My thoughts on a second stimulus

Some economists and politicians are advocating a second economic stimulus package. Here are my thoughts on a second stimulus.

State governments likely have a better idea than Congress regarding what are high value spending projects within each state. On the whole, pre-existing state spending was likely already going to the highest value projects available. Since state governments are now being forced by circumstances to drastically cut back at a time when Congress's stimulus package is in effect, this suggests that Congress massively misallocated capital with the first stimulus.

If Congress creates a second stimulus package, it should only consist of more aid to the states and extended unemployment benefits. Congress should avoid a bunch of bells, whistles, and pet projects. Stuff like cash for clunkers and subsidies to transfer existing homes from one person to another are just real-life examples of the broken window fallacy.

Warren Buffett described the first stimulus package as a mix of Viagra and candy. Aid to the states and extended unemployment benefits would be pure Viagra. Most other spending options would be candy.