A fiscal stimulus proposal that should be implemented, but won't be

A recession is here, the Bank of Canada is running out of bullets, and it's time for  a fiscal stimulus. The problem is that the worst possible signal has been sent out to the usual gang of well-connected, media-savvy interest groups: "We're giving money away, and we really don't care who gets it!".  This has resulted in a contest in which those with the sharpest elbows and the best PR campaigns win.

This is not a game in which the most marginalised elements of society do well, so I was glad to see this proposal to increase the Child Tax Credit and the GST rebate. (The only thing I'd add would be a proposal to increase the Working Income Tax Benefit.)

Sadly, no political party is interested. Not even the NDP.

Comments

[Nick Rowe]

Increased transfer payments would make sense, because they can be done very quickly, and without waste (or with much less waste than trying to implement (say) a big infrastructure spending program quickly). Trouble is, as macroeconomists, we also want to be able to reverse it quickly. There is almost a contradiction between spending which is good on macro grounds and spending which is good on micro grounds, because if we really believe those micro grounds, we wouldn't want to reverse that spending when the macro reasons change. Ideally, we want some spending which has good *temporary* micro grounds. I can't think of much.

We need to coordinate our post timing better; I just hit "publish now, save", went to see my new post, and saw your new post! Oh well.

[Stephen Gordon]

Actually, the prospect that it might become permanent is something I'd applaud. We can increase the GST back to 7% in a year or so - does intertemporal substitution count as fiscal stimulus?

And it'll be hard to co-ordinate blog posts. The lead time for me ranges between 5 minutes and 5 days...

[Nick Rowe]

I would include intertemporal substitution as fiscal stimulus (though, it is a non-standard type). Yes, a permanent increased transfer, with an announced future GST increase, similar to your earlier post, makes sense (and is clever, I have to say!).

But Ken Battle surrendered, and joined the other side on universality! Does his proposal move us towards or away from universality? (I always have to have my colleague Frances Woolley explain to me which Child policies are universal and which aren't, and then go and forget 5 minutes later.) I'm pro-universality myself, and would be against his proposal if it moved towards targeting.