Greg Mankiw asks me to post his preferred fiscal stimulus:
Greg Mankiw's Blog: My Preferred Fiscal Stimulus: I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.
Any further federal spending projects should be evaluated on the basis of cost-benefit analysis. That analysis would take time, but it would ensure that the projects are not a waste of taxpayer dollars.
I remember back in 1993 there were a bunch of people who claimed to be pro-NAFTA but campaigned under the slogan of not this NAFTA--but who were better characterized as being against any conceivable NAFTA that might actually pass the congress. I still credit Greg Mankiw's claim that he is "very near" Alan Viard--and thus believes that passing whatever ugly beast emerges from the House-Senate conference is better than doing nothing at all. But I confess that he has now made me unsure.