Government Spending

Why the Stimulus Tanked: Untimely, Untargeted, Untemporary

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Over at U.S. News & World Report, Reason columnist and Mercatus Center economist Veronique de Rugy explains why the stimulus failed to stimulate.

As part of her wind-up, she notes that a recent study by one of her colleagues found "the median multiplier in relevant studies is 0.87, far lower than the administration's claim that every stimulus dollar would produce $1.57 worth of activity." Which is to say, there's little evidence to suggest that the multiplier theory has a purchase on anything other than the taxpayers' purse.[*]

Then there's the design of Obama's stimulus (and Bush's before that). Under Keynesian theory, stimulus spending should be timely, targeted, and temporary. And it should be aimed ultimately at increasing private investment. What did we get instead? Bailouts of the public sector in the form of large cash grants to states. But

states chose to use the money to close their budget gaps. This choice meant that the money went to keeping school teachers in their jobs and paying public sector workers, rather than to creating jobs in the private sector. Furthermore, the spending wasn't timely: Three years after the law was adopted, some programs still have managed to spend only 60 percent of the appropriated funds. Not only was the spending poorly timed, it also wasn't targeted. The data show that stimulus moneywasn't targeted to those areas with the highest rate of unemployment. In fact, a majority of the spending was used to poach workers from existing jobs in firms where they might not be replaced. Finally, a review of historical stimulus efforts shows that temporary stimulus spending tends to linger. Two years after the initial stimulus, 95 percent of the new spending becomes permanent.

And here's the kicker: Increases in federal spending have a negative effect on how businessess spend, with the latter clenching up when more tax money floods an area.

More here.

[*]: I bolded that for emphasis, as there seems to be some confusion as to whether I was suggesting that stimulus spending might have worked if it had been applied differently. The short answer is: No, I don't think so, because the multiplier is likely to be less than 1, meaning that the dollars spent suck more out of an economy than they put in. 

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  1. “Like a frightened turtle.”

    1. That episode always annoyed me. The girlfriend was such a cunt.

      1. “Yes. I mean, if she thinks that’s me, she’s under a complete misapprehension. That was not me, Jerry. That was not me.”

        1. When he fed her the lobster at the end, it was pretty funny.

          1. I think some of the writers might have had some pent-up animosity towards ex-girlfriends. None of the women came off well.

            1. Maybe so. It was definitely a man’s fantasy show. No way would a shlub like George ever dated some of the women he did or been engaged to someone as cute as the blond in that show.

              1. How about his rejection of the delicious statuesque supermodel in Shallow Hal? What was it? Her toe was too long! LOL

              2. Plus, how does a stand-up comic afford to keep all that food in the house?

      2. Why would they even think the size in that situation would have anything to do with erect size?

        1. “Do women know about shrinkage?”

          “What do you mean, like laundry?”

          1. But still, even if it wasn’t shrunk from the pool, why would it have any relation to the erect size?

        1. But I was in the pool!

  2. shouldve been spent on roads & bridges instead of rich banks and car companies

    1. should not have been spent at all, to include Obama’s campaign contributors. We have money for roads and bridges – it’s called gasoline tax revenue, toll fees, vehicle registration fees, etc.

  3. the administration’s claim that every stimulus dollar would produce $1.57 worth of activity

    Where do they get these random numbers from, and why on Earth do people take them seriously?

    1. Because people are fucking stupid.

      1. NOOOOOOOOooooooooooo………..

  4. But without the stimulus, unemployment would have been 77.567%. Try proving that wrong, de Rugy!

    1. But the stimulus did everything it was supposed to. (hurriedly puts old unemployment estimates down the memory hole)

      1. Yes – it paid off all the Democratic special interest groups.

    2. Are you including jobs created, saved, imagined, and hallucinated?

  5. It was never intended to be a stimulus. It was intended to raise baseline domestic spending by 50%. That way when the Republicans took back over and tried to get rid of it Democrats could talk about how the radical heartless Republicans want to cut spending by 50%. It was always about theft.

    1. Actually, they would only be cutting spending by 33.3%.

      /math pedant

        1. But everything else you said is accurate. Somehow, now, these ridiculously inflated levels of spending are the standard, never mind that the spending just five years ago was 2/3 as much. If we just went back to that level, we’d have no debt. But somehow that’s unthinkable.

          1. Go back 10 years and you get to your 50% mark.

            Show of hands for an undo of the past two administrations?

      1. Pedantism is a thing, up with which I will not put.

        1. Kudos on not ending your sentence with a preposition. You have properly phrased the idiom.

          1. Where’s the bar at asshole?

            HAH! I didn’t end the sentence with a preposition!

    2. It was never intended to be a stimulus. It was intended to raise baseline domestic spending by 50%.

      Bingo.

      And the steadfast refusal of the Dems to allow any budget since then has cemented it into place under “continuing resolutions”.

      1. Ahhh, hadn’t considered that. They’ve gotten flak for not ever passing a budget, but that’s obviously working out better than having to actually examine the entire spending platter.

      2. U
        N
        S
        U
        S
        T
        A
        I
        N
        A
        B
        L
        E

        1. Now turn it into a clever nursery rhyme.

          1. “Mary had an unsustainable lamb?”

            1. Alas, we’re the lambs.

              I wonder where it is they are leading us to?

              Never mind…Jersey Shore is on in 10 minutes.

            2. Alas, we’re the lambs.

              I wonder where it is they are leading us to?

              Never mind…Jersey Shore is on in 10 minutes.

  6. Why hasn’t states paying down debts created jobs? Isn’t the resulting “confidence” from this sort of action just what you guys claim is the appropriate medicine?

    1. Why hasn’t states paying down debts created jobs?

      Who said anything about the states paying down debt?

      1. Nick Gillespie via a quote.

    2. “Closing a budget gap” is not the same as “paying down debt”. And the former does no good if money going out is still > money coming in. As to confidence, there is still uncertainty, for example, exactly how much will Obamacare increase your share of your workers’ health care costs, you might have to hire losers who haven’t worked in 99 weeks or get sued, etc.

      1. And the former does no good if money going out is still > money coming in.

        Dude, Tony doesn’t do math. As he’s said, he’s “not a numbers guy”–like a lot of nerds, he thinks money comes from elves and wormholes.

        1. He doesn’t do English either.

        2. You mean he’s an underpants gnome?

          Gnomes three phase business plan:
          1. Collect underpants
          2. ?
          3. Profit

    3. They just need to keep trying. One of these times it will work! It did in Greece.

  7. Juanita|12.3.08 @ 4:21PM|#
    Just because something isn’t always completely effective doesn’t mean we shouldn’t continue. Drugs are wrong, the war is the right thing to do, in order to help keep people of drugs.

    1. Juanita is right mmmkay,

      I mean hey, drugs are bad. Maryjuwana is bad, mmmkay. Drugs are bad.

      Who dropped a duece in the urinal?

  8. There is something of the impression given in this post that if they had spent the money in a “timely, targeted, and temporary” way it would have been okay. The good Keynesian way.

    Was that your intent Nick? I hope not.

    1. I think his point was that they didn’t even follow through with what they themselves say is necessary to making it work. Even though doing it TTT-style would’ve still failed, they failed at failing in the way they’d planned on succeeding. Does that make sense?

      1. Unfortunately, I see criticisms like this as cover for future similar failures. “See, they didn’t really TRY Keynesianism, this time our top men will deliver it in a timely and targeted manner!”

        1. We have top men working on it now. Who?
          Top. Men. (cut to warehouse)

      2. I hope that’s what he’s saying. He starts out by saying the multiplier was .87 but then switches to the broken Keynesian implementation. I was looking for something that indicated it would still likely be <1 even if they’d followed Keynes instructions. Perhaps it’s just my reading comprehension.

        1. there seems to be some confusion as to whether I was suggesting that stimulus spending might have worked if it had been applied differently. The short answer is: No, I don’t think so

          Thanks for the footnote.

  9. I don’t think you can expect much of stimulus when bad times come if your economy was already hepped-up on stimulus-like high-deficit policies during the best of times.

    We ran a “full employment deficit” in this country for decades. We had revenues way below spending even when unemployment was very low and economic growth was very strong. According to Keynes, we should have had lower spending, higher taxes, and built-up surpluses during those years instead.

    But now the bad economic downturn comes along, and the only option is to “double down” on deficit spending for the sake of “stimulus.” But, lo and behold, you don’t get much bang for your buck when your economy had already been habituated to stimulus during normal times. (This is the same kind of thinking that gave us antibiotic resistance.)

    So, whereto next? Libertarians seem to be arguing that everybody in the water will learn to swim if you just yank the life jackets off of their necks. (What Libertarians really think is that they don’t give a fig if the bastards swim or not because the bastards deserve to drown since they didn’t pay for those life jackets.)

    1. Retard troll is retarded. You like being retarded?

      1. You want to get back to quoting old lines “Seinfeld,” Epi? Are you “hip to the whole scene”? (The “bathroom scene”?) Are you “master of your domain”? Do you want “serenity now!”?

        Was the ’90’s the last time you had a girlfriend? Don’t be too sad. Remember that the online porn is much better nowadays.

        1. Try harder, troll. Your fail is epic.

          1. Serenity now, insanity later.

          2. Not to agree with a troll or anything, but seriously, the only thing more lame and less funny than Seinfeld, is the people who quote it.

            1. Not that there’s anything wrong with that.

            2. Well the jerk store called, and they’re all out of you.

              Alright, I never really cared much for Seinfeld either so I’m really on your side.

      2. Has she trolled here in the past?

        1. reasonable says yes.

    2. Analogy fail.

      You seem to be arguing that the life jackets aren’t keeping anybody afloat anymore (perhaps we’ve had the deficit-spending life jacket on so long it has become waterlogged?). Since the deficit-spending life jacket isn’t doing us any good, and may in fact be weighing us down, why not yank it off?

      1. Wrong.

        The social spending is keeping people above a level of misery that that would suffer without the spending, but it is not affirmatively, “saving” the economy. It’s working as social insurance, but it isn’t working as “stimulus.” The economy may be beyond “stimulating” because it was so over-inflated by decades of full-employment deficits.

        1. You seen to leave out the part about such spending being unsustainable in the long run. What happens to the level of misery when we’ve spent ourselves into bankruptcy?

      2. Actually for the analogy to correctly reflect the real world, is that people are drowning (in debt) and the solution is to pour more water on them.

        1. “The social spending is keeping people above a level of misery that that would suffer without the spending,”

          Your fantasies don’t interest me.

    3. Where to next ? Your bongo drummers trying to occupy everything seem to have all the answers, go and ask them.

      There are no silver bullets, to improve things needs time. Eliminate moral hazard, no bailouts for anyone, the world will not end no matter how much people scream that doing nothing will lead to armaggedon. Stop trying ever higher government spending, hoping that this will finally fix things. Most importantly stop promising voters ever more free stuff, without actually acknowledging the consequences and cost of such promises.

      Since most people find this unacceptable and want quick fixes, don’t expect things to improve other than more blundering and finger pointing from politicians and voters.

      1. Not once in my life did I vote for somebody who cut taxes while increasing spending. Can you say the same for yourself?

        “Stop promising voters ever more free stuff.” You mean, like tax cuts that don’t come with spending reductions? Why don’t you take a dose of your own medicine for once.

        1. I have never voted, never plan to either.

          Incredible how many people equate a tax cut the same as giving somebody something for free. As long as there are too many people like you who think a tax cut is welfare, things will never get better only worse.

          1. A tax cut is nothing by itself.

            A tax cut plus a spending increase — that’s welfare.

            A tax cut plus a spending decrease — that’s balance.

            And a spending increase with a tax increase — that’s balance, too.

            (And for completion’s sake, a tax increase plus a spending decrease is austerity.)

            1. You like being retarded?

            2. You assume that the budget should be in the trillions, I do not. You assume that I want all the crap the government taxes me for, I do not. I want people not to get free stuff, that means no rights to free housing, medicine, education and all the other holies that you believe are untouchable.

              1. So you want option 1, supra, a tax cut plus a spending decrease. I wish you luck. (Not necessarily good luck, but luck of some kind.)

            3. “A tax cut plus a spending increase — that’s welfare.”

              Welfare for who?

              Anyone paying more in taxes on an absolute dollar basis than the absolute dollar value of government services they have personally received calcualated on a user fee basis is not on welfare – regardless of whether their taxes have been cut from what they previously were or not.

              Anyone who is paying less in taxes on an absolute dollar basis than the absolute dollar value of government services they are are receiving is on welfare – period.

              1. True enough, Gilbert. Collectively, with a deficit, “the people” are getting more government than they pay for — the pay for part and borrow the rest. How it works out individually could go a million different ways. But a tax cut with a spending increase means some additional increment of people are getting more government than they pay for, thus, a “welfare” increase in the relevant sense.

                1. “But a tax cut with a spending increase means some additional increment of people are getting more government than they pay for, thus, a “welfare” increase in the relevant sense.”

                  If you presume ‘getting more government’ is a positive value for some person, you’d be correct.
                  Added EPA regs are ‘more government’ and it certainly isn’t obvious those constitute a positive value.

                  1. Your fantasies don’t interest me.

                    Also: retard!

                    Also: troll!

    4. So, whereto next? Libertarians seem to be arguing that everybody in the water will learn to swim if you just yank the life jackets off of their necks.

      Trying to kick the can until we’re dead and in the ground instead of dealing with reality 35 years ago is what has gotten us into this mess. 35 years of inflationary credit growth has allowed us to maintain the illusion of economic growth, when all we’ve really done is run up our credit card. We haven’t actually paid down the balance on our national debt on an annualized basis since 1957.

      But you can only grow debt at a greater rate than your production for so long, and you can only live on borrowed money for so long–eventually all debt must be paid or defaulted on. The math doesn’t give a shit if people drown or how many drown. If we don’t want to pay for the services we demand, then eventually those services are going to go away, one way or another.

      1. *covering ears*

        LA LA LA LA LA LA

      2. Right. The correct path would have been to have tax rates that matched our spending rates. If every penny of additional spending had to be paid for with an additional penny of tax, we would have been much less likely to live beyond our means.

        It was fools and crooks like Reagan and Bush II who ran up debt by cutting taxes even while they increased spending that created the illusion of “free stuff” from the government — the dirty bastards!

        Glad we sorted that out.

        1. You like being retarded? Is it a life choice, or were you born retarded?

          1. do you want to start another “griefing” war, Epi? Because I can cut-and-paste a ream on every post you attempt. I can screw your threads royally. Your choice. Your decision. You let me know right here in the next five minutes.

            1. Bring it, fuckstain. You have fun, retard. I’ll enjoy watching you get banned, you pussy.

              1. HAHAHAHAHAHAHAHAHAHAHAHA

                You like being retarded?

            2. You bringing it, tuff gai? You said within five minutes, right?

            3. “I can screw your threads royally.”

              OH, OH! Look!
              Stupid shit has delusions of grandeur!

              1. Honestly, no one can talk about screwing up threads unless they participated in the Day of the Commenters.

                1. I support this assertion. It might be the only privileged class I’m a part of.

                  1. [Symbolically inserts pornographic, in-line video in response.]

          2. Do you still want me to “bring it?”

            1. HAHAHAHAHAHAHAHAHAHAHA

              You like being retarded, tuff gai?

              1. Fuck you, Epi. I WILL QUOTE THE FUCK OUT OF YOU

              2. Episiarch|10.6.11 @ 2:39PM|#|show direct|ignore
                HAHAHAHAHAHAHAHAHAHAHA
                Episiarch|10.6.11 @ 2:39PM|#|show direct|ignore
                HAHAHAHAHAHAHAHAHAHAHA
                Episiarch|10.6.11 @ 2:39PM|#|show direct|ignore
                HAHAHAHAHAHAHAHAHAHAHA
                Episiarch|10.6.11 @ 2:39PM|#|show direct|ignore
                HAHAHAHAHAHAHAHAHAHAHA

                PWND

                1. That’s it, I’ve been PWND. I mean, wasting bandwith is pwnage, right?

                  HAHAHAHAHAHAHAHAHAHAHA

                  1. Warty|10.6.11 @ 2:56PM|#|show direct|ignore
                    PWND
                    Warty|10.6.11 @ 2:56PM|#|show direct|ignore
                    PWND
                    Warty|10.6.11 @ 2:56PM|#|show direct|ignore
                    PWND
                    Warty|10.6.11 @ 2:56PM|#|show direct|ignore
                    PWND
                    Warty|10.6.11 @ 2:56PM|#|show direct|ignore
                    PWND

            2. Have we won in Libya yet?

            3. What is this weeping pustule saying? It’s just a gray smear in Reasonable.

              1. He/she/it is saying that its all the Republicans’ fault.

                If only the Dems had been able to take control of even a single house of Congress for a few years, they would have ended the fiscal madness.

            4. What is this weeping pustule saying? It’s just a gray smear in Reasonable.

              1. It’s a brown smear without reasonable.

            5. Please stop! I don’t know if my ‘Page Down’ button can take the abuse.

              1. What a doucheasaur. Why are leftist trolls always the worst? Donderoo and Lonewacko were annoying. But never like this.

                1. Oh shit, John. You just got PWND.

                  1. There are some really disturbed people out there Warty. That is why I never go to the Reason happy hours. I am afraid who might be there.

                2. Why don’t you hold your breath and stamp your feet?
                  You know, act your age; we’ll all laugh as you turn blue.

                3. This is you bringing it?

                  HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

                  (takes breath)

                  HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

        2. It was fools and crooks like Reagan and Bush II who ran up debt by cutting taxes even while they increased spending that created the illusion of “free stuff” from the government — the dirty bastards!

          Because only Republicans have been in charge for the last 50 years.

          Glad we sorted that out.

        3. It was fools and crooks like Reagan and Bush II who ran up debt

          And the mask slips.

          Just another Team Blue party boy.

      3. To put a finer point on it, Carter actually tried to cut spending, only to have his own party knife him in the back (the “George Washington’s Birthday Massacre.”) If we weren’t going to confront reality back then, when we honestly had far more intelligent and capable people at the top of the political food chain, what makes you think we’re going to do that now?

        1. They used to just steal a little bit. Someone like Tip O’Neil was a crook. But he understood there was a limit. You couldn’t steal so much that took down the country. Now they just don’t care.

          1. Is it immaturity ? Obama seemed to look on the Presidency as another credential. But a title doesnt’ give you authority. You have to wield it and wield it well. Your comparison to an old time pol like O’Neil is apt. I can’t imagine Tip bluffing his opponents while saying, “don’t call my bluff”. A seasoned veteran would know better, a tyro like Obama, not so much.

            1. Obama, total noob.

            2. I think it is the fact that people of O”Neil’s generation lived the the second world war and the Depression. They knew the lights could go out and really really bad things could happen. The current generation seems to have no imagination. They just can’t imagine the lights going out or the worst happening. So there is no limit to their behavior.

              1. Kids today, I swear.

  10. Have to point out that, in at least one targeted and sufficiently-resourced instance, ARRA money did make a difference. The DOE’s Hanford Site cleanup is a LOT farther along from the > $2B spending over the last two years than we’d have been without. Several hundred buildings and facilities (some nuclear, some non-) have been torn down, their sites cleaned and remediated. Several hundred square miles of the Hanford Nuclear Site have been cleaned up, and a goodly chunk are now to be returned for public use. Yeah, saying that the whole of the stimulus was successful is far from correct, but if you drop over $2B into a single county, stuff happens – some of it good.

    1. Way to have a link that contains malware, you fuck.

  11. Under Keynesian theory,

    Under Keynesian theory, we’ll also be bringing the national debt back to zero when the economy is sufficiently stimulated…

    1. They talk about that. There is a famous story about Keynes going to a meeting in Washington and leaving saying “everyone there was a Keynesian but me.” There really isn’t such a thing as “Keynesian Economics” anymore. It is just a name they give to stealing on an industrial scale.

  12. It is just a name they give to [leaglized] stealing on an industrial scale.

    With the subtle addition, I agree with your entire post.

    1. And I meant to say “They never talk about that”

  13. the dollars spent suck more out of an economy than they put in.

    Government is a net consumer of wealth, despite what some people would like us to believe.

    1. I think the counter-argument is that the government provides services to the people which allow the free-flow of wealth between private parties. Protections through the courts, redressment of grievances between private parties etc.

      Wait, I’m describing a libertarian government. Never mind.

  14. Wonderful blog! I genuinely love how it is easy on my eyes and the information are well written.

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