Tuesday, February 23, 2010

FLG Is Astonished By The Ignorance About Economics From People With Economics PhDs

FLG doesn't have a PhD in Economics, but he is as astonished as Paul Krugman and Brad DeLong that people with PhDs in Economics don't understand how a fiscal stimulus works.

Stan Collender explains it very simply, just like when I learned about it in Macro 101:
The goal of economic stimulus is to create activity that wouldn't otherwise occur at that time. Your statement would have been correct if the economy had been operating at close to full employment and capacity. But it wasn't. Businesses weren't spending, consumers weren't spending, and monetary policy adjustments were not doing much to change that behavior.

So the federal government used borrowed funds[...], that is, it got funds from those who were not spending the money and then spent it or gave it to others with a tax cut (about 40 percent of the stimulus was tax cuts) to create that activity.

There are ways and reasons to criticize the stimulus, but saying that it just moves money is not really one of them.

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