Is Contingent Stimulus Legislation a Good Idea?
Friday July 10, 2009
From Justin Fox:
I wonder if Congress could enact some sort of contingent stimulus legislation: If the unemployment rate passes 11%, then $XXX billion goes to some predetermined range of programs. If it doesn't, then the money remains unspent.I am always hesitant to disagree with people who are likely smarter than me, but I think Justin's idea is far from sensible. It gets the timing of the issue wrong - he might as well be saying "If we get into a car accident, then we'll put on our seatbelts". Stimulus spending needs to be made well before the economy bottoms out. That is, it needs to be based on leading indicators. Unfortunately, the unemployment rate is a substantially lagging indicator.
Naaah, that'd be too sensible.
Comments
I agree with you Mike, but theoretically, a warning flag could be triggered when one or a group of certain leading indicators measures (Moody’s for example maintains a ‘leading indicator’ measure, as do a host of other organizations. Of course the trick would be someone has to determine how much a drop is enough to trigger a warning flag.
A swift kick to the Fed would probably do a lot more.