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

[johnny9fingers.livejournal.com]

Thing is Keynes did advocate tax cuts, but....qualified according to circumstance, from what I can recall. So a blanket denial would have been wrong. :)

Incidently, what's your opinion about the Chrysler sale to Fiat? Too soon, or about the right time/price?

[xforge.livejournal.com]

It seemed pretty well-timed to me; hadn't they been hoping for a buyer for a while already? I've heard Fiat wants to get some of their Euro-style small cars into our market, which is something Chrysler's line has really been missing. Their sales weren't totally awful because of their attractive styling and the fact they seem to have gotten away from the Godawful mechanical problems they were having in the 90s.

[johnny9fingers.livejournal.com]

I wonder if the government might have got a better return on its investment if the sale had been delayed, but that depends on the overall economic situation: and if the US gets any closer to potential default, the timing could be right, inasmuch as the overall economic position may well have removed any possibility of a sale whatsoever.

The thing I notice more and more is that the branches of the US government aren't singing from the same hymn-sheet, significantly lessening the possibility of any emergency economic measures having the effect intended.

[xforge.livejournal.com]

And that also. Do you and I normally agree this much?

[johnny9fingers.livejournal.com]

Probably.