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

[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]

I think that's what Rasilio was saying too; note the "still somehow believe."

[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]

Medieval times show that there is no need for standing army and that local warlords can provide just as effective defense as a large professional standing force. Thus, support of a defense department makes one a communist.

[underlankers.livejournal.com]

No, I'm simply using libertarian rationales that use the Gilded Age to prove that the 20th Century prosperity never happened.

[xforge.livejournal.com]

Bruce, if you give all the money to the rich people, they're going to keep it. That's how they got rich, is by keeping all the money anybody gave them.

[mrbogey.livejournal.com]

That's a poor understanding of wealth and economics. Rich people don't gold assets as you're making it to be. Their assets are generally found in investments. Assets they liquify as needed to support their lifestyle. And in a Keynesian inflationary stimulus you're helping the rich grow their assets as generally in a decent economy with inflation their investments will outpace inflation.

The thing with wealth is you can always leverage it to get more no matter the economic situation.

Your pursuit of an economy that grows the lower end while not growing the upper end is a unicorn quest.

[underlankers.livejournal.com]

Yes, because we all know Paris Hilton needs the government to invest in her porn star career.

[mrbogey.livejournal.com]

What does that even mean?

That was nonsense and you should feel bad for it.

[underlankers.livejournal.com]

Rich people don't gold assets as you're making it to be. Their assets are generally found in investments. Assets they liquify as needed to support their lifestyle. And in a Keynesian inflationary stimulus you're helping the rich grow their assets as generally in a decent economy with inflation their investments will outpace inflation.

^I'm using Paris Hilton as an example of someone who'd benefit from this policy. I'm not sure the porn industry needs the help.

[xforge.livejournal.com]

Don't you think maybe we've been "growing the upper end" for long enough by now?

[mrbogey.livejournal.com]

Well I'm trying to get you to stop helping them.

It's a repeat of the social experiment where you could penalize your enemy at a greater hit to you. And we see the same results. Everyone is so hellbent on going after the rich they don't realize they're hurting themselves more than the rich. And in a way are helping them.

Investments in the US are going down and capital is reallocating itself nation-wide. This isn't happening in a bubble.

[xforge.livejournal.com]

I don't understand how objecting to this revenue-free insanity is "helping them."