This week the Obama administration lays out its plans to further "stimulate" the economy. In particular, the president proposes $50 billion more in infrastructure spending, and a $100 billion extension to a tax credit on research and development. FULL ARTICLE by by Robert P. Murphy
Source link: http://archive.mises.org/13844/stimulus-yet-again/
Stimulus? Yet Again?
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Well, better uncover some “research and development” in this here company, then. Let’s see, I’m sure that programmer over there does something that can be labeled as such. Hmm… yeah.
Hmmm, want some of that R/D money, all we got to do is say that programmer X is writing code to analyze the effects of xyz on climate change. That’s gotta be worth some stimulus in spades.
If government spending is the answer to the United States’ economic problems, why do we only have a stimulus of fifty or a hundred billion? Why not a trillion every month?
Evan,
For the record, Keynesians do argue that a $50 billion stimulus is far too small to cover the “output gap”. I’m not sure what the output gap is (probably the fall in GDP), but it’s in the order of several trillion dollars.
The stupefying thing about that argument is that the original ‘stimulus’ was *larger* than the real fall in GDP. GDP overall declined by about 3.72% over the course of the recession; the stimulus was around 5.6% of GDP.
5.6% of pre-recession GDP, or of post-recession GDP?
Pre-recession GDP- in 2005 dollars 14,484.9 billion dollars. I had to adjust my math for a bit inflation, but the stimulus still comes out to 5.1% of GDP. The total fall in GDP- from Q3 2008 to Q2 2009, after which GDP starts rising again- was 14,484.9 – 14,034.5 = 450.4 billion dollars.
The Keynesian reply is that we have to look at potential GDP-actual GDP, or the ‘output gap,’ but even then, it is hard to see how the stimulus could be reasonably considered too small, unless Krugman et al. are thinking the economy would have grown at warp speed without the recession.
All my statistics are from here: http://www.bea.gov/national/index.htm#gdp, except the 814 billion figure for the stimulus, which I found here: http://www.csmonitor.com/Business/Donald-Marron/2010/0825/New-price-tag-for-stimulus-814-billion. I then adjusted for inflation here: http://www.westegg.com/inflation/
If you use Okun’s rule the GDP output Gap is about 1.5 Trillion. Went through the numeric nonsense in class to discuss the issues.
I love the term “output gap”, which suggests the central planners and the number crunchers with fancy software programs know the amount the economy SHOULD produce, what the economy IS currently producing, and how much “we” need to spend to make up the difference. Of course, the solution to close the gap is to spend money on “infrastructure.”
So we have a 1.5 trillion ‘gap,’ by their standards, and had a 0.8 trillion stimulus. But that is just if we count the stimulus; isn’t government spending supposed to be ‘stimulating,’ even if it isn’t entitled as such? Because we had a 1.4 trillion dollar deficit in 2009 on a 3.5 trillion dollar budget. Does the Keynesian magic only kick in if the bill is appropriately titled, or what?
Indeed. It’s sickening to hear the constant calls for additional stimulus, and to be reminded ad nauseum that die-hards like Krugman called for MORE deficit spending than we ended up enacting. If a $1 trillion bank bailout, plus a $1 trillion worthless-pork-spending bill, were not enough, then one starts to wonder just what it would take to satisfy these fiscal psychopaths. Maybe a $15 trillion stimulus? $40 trillion? Even then, you can still imagine the pundits shedding crocodile tears over Republican obstructionism, and doggedly insisting that the economy would have collapsed into the Stone Age if not for such idiotic boondoggles.It’s instructive to read the comments page for The New York Times’ article about the stimulus. Almost nine out of every ten comments amounts to a “Hallelujah!” or a “He should have done this sooner… and BIGGER!”
Exactly. Great article. I’ve been a fan of your work for some time. Personally what I find hilarious about the new stimulus package is that nobody is talking about how this package or how the delay in the expiration of some or all of the GWB tax cuts change the cost projections for the healthcare bill passed this past spring.
was there a prescription drug bill passed under president george w. bush?? true???
was it humdreds of millions off? until it wasnt??
Let me reword your question for you:
If an infinity minus one dollar bank bailout, plus an infinity minus one dollar worthless-pork-spending bill, were not enough, then one starts to wonder just what it would take to satisfy these fiscal psychopaths.
“…just what it would take to satisfy these fiscal psychopaths.”
Simple. Look at their logic, and find the answer. Their logic is, if the stimulus didn’t work, that’s because it wasn’t big enough. It can always be bigger, until the point at which it works (which it won’t), or until the government takes 100% of everyone’s money and gets to redistribute it to their tastes. So, what would it take to satisfy these fiscal psychopaths? All of our money.
BTW, infinity – 1 = infinity.
The -$1 is for the bureaucratic overhead in their ideal (aka fantasy) world where government is apparently efficient.
Bob ought to do a holiday gift idea piece. I’ll definitely be getting Broccoli Warehouse gift certificates as stocking stuffers (non-transferrable of course) for my family. I wonder if Spatula City sells gift certificates…
Obama said some typically stupid stuff in a speech that I caught part of. He claimed credit for preventing another depression, increasing jobs, and stopping bailouts with taxpayer money. He wants to do more, more, more to “help” the economy and protect various inflated “rights”. I couldn’t listen too long before giving up in disgust. It was all so typical and all so wrong. And a lot of people are just lapping it up like manna from heaven.
At one point, he said something about some people believing that the government should not interfere in free markets, even when the markets are broken. Hello? If the markets are broken, it’s precisely because the government has interfered and not let them work properly. Wasn’t Obama supposed to be different in some way? Not that I was counting on it, but a lot of other people seem to have been.
Change…. but he never said different
Those who voted for him never asked this simple question:
Change from what to what?
They’re not “inflating” rights — they’re restricting them by refining the definition of rights.
“Insanity: doing the same thing over and over again and expecting different results. Albert Einstein “.I don’t think you need to be Einstein to figure this one out!
You’re certainly right – even Bill Clinton used that quote.
I’m surprised that Michael has not yet made a comment. I guess he has to find some information from Wikipedia.
Obama wants class warfare. His whole approach to the $250k threshold for tax or not to tax is based on what he perceives is the dumbing down of Americans. Of course he could be right. After all there are more and more people on the public dole. Are there enough Americans that believe the socialist mantra that the so called rich need to be taxed more to take care of you the middle class. Socialism is such a sick philosophy and it requires the dumbed down public school system of the last 60+ years.
So the more you split them up the better chance you have for power. The same thing is true with the racist issue.
God help us all, and if your an atheist you can help us all.
43% of Americans pay NOTHING for federal government. Why else would they be either apathetic or demanding more?
i think there are park fees for vehicles now. unnles there are ways around those.
The feds now deploy parking meters? Doesn’t surprise me.
Still clapping for Obama. Will write later.
“I’m surprised that Michael has not yet made a comment.”
Or Daniel Kuehn, lecturing us about liquidity traps.
He’s not trying to stimulate anything! He’s trying to give Repugnicans room for Argument to Moderation in the frame of the greater predation on the 57% of Americans who still pay taxes.
Eventually, the “stimulus strategy” will pay off and Austrians will remain on the defensive.
No amount of scholarship from Jonathan or Robert or the thoughtful posters will change the minds of the internet passers-by Keynesians, or the minds of those voters who could not even explain who Keynes was.
So,
(a) Increased spending continues, as it has for over a century.
(b) Eventually things turn around.
And those two conditions are all that is remembered.
Quite pathetic; but more pathetic is the struggle, trying to break the causal-relationship mentality among those who pull the lever in November.
Of course it will, just like WW2 “paid off” I gather
One of the claims by the communist/eastern bloc countries was that they had “full employment”. In fact, their unemployment rate was near 0%. And of course it was. Put a gun to someone’s head (better not give Keynesians even more ideas!!) and they will work. Also, as we know, they were terribly undercapitalized and inefficient. They required far more labor to produce far fewer and far poorer goods. (How’d that ever get past the CIA “specialists”!!) Professor Murphy hit the nail on the head, that “full employment” is hardly a measure of economic well-being. In fact, it could very well be a measure of impoverishment, if labor is a more needed resource a opposed to capital. We do know that it is savings and capital investment that drives economic growth, not spending. And certainly not producing for the sake of producing.
Even if it’s infrastructure, in the end we’re left with misallocated resources and when the “spending” is over, we’re poorer than before. We’ve consumed rather than invested, we’ve destroyed rather than created. And after the road is built…”we need more roads or…”.
Well, we could always use more artificial islands with airports that no one uses, like that one in Japan.
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