Perhaps Skepticism Of The Stimulus Is Based On The Lack Of Definitive Evidence That It Worked

In the wake of the Obama administration’s most recent efforts to pass a stimulus without actually calling it stimulus, The New Yorker’s James Surowiecki wonders why, exactly, “stimulus” has become a dirty word:

This wouldn’t be surprising if we were talking about a failed program. But, by any reasonable measure, the $800-billion stimulus package that Congress passed in the winter of 2009 was a clear, if limited, success. The Congressional Budget Office estimates that it reduced unemployment by somewhere between 0.8 and 1.7 per cent in recent months. Economists at various Wall Street houses suggest that it boosted G.D.P. by more than two per cent. And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower. The weight of the evidence suggests that fiscal policy softened the impact of the recession, boosting demand, creating jobs, and helping the economy start growing again. What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment.

But the array of estimates positing that the stimulus created millions of jobs and boosted GDP by some significant amount is hardly clear evidence of success. They’re projections, not, as Surowiecki says, "measures" (reasonable or otherwise). The CBO’s estimates rely on rerunning the same economic models that they ran before the stimulus passed; the quarterly estimates are simply adjusted for how much money has actually been spent—but they’re still projections, not measurements. Wall Street forecasters end up doing much the same thing, too, because in the end, there isn’t a good way to accurately capture and measure the stimulus’ real-world effects. Those models aren’t useless, but they’re hardly compelling evidence.

It’s also a stretch to make an unqualified claim that “government borrowing didn’t crowd out private investment.” That may be true, but again, we don’t really know. The CBO actually warned prior to the passage of the stimulus that the Senate version of the bill that the increase in government debt associated with the stimulus could crowd out private investment, and there’s some research that suggests that government spending usually has that effect. Now, that research isn’t overwhelming either. But it does indicate that economists still don’t have a clear picture of whether and how much stimulus dollars crowd out private spending.

Surowiecki also floats the idea that the stimulus achieved whatever it achieved “without any of the negative effects that deficit spending can entail.” He points to interest rates, which remain low (for now). But he overlooks the way in which it has probably pushed the U.S. closer to a potential fiscal crisis. As Arnold Kling noted recently, it’s impossible to definitively predict if and when we’ll hit a fiscal crisis. But as Kling, the CBO, and the IMF all agree, piling on more debt, as we most certainly did with the stimulus, increases the chances that we'll hit one sooner rather than later—and, on its current debt and deficit path, the country appears to be veering toward the limit of what it can reasonably handle.

Understood in this light, the stimulus’ dismal popularity ratings make more sense. The costs have been clear. The benefits have not. And the administration and its defenders haven’t helped themselves by continuing to claim that the job-creating, GDP-boosting success of the stimulus is a settled fact—when the fact is that it’s anything but.

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  • Spoonman.||

    And we're back to the mid-90s on poverty.

  • Bill||

    Actually, a lot of the headlines the past few weeks have been saying back to the poverty levels of the mid-1960's when the war on poverty was launched.

  • ||

    OK this makes a lot of sense to me dude. Wow.

    www.privacy-web.cz.tc

  • Geotpf||

    I don't understand this argument. If the government hires 100 more people than it would have under normal programs and funds it by deficit spending, the number of people who are unemployed drops by 100. Arguing that those 100 people don't now have jobs is nonsensical.

    The problem with the stimulus was that it was too small, in my humble statist opinion. 100 people were hired but 500 were out of work, so to the other 400 it looks like the stimulus didn't help.

  • Gilbert Martin||

    "I don't understand this argument"

    Or anything else apparantly.

  • #||

    "Arguing that those 100 people don't now have jobs is nonsensical."

    But did the borrowing required to hire those new people croud out private investment or cause uncertainty in business confidence so that 100 less people were hired somewhere else in the economy, nulifying the impact? We don't know. Thats the problem.

  • #||

    people and firms could have also increased their levels of private savings in inticpation of higher taxes and/or the risk of another financial panic soa ny increase in government spending was at leats in part nulified by a drop in private consumption. Businesses do hold a record level of cash right now and arent doing anything with it. Maybe they are hording because they have fear of the future. Its a possibility. Once again, we don't know.

  • #||

    lastly, firsms could have primarily responded to the increase in demand, knowing that it would only be temporaray, by just paying existing workers overtime and raising their prices, rather then making large long term investment in capital and new workers. If this is true, then it didnt create much new hiring.

  • Geotpf||

    Well, tax cuts during a recession would also be a good thing.

    But both the additional spending and the tax cuts should be repealed once the crisis passes.

  • #||

    im not making a policy argument here... im am simply saying that there are many more factors regarding the net employment effects of stimulus policy then just counting the jobs dirrectly funded, as you have suggested. So you can't make a claim that its obvious that jobs were created on net due to it.

  • ||

    "inticpation" "soa ny" Just a suggestion - PREVIEW BUTTON

  • #||

    i tend to be too lazy for the preview button ;)

  • Geotpf||

    Those impacts might exist somewhat (but there's absolutely no way to measure them, as far as I know), but they can't possibly be anywhere near the same size as the actual stimulus. I suspect they are close to zero.

    Does any investor actually think the US government will ever default on their obligations? I doubt it.

  • #||

    "Does any investor actually think the US government will ever default on their obligations? "

    Probably not. But they could get worried about inflating the debt away which has a similar effect. And it doesnt even take a majority of market participants to hold that view. If just 10 percent of people are worried about default/ inflation, then a risk premium will be built into the interest rate. There is a reaosn why gold is $1250 an oz despite there being virtually no inlfation currently.

    And you are right that these other effects cant be measured -thats why we dont know. You can;t make a claim that you expect them to be no where close to as large as the direct hiring. How do you know that?

  • #||

    int he extreme case of Greece, austarity, the oppisite of demand stimulus has done more for their growth then continuing to borrow at the point. There is a level where you can have negative multipliers. The US isnt nearly close to greece currently. But the point is that the magnitude of those other effect can be less, the same or more then the dirrect spending. And we dont know what the magnitude is, so no one can make a claim that they know that jobs were creted on net due to the stimulus.

  • ||

    Those impacts might exist somewhat (but there's absolutely no way to measure them, as far as I know), but they can't possibly be anywhere near the same size as the actual stimulus. I suspect they are close to zero.

    Those arguments have virtually nothing to do with the risk of default.

    And there are plenty of detailed historical and international comparisons (including, say, Germany right now) suggesting that those effects are large.

    But because you "suspect" something that you admit can't be measured, you pretend that the other side's argument is impossible to understand.

    Ridiculous, unless you're badly insulting your own intelligence.

  • ||

    The assumption--even if you want to ignore the moral arguments--is that the government somehow knows better than the market where those jobs should be created. I know the liberal fantasy is the that rich people keep their money in Scrooge McDuck vaults so they can swim in it, but a job building a yacht is a fuck-load better for the worker and the economy than a union do-nothing government job collating a billion 1099 forms that Obamacare is going to generate.

  • The Other Kevin||

    On this note... After this year, those 100 people will still want to get paid and have benefits. And eventually they will want to retire. All of that costs money - taxpayer money. If the 100 jobs were in the private sector, those employees would be providing tax money instead of using it up; and also producing usable goods or services that could positively affect our trade deficit.

    So in the short term, the government hiring 100 people looks great. But long term, they become a liability, not an asset.

  • Geotpf||

    No. The government doesn't want to see 20, 30% of the population out of work. It's not that they "know better".

    And the types of jobs I would want in a stimulus are building infrastructure-maybe improving a river so that guy has some place to sail his yaucht (but more realistically roads and the like).

  • ||

    Then perhaps it should top sucking up private wealth, pissing it down a hole and borrowing money that will still being paid off by the crew of the Enterprise.

  • ||

    O'Whora: Of course that's how I spell my name - to you thing I make enough as an interstellar telephone operator to pay my debts from 2010!??!
    Chekov "Blowjob here! Hey Sulu, want some of this?"
    Sulu "Uh, uh....I just 3 holed that blow, so I'm a little spent...its certainly not because I'm gay...not that there is anything wrong with that!!!"

  • ||

    damnit - thats "blond" not blow
    I should really be more patient.

  • Dee||

    I would contend that one party does indeed want large portions of the population unemployed and depending on Uncle Sugar for their very existence. Or does the vote farming they have participated in for the past 40+ years not demonstrate that perfectly already?

  • ||

    ...which as a matter of fact only make up an estimated 3% of direct stimulus-created jobs.

  • The Gobbler||

    "a billion 1099 forms"

    That sure doesn't sound very green to me.

  • dave b.||

    Then why doesn't the government just hire all of us?

  • ||

    Works in North Korea.

  • ||

    Tried it. Ay caramba!

  • Spencer Smith||

    For the cost of the stimulus they could have paid all unemployed people an annual salary of $50k while they were looking for another job. Can you imagine what THAT would have done to the economy.

    Yep, that's right. Everyone making $49k and less would have become unemployed.

    However, I do think it's interesting to think of the ABSOLUTE amount of money spent compared to any perceived benefits. No one would call this a success for anything other than the federal government.

  • ||

    So the government hires 100 people with stimulus money. The stimulus money is all gone. What happens to those 100 people now?

    The only thing the stimulus stimulated was payback to democrat support groups (cough - unions).

  • win-win||

    The humble statists could hire the other 400 unemployed to high-paying green-government bureaucrat jobs with generous pensions, benefits and no-layoff-lifetime-job security. That would surely boost the economy. Everyone would benefit from the trickle-down multiplier effect: Obama would end the culture war and shift the search for terrorists to the Homeland; the Chinese would stop polluting and start making high-quality goods; the Muslim jihadists would issue a peace fatwa; and Mexico would purge their government of corruption.

  • Old Mexican||

    Re: Geotpf,

    The problem with the stimulus was that it was too small, in my humble statist opinion. 100 people were hired but 500 were out of work, so to the other 400 it looks like the stimulus didn't help.

    Let's say you wanted to go to the nudie bar, but had no money. So, you raid your spouse's stash she was setting aside for junior's birthday party.

    So you go to the nudie bar and can say that you were successful, you enjoyed yourself, the stimulus worked. Does junior still have a birthday party?

    The 100 jobs were paid with stolen money. It makes no difference that these jobs pad up the employment metric, they are still being paid with plundered money.

    Read "What Is Seen And What Is Not Seen" by Bastiat and familiarize yourself with the Broken Window Fallacy, before your humble statist self purports to talk again about economics.

  • Geotpf||

    Oh, and the cure for the debt we are having is to cut back government spending and/or raise taxes, slowly, once the recession has passed.

  • King of the Faeries||

    In Keynseian Fantasyland, yes.

  • Geotpf||

    You are correct that this is unlikely. However, it is the correct policy, IMHO.

  • King of the Faeries||

    I agree with you as does Keynes. However, in the political world (at least the modern version) the idea of paying down debt is anathema.

  • ||

    HAHAHAHAHAHAHAHA! Ehhhh...funny.

  • ||

    Just one more binge! I've got to 'cause I lost my job and my girlfriend left me! I'll stop drinking after that.

  • Bill||

    There was a Reason article awhile back with a graph showing car sales as a result of the Clunkers program.

    People bought more cars for a few months and then people stopped buying cars almost completely for a few months and the long-term graph of car purchases did not change. You just have this artifical hump for a few months and then a slump in sales for a few months. Most effects of the stimulus will probably show this behavior. It's not a long-term fix. So on this point we agree. I just don't buy the argument that the politicians and people in the finance industry who pay them bribes that if a few of their companies went out of business or had bad years that the whole economy would have collapsed.
    Kind of a self-serving argument, isn't it?

  • jtuf||

    Wake me when Tony shows up. :D

  • Tony||

    I'm too busy hanging out at my private beach to gripe about wealth inequality.

  • Tony||

    Because becoming wealthy is the birthright of every red-blooded American dreamer and we should all be free to do so in a free market... except me and Al Gore.

  • jtuf||

    And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower.

    [sarcasm] Yeah, and just image how bad your cancer would have been if you didn't buy $10,000 worth of healing crystals from me. [/sarcasm]

  • dunkel||

    The stimulus was $800-ish billion, but the study argues that G.D.P. would have been almost half a trillion dollars lower without it...still a $300 billion hole, no?

  • Vermont Gun Owner||

    I was thinking the same thing.

  • ||

    +1 Hilarious, and a fantastic example.

  • ||

    a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton

    So STFU, you ignorant hate-mongering hillbilly gun nuts!!!

  • Brett L||

    "I say, those look like torches and pitchforks. Zandi! Blinder! Get out there and tell the peasants that they aren't really suffering."

  • ||

    and government borrowing didn’t crowd out private investment.

    We're probably going to want to see some supporting evidence for that assertion.

  • ||

    "rerunning the same economic models"

    I see. So a computer model of a complex system produces the answer the Government desires. Where have we heard that before?

  • mdb||

    A stimulus by GDP definition boosts GDP.

    GDP = C + Inv + G + (e - i)

    G is government spending, if the government spends more, GDP goes up.

    Given this, GDP is irrelevant to the argument about stimulus effectiveness.

  • ||

    This.

  • #||

    not exactly because G goes up, but due to the other effects of borrowing, I and C could go down at least partially countering any increase in G.

  • Gilbert Martin||

    But there's no way to prove that the overall effect of both factors is a net plus relative to not doing any stimulus at all.

    Hence no one can ever empirically prove that any "stimulus" works.

  • Sean W. Malone||

    ^this^

    Common sense about now would be nice to see from reporters, but generally all we seem to be able to get is stupidity and ignorance. Fail.

  • ||

    If the government hires 100 more people than it would have under normal programs and funds it by deficit spending,

    it would be beneficial if those jobs added more net value to "the economy" than the cost of capital required to hire fifty people to dig holes, and fifty more to fill the holes back in (and plant shrubberies on the freshly mounded dirt).

  • ||

    Clear if limited success? The God damned thing cost $800 billion. Limited success doesn't cut it. If Obama hadn't lied his ass off and been honest and said "we are going to do this but understand that effective unemployment is still going to be 16% at the end of it, people would have said keep the $800 billion.

    Look at it this way, if the New York Yankees only won 82 games this year, you could call them a clear if limited success. They did win more games than they lost. But when you consider their roster costs $130 million or whatever, 82 wins would be anything but a successful season.

    It is the same here. This guy seems to be arguing that it was a success if it did anything. Sorry. Wrong answer. It cost $800 billion dollars. That money didn't come from nowhere. And if the success doesn't exceed the cost it is a failure.

  • ||

    Could Jeter be any worse a Treasury Sec than Timmay!?

  • ||

    Any man that has hit ten of the Maxim hot 100, is worthy of respect.

  • Ghost of George Steinbrenner||

    Yankee payroll is $207 million and they are in a dogfight for the AL East with the $72 million Tampa Bay Rays. And that damn team from Boston is lurking. Guess I overpaid...

  • ||

    Boston is DUN done. And the Rays have a $72 million payroll but that roster includes a bunch of players that are a year away from free agency. They have a $200 million team. But because of the restrictions on free agency, the get it for $72 million.

    The Rays and Yanks are the two best teams in baseball. You can't win every year. All in all, I think the Yankees got their money's worth when you consider that they have at worst the second best team in baseball and they drew a ton of fans and made money this year.

  • Spencer Smith||

    Rangers are going to beat them both.

    Sorry, made myself laugh.

  • ||

    I like the Rangers. And I love how Nolan Ryan is running the team. But they are the Rangers. You know they are going to lose in the divisional round in some horrible heart breaking way.

  • ||

    Sigh. It's that way with all Dallas teams, I think...we always are amongst the best during the season, then end up choking when it counts.

  • Ghost of George Steinbrenner||

    "Boston is DUN done..."

    That's what I thought in games 4,5,6, and 7 of the 2004 ALCS. Just sayin'

  • alan||

    And that damn team from Boston is lurking.

    They have been fiddling in the wind since Spring and no sign since then of doing anything else.

  • ||

    ""Clear if limited success? The God damned thing cost $800 billion. Limited success doesn't cut it.""

    I agree. It may have been a limited success, but is limited success worth almost a trillion dollars. No.

    I think they should frame the argument that way. Sure it worked, but very little, and at a great cost. A crappy car can get you to work, but would you spend $100,000 for it?

  • The Stranger||

    Why don't you go tell the blind, senior citizen African American who lives down the street from me that 6 months of work filling potholes for the city wasn't worth $800 billion?

    Now excuse me while I go sit on my hand until it gets numb and read the Washington Post.

  • ||

    The weight of the evidence suggests that fiscal policy softened the impact of the recession, boosting demand, creating jobs, and helping the economy start growing again. What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment.

    And it fucked your wife, but you didn't care! It took your dog for walks, cleaned up it's shit and made it even more loyal to you! It washed your car without using any soap and made it smell new again! It got your parents back together!

  • ||

    I wanted my Maypo, and I got it. Thanks Stimulus Package.

  • ||

    All for a mere $800 billion. They could have gone McGovern and sent every man woman and child in this country a thousand bucks. That would a have softened the blow to. And it would have saved $500 billion. I would fucking hope $800 billion would do a little more than soften the blow.

  • #||

    put in another way, for the stimulus whe could have sent about a $6,000 check to every household. How many people here think that their family got more then $6k worth of value out of the stimulus bill? And this doesnt count all the other spending they have been doing in the past two years.

  • ||

    But if they did that, the insiders wouldn't have been able to steal it all. Theft always comes first.

  • My Pet Coons||

    The problem was that the stimulus too small.

  • ||

    HAHA

  • ||

    This administration like the last does not want America to take its medicine. Treating the symptoms doesn't do a damned thing about the underlying illness.

    In spite of the efforts of all the king's horses and all the kings men, housing prices haven't reached bottom and defaults/foreclosures* haven't reached their peak.

    We are going to have to take that yucky medicine eventually but nobody wants it to happen on their watch. The irresponsibility of government spending and loan guarantees for middle and upper class folks has got to cease. Time to suck it up America, live in an apartment till you have 20% down and the bank might be willing to take the risk of lending you the balance.

    * 95% explicitly guaranteed by the feds. No risk to loan originators.

  • ||

    How about we just get rid of the home mortgage deduction so there is no reason to buy a house versus rent?

    And shockingly, you can rent houses. You don't have live in an apartment your whole life.

    I agree with you J sub D. But even you seem to have bought into this bullshit idea that investing in real estate is some kind of noble activity versus investing in anything else.

  • ||

    Dunno where you got that impression. I doubt it's from anything I've ever penned on these pages.

  • ||

    ""This administration like the last does not want America to take its medicine.""

    Forcing people to take their medicine is the best way to get them to vote for someone else. Political wisdom says it's best left to the next guy.

  • Joe M||

    Okay, so if spending $800 billion reduced unemployment by 0.8% to 1.7%, all we need to do to get us back to the gravy days of 4.5% unemployment is spend, oh, about $4 trillion more! Problem solved. How can they be having such a tough time in DC with such obvious, easy solutions?

  • Joe M||

    And of course, don't forget that it would also boost GDP by another 8%. What a huge return on our investment.

  • boomshanka||

    the stimulus wasn't an $800 billion spending package. 40% of that number was in tax cuts, a fact that's conveniently omitted by critics.

  • ||

    How about we just get rid of the home mortgage deduction so there is no reason to buy a house versus rent?

    I think you grossly overestimate the power of the home interest deduction. It does, unquestionably, distort prices, but there always will be legitimate reasons to buy versus rent.

  • ||

    There will be. But in an uncertain economy those reasons are fewer. Who wants to tie themselves down to a house when you may lose your job and have to move to get another one? Indeed, I think the increased mobility of today's society and the end of the whole work for 30 years for the same company and retire culture, makes home ownership less desirable than it once was. Take away the bubble and the view that houses are easy money, and a lot fewer people have a need to buy a home.

  • ||

    Once housing prices go down you won't need a 30 year mortgage anymore.

    Another reason the banks don't want housing prices to go down.

  • alan||

    Pop paid off his on a three bed room, two bathroom house in less than five on a steamfitter's salary, plus had money left over for his hot rod habit. Hmmm, no wonder we kids look so emaciated in those old pictures. Nah, probably because we spent almost every waking our of the day running around outside back then.

  • alan||

    fargin' homophones! They need to be diagnosed as a condition much like dyslexia.

    every waking our of the day

  • ||

    I don't ever want to hear about how Russ Feingold is a well meaning lefty. No, he is a piece of shit. Check this out.

    Sen. Russ Feingold said his campaign will not stop running his most recent television ad, which uses footage taken from local news broadcasts. One of the stations, WKOW, wasn’t too happy about it, and asked that the ad, which the AP called “misleading” be pulled from air:

    “They took out all the context, balance and other side of the story,” said Perry Boxx, WKOW News Director. “He did it without any permission. It may be legal, but it’s just plain wrong.”

    Not only did WKOW not give permission for the use of those clips from our copyrighted newscast, we never even knew they had been used until the political ad first hit the air on Monday.

    Meanwhile, Feingold still wants opponent Ron Johnson to stop running an ad that calls Feingold a “career politician.”

    http://www.nationalreview.com/.....rew-stiles

  • ||

    ""I don't ever want to hear about how Russ Feingold is a well meaning lefty. No, he is a piece of shit. Check this out.""

    Yet he's the only guy that voted against the P.A.T.R.I.O.T. Act.

  • ||

    Unfortunately (I curse the day)I did not bookmark the Federal Reserve page (St Louis FED or Kansas City FED) that had interesting data on the historical return on debt in the US. The data starts in the 40's and goes to the present. What you see is that a borrowed dollar used to get you about 4 or more dollars. Over the years, that rate of return has continually diminished. Until now, where for the 1st time ever it is negative (I was looking at real estate in Fresno, and a crapshack that sold for 400K!!! back in 06 is now on the market for 80K - and I doubt it will go for that. There is no law that says you get your investment back. Ironic that land - they are not making any more of it - shows that you can "invest' and lose money).
    There are probably all sorts of reasons for this - much more borrowing for consumption (house buying at inflated values) than for production.
    But even the production argument is weak - how many more car companies or home depots or homes do we need???

    The whole philosophy that gubermint can just ramp up demand ignores the need for income. Krugnut says that we can have a stimulas of twice WWII (30 TRILLION) - whoa!!!
    We can print that amount of money, and we can have that thing economists used to say was impossible - inflation and rising unemployment - stagflation (I still have my powder blue polyester leisure suit, nylon shirt, and 6 karat gold chains - I'M READY).
    The best analogy I have read about why stimulus fails was from a chemist of all things. Put some salt in a glass of water...it dissolves. Put some more in, and it dissolves. Put some more in and it doesn't.
    People have plenty of demand. They just don't have income (or houses at a price they can afford - not the extend and pretend prices that actually hinder recovery).

  • Smoot Krugman||

    YOU LIE!!!

  • alan||

    Geotpf|9.16.10 @ 10:55AM|#

    I don't understand this argument. If the government hires 100 more people than it would have under normal programs and funds it by deficit spending, the number of people who are unemployed drops by 100. Arguing that those 100 people don't now have jobs is nonsensical.

    The problem with the stimulus was that it was too small, in my humble statist opinion. 100 people were hired but 500 were out of work, so to the other 400 it looks like the stimulus didn't help.

    Of course that is the classic problem of opportunity cost. All calculation to even serve an economic rationality have to include them. However, even free market economist tend to not take their significance far enough. It is not enough that 100 workers have jobs in the private sector to equal the supposed value added of the 100 public servants in this example, as the problem of opportunity cost exist just as much in the private sector as it does the public. This is the key to understanding the critical nature of opportunity cost in the equation -- they are not offset until those 100 workers of either public or private employment produce enough surplus value to pay down the cost of adding a 101st worker. Until you get to that point you are just at the very best (a condition that doesn't exist) running to stand still (to quote the Great Bono).

    That is why in fact it is a much more difficult endeavor to get an economy rolling than what Keynesians propose in their simple theories.

  • ||

    "What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment."

    Begging the question?

    Interest rates are low because the economy isn't growing--and he's using that as evidence that the stimulus worked?!

    And when he says that "government borrowing didn't crowd out private investment", well what the hell is that supposed to mean?

    Investors are still clinging to treasuries like it's a security blanket--5 years, 1.5% return! If they're still not investing in higher return investments because they'd rather sacrifice returns for the security of treasuries--then how is that not crowding out private investment?

  • Draco||

    Ken, for one thing Steven Landsburg (a libertarian economist if there ever was one) pretty deftly explains how the "crowding out private investment" argument makes no sense, and has no empirical evidence to support it, in his book The Armchair Economist. I recommend it highly.

    Second, the reason I said I am a neo-Keynesian is because in a very important way Keynesianism is "baked in" to any economy based on a fiat currency system - like ours and every other advanced nation on Earth. It really, really works, because it's the way a fiat money economy works. Most libertarians' intuitions would be fine in a world of convertible currencies (gold etc.). But they are dead wrong in a fiat system. Don't you all wonder why every advanced nation runs a deficit instead of a surplus? They have to, that's why.

    I suggest that you read Warren Mosler's new book, The Seven Deadly Innocent Frauds of Economic Policy, and then get back to me. It's a quick and easy read, and it is freely downloadable from his site:

    http://moslereconomics.com

    You'd probably understand where the neo-Keynesians are coming from once you've read it. And since I think we are right, the important thing is that the libertarian neo-Keynesians win out over the collectivist and statist neo-Keynesians once people understand that the theory is correct. Knowledge can be used for good or evil.

  • ||

    And that, my friends, is how Zimbabwe escaped third world poverty.

  • Sean W. Malone||

    Win.

  • Draco||

    You guys can high five all you like, but you're not engaging the argument.

    No one denies that the only way out of poverty is to produce (or acquire) real wealth.

  • ||

    "Ken, for one thing Steven Landsburg (a libertarian economist if there ever was one) pretty deftly explains how the "crowding out private investment" argument makes no sense, and has no empirical evidence to support it, in his book The Armchair Economist. I recommend it highly."

    Why would you claim that a book written in 1993 explains why I should ignore what's happening right in front of my face in 2010?

    Just for future reference, there's a fundamental problem with all economic thought that isn't grounded in reality.

    Some people seem to think that gravity didn't exist before someone invented the math to describe it--that's pretty silly, isn't it?

    And yet, I come across people here every day who tell me that what's happening right in front of me isn't really happening--because it violates some economic theory. If a theory doesn't support the evidence in front of me, it's isn't the evidence that I disregard. I chuck the theory.

    The bond market is what's happening right in front of me.

    Go look at any startup/VC site, and half the articles will be about how the VC has all dried up. (The other half will be about how there's light at the end of the tunnel--as always.)

    There is a lot of IPO activity still--in Asia. The low interest rates we're seeing in the bond market(s) may be about inflation expectations (lack of growth) as much as it is about avoiding other investments--but you can't burn that argument at both ends...

    Either investors are crowding the bond market(s), and that's what's keeping the interest rate down, or interest rates should be a lot higher than they are. EITHER way, you can't say, "Interest rates are down despite the stimulus--see, we stimulated growth!" If you stimulated meaningful growth, interest rates wouldn't be that low...

    UNLESS, investors were crowding the bond market, in which case, you can't argue that debt isn't crowding out other investment.

    Everywhere I look, I see people begging for investment dollars, and I just won't ignore what's happening right in front of me.

  • ||

    My Democratic friends must all remember that the word "stimulus" has neither inherently positive nor negative connotations. It simply means something that causes a reaction. In that sense stimulus "worked," but probably not the way the authors intended it to.

  • ||

    In a nutshell, Keynesian economics, (neo, whatever) is short-term economics. Sure, you can boost your economy in the short run by incurring opportunity costs that won't come due until later.

    But they will come due. Keynes famously dismissed the long-term unsustainability of structural debt by quipping that "In the long run, we're all dead."

    And he was wrong about that. Sure, when the long run gets here, the people who profited from the borrowing may be dead, but there are still people around who have to pay the piper.

    Right now, people are starting get a sick feeling that they will be the ones left standing when the music stops.

  • Draco||

    No one has to pay the piper. Did you think about my question above?

    "Don't you all wonder why every advanced nation runs a deficit instead of a surplus?"

    It went completely over Hobo's head, but I hoped for more from the likes of you and Ken.

    The debt never has to be paid back. It just grows and grows.

    Think about why fiat money nations aren't running surpluses (except in very rare circumstances).

  • mr simple||

    Oh, I get it now. Good satire.

  • ^||

    "And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower."

    So... without 800 billion dollars in spending GDP would be nearly 500 billion dollars less. Doesn't this flat-out admit that the stimulus was counterproductive?

  • ||

    Am I the only one that finds it odd that Suderman used a Casey Kasem quote as alt-text for a picture of the Dude?

  • ||

    Let's assume the CBO estimates of "reduced unemployment" are correct, and that the stimulus package prevented headline unemployment from rising to between 10.4% and 11.3% - restraining it to the 9.6% we've got right now. If we plug in the numbers from the latest BLS employment situation report, the CBO's estimates imply that between 1,241,666 and 2,638,541 jobs were saved. If we use the original $787 billion price tag of the stimulus (I know that this is being generous), that works out to a cost of between $298,270.90 and $633,825.84 per job. If we use the revised CBO estimate of the amount the stimulus bill will add to U.S. National Debt (As of January 2010), or $862 billion, then that works out to a cost of between $326,695.70 and $694,228.56 per job. Not exactly cheap. Let's take another number from Mr. Surowiecki's article - the alleged 2% boost to G.D.P that's been credited to the stimulus by various Wall Street houses (sans reference). According to the U.S. Department of Commerce: Bureau of Economic Analysis, as of 2010 Q2, U.S. G.D.P is 14,575 billion. That implies that the stimulus boosted G.D.P by 291.5 billion (2% of 14.575 trillion). What this means is that for ever $1 of growth the U.S. Government took on between $2.69 and $2.96 of debt (depending on which estimate of the stimulus' cost one uses). If this is good, then why doesn't the U.S. Government just jack up the national debt by $875,367 trillion, and boost G.D.P to $310,307 trillion. G.D.P per capita would be a cool $1,000,000, and we'd be off to the races.

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