Boudreaux on Why The Stimulus is a Bad Idea

The Atlantic's Derek Thompson interviews George Mason's and Cafe Hayek's Don Boudreaux, one of the great explicators of all things economic. Here's Boudreaux explaining why the stimulus is a bad idea:

I'm in the camp—it's in the minority—that argues that stimulus is not good policy for a couple of reasons. First, money taken to spend on stimulus projects are taken from elsewhere in the economy. The second thing, the deeper problem, is what's being stimulated? For the past eight years leading up to the crash, we had a lot of economic activity that everybody understands was built on wealth that wasn't there. People were employed doing things they shouldn't have been doing. A lot of it came through the real estate sector. If the stimulus keeps people in these jobs that they shouldn't have been in to begin with, we're just delaying the day of reckoning. I want to see the economy adjust to a more sustainable growth path where people are not artificially propped up by bubbles or by stimulus, which I worry is is the case now.

More here.

I'd question Boudreaux on whether his is the minority camp regarding the stimulus, as only about 6 percent of Americans in one survey believed the stimulus created any jobs at all. The CBO has put the number of jobs created or saved (emphasis on the latter!) at anywhere between 600,000 and 1.6 million, which is tantamount to admitting they have no idea (which they have admitted elsewhere). In any case, Boudreaux's point holds: The stimulus funds so far have gone to mostly propping up existing public sector positions that cannot sustain themselves once stimulus funds stop coming.

Anyhoo, Boudreaux explains why your iPod is patriotic, even if it's assembled in a far-away land and crammed with technology developed outside the U.S. of A.

Comments

[Ken Shultz]

"I'd question Boudreaux on whether his is the minority camp regarding the stimulus, as only about 6 percent of Americans in one survey believed the stimulus created any jobs at all."

I think he's saying that he's in the minority camp among economists. ...and I'm not sure it's just about job creation with the economists either--I think a lot of them are focused on GDP when judging all things stimulus.

They tend to think of jobs as a lagging indicator generally, and with recent GDP numbers, most of them think the stimulus was a success.

Anyway, I think he hit the nail on the head, personally. His reasons are my reasons. This was a credit led recession started by badly deployed investments, and anything that gets in the way of all that money being reinvested where it's supposed to go like a stimulus program is a rotten idea. ...what with the government being so awful, historically, at reinvesting money where it should go.

[John]

It is pretty sad and scary that this guy is in the minority when he points out that you can't create jobs and wealth out of bullshit.

[Ken Shultz]

In Q4 of 2009 was GDP grew at a +5.7% annual rate.

http://www.bea.gov/newsrelease.....elease.htm

I think that's what most economists are talking about when they say the stimulus was a success.

I was against the stimulus; I'm against another stimulus. If I had it to do over again, I still wouldn't support the stimulus, and for the same reasons Boudreaux gave too.

...but that's why he's in the minority (of economists). We can acknowledge the numbers and still think the stimulus was wrong for the reasons Boudreaux gave, though, too...

Who says what's being produced and sold is what the economy should be producing and selling if it's going to grow on a sustainable basis? For all we know, we're just reinflating the old bubble or maybe we're inflating new bubbles.

If we're going to get growth, we need to invest in sustainable growth, and that means the kind that doesn't require investment from people who don't care whether they get a market return.

[Big B]

Yeah, and car sales shot up during the Cash for Clunkers program.

And promptly collapsed thereafter. They've returned to "normal" now, but the fact remains that the bump "corrects" itself.

[Johnny Longtorso]

In Q4 of 2009 was GDP grew at a +5.7% annual rate.

Get back to me in 3 months after that number has been 'adjusted'.

[Ken Shultz]

It could be adjusted up for all we know, and would that wouldn't make any difference to me...

The stimulus would still have been a bad idea. We would still need sustainable growth, and that still means the kind of growth that generates a market return for investors.

...which stimulus just don't do.

Anyway, I think that's the point--that growth that can't stand on its own two feet isn't really growth at all.

...that kind of growth certainly isn't about to generate any new, well paying jobs, if that's the lagging indicator you're worried about, that's for sure!

[kc]

even if that rate is correct, who knows how much the economy would have grown if the govt had not spent stimulus dollars, and more so, if the uncertainty of future labor costs and energy costs hadn't been compounded by all the talk of "health care reform" and cap & trade? I vote that growth would have been higher, sooner. Too bad (really, really too bad) that we'll never know....

[Pro Libertate]

I have a rock that keeps tigers away.

[George Costanza]

ProL, I'd like to buy your rock!

[JW]

I have a rock that keeps away tigers *and* polar bears.

[pistoffnick]

I have several pieces of lead rock that deter the tigers and polar bears from coming around anymore.

[Mad Elf]

GDP = private consumption + investment + government spending + (exports-imports). All that this number tells is that the government is spending more money than ever. It doesn't tell anything about what effect crowding out and siphoning of resources has had on private sector growth.

[John]

+1

[Spoonman]

Some dude who admits culpability during the Reagan years says the end is near: here

[Spoonman]

Gah. SugarFreed. http://www.politico.com/news/s.....33412.html

[Jersey Patriot]

The fundamental Keynesian idea really isn't all that stupid: the government runs a deficit to stimulate the economy during the bust, then runs a surplus to slow the economy during the boom. Over the business cycle, the debt averages roughly 0, and neither the booms or busts grow too large. I don't agree with the idea, but it's not insanely stupid or anything.

Problem is, you can't now run a deficit during the bust, because you've been running massive deficits in boom and bust alike for decades. Now you're butting against the limits of what creditors are willing to lend, as well as the limits of what currency printing can accomplish. The Keynesian toolbox doesn't work in this situation, like handing an astronaut a crowbar to work on the Hubble Telescope.

[Tyler]

Also, how often is the government going to reduce that spending after the bust is over?

Whatever they spent the money on is probably going to remain a leech on private wealth production. If they paid people to dig ditches, the Ditch Diggers Union is going to see to it that the money keeps on flowing even if the demand for their service is completely government imagined and sustained.

[Silverman]

The fundamental Keynesian idea really isn't all that stupid

Not stupid so much as completely dissociated from reality. No government that has ever existed or will ever exist would put the brakes on during the boom times.

[Gilbert Martin]

I say the Keynesian idea is fundamentally stupid.

Government doesn't create wealth - all it does it redistribute wealth that has already been created by somebody else. It has nothing to give anybody or spend on anything except that which it has taken away from someone else first.

The economy cannot be "improved" by intiatiting a bunch of forced transfer payments.