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March 12, 2009
Private benefits less than total ones
Tyler Cowen notes:
In Los Angeles County, cities are buying federal stimulus funds from each other at deep discounts, turning what was supposed to be a targeted infusion of cash into a huge auction.In two cases $500,000 in stimulus funding was selling in the range of $310K to $325K. (What does that tell us?)
I'm not stimulus advocate, but I don't think this tells us much at all about the stimulus value. The point was that the social returns to the investment would be larger than the private ones. If the private (within city in this context) returns were positive then we'd presume that the localities would find a way to fund those themselves. Aggregate demand stimulus works (if at all) from the externalities generated by these expenditures. Since they have strings attached, and cash may in some cases have more value, this could well increase the power of the stimulus by sending the money to the areas with the highest value (if public value is proportional to private value) or 2) indicate what a waste the stimulus. It does however suggest the hurdle for these expenditures to have a positive multiplier. If these prices accurately measure local benefits for the who stimulus, then we need a multiplier effect of .35 to have the stimulus work at all.
L:Government spends $500k
A:Locality values it at $325k
A:Required national benefits to break even $175k
Posted by OneEyedMan at March 12, 2009 7:11 AM
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