The Wall St. Journal Real Time Economics blog asked a number of economists what people should do with the average $8/week reduction in taxes withheld from our paychecks.
One fun game to play is to try to guess how each economist would respond.
Some of them took it seriously, I think. Here are some highlights.
Justin Wolfers gets the award for the fundamentalist Keynesian response.
Mr. Cliggott and Mr. Kasriel must have thought the question was asking what you would do with an extra $8 million. I'm not aware of too many venture capital investments or hedge funds that require just $8.
Ricardo Reis and Alan Blinder get the De Gustibus Non Est Disputandum Award for their answers.
Martin Feldstein answered it like an exam question. I give him an "A".
Guessing Greg Mankiw's response is left as an exercise for the reader. Hint: He implicitly assumes that you'll save up a couple months worth of your $8/week.
And finally, the cleverest response was from the always clever Tyler Cowen.
What would I do? I like Reis's and Blinder's answers as a general principle. In fact, had I been asked, I might have said "whatever you want." Why waste words?
Go read the other responses.
Oh, and it goes without saying that the WSJ readers have at it in the comment section. Enjoy.
One fun game to play is to try to guess how each economist would respond.
Some of them took it seriously, I think. Here are some highlights.
Justin Wolfers gets the award for the fundamentalist Keynesian response.
Justin Wolfers, The Wharton School: Find a cash-strapped soup kitchen. If they are looking at having to make cutbacks, then your $8 donation really will yield $8 worth of extra soup purchases. A good Keynesian will point out that this $8 in extra spending will enter the circular flow, creating the much-needed economic stimulus. (By contrast, university giving may simply prop up a sagging endowment.) But more importantly, the $8 you spend helping the hungry really can have a big bang-for-the-buck at a time when food spending is plummeting and unemployment rising.
Mr. Cliggott and Mr. Kasriel must have thought the question was asking what you would do with an extra $8 million. I'm not aware of too many venture capital investments or hedge funds that require just $8.
Doug Cliggott, Dover Investment Management: You should invest it, not consume with it. Preferably a venture capital investment that will have a significant multiplier effect. This is why tax cuts are the worst type of stimulus. They are usually consumed or invested in a secondary market with little or no multiplier.
Paul Kasriel, Northern Trust: I would use the extra cash to start a hedge fund, which would purchase newly-issued asset-backed securities. I would finance my position through the Fed's TALF program.
Ricardo Reis and Alan Blinder get the De Gustibus Non Est Disputandum Award for their answers.
Ricardo Reis, Columbia University: You should use the money in the way that is best for you and your family, whether that is saving or spending, buying this or paying that. Doing what is in your best interest usually leads to doing what is best for the economy. (And when it is not, the economic policymakers should have figured that out when deciding whether to, and how to, give you the $8, so that by pursuing your best interest you end up doing what is best for all.)
Alan Blinder, Princeton University: While I might have my own personal favorites, each citizen should spend the money on what he or she sees fit. The idea is to get more spending, more jobs, higher incomes, etc. in the nation's economy.
Martin Feldstein answered it like an exam question. I give him an "A".
Martin Feldstein, Harvard University: I don't think individuals make spending decisions based on attempts at good citizenship. If they think this $8 is a permanent increase, they will add it to their overall budget. More likely, they will recognize that this is temporary and will use it to pay down debt or add to their liquid assets
Guessing Greg Mankiw's response is left as an exercise for the reader. Hint: He implicitly assumes that you'll save up a couple months worth of your $8/week.
And finally, the cleverest response was from the always clever Tyler Cowen.
Honestly, Letterman should have 10 of these economists record their answers for his top 10 list. I would love to see a straight-faced Tyler read that as the number one thing to do with your $8/week stimulus.Tyler Cowen, George Mason University: In my view, fixing the banking sector is more important than getting the stimulus right. So if you can afford to lose the money, go to a large bank (more likely to be insolvent), find their most overpriced service, and buy as much of it as you can. That way you are doing your part to recapitalize our banking system.
If you're stuck for ideas, just keep on using ATM machines, owned by other banks, so you can pay large fees to take out small sums of money from your checking account. When you need to, take all of your withdrawals and deposit them back in the account once again and start all over with the process.
What would I do? I like Reis's and Blinder's answers as a general principle. In fact, had I been asked, I might have said "whatever you want." Why waste words?
Go read the other responses.
Oh, and it goes without saying that the WSJ readers have at it in the comment section. Enjoy.
COAC,
All my income is via direct deposit. I won't even know it is there. I always laugh when the gov cola's my pension and at the same time increases the reduction for medical insurance. Funny how that nets out to a small reduction every time.
Invest in order to reduce your future expenses (in whatever way works best for you). But this is *always* good advice for what to do with extra money.