I've having a civil intra-Atlantic conversation with Conor Clarke at the Daily Dish about the merits of the Cash for Clunkers program. Basically it started like this. Conor: The point of stimulus is to spend money quickly -- success! Me: But what if we've spent $3 billion to cram thousands of inevitable late-2009 car purchases into two weeks -- fail.
Conor's publishing a rejoinder to my rejoinder later this afternoon on the Dish, but in the meantime he sent me a draft of it, and we had a little email chat about Cash for Clunkers, Keynes, stimuli and time travel. I thought about summing up, but it's just so much easier to produce the original emails, after capitalizing the letters and deleting all of Conor's smiley face emoticons. (JK!) Here it is, with Conor's emails indented:
Conor (excerpt from emailed draft post)
And on the question of speed, Derek writes: "it's really quite likely that all we've done is spend $3 billion to make thousands of buyers to move their third/fourth quarter purchases into two weeks." To which I can respond: Congratulations, you have rediscovered the point of fiscal stimulus!
But the issue of timing I think is interesting. The govt probably wouldn't pay somebody with a 7PM reservation at a restaurant $10 to move that reservation to 6PM. But what about paying somebody $100 to move their summer vacation into March? Or paying somebody $1000 to move their home sale/by up by 6 months? I guess what I'm asking is: Shouldn't fiscal stimuli replace consumer demand that doesn't exist rather than accelerate consumer demand that is forthcoming? Or do you really see no difference?
No, it makes a lot of sense. I tried to deal with that w/ the potato chip sentence [From Conor's post: "We probably would not want to spend $3 billion such that Derek would buy tomorrow's bag of potato chips today. But the whole point of deficit-financed stimulus spending is really just that we spend money in the present..."]
But actually (and this is something I need to think more about) paying someone to move their reservation an hour earlier would still meet the Keynes criteria.
Of course we want spending that is both useful and timely and all that, so the Keynes criteria doesn't seem sufficient. But again (and this was the point of the original post) those are design issues and not speed issues.
See your point. And I have a time machine problem again in that I could be totally wrong and car sales could stay elevated through the year and cash for clunkers will have been not merely an accelerator but a galvanizer in the auto industry. But alas. No flux capacitor.