The Stimulus Plan

I have reserved judgment for a long time about the stimulus plan, and now I am finally ready to comment on it.

Fundamentals:
There are a few important things to point out about stimulus plans in general...

1. Stimulus measures must happen fast to work.
2. Stimulus money must be put into places where it will be consumed or invested. Where it will be consumed or invested depends on the marginal propensity to save (if it's saved, it isn't consumed or invested). Let's say that you and all your friends make up an economy. I give you $100. Let's say that you typically spend 95% of what you get (you save 5%). So, you buy $95 worth of goods and services from your friends. Then, they have the $95. Each of them saves 5% of that, and spends 95%, etc... So, whether that "savings" percentage is 1% or 10% makes a big deal after you've kind of multiplied out all the economic activity.
3. Whether the stimulus should target boosting consumption or boosting investment is not obvious. Both things can be good, and no one can tell you what the "optimal" ratio is. The optimal ratio probably changes over time, anyway. The US is currently "consuming" more of its GDP than it has historically, on average, so a case can be made that stimulating "investment" right now is better than stimulating "consumption."

Bad things about the stimulus plan:

1. The US economy has had a very, very low (or negative) savings rate and too much borrowing. Only just recently (since the economy broke down), have Americans started saving. Too many things in the stimulus plan are simply designed to jump start borrowing and spending of the exact same types we had too much of before.
2. The stimulus plan doesn't give employers enough incentives to raise employment. The stimulus plan should lower the payroll taxes, because this helps employers hire more workers and/or means people take home more of their paychecks, and it also helps small businesses and self-employed people immensely.
3. The stimulus plan doesn't do enough to help states. The states spend 2x as much money as the federal government does. They (the states) have no money. In order to raise money, states raise property, car, excise, and sales taxes, for example. These kinds of taxes directly and negatively affect the exact kind of spending the federal government is trying to stimulate (such as buying cars). Instead of simply having state and federal taxes offset one another, the federal government should cut out the middleman by making up state tax shortfalls, so they don't have to do things like raise sales taxes.
4. Much of the stimulus money will be too slow. The building of schools, bridges, etc... will happen too slowly to stimulate the economy. The economy will likely be out of the recession in a year or two, but most of the money spent on a new bridge will trickle into the economy slowly over a 5 year period or so.
5. The stimulus does nothing to address certain causes of structural unemployment and weakness in the economy, such as screwed up tax incentives, over-investment in houses (it actually further encourages this), illogical industry subsidies, broken labor union contracts, etc...
6. The stimulus plan doesn't adequately encourage "creative destruction." Rather than propping up ailing industries, we should be easing the bankruptcy process, encouraging business formation, and incentivizing business investment.

Good things about the stimulus plan:

1. If you're going to "waste" money in a stimulus plan by having it come too slowly, at least "waste" it on things that have long term value, like infrastructure construction. That's better than simply spending it on transfer payments. If you're going to do transfer payments as stimulus (transfer money from people with high savings rates to people with low savings rates) do it fast so it can stimulate the economy now.
2. The stimulus plan does increase unemployment benefits, and gets us a step closer to a working national wage insurance scheme.