Saturday, October 10, 2009

Stimulus

Bob Herbert:
The Obama administration’s stimulus package has mitigated the damage, but it was not big enough or targeted enough toward job creation to halt the continued hemorrhaging in employment.


FACT: Most of the stimulus still hasn't been spent.

Arguments from the likes of Paul Krugman and Robert Reich saying that we need more stimulus simply because we are losing jobs is just fucking stupid. This stimulus isn't going to kick in largely until next year. Another stimulus, which would be the third, wouldn't kick in until 2011 or 2012 and may very well over stimulate the economy.

Likewise, arguments from Republicans that the failure of this stimulus disproves Keynesian economic theory seems stupid as well. I'd be willing to entertain an argument that fiscal stimulus is ineffective because government, especially a legislature, and especially especially the US Congress, cannot identify a problem, design a solution, allocate funds, and distribute said funds in a relevant time frame. I'd entertain that theory because that's pretty much where I stand. But to say that a fiscal stimulus itself cannot theoretically work because this one didn't is incorrect.

Now, perhaps Krugman et al are saying that even when the stimulus funds kick in, then it still won't be enough and we are going to need stimulus until 2012 or something, but that's not the case I see them making. Perhaps Republicans are saying that the execution, not theory of fiscal stimulus is the problem, but that's not the case I see them making.

4 comments:

Anonymous said...

"I'd be willing to entertain an argument that fiscal stimulus is ineffective because government, especially a legislature, and especially especially the US Congress, cannot identify a problem, design a solution, allocate funds, and distribute send funds in a relevant time frame."

Uhm, you don't need to entertain an argument - what you've written is the argument.And the truth. I'm not a Keynesian however, I don't know if the stimulus plan was a perfect execution of Keynesian economics so its failure may have little or nothing to do with Keynesian economics.

This last stimulus - I think those $300 rebates were considered a stimulus plan- may have been successful if as you point out, the stimulus had been front-loaded. Why it wasn't is for the historians to figure out.

If we want to stimulate the economy as quick as possible, then we must do it through tax policy.

But that will almost never happen in a Democrat-controlled Congress because cutting taxes now would say Reagan was right.

Mrs. P

Withywindle said...

A somewhat different argument is that Keynesian spending only works to any extent when you aren't already maxed out on debt, that we are so maxed out, and therefore all this will do is create inflation, then stagflation.

Ain said...

nice post

FLG said...

Mrs. P:

Tax policy is tricky. Rebates are often saved or used to pay down debt. Thus, they kinda defeat the purpose. However, they are effective, such as they are, in the short-run because sending out checks isn't all that difficult. Nowhere near as difficult as agreeing how to spend money and then actually spending it.

Withy:

The argument I believe you are making is Ricardian equivalence. Which basically says that people aren't stupid and know that if the Govt spends now that they'll have to pay later. I think this is only partially correct.

 
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