Open Thread on the "Stimulus"

[sniglet]

[jon]

You can say that the problem is taxes are too low or that spending is too high, but the problem is that you can't have both. This stimulus bill is a lot of both.

[rose-colored-coolaid]

OK, there is simply too much debate going on here to really cover all the basis, so I'm going to focus on just one thing that I saw a little confusion about - Spending != Stimulus.

It is ridiculous that anyone would even need to argue this. Perhaps it's this bent everyone seems to have towards supply side economics, but the reality is that demand is a more necessary component of price than supply in many cases (this is because supply flows to where the demand is, demand does not go to where the supply is in general). Consider if you have 10,000 really awesome desktop computers to sell, what are they worth. It'll be a very different number in USA where electricity is freely available than in the middle of the Amazon rain forest.

If the government spends money on anything, even if it's wasteful spending, it will increase demand (though perhaps not as much as what's being lost) and thus will stimulate the economy by encouraging supply.

So, let's go back to the basic problem. The problem is not what our economic output will be during the recession. Imagine if economic output were always 20% lower than it was over the last five years, you could work 32 hours a week; your food and ipod might cost a little more relative to your income, but your housing would be about the same. It really wouldn't be terrible. In fact, 25 years ago total GDP was much lower than it is today and nobody found that dire.

So, the problem isn't economic output exactly, but rather the massive swings in that value. Imagine running a business where every year your revenue swung up or down by 40%. It would be impossible. In the good years, you would need to hire more workers, they would get 8 months to learn their jobs, and then you'd have to lay them all off the next year. In such a business, you'd really be better off saving some of your excess profit in the good year and spending it to keep making payroll in the bad year.

That's essentially the entire goal of this (and every) stimulus package. Accept you are incurring debt (better to have saved a surplus from the good times though) and smooth over the bad times with a little extra spending. Let's say GDP in 5 years has actually dropped to a new permanently lower plateau than it is at today. If all we can do is smooth that drop, it is probably worth it. Just the extra cash we bring in over those five years by not letting the economy be quite as badly decimated is probably worth $1T.


All that said, while I don't see how we can not try a stimulus package at this point in time, I highly doubt it will work. Just the holes in bank balance sheets appear to be 3x the size of this stimulus package. We would probably need a $4T stimulus package to significantly reduce the recession we are heading into. I just don't see that happening (at least not quickly enough), so my overall thoughts are it is inevitable even with this bill. I'm just holding out hope that enough of it goes into infrastructure, research & development, education, green energy initiatives that 10 years from now we can come out of this with the wind at our backs instead of in our faces.

[rose-colored-coolaid]

Here's another explanation of why you can't argue (without holding hands up to your ears and humming loudly) that government spending isn't stimulus.

http://www.slate.com/id/2210570/

[jon]

"In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan's Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations."

http://www.nytimes.com/2009/02/06/world ... wanted=all

The rest of the article in lots of quotes from economists all contradicting each other.

[rose-colored-coolaid]

[biliruben]

And it's the worst of both worlds. Huge amount of money, but so emasculated that it probably won't achieve it's objective.

Yuck.

[The Tim]

[Lake Hills Renter]

Don't think Peter Schiff likes the bill:

[rose-colored-coolaid]

[deejayoh]

You mean the Peter Schiff who was half right? He figured out there would be a crash - and apparently all his clients still lost their @sses.

Now apparently he has had his PR flacks posting the "Peter Schiff was right" videos all over the internet.

Good post from Mish on this a couple weeks ago.

http://globaleconomicanalysis.blogspot. ... wrong.html

[Lake Hills Renter]

[Markor]

[deejayoh]

[rose-colored-coolaid]