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

[nevermind6794.livejournal.com]

a.) My protest is that his claim, which is one of the underpinnings of the overall theme that the stimulus didn't really help, is incorrect.

c.) That's because next to money, a claim to money is the best thing a business can have. Perhaps an example will clarify:

When my company got a $500k contract to design a highway from TxDOT, we didn't get a check for $500k. Instead, we worked on it and billed TxDOT every month based on how much we had completed. So people were employed, getting paid, spending money, just the same as if my company had already received $500k, but TxDOT had not actually spent that much.

d.) The protest is that Taylor's criticism about poorly targeted spending is about it not increasing overall government spending enough; the federal government spent more money, but it was offset by spending at the state and local levels. Government spending hardly increased. The tax cuts didn't increase consumer spending either, because they were used to save or pay down debt.

e.) For what it's worth, I don't think it's an error to use an expert's estimate in an argument; it's just an inconsistency.

h.) I don't think The Forgotten Man is worth a read anymore than Bowling for Columbine is worth watching. I haven't seen/read either, but I know enough about the information contained therein to know that they probably aren't worth the time. If there's any specific data in there worth sharing, feel free, but I already know that the unemployment statistics were chosen to be skewed and that Shlaes ignores the cut in spending before the economy worsened in 1937.