Friday, February 6, 2009

I just discovered Moody's

About Moody's
Moody's, a division of Moody's Analytics, is a leading independent provider of economic, financial, country, and industry research designed to meet the diverse planning and information needs of businesses, governments, and professional investors worldwide.
I can't say I know much about 'em - but they're a for-profit organization.

Among the free on-line offerings:
The Economic Impact of the American Recovery and Reinvestment Act
Mark Zandi - January 21, 2009

The Economic Impact of the
American Recovery and Reinvestment Act
Mark Zandi
Chief Economist
January 21, 2009


House Budget Committee, Jan. 27, 2009
Written Testimony of Mark Zandi
Chief Economist and Cofounder
Before the Committee on the Budget
U.S. House of Representatives
I'll grab some stuff from both of these below.

The "Written Testimony" includes "Suggestions to Improve the House Stimulus Plan". Among these:
"The House plan will measurably boost the flagging economy, but policymakers may want to consider expanding it with more tax cuts. The most significant stimulus from the plan will likely occur during the first half of 2010, but the downturn will be at its most intense in 2009. Tax cuts do not provide the same economic bang for the buck as increased government spending—some of the tax cuts will be saved or used to repay debt or to purchase imported goods—but they can help the economy this year.
Note the verb: expand. And note the rationale: tho' not as efficient as direct spending, tax cuts more likely to have immediate effect.

Zandi estimates that his suggestions would result in a plan just over $1Tn = $1,000,000,000,000 - about 21% increase over the House's $825Bn bill.

So, rather than ridiculing Senate Republicans, I ought to applaud 'em for insisting on more tax cuts?
Well, no... Recall - they trimmed the original House bill.

Where does Zandi see the biggest bang for the buck in stimulus spending?
The House stimulus plan includes some $100 billion over two years in income support for those households under significant financial pressure. This includes extra benefits for workers who exhaust their regular 26 weeks of unemployment insurance benefits; expanded food stamp payments; and help meeting COBRA payments for unemployed workers trying to hold onto their health insurance.

Increased income support has been part of the federal response to most recessions, and for good reason: It is the most efficient way to prime the economy's pump. Simulations of the Moody’s macroeconomic model show that every dollar spent on UI benefits generates an estimated $1.63 in near-term GDP. Boosting food stamp payments by $1 increases GDP by $1.73. People who receive these benefits are hard pressed and will spend any financial aid they receive very quickly.

[The Economic Impact of the American Recovery and Reinvestment Act
Mark Zandi - January 21, 2009
, page 9
What have Senate Republicans cut?
A plan to help the unemployed purchase health insurance would be reduced to a 50 percent subsidy instead of two-thirds.
[Deal announced on stimulus; weekend vote likely]
The Moody's analysis also suggests that $1 of "General Aid to State Governments" generates a return of $1.38, exceeding the very best tax cut proposal ("Payroll Tax Holiday", at $1.28).
What got cut from the Senate version?
"In a key reduction from the bill that reached the Senate floor earlier in the week, $40 billion would be cut from a "fiscal stabilization fund" for state governments' education costs..."
... And reducing the total to $780Bn is the wrong direction!

Note: by contrast to the $1.63 generated from each $1 of unemployment insurance, the very best $1 of tax-cuts generates... $1.28! ... and permanent corporate tax cuts? - this one's my favorite: every $1 of permanent corporate tax cuts generates... $0.30!!!

Again - I can't vouch for the source, but there appears to be something like real analysis underlying the numbers.

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