I got your bipartisan right here...

[Kurt_and_Hunter]

Both Parties in the Senate should lay out a trillion dollar package of their kind of stimulus.

Democrats: Strip all tax cuts out of the bill except earned income tax credit increases and the annual AMT reduction. Make it a BIG sending bill. Fund everything.

Republicans: Propose one trillion in short-term tax cuts... say a one-time 2008 tax year 50% across the board reduction on payroll taxes and personal income taxes on income under $500,000. The round 50% figure is important because it's something everyone can connect to psychologically. People who expected to write a check or get small refunds would get large refunds starting next month. Capital gains and estate tax relief that dramatic and short-term would create perverse incentives to sell assets--and murder elderly relatives--so I wouldn't include them. We certainly don't want to subsidize decisions to sell real estate or stocks. (I think revenues from income tax are projected at about 1.6 trillion and from payroll taxes about a trillion, so the cut-off might be higher than $500,000. Maybe a million? That's a good figure since there would be little public sympathy when you reach seven figures. And the rich would still get 50% off their taxes on the first 500 thousand or million of income--or whatever it works out to. In any event, even if my memory is way off, the idea is to pick whatever cut-off number equals 1 trillion in overall tax reduction and a 50% cut.)

Now that we have two competing plans on the table...

Pass them BOTH

That would be a lot better than anything anyone has proposed so far. The either-or mentality misses the point. The stimulus is almost surely too small, the costs of falling short are immense compared to the costs of doing too much, and the politics of the thing are such that we will never have a better moment. Obama is brand new and popular. And even deficit conscious voters will over-look their principles to get a very large and unexpected tax refund that THEY get.

If we keep going back to the well every three months it will be like pulling a band-aid slowly... resistance to new measures will build because the old measures, no matter how perfect, will APPEAR to have not worked. (No matter what we do things will be worse six months from now and people don't think long-term. As the saying goes, "Nobody eats in the long run.")

So do whatever it takes to get the thing 1) bigger than big and 2) passed.

Spending, tax cuts and dropping money from helicopters all offer some stimulus. We can argue about the biggest bang for the buck but it's all sort of beside the point... the goal is to get the biggest bang and to hell with the bucks.

The only limit we face right now is political. We have no shortage of money. At this point in time (unlike when Stockman said it in the 1980s) the deficit truly... does... not... matter. The dollar is, if anything, too strong and getting stronger. We are in a deflationary environment. We can print all the money we want until we see some inflation or big rate increases in treasuries or some other sign we are printing too much money, but those seem a distant pipe-dream right now.

In terms of M3, every time a credit card company pulls a card or reduces a limit that is a reduction in the money supply. Unless some other bank is replacing that with new credit (which they are not) then the money supply shrinks that amount. And every time a house goes down in value the amount that can be borrowed against it goes down, and that is also money disappearing. Same thing when stocks go down. And the cheese stands alone... the government's ability to create money has to fill the gap because there's no new credit and no asset appreciation or inflation. When you consider all the ways the supply of money is contracting we can create an incredible amount of new money just to stay in the same place. (I am sure my understanding of M1 and M3 are shallow to the point of idiocy but the simple point I'm making about why the normal rules of currency devaluation don't apply as much right now is probably a reasonable thumbnail.)