The Carrying Cost of the ARRA...
I'm told that Republicans are upset that the interest costs of funding the ARRA--the fiscal stimulus program--is $100 million a day...
Well, 30 cents per person per day seems to me a small price to pay for an extra 2 million jobs right now--that's an extra $300 billion a year in GDP, an extra $3 per person per day in more stuff. To pay 30 cents a day and get $3 a day seems to be a very good deal.
But the $100 million figure is itself an artifact of static scoring--if you do the full analysis taking account of the fact that we are in a deep recession with conventional monetary policy spinning its wheels because of the zero nominal bound on interest rates--you get a very different answer.
As I like to say, suppose the government spends an extra $100 billion right now. It gets:
- A $150 billion boost to real GDP--that's 100% positive gain.
- That extra income generates $60 billion in additional tax receipts.
- So we pay for that $100 billion of spending by taking on $40 billion of extra debt.
- For which the U.S. must pay an average of 2% per year--a net annual cost of $800 million.
So you get $150 billion of extra production (and associated employment) for an interest cost of $2.5 million a day, 40% of the static scoring interest cost.
That means, among other things, that the right dynamic scoring cost of funding the ARRA is more like $40 million a day rather than $100 million--that for our extra 2 million jobs and $300 billion a year in production we re paying 12 cents per person per day.
