Stimulus: Still Not Working!

Unbelievably, the administration and its allies keep insisting that a failed policy was a success.

Imagine that I break my arm, but instead of getting a cast I take a big shot of morphine. The drug will make me feel better, but it won’t fix my arm. When the effect wears off, the pain will come back. And instead of being restored to their proper position, my bones will remain out of place, perhaps solidifying there, which will surely mean chronic pain in the long run.

Stimulus spending is like morphine. It might feel good in the short term for the beneficiaries of the money, but it doesn’t help repair the economy. And it causes more damage if it gets in the way of a proper recovery.

When the American Recovery and Reinvestment Act was signed on February 13, 2009, it became the biggest spending bill in the history of the country. Its original cost of $787 billion was divided into three main pieces: $288 billion in tax benefits such as a refundable tax credit; $272 billion in contracts, grants, and loans (the shovel-ready projects); and $302 billion in entitlements such as food stamps and unemployment insurance.The checks felt good for the Americans who received them. And the contractors who got those grants and contracts were happy to have the work. But the idea behind the stimulus was that this money would not just be a subsidy to those in need; it would revive the economy through a multiplier effect. The unemployed worker, for instance, would cash his unemployment check and spend it at the grocery store. The store owner would in turn spend the money on supplies, and so on, triggering a growth in the economy that goes beyond the original investment and jumpstarts the hiring process.

White House economists used forecasting models that assumed each dollar of spending would trigger between $1.50 and $2.50 of growth. As a result, President Barack Obama announced that his plan would grow the economy by more than 3 percent and “create or save” 3.5 million jobs over the next two years, mostly in the private sector. These models also forecasted that without the spending, the unemployment rate would increase from 7 percent to 8.8 percent.

Since then the U.S. economy has shed another 2.5 million jobs and the unemployment rate has climbed to 9.6 percent. Figure 1 shows the monthly unemployment rate, as measured by the Bureau of Labor Statistics, since the adoption of the act, alongside the cumulative grant, contract, and loan spending as reported by the recipients on recovery.gov.

The stimulus isn’t working because it is based on faulty economics. Using historical spending data, the Harvard economist Robert Barro and recent Harvard graduate Charles Redlick have shown that in the best case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents. They also found that if the government spends $1 and raises taxes to pay for it, the economy will shrink by $1.10. In other words, greater spending financed by tax increases hurts the economy. Even if the tax is applied in the future, taxpayers today adjust their consumption and business owners refrain from hiring based on the expectation of future tax increases, which worsen the economy today.

There are other reasons the stimulus bill has hurt rather than helped the economy. Four of every five jobs reported “created or saved” are government jobs. That’s far from the 90 percent private sector jobs the administration promised. Also, the Department of Education claims it has “created or saved” at least seven jobs for every job “created or saved” by any other agency.  In other words, federal stimulus funds have been used to keep teachers on state payrolls. By subsidizing public sector employment, the federal government is getting in the way of addressing the issue of overspending in the states.

These injections of cash may provide a short-term boost, but they don’t increase economic growth permanently. When the money goes away, the jobs go away too, and so will the artificial GDP growth.

In spite of such evidence, the administration keeps touting the success of stimulus. Speaking at the National Press Club in September, outgoing Council of Economic Advisors Chair Christina Romer crowed that “the Recovery Act has played a large role in the turnaround in GDP and employment,” citing as evidence an estimate she prepared before Obama’s inauguration that a stimulus package “would raise real GDP by about 3.5 percent and employment by about 3.5 million jobs, relative to what would otherwise have occurred.” The Congressional Budget Office, she claimed, agreed that the stimulus “has already raised employment by approximately two to three million jobs relative to what it otherwise would have been.”

But no such improvements have actually taken place. Romer was acting the part of weatherman repeating last week’s sunny forecast while ignoring the downpour outside. The only measurable evidence that these millions of jobs exist comes from models—including the CBO’s—that predict that these jobs will exist. Since some of those same models predicted the Recovery Act would cap unemployment at 8 percent, they do not belong in a discussion about the Act’s effectiveness.

Some stimulus advocates do admit that the spending package hasn’t worked. But that doesn’t mean they’ve turned their backs on the stimulus concept. In an August blog post, for example, New York Times columnist Paul Krugman argued that the “stimulus wasn’t nearly big enough to restore full employment—as I warned from the beginning. And it was set up to fade out in the second half of 2010.”

This argument is nonsense. As Megan McArdle of The Atlantic wrote in August, “If we assume that stimulus benefits increase linearly, that means we would have needed a stimulus of, on the low end, $2.5 trillion. On the high end, it would have been in the $4–5 trillion range. I’m going to go out on a limb and say that even if Republicans had simply magically disappeared, the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4–5 trillion. The political support for that level of government expansion simply wasn’t there among Democrats, much less their constituents.”

Unless you believe that federal spending magically conjures up purchasing power (or that morphine heals bones), the total GDP will remain unchanged, because the federal government has to borrow the stimulus money from either domestic or foreign sources. This borrowing in turn reduces other areas of demand.

Stimulus spending does not increase total demand. It merely reshuffles it, leaving the economy just as weak as before—if not weaker, since it also increases the national debt. By trying to ease the pain, the administration may well have made the patient worse. 

Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fellow at the Mercatus Center at George Mason University.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Suki||

    Good morning reason!

  • ||

    Hey where is the big article about Krugman and his death panels? I saw a picture of Krugman and I figure there has to be a mention of the death panels! Sarah Palin was right all along.

  • Suki||

    Sarah being right again is what keeps it off of reason.

  • ntnu||

    I appreciate the article, but please remove the in-text advertising. It is harder to take you serious when I am suddenly assaulted by an ad for Canon cameras while reading the text.

  • db||

    Totally agree. And has anyone else noticed that Bing has accomplished the world portrayed in its own commercials--a world in which we are presented with random, disconnected pieces of useless and irrelevant information during our daily rounds? With this BS online advertising, it happens whether we asked for them or not. Reading an article online is like walking a fucking minefield anymore.

  • Cyto||

    It is called "noscript". Users of Firefox have it as an ad-on. Obnoxious advertising gets blocked before it even gets requested. Nice and easy.

    Websites that play nice get an exception and get their ad revenue.

  • db||

    Yeah, I already use Firefox. The point being that having to block all scripts, even useful ones, simply to avoid the in-text ad blitz is very annoying. most times, when I see in-text ads I just just leave. I was very disappointed when i saw Reason using them.
    Seriously, an article on the latest Survivor so might stand a few random hyperlinks, but serious discussions do not have a place for the kind of distractions that these ads offer. Imagine a political debate with streakers every other question.

  • db||

    Yeah, I already use Firefox. The point being that having to block all scripts, even useful ones, simply to avoid the in-text ad blitz is very annoying. most times, when I see in-text ads I just just leave. I was very disappointed when i saw Reason using them.
    Seriously, an article on the latest Survivor so might stand a few random hyperlinks, but serious discussions do not have a place for the kind of distractions that these ads offer. Imagine a political debate with streakers every other question.

  • db||

    Interestingly enough I just noticed that at home, I don't get the in-text ads, but at work I do. I'll have to play with those firefox settings on my work laptop.

  • BeltwayLurker||

    Now if only this site could open without shutting down Safari on my iPhone three times before staying open.

  • ||

    Exactly.

  • Also||

    Check out adblock plus extension.

    No-Script is not terrible. It blocks everything, but it's easy to enable sites on a temporary or permanent basis.

  • hmm||

    There's some irony, somewhere, in complaining about advertising on a free site about free markets when there is a free third party remedy to solve the issue.

  • ||

    He hasn't advocated government force to ban them. It's a simple request to have the site remove that which he doesn't like.

  • ||

    The only thing I see is the chart. I think I must have my NoScript set to "Obliterate." I don't get the video embeds or even the links to them. But I do get colons followed by nothingness. It's a real time-saver.

  • Grammar National Socialist||

    Use "nowadays" or "these days" but not "anymore." "Anymore" requires a negative, as in "No one uses anymore correctly, anymore."

  • Free Range Thinker||

    Can't wait to tell my girlfriend. Honey, say "these days". "You don't say you love me these days!"

  • Hyper Bole Jr.||

    assaulted by an ad for Canon

    That sounds really dangerous. Wait till the TSA's advertising department starts sexually assaulting you in these here pages.

  • ||

    For free information important to you and your FAMILY, please send your address and social security number to the orange email address under the trusted capitol l brand brand name!

    FREE INFORMATION...PROFIT FOR YOU!

    Send social security number to orange email address under most trusted capitol l brand logo name

    IN GOD BLESS YOU ARE FAMILY!

    PAYPAL excepted.

    Love you r faced with,

    KONGO SUPTARIZICK III

  • db||

    Now that's the kind of in-line advertising I want to see and will respond to.

  • hehe||

    Oh here go hell come.

  • ||

    I like the cut of your jib Kongo, and my Social Security number, name, address and first born child is on the way to orange email address.

    Face you r Loved with!

  • Quiet Desperation||

    I don't see [RAY-BAN SUNGLASSES - IF YOU CAN'T BE COOL, THEN AT LEAST LOOK LIKE YOU ARE TRYING] any ads. Myabe something malfunctioned [VIAGRA - THE GENTLEMAN'S CHOICE - SHEEPISHLY ASK YOUR DOCTOR ABOUT IT TODAY] for me.

  • ||

    It's called a commercial, and in capitalist societies businesses use them to generate profits. Didn't they teach you that at junior college?

  • ||

    try ad-block for firefox

  • TheOtherSomeGuy||

    In an August blog post, for example, New York Times columnist Paul Krugman argued that the “stimulus wasn’t nearly big enough to restore full employment—as I warned from the beginning.

    Please stop citing Krugman as an "expert". This is a guy who was against death panels before he was 100% totally for them. Making fun of Sarah Palin, while easy and enjoyable, doesn't generate a pass on your stance in regards to euthanasia and murdering grandma because its simply cost effective.

  • JoshINHB||

    But he also supports WWIII as an economic cure all.

  • George V||

    They didn't cite him as an "expert", they cited him as a NY Times columnist.

  • slutmonkey||

    He only ever gets cited because he has that lame ass column in the NY Times where a lot of idiots swallow his garbage without question.

    It's not how smart you are, it's how many people buy your implicit credibility.

  • Troll||

    I prefer "Noble prize winner and (shame of) Princeton professor."

    Seriously, what passes for Econ at that school?

  • numb||

    It's obvious that the stimulus wasn't big enough - and more money should have gone into small business help.

  • Realist||

    Let me guess your last name is Nuts!

  • Fatty Bolger||

    Could be Skull.

  • Realist||

    Yes...yes it could.

  • slutmonkey||

    You're right that the stimulus wasn't big enough to bring back full employment, but it also wasn't the right remedy. The medical metaphor of morphine is apt.

    Morphine has legitimate medical uses, and it can be a good thing to initially give to someone with a broken arm. The problem is that we didn't ALSO set the bone. Building a cast is the part that REALLY matters in the long run, and we haven't done it--which is why our arm is still broken.

  • ||

    I prefer slutpuppies...

  • numb||

    What would that cast building consist of? I prefer tax breaks to small businesses as well as spending on infrastructure and education.

  • George||

    A failed policy was a success.

    Remember, Jerry: It's not a lie if you believe it.

  • Kramer||

    These pretzels are making me thirsty.

  • Johnny Longtorso||

    If we gave Paulie Krugnuts $8 trillion he would have demanded 16. The point of always demanding more was to have his ass covered when the program failed. Good news? Stimulus. Bad news? Stimulus wasn't big enough. No matter what happens, KrugButt is covered.

    It's not fair to call them socialists. They don't explicitly want every dollar controlled by govt. They just always want more dollars controlled directly by govt, no matter how much the govt controls at any given time, and always blame everything on any dollar not controlled by govt. See the difference?

  • Jeffersonian||

    Not only that, but as a link that Glenn Reynolds posted last week showed, the stimulus was in large part a political sop to Democratic constituencies, not a serious and sober-minded attempt to actually improve American infrastructure through the execution of "shovel-ready" jobs.

  • Fatty Bolger||

    The stimulus was a dumb idea to begin with, but if we were going to spend a bunch of money anyway, it would have made sense to spend it on things with lasting value.

  • Realist||

    Learn to speak Mandrin!

  • ||

    That doesn't happen until the Whedonverse Singularity.

  • Hooha||

    "We were SO many..."

  • Troll||

    Seems more like Anarchists to me. Isn't that the logical conclusion here? Unless of course organizing labor around a campfire and a spit of squirrel meat is your idea of Socialism.

  • Barney The Frank||

    "...squirrel meat...." any meat as long as it's big meat!

  • O The Bama||

    ...eight years of failed policies from Wash... SQUIRREL!

  • Cyto||

    the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4–5 trillion. The political support for that level of government expansion simply wasn’t there among Democrats, much less their constituents.”

    I dissagree. I think that a large percentage of Democrats in congress and their constituents firmly believe that government money magically appears out of thin air. They also believe that "the rich" have nearly infinite money that can (and should) be raided at will to create more fairness.

    Do you really think for one minute the Maxine Waters or Chuck Shumer believe that spending by the federal government could ever be harmful? Do you really think that they believe that direct subsidy payments to their constituents could ever be a bad thing?

    No, a large percentage of Democrats firmly believe that punitive taxes on "the rich" and direct payments to what they would term "the people" are the equivalent of "truth, justice and the American way". That's why they couch everything in terms like "social justice" and "social contract". To them the only thing standing in the way of economic growth is the absence of "social justice" and those who would violate the "social contract" by keeping too much for themselves.

  • TheOtherSomeGuy||

    With the Fed in control of the printing presses, Government money does magically appear out of thin air. Ex.: QE2.

  • ||

    +10

  • Fatty Bolger||

    True, but it also "magically" loses its value. Ex.: QE2.

  • Billy Shakespeare||

    +9
    +8
    +7
    ...

  • JohnD ||

    It is very fair to call them Socialists, but I prefer to call them Marxists. Just because they don't currently control every dollar doesn't mean that isn't their goal. Besides where did you get the idea that any socialst country controls every dollar (or whatever their currency is)?

  • sarcasmic||

    Because when socialism is narrowly defined as direct government management of every resource, then socialists can can claim that they are not socialists because they do not fit that narrow definition.

  • ||

    I have never understood the idea of the multiplier effect (among other things!). How does a dollar become more than itself? Is the mechanism presumed to be inflation? Or is it more like a perpetual motion machine?

  • cynical||

    Dollars are just the medium of exchange and unit of measurement. The multiplier effect is supposed to apply to the actual value created.

  • ||

    I think that's where I get lost...how do you measure 'value'? If the dollar is the unit of measure for value, how can it measure more value than it measures? I suppose I would make a poor economist.

  • JoshINHB||

    The theory is that if joe gets a dollar in january he'll buy something from jim in feb who'll buy something from john in march etc. Add all those purchases together and you get the multiplier. Good theory, doesn't quite work out in reality.

    So yeah it's a kind of perpetual motion machine.

  • jrb||

    Good theory, doesn't quite work out in reality.


    If it doesn't work in reality, then it's not a good theory.

  • Hooha||

    I'm going to use that on all the community college dropouts that parrot "Communism is good... in theory".

  • ||

    A real multiplier occurs when Joe uses the $1.00 to buy a lamp at a local garage sale, fixes it up (i.e. increasing it's value via his labor and perhaps new parts), then sells it at his own garage sale for $5.00.

    The input was $1.00, perhaps a few parts (let's say $1.00 worth) and Joe's labor.

    The output was a fixed up lamp worth $5.00 ($3.00 profit indicating the value of Joe's labor). In that case the multiplier is 3.

    Krugman's point is if not for the $1.00 given to Joe, he wouldn't have bought the lamp to begin with. The idea is that the stimulus money spurs/enables people to add value to the economy.

    Unfortunately, it ignores the fact that the $1.00 was taken from someone
    (now or in the future) who may have used it to add $10.00 to the value of the economy (not to mention the administrative costs of distributing the $1.00).

    In my opinion, for government purposes, the only valid way the multiplier concept can be applied is to compare the multiplier effect of this program verses that one. In other words, if the gov't can take from its own budget (defund one program to pay for another) in order to increase the multiplier, it may have some validity.

  • ||

    From another perspective the multiplier in my example is 2.5. The lamp worth $1.00 plus the parts worth $1.00 together (with Joe's labor) became a lamp worth $5.00. $5.00/$2.00 = 2.5

  • Brett L||

    Theoretically, the stimulus money is buying idle capacity at a discount, but the same dollars will not be discounted on the 3rd (or 5th) transaction, so the dollar spent on idle capacity becomes more valuable over time, thus "creating" value. It is a way -- not well substantiated -- of attempting to justify wealth transfers mediated by the government.

    I'm personally with VGO. There's no way that moving the money through at least 3 parties before doing anything of value creates net positive value.

  • The Democrats||

    "Measure 'value'?"

    What a concept! Everybody knows you legislate 'value'!

  • Free Range Thinker||

    Your legislation violates MY "social contract".

  • Vermont Gun Owner||

    A perpetual motion machine only assumes no losses. The multiplier effect assumes gains from nowhere. So it's more like a gas turbine with 150-250% efficiency.

  • hehe||

    Well, we all know the government has one of those that runs on water, so who better to pull this off?

  • fish||

    So it's more like a gas turbine with 150-250% efficiency.

    I'm interested in your super efficient gas turbines....I will buy some!

  • ||

    Odd unemployment numbers. We keep losing jobs (or barely gaining any), the population keeps growing. And yet, the unemployment rate keeps staying at around 9.6%. How can this happen? How can we have more people unemployed, but the rate of unemployment stay the same?

    Obviously the government is lying, but it seems odd. Is 10% unemployment some sort of psychological turning point they can' admit to?

  • ?||

    Nobody is hiring the newborn. And people keep dying.

  • Chicago||

    But dead voters can still exercise their rights!

  • Mayor Daley||

    It's the right thing to do!

  • TheOtherSomeGuy||

    The 9.6% figure represents only the people aho are looking for work, but can't find it. It does not represent the total number of unemployed people in the US.

  • Spoonman.||

    Do they calculate unemployment from the number of people filing for unemployment benefits? How would they count, for example, my wife from last December through April, who had just graduated from college and was looking for a job but wasn't on unemployment?

  • Max||

    Jesus, reading this thread is like watching cerebral palsy victims play basketball.

  • TheOtherSomeGuy||

    How does it feel to ride the bench while the cerebal palsy victims that outplayed you in practice are on the court?

  • Wise Ass||

    How does it feel to respond to trolls, even when you know it is so wrong?

  • Kilgore||

    Don't know how it feels, but it smells like victory!

  • GMT II||

    Since I live in a "old folks home" I can tell you that the chicks with cerebal palsy; their hands shake in a way that is quite nice.

  • ||

    If they deducted karma points for that sort of comment, you'd be in the red, mister!

  • Juvenile Lurker||

    Old chick: I have acute angina!

    Old guy: I sure hope so, 'cause those are the sorriest tits I've ever seen!

  • JoshINHB||

    Jesus, reading this thread is like watching cerebral palsy victims play basketball.

    It's a lot like the federal agency you "work" for in that way.
    Except that no one is getting tax dollars here.

  • Max||

    I love being an obnoxious, government-loving whore.

  • Old Mexican||

    Re: Max,

    Max, H&R's pet yorkie.

    Here boy! Here, go fetch! That's a good boy! Yeah!

  • Yorkie||

    Hey!

  • Mr Whipple||

    I'm still waiting for the "helicopter" to fly over my house.

    The problem with all of the Stimulus and bailout bullshit was the intermediaries. If they would have just added it all up, and divided it equally between the 160 million or so working people, we'd be on the road to prosperity.

    Seriously, when the economy is driven by debt, simply "creating" jobs isn't going to do much, especially when there is little or no demand for credit. Individuals and businesses were/are overleveraged, and can't absorb more debt. That's called a Recession.

  • ||

    Waaaaaaaaaay back in College, we used to watch Battlestar Galactica (with Lorne Green!!!). We all laughed hysterically when the Captain would ask how far away a ship/star/gigantic cosmic being was, and the ship's navigator would announce, "5 microns". We'd all look at each other and ask ourselves, "How stupid could the scriptwriters be to use that???"

    Too bad I can't laugh this one off.

  • Adama||

    What the navigator was trying to say was "...they're right on top of us".

  • ||

    FRACK!!!

  • Nerd Grammar Nazi||

    It's "frak."

  • DK||

    Could they be using micron in some other sense? For instance, micron is used infrequently in high vacuum literature to indicate pressure. A micron is 1e-6 Torr, or the pressure which would cause a mercury column at room temperature to rise 1 micron. Maybe they have these sensors which pick up a ship's movement by displacement of some column or something. And a micron is the amount their sensor is displaced when a ship is, say, 1 AU away.

    Probably not. But BSG isn't the only sci fi show to suffer from this type of thing. Star Wars: Han Solo made the Kessel Run in however many parsecs. The parsec is a unit of distance; why would you brag about the distance you traveled in some race?

  • fish||

    The parsec is a unit of distance; why would you brag about the distance you traveled in some race?

    Ask the ultramarathon runners.

    On a side note, I have on occasion scored parsec while golfing!

  • Nerd Grammar Nazi||

    Unfortunately for Han, his grammar doesn't make sense if he is talking about a distance.

  • George Lucas||

    I'm sorry, I can't hear your nerdrage over all my HOOKERS AND BLOW.

  • Troll||

    Who the fuck ARE these people? HnR, keeping it deadly serious and borderline absurd simultaneously.

  • Trespassers W||

    So why are Obama and his allies still insisting that this failed policy was a success?

    Because they'd look bad and hurt their chances of getting reelected if they admitted failure?

    Was this a trick question?

  • ||

    To be fair. Obama did recently admit failure. Failure to understand that we are all too stupid to understand his explanations, so he needs to work harder in dumbing down his message.

  • Elder||

    Keynesian economic theory can fail?

  • O The Bama||

    but... in reality... the theory... in terms of real growth... will be shown to create... by removing the eight years of failed policy... a net gain.

  • Han Solo||

    We'll be there in five parsecs.

  • db||

    ugh.

  • Barney The Frank||

    Sometimes I have to do a hand solo!

  • Palmela Handerson||

    I can't believe you left me for HIM!

  • Paul Krugman||

    Stimulus spending does not increase total demand. It merely reshuffles it, leaving the economy just as weak as before—if not weaker, since it also increases the national debt.

    All right, Veronique, you've convinced me. I am now recommending that supply, not demand, be shuffled.

  • ||

    "Stimulus spending does not increase total demand. It merely reshuffles it, leaving the economy just as weak as before—if not weaker, since it also increases the national debt."

    I beg to differ Veronique--It leaves it weaker because we are taking that money from efficient uses, and putting it to inefficient uses.

  • slutmonkey||

    If you're reading comprehension were above a 3rd grade level PK you'd have noticed that she never recommended shuffling supply EITHER.

    Government (at it's best) only improves the economy by determining and enforcing the simplest effective rules consistently to prevent fraud. When government tries to meddle with either supply or demand, it fucks things up for everyone.

  • mr obvious||

    whoosh?

  • robc||

    No Robert Barro mentions yet?

    This stimulus is making his work look like genius. "Hey!, Ive already shown that past government spending had a multiplier well less than 1, thanks for updating my work!!"

  • ||

    I teach you the Krugman. Limited government is something that shall be overcome. What have you done to overcome it?

    All beings so far have created something beyond themselves; and do you want to be the ebb of this great flood and even go back to the GOP rather than overcome libertarians? What is the Republican to the libertarian? A laughingstock or a painful embarrassment. And the libertarian shall be just that for the Krugman: a laughingstock or a painful embarrassment...

    Behold, I teach you the Krugman. The Krugman is the meaning of the earth. Let your will say: the Krugman shall be the meaning of the earth! I beseech you, my brothers, remain faithful to The Obama, and do not believe those who speak to you of third party hopes! Libertarians are they, whether they know it or not. Despisers of government are they, decaying and poisoned themselves, of whom The Obama is weary: so let them go.

    Once the sin against God was the greatest sin; but God died, and these sinners died with him. To sin against The Obama is now the most dreadful thing, and to esteem the entrails of the unknowable higher than the meaning of The Obama...

  • ||

    The Krugman...is that like...The Metal? Tenacious man!

  • ||

    I agreee - Obama is a pile of steaming entrails...

  • Michelle||

    The Obama is now the most dreadful thing

    Honey, I told you you'd look good in dreadlocks!

  • ||

    I think the stimulus failed as much as anything because it was not accompanied by any kind of certainty for business and investors. Obama spent his first two years following the Alynski method of personalizing and attacking anyone who stood in his way. That makes business wonder if they might be next. We also had the specter of the Republican mandated tax increase at the end of this year. Since no one knew if the rates would continue, no one knows what their tax rates are going to be and can't plan accordingly.

    Most importantly, we spent a year debating a giant health care bill that was going to affect the labor costs of every business in America. At the exact moment when the economy was hitting bottom when it desperately needed businesses to start investing and hiring again, Obama made everyone's future labor costs completely uncertain. And continued to do so for an entire year of contentious debate. That and the uncertainty over taxes is what killed off the recovery more than anything.

  • ||

    Ding ding ding! We have a winner. You make plans based on assumptions. When you can't make assumptions that are the least bit likely to happen, you just do what you're currently doing and stop trying to plan the next step until you can make reasonable assumptions.

  • ||

    You hit on the one thing that I consistently see missing in all the discussion I hear about the stimulus, and the economy, stability. I hear complaints that banks aren't lending, and businesses aren't expanding. Both of those are investments. People don't invest, when the risk is too high. The likelihood of more taxation, more regulation, and more costly mandates was and is too high to make most investing worth the risk.

    The only sure way to spur an economy out of a slide into recession, is to make permanent, business friendly changes.

  • ||

    Or at least commit to stop doing any more damage.

  • Mr Whipple||

    I'm pissed that the GM IPO will not be available to retail investors. The way CNBC is pumping it, it's going to be the deal of the century.

    [/sarcasm].

  • Barney The Frank||

    I would wait for GM bonds, so Obama can shove his dick up my ass again!

  • 8||

    if the stimulus succeeded in its unstated goal of paying off democrat constituencies, did it fail?

  • ||

    Not in our book.

  • Barack Obama||

    Let me be clear.

    There are those who say that the stimulus had the unstated goal of paying off Democrat constituencies. To these cynics, these obstructionists, I say: Your assertion makes no sense, from any standpoint. First, this goal has been explicity and repeatedly made public, for example, to "Joe the Plumber." Second, and more importantly, this goal is one of The State.

  • Mr Whipple||

    Plan B: QE 2. Even though the banks, supposedly, have plenty of reserves, will inject another $600 billion just to devalue the USD, and drive stocks up. This will make people "feel better", about the economy. When people feel better, they borrow and spend more. It will also make all of those shit assets, known as MBSs and CDOs and CSOs, look like they are worth more money, and the FRB can finally start dumping all of the crap in Maiden Lane for JPM and AIG. Suckers.

    We'll also have a GM IPO, and pump the shit out of it. That will make people feel much more better, as well. Suckers.

    People won't see the parabolic rise in commodities, because most people don't follow the commodity markets. We'll have all of the major food manufacturers reduce the size of their packaging, so people won't see the rise in prices at the retail level. Suckers.

  • ||

    We want people to anticipate inflation. That way they will spend more. That is what Bernarke has said. When those people spend more and the economy picks up and prices go through the roof and everyone's savings is wiped out and we are all poor because you money won't buy anything on the world market, well we will deal with that then.

  • Mr Whipple||

    Then why are they telling us there is no inflation, currently, when there is? I've already begun to see package sizes reduced. That 7oz box of crackers is now 5.5oz, but it's the same price. $9/lb. Thank God for unit pricing.

    I actually noticed something else. Unit pricing on cereal is now in ozs in my local supermarket. WTF is $0.311/oz for a box of cereal? Is that supposed to fool me?

  • Troll||

    What the fuck is with $14 laundry soap? Mom used Tide, I'm not.

  • Mr Whipple||

    I may be wrong, but I don't think they want people to anticipate inflation in food prices, just the shiny gadgets, and durable goods.

  • ||

    I think that is it.

  • Max||

    I've said it before, but no one on team Libertoid is worthy of eating the peanuts out of Krugman's shit. But carry on with jacking each other off, you stupid shits.

  • Matrix||

    Get back in your cage!

  • Old Mexican||

    Re: Max,

    Max, H&R's pet yorkie.

    Here Max! Here, boy! Go fetch! That's a good boy! Yeah!

  • Max||

    ARF!!ARF!!ARF!!ARF!!ARF!!ARF!!

  • Old Mexican||

    Good boy!! That's a good boy!!!

  • Mr Whipple||

    (Well then Fido got up off the floor, and he rolled over
    and he looked me straight in the eye
    And you know what he said?
    "Once upon a time, somebody say to me"
    This is the dog talkin' now
    "What is your, conceptual, continuity?"
    "Well I told 'em right then", Fido said
    "It should be easy to see
    "The crux of the biscuit
    is the apostrophe"
    Well you know, the man that was talking to the dog
    looked at the dog, and he said
    Sort of staring in disbelief
    "You can't say that"
    he said
    "It doesn't, and you can't, I won't, and it don't
    it hasn't, it isn't, it even ain't, and it shouldn't
    it couldn't"
    He told him, "No, no, no"
    I told him, "Yes, yes, yes"
    I said, "I do it all the time
    Ain't this boogie a mess"?)

    The poodle bites, the poodle chews it

  • Trespassers W||

    Fido... Fido... here Fido... fetch the slippers, boy... arf arf arf...

    SICK.

  • George V||

    Geez, Max, how is it you know about eating peanuts out of someone else's waste?

  • Mr. FIFY||

    That's how liberals think, George.

  • sarcasmic||

    Liberals don't think. They emote.

  • fish||

    It's what he and Paul like to do when they get together.

    Does Mrs. Krugman get to play too!

  • ||

    Well reasoned, sir.

  • DLM||

    I've said it before, but no one on team Libertoid is worthy of eating the peanuts out of Krugman's shit.

    I assume you *are* worthy. The question is why would you want to?

  • ||

    Obama made everyone's future labor costs completely uncertain. And continued to do so for an entire year of contentious debate. That and the uncertainty over taxes is what killed off the recovery more than anything.

    I don't think we should ignore the effect on investors of the Obama administration's ham-fisted "reorganization" of GM and Chrysler, and what they did to the bondholders in particular.

    Meanwhile, the Fed has completely fucked savers by driving interest rates to nearly zero.

    Anybody who expects a return on their money, much less a reasonable risk premium, is out of luck. Just bury the money in the back yard; at least you won't lose as much as you would when the stock market tanks.

  • Realist||

    Another Nobel Prise winning jack off bites the dust.

  • Old Mexican||

    The stimulus isn’t working because it is based on faulty economics.

    No!

    Using historical spending data, the Harvard economist Robert Barro and recent Harvard graduate Charles Redlick have shown that in the best case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents.

    In other words - "stimulus" spending actually CONSUMES (or destroys) WEALTH.

    They also found that if the government spends $1 and raises taxes to pay for it, the economy will shrink by $1.10.

    Called a "misallocation of resources."

    There's two effects at play here:

    1) The Broken Window Fallacy, and
    2) The Aggregate Demand fallacy.

  • Jeffersonian||

    Wait...that would mean an economic system based on plunder isn't viable. What will the Democratic Party ever do now!?

  • LeSigh||

    We need NASA to discover life in space so we can start exploiting indigenous peoples again.

  • The settlers||

    Ha HA! Nobody will be able to stop us when all the loincloths and teepees are OURS!!

  • Old Mexican||

    These injections of cash may provide a short-term boost, but they don’t increase economic growth permanently. When the money goes away, the jobs go away too, and so will the artificial GDP growth.

    "GDP" is basically one of the most useless econo-metric you can imagine. To include government expenditure as part of "growth" is as misleading as adding my wife's shopping spree as part of my bottom line.

  • ||

    Liberals always have great intentions and horrible results - always.

    It should be no surprise that Obama and his merry band of Libs think they are doing the Lord's work - they want to feel good about themselves. The actual results mean nothing to them and they always ignore the outcome.

    Kind of like at a 4 way stop sign where you have been waiting 10 minutes for your turn and the Libs ahead of you keep waving the other guy to go through the intersection ahead of them. The Do-gooder feels great and could care less about the consequences of the folks behind them.

  • sarcasmic||

    More like the 4 way stop in LA Story.

  • ||

    Man, I laughed at this one. I hate missing the light because of someone waving another in. It's the "How nice, but not on my time" conunnundrum.

  • Hooha||

    A liberal and a conservative walking together down the sidewalk happen across a drifter. Moved by the plight of his fellow man, the conservative approached the drifter.

    "Good sir!", said the conservative to the drifter, "If you'll come with me, I'll get you a job breaking down boxes behind my business with fair pay. If you save up your wage and treat yourself to a bath, shave, and some fresh clothes, I'll train you to fill a more respectable and comfortable position, and we can get your life back on track!". The drifter shot the conservative a sideways glance as he considered this. "No thanks", he replied after but a breif moments' deliberation.

    Shaking his head pitiably at the foolishness of his conservative friend, the liberal stepped foreward, handed the drifter a ten dollar bill, and said "Well, I feel better!"

  • hmm||

    I'm no PhD economist, but it seems like all the models that use aggregation as fundamental part of the model completely remove all consideration of individual motivation. It seems like aggregation is incapable of accounting for motive in current macro models that I have seen.

    Or more succinctly. People do their own thang.

  • Quiet Desperation||

    Krugman... Krugman... wait... didn't he share the Nobel with Yassir Arafat? No? Um... the fifth Beatle?

  • ||

    Would that be Clarence and his sax?

  • Clarence ||

    Bernanke got a ticket to ride, and the bitch don't care man!

  • Fiscal conservative||

    How do you dig your way out of a $4 trillion hole in the economy? Keep digging, of course!

  • hehe||

    Eventually you'll find yourself in China!

  • Larry Summers||

    The stimulus totally would've worked super-duper if Christina Romer hadn't ate it.

  • ||

    Liberals still haven't figured what the rest of us have:

    YOU CAN'T PLAN HUMAN NATURE.

    Ironically, their mindset is linear. I say ironic because they've convinced themselves through their own lousy narrative they are non-linear - and progressive.

    They should be ignored.

  • ||

    Thank you for helping me better understand this mess. I've felt it wasn't working but never understood the why.

  • Chevy Chase||

    This breaking news, just in: Generalissimo Francisco Franco is still dead.

  • Generalissimo Francisco Franco||

    I ruled a former world power for several decades, and all I get is an announcement on SNL by Chevy Chase?! At least Dan Aykroyd people, please.

  • Okay||

    But you'll never get Zombie John Belushi.

  • ||

    ~Its original cost of $787 billion was divided into three main pieces: $288 billion in tax benefits such as a refundable tax credit; $272 billion in contracts, grants, and loans (the shovel-ready projects); and $302 billion in entitlements such as food stamps and unemployment insurance.

    Someone should check the math

  • ||

    Every time you cut spending Baby Krugman cries.

  • D. Tud||

    Let's try to restore a little "Reason" to this discussion. First, Paul Krugman is not an "idiot" and a "gas bag" because he is a NY Times columnist. He is an expert and a NY Times columnist because he won the Nobel Prize for Economics! That is a fair credential. I believe a couple of folks from George Mason might have won one of those.
    But let's leave aside the personal attacks and deal with the substance of the debate. We all believe in rational decision making by individuals. When the GDP declines precipitously businesses face the expectation that their products will not be bought, so they cut production and lay people off. That further depresses demand and leads businesses to make the rational calculation to further cut production. When there are doubts about the underlying fundamentals of the economy as there were during the Depression and when the credit markets seized in 2008, the downward spiral can be disasterous. This is Macro econ 101. Stimulous works by giving consumers and more importantly businesses a rational expectation that there will be demand for their goods. WWII got us and the world out of the Depression not because it was a war but because it entailed massive government spending that pumped demand into the economy. De Rugy's main arguments against this logic is two fold. First, in the short run government borrowing displaces private borrowing and thus undermines growth. If government spending were crowding out private borrowing it would be reflected in high interest rates. But interest rates are at or near an all time low. Credit is available for businesses... cheap! De Rugy's second point is that these businesses are making hyper-rational Long Run calculations about how the deficit spending will be paid for and reducing investments for fear of future taxes. I think businesses are more likely to weigh short term demand shortage far more heavily than long term tax issues that are very hard to predict.
    The last point that De Rugy and supply side economists never go into is, how the economy will correct itself after a huge shock like we just experienced. The net process involves unemployment leading to falling wages and prices over some unspecified period of time. Hey if the stimulous packgage did not solve unemploymenbt, how high would it have to go before the markets self-corrected? Try selling that to the American public as your answer to an economic crisis!
    Look, an economic shock like we experienced is going to be difficult- no way around it. If I can excuse myself one analogy- landing a plane with a damaged engine is going to be hard and bumpy but I'd rather try to negotiate some type of landing rather than dropping the nose and diving to the ground.

  • Not Tony||

    When the government does nothing, or better, tell the people to tighten their business and buckle down, the economy responds in record time: http://en.wikipedia.org/wiki/Depression_of_1920–21

    When it does the opposite and meddles, the economy cannot recover: http://en.wikipedia.org/wiki/Great_Depression

  • ||

    You forgot to make a fart noise.

    And I only took Macro 102.

  • ||

    When the national savings rate is sitting at 1% of GDP, which is where it was, the last thing we needed was to stimulate consumer spending. The problem was too much spending on housing and consumer goods and not enough on capital formation investments. The savings rate in China is 50% of GDP.

    We need to redeploy capital and labor to more productive ends, a stimulus is an attempt to prop up the failed economic structure of the past and as such will only offer temporary help if any. It also exacerbates the debt problem. The fact that none of the predictions the administration made regarding employment numbers came to pass is proof they didn't know what they were doing.

    The multiplier effect was always nonsense. It ignores what is not seen, which is all of the private sector investment that won't happen because the government is spending us into oblivion. The spending signals tax increases for the future which stifles investment now.

  • ||

    I can only assume the writer has not had the opportunity to read the analysis of the stimulus by the Congressional Budget Office or by respected economists Mark Zandi and Alan Blinder. Both of those articles are from non-partisan sources and both conclude that the stimulus accomplished its goals of stopping the rapid decline in the economy and did save or create a substantial number of jobs. The economic rational underlying the Rugy piece is extremely shallow and is far more ideologically driven than intellectually rigorous analysis. The damage to the economy and business confidence was far more significant in this recession than any in recent history, and it is clear that the stimulus has been unable to break the weakness in confidence that is necessary to open up business activity and hiring. Far more damage is being done to our economy by those who continue to 'talk down' the economy rather than work to rebuild confidence.

  • Not Tony||

    Since when is the CBO non-partisan? It's a fucking government agency. It's about as non-partisan as the judiciary branch.

    Jesus H. Christ, have some self-respect, and stop with the government worship.

  • ||

    The Abysmal Track Record of Moody’s Mark Zandi

    http://www.ritholtz.com/blog/2010/09/zandi/

    This link makes your entire post inoperative. Here is a good quote from Zandi from July of 2007:

    "It’s premature to say the economy is reviving in a consistent way, but I think it is fair to say the economy isn’t going to weaken any further."

  • ||

    respected economists Mark Zandi

    Stop

    right

    there.

  • ||

    Like I said last year. Keynesian spending would have a positive multiplier effect if it came from past government savings.

    When it comes from debt/future taxes/currency devaluation it has a drastic negative multiplier effect.

    How is this so hard to grasp?

  • ||

    who would have ever guessed that?

  • دردشة||

    thanks

  • قبلة الوداع||

    thank u

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