Stimulus Obama Style

Today the President Elect announced that up to 40% of his economic stimulus plan will consist of tax cuts. The good news is that the tax cuts will not target merely the wealthy as in the past. The bad news is that the 40% number is just too high and sacrifices direct government spending. Paul Krugman and others have offered some salient criticism. I think two points are worth mentioning.

First, the whole idea that tax cutting stimulates the economy is a Republican holdover that has turned out not to be true. For example, most economists agree that our last round of tax cuts did little to forestall an economic crisis. Further, whatever economic growth comes from tax cuts tends to be highly segmented and does not devolve to the general economy. That is, it benefits only those whose taxes are cut.

Second, direct government spending -- the Keynesian mode-- has another benefit tax cuts can't offer: it leaves something behind. You don't have to look far to realize that America is in an infrastraucture crisis. Witness Katrina. Witness the Bridges of Hennepin County, Witness our airport fiascoses and crumbling roads. Our house is not in order. Spending money on these types of problems would not only put money in consumer's pockets. It would have a tangible effect on our national life.

It may well be that Obama is talking tax cuts to garner the few votes he needs in the Senate to make his plan filibuster proof. Or worse, he may have drank some GOP Kool Aide. Time will tell.