on productivity-enhancing non-pension purposes.

The problem of course is that it’s all well and good for Norway to create a giant slush fund managed by political appointees, but you can’t do that in high-corruption countries. So maybe this whole post is pointless. Or maybe this is a service the World Bank could provide—insured deposits at some modest rate of return for resource rich poor countries.

Canadian Growth in the 1990s

Stephen Gordon at the world’s top Canadian economics blog has an excellent post on Canada’s early nineties recession and subsequent austerity and deficit reduction.

One point, the public sector cuts didn’t come until the private sector was recovering:

The other is that growth was strongly export-oriented. Which sometimes gets talked about by stimulus proponents as if it’s some kind of cheating strategy. It’s not. Small countries that are hit by adverse shocks are well-advised to pursue export-oriented growth. But you can’t do this on a global basis. Uncompetitive southern European economies can’t pursue export-led growth while the US also does so, but Germany and Japan and China all also stick with export-oriented strategies. India can’t consume all that stuff. The world needs more demand.

Excess Supply in Micro and Macro Contexts

It’s not very “bloggy,” but I highly recommend Brad DeLong’s post on the difference between excess supply in a microeconomic and a macroeconomic context. You’ll learn a lot for your time about the general nature of the situation we’re in.

Study Shows Soda Consumption Obeys Law of Supply and Demand

Like me, the WSJ’s Katherine Hobson just can’t quit the soda tax issue:

Sick of discussing soda taxes and obesity? Good! Neither are we. So gather ’round the vending machine, and let’s consider a study showing that a 35% — or $0.45 — increase in the price of non-diet sodas cut unit sales by 26%, at least in one Boston hospital cafeteria.

Combining a price increase with an educational campaign advising people they could lose 15-25 pounds per year by giving up one soda per day also produced a drop in sales, says the study, published online in the American Journal of Public Health. (The educational campaign alone did squat to stem the soda tide.)

At any rate, you can’t sensibly discuss the merits of these policies without considering the uses of the revenue. Taxing soda and using the money to boost subsidies to corn growers would be dumb. Taxing soda and boosting the EITC or funding high-quality preschool or reducing general sales taxes would be smart.

Endgame

The streets are paved with diamonds:

— Elena Kagan’s family sound like pretty typical Jews from Manhattan, i.e. very normal for me, but will it play in Peoria?

— The call that derived our boys of the winning goal in the Slovenia game looked ridiculous to me, but I’m biased and don’t know anything about soccer so I’m glad to see that British newspapers saw it the same way I did.

— Kobe Bryant and reputation dynamics.

— Sharon Angle says she wants a revolution.

— This makes sense to me but even if highlighting climate change when talking about energy doesn’t make sense, surely Obama has an obligation (to the truth, if nothing else) to consistently mention it.

Heading to my hometown for an old friend’s wedding. Here’s TMBG “New York City”.

Eric Cantor is Short US Treasuries

Annie Lowrey observes that Eric Cantor doesn’t seem to be a very canny investor, having bought shares of ProShares Trust Ultrashort 20+ Year Treasury ETF last December, since which time they’ve declined 31 percent. The WSJ explains that the position “is a bet against U.S. government bonds — and perhaps on inflation in the future.”

I’d never really thought about this before, but pondering the subject sort of makes me wonder why we don’t force members of congress to put their money in blind trusts or some other vehicle. After all, Cantor actually has it in his power to non-trivially impact the performance of this investment. Now needless to say, it’s clear that he hasn’t used his powers this way. Clear and also sort of too bad. Given his investment positions, Cantor should be joining me in calling for more short-term fiscal stimulus and urging the Federal Reserve to act more aggressively to raise the price level. But either Cantor doesn’t understand his economic self-interest properly, or else he’s more committed to his principled opposition to sound macroeconomic stabilization than he is to the performance of his portfolio. One doesn’t normally urge members of congress to be more greedy and venal, but int his case it might do a lot of good.

Interstate Tax Competition

Dylan Matthews’ post on the evidence that rich people don’t flee high-tax states is interesting. One wonders how much of this relates to the regionalized nature of American political culture. If you like living in Connecticut, you’re presumably not going to just go move to Alabama to save on your taxes. But if you like living in Connecticut you might also enjoy New Jersey. Except New Jersey’s also a high tax state. And so’s New York.

Conversely, Alabama might hope to attract migrants with lots of human capital from Mississippi with its low tax rates, but this is hard to pull off since Mississippi also has low tax rates. If you look at a state pair with a steeper policy gradient, you might see bigger effects. The shape of the Boston-Quincy MSA seems to me to support the thesis the idea (which you certainly here anecdotally) that some people choose to live in Greater Boston’s New Hampshire fringe rather than other geographically closer locales in Massachusetts for tax reasons.

Bonus fact: Most Americans would faint instantly upon hearing about Swedish levels of taxation, but when I was in Copenhagen I was told that one reason many people choose to commute across the Øresund Bridge is to avoid the even-higher Danish taxes. One suspects that if Sweden adopted Canada’s tax code, that Denmark’s current policy might become non-viable.

But of course as I said yesterday one of the key issues here is what your jurisdiction looks like on the spend side. If your higher taxes are paying for better infrastructure and superior services, then it seems to me you’re in great shape. But a problem many U.S. states will increasingly be facing is that their higher taxes will be going to pay pension and health care benefits for retired civil servants, thanks to decades of earlier fuzzy math in terms of funding these plans.

The Kind of Liberal I’m Not

I don’t disagree with Kevin Drum very often. And when I do, it’s usually over some minor quibble. But today’s post on his comprehensive plan to have the government micro-manage the business practices of credit card companies is a great demonstration of exactly the kind of politics I don’t subscribe to. I should add that it’s a particularly good demonstration because his specific arguments seem pretty convincing to me.

But I just don’t trust arguments of this sort. Regulate business to prevent negative environmental externalities, sure. Basic safety, okay. But the idea that what we need is for a bunch of people to get together and say that it would be better to ban this and that and the other capitalist act between consenting adults just strikes me as the wrong way of going about things. Purely economic regulation of this sort doesn’t have a compelling track record, runs into all kinds of Hayek-esque knowledge problems, and is basically an open invitation down the road for regulatory capture and the use of rules to prevent the emergence of competition. Count me out. For me, it’s all about higher taxes to finance more and better public services. That’s my brand of liberal economics—take the rich people’s money and use it to pay for stuff, don’t tell them what to do with the companies they run.

That said, this whole discussion around credit cards does have me thinking that there might be a niche out there for something along the lines of “charitable entrepreneurship.” Bill Gates and Warren Buffett are trying to urge billionaires around the world to give half their money to charity. That would be great. But maybe what we really need some super-rich charitably inclined businessmen to do is finance some new ventures in these quasi-utility markets like charge cards, cell phones, mortgage origination, etc. based on a “don’t screw the customer over” business model. The striking thing about the credit card universe, after all, is that there’s very little competition and no meaningful difference in business practices between Visa and MasterCard. But I don’t think it’s written in stone anywhere that there can be only two.

Weird Trend of the Week

The list of middle class child-rearing anxieties grows ever more baroque:

Most children naturally seek close friends. In a survey of nearly 3,000 Americans ages 8 to 24 conducted last year by Harris Interactive, 94 percent said they had at least one close friend. But the classic best-friend bond — the two special pals who share secrets and exploits, who gravitate to each other on the playground and who head out the door together every day after school — signals potential trouble for school officials intent on discouraging anything that hints of exclusivity, in part because of concerns about cliques and bullying.

Also: “In recent years Timber Lake Camp, a co-ed sleep-away camp in Phoenicia, N.Y., has started employing ‘friendship coaches’ to work with campers to help every child become friends with everyone else.”

Alan Greenspan: Crazier Than People Realize

Alan Greenspan wrote an absurd anti-deficit piece in the WSJ today, advancing the argument that it’s a bad thing that we’re not suffering adverse consequences from the deficit:

Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.

Tim Fernholz bats this around a bit, but he neglects what in my view is the key episode here, the time when as Federal Reserve Chairman in 2001 Alan Greenspan warned the country against the prospect of budget surpluses and debt reduction and argued that only large regressive tax cuts could save the country from this specter.

Greenspan did, I think, a good job as a setter of interest rates. But he also consistently abused his prestige to try to manipulate the country into a low-tax, bad-services, high-inequality equilibrium. Out of office he doesn’t set interest rates at all, so all we get is the abuse of his prestige to wage a relentless war against revenue and public services.

Public Wants More Stimulus

It’s become conventional wisdom on the Hill (see, e.g., Ben Nelson) that the public is opposed to additional government stimulus spending. But the latest Gallup poll says otherwise:

Obviously just because the public supports something (health care repeal, for one) doesn’t mean congress shouldn’t do it. But many members of congress—and, indeed, the White House—seem to me to be being timid in their stimulus-related political strategy out of concern that doing the right thing puts them on the wrong side of public opinion. But it doesn’t. People should write laws that involve spending government funds on hiring people to do stuff.

At Last Some Good News for Clean Energy Policy

There was a Pew poll released earlier this week that provides some of the most encouraging news I’ve seen in a while in terms of the political feasibility of making sound energy policy. The news comes in a smart question that asks people not about a specific policy (my view is that the overwhelming majority of people don’t really have views about policy specifics) but about a broad thematic issue of priorities:

That appears to me to indicate that proponents of carbon pricing ought to get franker in their public discussion of their ideas. Making polluters pay will make dirty energy more expensive, but this is necessary to protect the environment and will create the economic incentives necessary to spur innovation in clean energy and energy-saving technologies.

Angle: It’s Not Scientology, It’s “Natural Homeopathic Medicine” Developed By L Ron Hubbard

I think I haven’t yet done a post about how nutty Sharron Angle is, but to me this takes the cake:

The same Post story claimed that as a legislator, Angle had supported “a prison rehabilitation program promoted by the Church of Scientology and involving massage and saunas.”

Seeking to “clear the record,” Angle told us “I am not even sure that the Church of Scientology fits into it at all. You have to make some quantum leaps here.”

She noted “the program itself is a multifaceted program, and it had two protocols: one in the area of withdrawals, and it was a natural withdrawal system. As s you know, that can have some severe physical side effects and the cramping that was involved there required that other people be taught how to relieve the cramping. So that is where it said that people were being massaged.”

“The second protocol was what they called the ‘disintoxification,’ which was actually sweating the drug out of one’s system so that there were no longer any cravings for the drug. This is a very intense potassium, calcium, vitamin, mineral regimen, with a hot rock sauna that sweats the toxins out. Those two protocols were developed by [the late Church of Scientology founder] L. Ron Hubbard, and they had to give him credit. But it is not Scientology, but rather natural homeopathic medicine.”

To review, Scientology is a religion based around the idea of replacing traditional psychiatry with “dianetics” that L Ron Hubbard made up. The thing Angle is talking about is a psychiatry alternative that was also made up by Hubbard and supported by his organizations. But somehow it’s not Scientology? How? Why?

Lakers Win

In a just world, the Lakers’ victory last night in spite of a brickeriffic 6-24 shooting performance from the “best player” in the league should give people some perspective on the Kobe Bryant legacy question. Robert Horry has seven championships with three teams, and Karl Malone has none but those are the breaks of the game not reflections of who was the superior power forward.

Fans of the losing team always complain about the refs, but I do want to note a complaint from a Celtics loyalist about “how the refs inexplicably decided to call touch fouls on the Cs in the 4th qtr leading to 21 laker FTs. That’s on pace for 84 FTs for the game.” I haven’t gone back and watched the tape or anything, but it was definitely my sense during the game that the officiating standards suddenly tightened in Q4 for no real reason. There are always a lot of complaints out there about the quality of NBA officiating, and I think they’re generally a bit overstated once you consider the inherent difficulty of the job. But it really is crucial that even if things sometimes get missed that people still feel there’s some kind of consistent theory of what the rules are, and I really don’t get that from the NBA.

The Case Against Stimulus

Steve Randy Waldmann has a very good post up noting some problems with discretionary fiscal stimulus. I recommend it to one and all because I think that reading the detailed case for skepticism about stimulus as a general matter only drives home how strong the case for stimulus in the current actual situation is.

This all actually reminds me of a story from my youth in the distant land of the USA. Once upon a time an asset bubble burst, but there was little leverage involved and the ensuing downturn was relatively mild. The federal reserve had room to run in terms of cutting interest rates, and the previous ten years’ worth of fiscal policy had seen a series of measures, some bipartisan (1990 & 1997) and some partisan (1993) to improve the country’s budget situation. But the newly inaugurated young president argued that the country needed to enact a large discretionary fiscal stimulus program to combat the downturn, even thought his would shatter the fragile consensus that had guided improvements in the fiscal posture. Oddly, this stimulus program would be phased in and out over a ten-year time horizon. Even odder, the nominally temporary nature of the stimulus was clearly a fraud—everybody understood that the key authors of the stimulus in fact intended the policy change to be permanent in nature.

I refer, of course, to the Economic Growth Tax Relief Reconciliation Act of 2001, a.k.a. “the Bush tax cuts,” which IIRC were roundly applauded by most of the right-of-center economists who can today be found assuming a debt-averse and stimulus-skeptical posture.

Which is just to say that in the economic policy domain, there’s always a fair number of esoteric arguments (or, to coin a phrase, bullshit) lingering around. But as Waldmann (against whom I level no such accusation) argues, fiscal stimulus really is a risky endeavor which is precisely why you don’t want to engage in it in circumstances like those of 2001. Indeed in general discretionary fiscal stimulus is not a great idea, and the smart thing to do in terms of fiscal policy is to develop better “automatic stabilizers” to mitigate the pro-cyclicality of state and local budgeting without creating terrible moral hazard problems.

But we’re not talking about the 6.5 percent unemployment of the last recession, we’re talking about 9.3 percent unemployment:

The risk that resources will be misallocated by non-market means is real enough as a general matter, but when you’re talking about unemployment of 9.3 percent you can be sure that the low hanging fruit in terms of “doing this is a more valuable use of a person’s time than doing nothing” is pretty expansive. We don’t need to—indeed, shouldn’t—try to keep fiscal pumping our way all the way down to October 2000’s 3.6 percent unemployment or October 2006’s 4.3 percent. But how about back down to the 7 percent level where the economy should still have massive slack compared to recent experience? That would make a huge difference in the lives of millions of people, and would avoid massive society-wide loss of output that can otherwise never be recovered.