Stimulus? Still a failure.

[badlydrawnjeff.livejournal.com]

The failure of the stimulus isn't exactly news, and hasn't been for some time. Thankfully, more and more people are getting on board.

For instance, it looks like we might not have needed it to begin with. Granted, since stimulus of this nature doesn't work, we never need it, but the justification for it isn't so strong anymore:

"We had to hit the ground running and do everything we could to prevent a second Great Depression," Obama told supporters last week.

...

IBD reviewed records of economic forecasts made just before Obama signed the stimulus bill into law, as well as economic data and monthly stimulus spending data from around that time, and reviews of the stimulus bill itself.

The conclusion is that in claiming to have staved off a Depression, the White House and its supporters seem to be engaging in a bit of historical revisionism.

...

The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.

Stanford's John Taylor showed us that tax credits and directed spending was fairly worthless:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers.

Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

Even Harvard's Robert Barro is on board to an extent. While he has yet to come around on the fact that stimulus has not ever been shown to work, he's at least noting that the merits of spending need to be more important than the stimulating impact:

"In the long run you have got to pay for it. The medium and long-run effect is definitely negative. You can't just keep borrowing forever. Eventually taxes are going to be higher, and that has a negative effect," he said.

"The lesson is you want government spending only if the programmes are really worth it in terms of the usual rate of return calculations. The usual kind of calculation, not some Keynesian thing. The fact that it really is worth it to have highways and education. Classic public finance, that's not macroeconomics."

With murmurings that we may need a second stimulus, the question remains as to why we'd pursue such a thing given the track record of the first. At this point, if you're still a proponent of Keynesian-style stimulus, why? What will it take to convince you that it will not succeed?

Comments

[hardblue.livejournal.com]

Financiers and capitalists are stimulated enough, over-stimulated, and some of that wealth needs to go to workers and cities.

[badlydrawnjeff.livejournal.com]

So we need to keep doing what hasn't worked?

[xforge.livejournal.com]

The only things about the stimulus that were a failure, were that it wasn't anywhere near big enough, it wasn't administered very well, and it contained too many tax cuts for rich people and corporations.

[ddstory.livejournal.com]

It contained no strings attached, and no proper guideline for being enforced. It's like pouring milk into a bucket without having sealed all the holes at the bottom of said bucket. And then wondering why it's going empty.

[the-rukh.livejournal.com]

Most real regulation had to get stripped before Republicans would ever let it pass. Of course they're screeching and howling now about how it hasn't helped.

[jlc20thmaine.livejournal.com]

How are those shovel ready project working out for you?

[badlydrawnjeff.livejournal.com]

were that it wasn't anywhere near big enough

The data disagrees. What would have been big enough according to you?

it wasn't administered very well

What do you mean?

and it contained too many tax cuts for rich people and corporations.

It didn't have any tax cuts for rich people, or any people. Plenty of tax credits, though.

[johnny9fingers.livejournal.com]

The spending should have been, according to Keynes, on infrastructure and capital projects which generated employment: not tax cuts.

[xforge.livejournal.com]

^^ This

[johnny9fingers.livejournal.com]

Sorry, not merely tax cuts.

As it happens, there's a certain motor manufacturer which appears to be have been sold off a bit too cheaply and rather too early, given that it got turned around thanks to a public bailout.

[badlydrawnjeff.livejournal.com]

And since the spending was primarily infrastructure and capital projects, no wonder it failed.

Remember: there were no tax cuts.

[malakh-abaddon.livejournal.com]

Yeah the bailout was a flop, in terms of the goals it was intended to achieve. If another bailout is handed down, is should be x amount of dollars paid to every legal citizen who filed their taxes, and made under $150,000 last year. That x amount of dollars will need to be more than $500, which is taxed at the end of the year, it would need to be in the tens of thousands of dollars, with the stipulation that the bail out funds be used for paying debts, starting with mortgages, vehicle loans, college loans, credit cards, liens and judgements, etc, with the rest of the money (if bail out recipient has little or no debt) to be used at their discretion for whatever they need or want. If you currently owe taxes to either the state or federal government, the money owed will be taken from this bailout.

[rasilio.livejournal.com]

Of course they will never come around, they still somehow believe that World War 2 was the ultimate stimulus that ended the great depression completely ignoring the rather advantageous position we came out of the war in as the only functioning industrial base left standing.

They were all also claiming as little as a few months ago that the Stimulus package really did work because the economy appeared to be getting better.

No matter how much evidence you offer that Stimulus spending never offers the desired return on investment they will always have the ultimate cop out to fall back on, "It just wasn't big enough", or they might even admit that a particular instance of stimulus spending was misdirected or in the wrong form (like say tax breaks instead of spending, or increases in social welfare spending in place of infrastructure spending) they they promise the *next* stimulus program will do the trick.

It all boils down the the misguided notion that all problems can easily be solved by centrally coordinated action on the part of the government.

[underlankers.livejournal.com]

Er, no, that's the Right-Wing view of how the Great Depression ended. The Keynesians attribute it to the New Deal, and object to the idea that WWII lifted the USA out of poverty, at least the liberal ones who miss the disjuncture between favoring FDR and opposing say, strategic bombing.

[xforge.livejournal.com]

Personally my belief is that it not only isn't that, but also that it definitely is not "if you don't charge anyone any taxes ever, everything will magically get better."

[underlankers.livejournal.com]

More than what the Republicans offer, which is how we got in this bloody mess in the first place.

[underlankers.livejournal.com]

And for those posting from another universe, who claim both that Bush never went to war in 2003 over Weapons of Mass Destruction and that there have been no tax cuts under Obama, I present to you the following link-spam:

http://www.npr.org/2010/12/07/131879993/obama-s-tax-cut-deal-so-much-for-deficit-reduction

http://abcnews.go.com/Business/Politics/paycheck-obama-tax-cut-extension-means/story?id=12423601

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/07/AR2010120707230.html

http://www.nytimes.com/2010/10/19/us/politics/19taxes.html

http://www.whitehouse.gov/blog/2010/10/21/tax-cut-facts-how-obama-s-tax-cuts-are-helping-american-families

http://20somethingfinance.com/obama-tax-cuts/

http://www.usatoday.com/news/washington/2009-02-21-obama-saturday_N.htm

http://www.foxnews.com/politics/2009/02/16/lawmakers-worry-obama-tax-cut-stimulate-consumer-spending/

http://www.cbsnews.com/stories/2009/01/22/politics/main4747949.shtml

http://abcnews.go.com/Business/obama-middle-class-tax-credits/story?id=9659186

I expect those who lied above to apologize for blatantly lying about something that's been known for two years.

[gunslnger.livejournal.com]

What will it take to convince you that it will not succeed?

I think that for most it will take a boot to the head, and I'm willing to start giving them out.

[kylinrouge.livejournal.com]

Republicans blocked essential spending every step of the way.

It's funny, the Republicans say the Obama policies are failing, but they're not actually letting him enact them. If they're so bad, let them run and fail then? They seem perfectly content to run this country into the ground to get re-elected.

[badlydrawnjeff.livejournal.com]

Republicans blocked essential spending every step of the way.

Define "essential."

[nevermind6794.livejournal.com]

You don't understand the articles you're citing.

a.) The chart does not show that GDP had stopped free-falling, it shows that there was a small bounce in January - as there had been in November. The trend levels out after the stimulus is passed. The author also does not account for expectations of stimulus spending.

b.) "Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April." Yes, after the stimulus had passed.

c.) "When the recession officially ended in June 2009, just 15% of the stimulus money had gone out the door." Yes, but more money than that had been promised in the forms of contracts and grants and tax credits. Companies were already doing work and collecting bits of the money right on schedule. States were still doing their budgets, and hadn't spent the money yet.

d.) The Taylor part has been addressed. (http://noahpinionblog.blogspot.com/2011/07/taylor-seems-to-agree-with-keynesians.html) He does not reject the idea of stimulative government spending, he said people did not spend tax credits and that government spending did not increase enough. Those were both key complaints about the stimulus from Keynesians.

e.) Did you notice Taylor's repeated use of "simulation?" That's because it's an economic model being compared to data to see how accurate it is. You have repeatedly decried that approach with regard to pretty much everything else stimulus-related.

f.) The Barro article says, "He acknowledged, however, that there are times when stimulus programmes are needed – such as in the recent recession. But he said they should be delivered through necessary capital projects and tax cuts, to deliver required services and make the economy more efficient." Oh look, that's exactly what Keynesians advocate for. A stronger safety net, tax cuts (don't give me the "no tax cuts" crap, it's a distinction without a difference), and infrastructure.

g.) Barro's view on the long-term multiplier has already been established, and his WSJ op-eds on the topic have been thoroughly demolished. You're not presenting anything new.

h.) So, where are your studies on the effect of stimulus? Taylor's has already been covered; do you have anything empirical, ideally something with a consensus?

[nevermind6794.livejournal.com]

Whoops, html fail. Oh well.

[soliloquy76.livejournal.com]

I hate coming into a discussion after 200 comments have already been posted.

[gunslnger.livejournal.com]

What if they're all the same comment? :)

[kylinrouge.livejournal.com]

If you define 'tax cuts' as 'reduction in tax applied automatically' then yes, tax credits aren't tax cuts.

However, I would call a 'tax cut' anything that comes off your taxes.

Thinking otherwise is just being pedantic to avoid being wrong.

[badlydrawnjeff.livejournal.com]

If you define 'tax cuts' as 'reduction in tax applied automatically' then yes, tax credits aren't tax cuts.

That's what a tax cut is, yes.

[caerfrli.livejournal.com]

The stimulus was too little too late and riddled with tax breaks. A true stimulus package that involved hiring people to do some of the work that needs to be done in America may well have pulled us out of our economic troubles by now.

[badlydrawnjeff.livejournal.com]

Why would it have worked this time when it hasn't in the past?

[devil-ad-vocate.livejournal.com]

I need to know what herbs and spices work best with cat food.

[htpcl.livejournal.com]

Eh. Cinnamon?

[peamasii.livejournal.com]

The stock market would have to give back the 50%+ growth it has enjoyed since the stimulus program. We can discuss our feelings about the US constitution and such, but the reality is that capitalism rock-and-rolls.

[kylinrouge.livejournal.com]

That's the problem with these people. Record corporate growths? Massive growth in stock market? Nah, stimulus had nothing to do with that, that was all natural market forces from our ~free market~.

The idea of 'do nothing, the market will correct itself' has zero evidence to back that up.

[peamasii.livejournal.com]

Definitely not a good strategy to bail out private debt in the beginning of a down cycle. You want economic output to increase (i.e. people to work harder, borrow more, spend more) not to go into total attrition because everyone's debt was paid down by Uncle Sam!

[malakh-abaddon.livejournal.com]

People have the money to pay off massively "upside down" loans, bails out the banks, which allows them to lend, the real estate market does not take the hit that it did and is still taking. People pay off vehicle loans, that bails out the auto makers. If you look at it the way you are, everything will be an epic fail. Of course you will always have slack jawed idiots who say "I have no debts, I dont have to work". While that is bad, it has good points as well, less people looking for more jobs. But look at it this way, the less debt you have, the more you spend (buy a new car, remodel your house, buy that new television, eat out more).

I'm just saying, bailing out the people may or may not have worked any better, but if done correctly, it would have helped more people, and possibly been cheaper.