We need some effective stimulation

October 28, 11:43 AMProgressive Politics ExaminerJay McDonough

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As the economy continues to languish, a second stimulus package continues to be debated.  Last week, I wrote about Reid Cramer's case the package should include both a short and longer term focus.  It was reported today that consumer confidence has dropped to the lowest recorded point since polling began in 1967.

In what is now becoming something akin to a ritualistic dance, the Democrats in Congress argue the merits of providing money back to the middle class and the Republicans claim stimulus payments to corporations and the wealthy will trickle down and offer the most effective way to jumpstart to the economy.  They're all looking for the most bang for the buck, but there's actually been some analysis done on the subject (via Ezra Klein). 

Mark Zandi from Moody's has looked at various stimulants, from those targeting the unemployed to offering payroll tax relief to corporate tax cuts.  Zandi then calculated the payback for each federal dollar spent. 

Making food stamps more available was the highest yielding stimulus.  For every dollar spent, $1.73 came back in the form of stimulus.  Extending unemployment benefits resulted in a $1.64 payback.  Infrastructure projects and aid to the states yielded $1.59 and $1.36 returns, respectively, for every federal dollar spent.  By comparison, an alternative minimum tax patch only provided a $0.48 return and making the Bush tax cuts permanent provided a $0.29 stimulus for every federal dollar invested.  (A complete chart can be found here).

It's not rocket science; give some cash to the folks that are most likely to spend it (food stamps, extending unemployment benefits, payroll tax relief, etc.) and, thereby, keep businesses afloat and people employed.  Those employed folks can, in turn, spend their wages and voila, recovery.  A little simplified, I know, but the chart very clearly makes the case a focus on the wealthy is a lousy use of public funds to goose the economy.