The Stimulus Is A Failure

[KrazyHorse]

Damned if you do, damned if you don't, snoopy.

Banks took too much risk by keeping the toxic **** on their books AND they foisted their fraud off on the public by selling it off.

Banks are taking too many risks again, AND they aren't lending out enough money

Banks should tie pay to performance AND bonuses are an outrage

[The Mad Monk]

Maybe we should prevent farmers from selling their produce on the futures market; after all, if they believe in it they should be willing to bear the risk of movements in the market...

Careful, dude.

You'll give them ideas.

[Dinner]

3.5% growth last month. Drake should ***** more because the more he *****es the better things get.

[KrazyHorse]

That was annualized quarterly growth, not growth in a month

But yes, things are definitely turning around (though they still suck)

Drake has an important point, but it is not that the stimulus destroyed jobs. It's that assumptions about how much good stimulus spending was going to do (or even, in retrospect DID SO FAR) in terms of preventing job losses or mitigating GDP drops are pretty much bunk. With no observations of the counterfactual world of no stimulus spending, and with no universally accepted model of the effects of such spending, these assumptions are nothing more than fictions.

Did the stimulus package do harm? Did it prevent a worse downturn than anybody thought possible? Who the **** knows...

[Drake Tungsten]

It's that assumptions about how much good stimulus spending was going to do (or even, in retrospect DID SO FAR) in terms of preventing job losses or mitigating GDP drops are pretty much bunk.

Exactly. I'd like people to understand the limitations of fiscal policy in making up for shortfalls in demand during a recession, particularly when the fiscal policy is implemented in the manner this stimulus package was. Shoveling hundreds of billions of dollars into the economy isn't necessarily going to be successful as a stimulus and is quite possibly a waste from a cost-benefit perspective.

[JEELEN]

As evidenced by the May unemployment numbers...



Why'd we spend $800 billion to make things worse than projected?

That's a bit of a premature conclusion; economic recovery usually takes quite a bit longer than the onslaught of a depression/recession. At any rate, doing nothing is hardly a viable option with currentn unemployment rates.

[Drake Tungsten]

Doing nothing is always an option. Unemployment may well have reached roughly similar levels had we simply done nothing and saved the hundreds of billions of dollars spent on the stimulus.

[KrazyHorse]

There have been a slew of recent papers on the stimulative effects of unforeseen, deficit-financed (and money-financed, in WWII and for some years after; let's not forget how beholden to the Treasury the Fed was back then) government spending. Most get reasonably small historical fiscal multipliers (defined in various ways) of between 0.5 and 1.0. This makes sense when you consider the (relatively robust) justifications of why there should be any effect on output at all that come from neo-keynsian analysis; fiscal multipliers larger than 1 are relatively hard to justify theoretically, while frictions and changes in expectations justify something higher than 1. The key point with the stimulus spending that the US has engaged in is that most of the spending HASN'T EVEN TAKEN PLACE YET. In fact, much of it will come into play just as the output gap is ALREADY returning to near 0, and much of this spending will therefore just crowd out more productive activity. The cash which went out quickly and was probably most effective was the portion of spending which had the least to do with the federal gov't actually doing stuff, e.g. increases in unemployment benefits, food stamps, cash aid to states.

Personally, I think the best thing which could have been done would have been for Ben Bernanke to get up in front of the microphones and announce that he was sending everybody in the US a freshly printed 100$ bill every month FOR AS LONG AS IT TOOK to return inflation to trend (not just the rate; the actual price path).

Helicopter money in a deflationary recession

[Drake Tungsten]

The cash which went out quickly and was probably most effective was the portion of spending which had the least to do with the federal gov't actually doing stuff, e.g. increases in unemployment benefits, food stamps, cash aid to states.

QFT

[ricketyclik]

The cash which went out quickly and was probably most effective was the portion of spending which had the least to do with the federal gov't actually doing stuff, e.g. increases in unemployment benefits, food stamps, cash aid to states.

Personally, I think the best thing which could have been done would have been for Ben Bernanke to get up in front of the microphones and announce that he was sending everybody in the US a freshly printed 100$ bill every month FOR AS LONG AS IT TOOK to return inflation to trend (not just the rate; the actual price path).

Helicopter money in a deflationary recession

There is strong evidence of the truth of this in the Australian experience of the GFC. We were each given $900 before economic declines had even been measured. This was accompanied by equally generous family assistance payments. We're yet to enter recession, and if things keep going the way they have been we won't .

[KrazyHorse]

Was that program money-financed or debt-financed? There's a key difference...

[ricketyclik]

A bit of both. Mainly debt. A sound investment in my opinion.

[JEELEN]

Doing nothing is always an option. Unemployment may well have reached roughly similar levels had we simply done nothing and saved the hundreds of billions of dollars spent on the stimulus.

That's easy for you to say, but I reckon even a McCain- (what's-her-name-again?) administration wouldn't have just stood by and done nothing - as should already have been obvious from McCain's crisis plans. So, realistically it's not an option, no.

[Kidlicious]

It definitely didn't stimulate much.

[ricketyclik]

A key element of stimulus is how much of an effect it has on poeple's confidence and hence spending. I theorise that because the US housing market crashed so badly, people's confidence wasn't restored by the stimulus, so it it had very limited effect.