“Intellectual authorities” coast to coast agree: stimulus flopped

posted at 10:35 am on July 6, 2011 by Ed Morrissey

Yesterday, David Brooks scolded Republicans for not listening to “intellectual authorities” on fiscal policy.  Fair enough; I figured I’d devote some time today to the opinion of intellectual authorities on economics and public policy, and decided to focus on Harvard and Stanford for my research.  Fortunately, economics professors at both top-notch bastions of intellectual authority have quite a lot to say about Obamanomics.  Let’s start with Harvard’s Robert Barro, quoted in the London Telegraph as saying that government stimulus wastes money, has negative rather than positive multipliers for national economies, and only should be undertaken for specific purposes under narrow conditions:

Breaking with current economic orthodoxy, Robert Barro, Paul M Warburg Professor of Economics at Harvard University, said large spending plans should be undertaken only if they can be justified financially on their own merits. Any other spending plans end up costing the country even more than the initial outlay as interest on the debt has to be paid and the deficit cleared.

“In the long run you have got to pay for it. The medium and long-run effect is definitely negative. You can’t just keep borrowing forever. Eventually taxes are going to be higher, and that has a negative effect,” he said.

“The lesson is you want government spending only if the programmes are really worth it in terms of the usual rate of return calculations. The usual kind of calculation, not some Keynesian thing. The fact that it really is worth it to have highways and education. Classic public finance, that’s not macroeconomics.”

Turning to the $600bn (£373bn) to $800bn US package, he added it was “mainly a waste of money”. Stimulus programmes, he said, offer little more than “rearranging the timing” of economic growth. “Possibly you could make an argument that it’s worth it. But it’s going to be a negative-sum thing overall, so you have to think it’s a big benefit for boosting the recovery.”

“Rearranging the timing” has been the only real hallmark of Obamanomics.  The administration has done nothing but create short-term economic incentives in an attempt to convince people that real recovery had already arrived, when instead all they did was move demand from future quarters to present.  Whether it was the stimulus package that accelerated “shovel ready” public projects, Cash for Clunkers, or a series of ill-advised home buyer tax breaks that enticed buyers to commit while home prices were still too high, the Obama administration’s economic policy has entirely consisted of gimmickry rather than a focus on long-term growth.

Let’s go to the Left Coast for another view.  Stanford’s John Taylor looks at Obama’s stimulus plan to determine whether a larger amount of money would have worked.  He concludes that not only wouldn’t it have worked, the dollar amount is actually irrelevant, since most of the money went to non-stimulating purposes:

In sum, this empirical examination of the direct effects of the three countercyclical stimulus packages of the 2000s indicates that they did not have a positive effect on consumption and government purchases, and thus did not counter the decline in investment during the recessions as the basic Keynesian textbook model would suggest.  Individuals and families largely saved the transfers and tax rebates.  The federal government increased purchases, but by only an immaterial amount.  State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers.

Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view. According to the empirical estimates of the impact of ARRA, if there had been no temporary stimulus payments to individuals or families, their total consumption would have been about the same. And if there had been no ARRA grants to states and localities, their total expenditures would have been about the same.  The counterfactual simulations show that the ARRA-induced decline in state and local government purchases was larger than the increase in federal government purchases due to ARRA.  In terms of the simple example of Model A versus Model B presented above, these results are evidence against the views represented by Model A, and thus against using such models to show that things would have been worse.

Others argue that the stimulus was too small, but the results do not lend support to that view either.  Using the estimated equations, a counterfactual simulation of a larger stimulus package—with the proportions going to state and local grants, federal purchases, and transfers to individual the same as in ARRA—would show little change in government purchases or consumption, as the temporary funds would be largely saved.

James Pethokoukis at Reuters connects the dots:

Indeed, the results are horrifying. The two-year-old recovery’s terrible tale of the tape: A 9.1 percent unemployment rate that’s probably closer to 16 percent counting the discouraged and underemployed, the worst income growth and weakest GDP growth of any upturn since World War II, a still-weakening housing market. Oh, and a trillion bucks down the tube. Oh, and two-and-a-half years … and counting … wasted during which time the skills of unemployed workers continue to erode and the careers of younger Americans suffer long-term income damage. Losing the future.

Next, add in healthcare reform that Medicare’s chief actuary says will not slow the overall growth of healthcare spending. (Even its Obama administration godfather, Peter Orszag, warns that “more drastic measures may ultimately be needed.”) And toss in a financial reform plan that the outspoken and independent president of the Kansas City Fed says he “can’t imagine” working. “I don’t have faith in it all.” Indeed, markets continue to treat the biggest banks as if they are still too big to fail.

But wait there’s more. Obama created a debt commission that produced a reasonable though imperfect plan to deal with America’s long-term fiscal woes. But he stiffed it and then failed to supply a plan of his own, sowing the seeds for an impending debt ceiling crisis and making an eventual fiscal fix that much harder. One more step along the path not taken, along with pro-growth tax and regulatory policies that would have reduced policy and economic uncertainty and unleashed the private sector to invest, expand and create.

In order to accelerate growth in a real and sustainable manner, the US government has to create an investor-friendly environment.  The Obama administration has done everything but do so.  Obama’s class-warfare rhetoric, including the ridiculous new war on corporate-jet owners, as well as his legislation (ObamaCare, financial reform) and regulatory expansion all signal a determined hostility to capital.  Moreover, the White House refusal to acknowledge the obvious deficit and debt crises with its insistence on trillion-dollar annual red ink shows that the leaders of its economic policy simply have no clue as to the damage they are doing to America’s financial standing.  In that kind of environment, who would want to invest their capital and take risk in the US if they had the opportunity to use it elsewhere?

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When you’ve lost pointy-headed intellectuals…..

CurtZHP on July 6, 2011 at 10:39 AM

The question is, are there enough “normal” Democrats to heed the obvious and admit the Chicago Jesus and his minions have made things ten times worse?

Tim Zank on July 6, 2011 at 10:39 AM

And the fly over rubes from coast to coast knew it would flop before it was implemented!

katy on July 6, 2011 at 10:40 AM

Yeah, but these “intellectual authorities” are EEO hire radical, extremists, right? They had to hire them, but no one believes what they say.

JimP on July 6, 2011 at 10:41 AM

I would bet that village idiots coast to coast agree with that assessment as well.

Akzed on July 6, 2011 at 10:43 AM

These people are just stupid. No other explanation.

There is plenty of historic economic data showing this would not work.

Did they listen? No.

Will they listen next time? No.

Socialism is a pie-in-the sky feel good religion.

Krugman, Brooks, etc… all of them, complete morons.

tetriskid on July 6, 2011 at 10:44 AM

You know it is getting bad when you have to quote foreign newspapers.

tomas on July 6, 2011 at 10:44 AM

The Catch 22 is that an environment like this makes it both easy and hard for a future conservative President.

- Easy in that it won’t take much in the way of implementing a couple of basic conservative policies to produce a drastic recovery.

- Hard in that things have been so fundamentally hosed up, that the up hill climb is very steep.

AeroSpear on July 6, 2011 at 10:47 AM

Way to keep their feet to the fire Ed. You and this site provide a vital service to Truth. Thank you.

SayNo2-O on July 6, 2011 at 10:49 AM

So the Dems seize the opportunity to exploit a crisis. They gain control of Congress and load up a bill with all the porky dreams they have had for years while out of power. They call the monstrous theft of taxpayer dollars a “stimulus” and promise it will save the economy.

The country winds up further in debt, Democrats siphon off most of the money, and the economy is actually damaged by the grotesque perfidy. (Note to ABC viewers: Look it up.)
Betraying your country in its hour of need. The worst thing the Democrats have done since, well, since they stood up on the floor of Congress and declared the Iraq War lost while we still had soldiers fighting and sacrificing.

Yeah, I know, shocking.

Forget it Jake, it’s Chinatown Democrats.

novaculus on July 6, 2011 at 10:51 AM

If one assumes that the current Administration consists of intelligent people, the only possible conclusion is that they are out to ruin this country!

gullxn on July 6, 2011 at 10:54 AM

The HA commentators knew that the stimulus was wrong going clear back to Bush’s ill conceived “stimulus”. What good is being right when you’re not in power?

Mojave Mark on July 6, 2011 at 10:54 AM

In the long run you have got to pay for it. The medium and long-run effect is definitely negative. You can’t just keep borrowing forever. Eventually taxes are going to be higher, and that has a negative effect,” he said.

No way! I never could have possibly come to this conclusion without the help of intellectuals. Thanks, guys!!

/

mankai on July 6, 2011 at 10:54 AM

By our standards, the stimulus failed. But, it accomplished much of what Barack Obama wanted – paying back union members for their support and ensuring their support for 2012 and propping up gfovernments in Democratic cities and schools.

As I look out my office window, I see a construction crew repaving a street that wasn’t really that bad. Is it successful? For the construction workers, it is.

Obama already has been endoresed by the National Education Association, without even knowing who the GOP nominee will be.

As Sarah Palin said – Barack Obama is only worried about one future, his own.

bw222 on July 6, 2011 at 10:54 AM

Ed, dear, sweet Ed…

Obviously what we need is more Stimulus, to tax the rich more and spend more money. If we have to borrow it, fine. Or we can print it.

We aren’t broke.

And lastly, if the American workforce would simply up their game, things would get better in no time. Or it could take longer. We need to be patient.

And spend more money.

After all, we wouldn’t have been in this spot if not for Bush.

catmman on July 6, 2011 at 10:57 AM

You can’t just keep borrowing forever.

Can someone tweet this to @AskObama?

I don’t think he knows this.

darwin on July 6, 2011 at 10:59 AM

So what will David Brooks do now, accuse the Republicans of not listening to the knuckle-dragging morons?

pilamaye on July 6, 2011 at 10:59 AM

But But But But Paul Krugman says………

lahlon on July 6, 2011 at 11:00 AM

‘the dollar amount is actually irrelevant, since most of the money went to non-stimulating purposes’.

Gee, this is what Rush has been saying for months and he’s a college dropout. Even the dear leader admitted that the shovel ready jobs were not as shovel ready as we thought. What took the smartest guys in the room so long to figure out the money was a blue state bailout and Union payback? Those blue states will still fail. Look at MN, CA and NY. NY can’t even afford TP for the public restrooms.

Kissmygrits on July 6, 2011 at 11:03 AM

So, we have a consensus?! This then ends the argument? Consensus = fact!

UkiddenMe on July 6, 2011 at 11:04 AM

So many points, so many points:

The administration has done nothing but create short-term economic incentives in an attempt to convince people that real recovery had already arrived

1) They haven’t even done that well because at the same time they were creating short- and long-term disincentives through increased regulation and playing fast and loose with established laws regarding bankruptcy and compensation. Not to mention the discentives that come along with increased deficit spending.

2) The stimulus bill wasn’t designed to stimulate the economy as much as the government by sending funds to state governments to paper over their own deficits for a year or two. Now for many of those states, the “chickens are coming home to roost” as they never did do the hard work a few years ago. So the stimulus did buy time for the economy as much as for Dem legislators to put off the hard decisions they HAVE to make.

3) The biggest B.S. statistic is the “jobs created or saved” by the stimulus. In proposing the stimulus, Bambi and Co., plugged the proposed spending numbers into a formula to predict how many jobs would be created/saved. Then, after the fact the only thing they really measured was whether they had in fact spent that money. Taking the total of the dollars spent, the plugged that value into the SAME formula and claimed that the stimulus did what they said it would. In essense, all they have measured is how much money they’ve spent, not how many jobs they created/saved.

PackerBronco on July 6, 2011 at 11:05 AM

On the other hand, David Brooks still thinks that Obama’s pants crease looks fabulous!

PackerBronco on July 6, 2011 at 11:06 AM

But But But But Paul Krugman says………

lahlon on July 6, 2011 at 11:00 AM

Brooks was referring to “intellectual authorities”, not blithering idiots.

pilamaye on July 6, 2011 at 11:06 AM

David Brooks only listens to ‘selected’ economic authorities. Like the ones who believe the economy can be run successfully on rainbow-colored unicorn farts.

GarandFan on July 6, 2011 at 11:08 AM

But But But But Paul Krugman says………

lahlon on July 6, 2011 at 11:00 AM

Krugs’ insane column from the other day (July 3rd) was the most e-mailed NYT story for the day. And most of the 400+ comments agree with him. As long as there are idiots who believe this empty suit, we’ll be in trouble.

Del Dolemonte on July 6, 2011 at 11:09 AM

I’m always amazed at leftists who claim that spending on the wars helped cause the recession… but that the only answer is more government spending.

mankai on July 6, 2011 at 11:10 AM

The two-year-old recovery’s

People talking about “the recovery” are

A. Taking drugs
B. Drinking the Kool Aid
C. Complete effing idiots.

THERE NEVER WAS A RECOVERY. It’s a hoax perpetrated by deliberately creating fraudulent data; no different than the AGW hoax.

dogsoldier on July 6, 2011 at 11:11 AM

It’s the fault of the ATM near my house. It stole my job, and it won’t give me more money.

WordsMatter on July 6, 2011 at 11:12 AM

The administration has done nothing but create short-term economic incentives in an attempt to convince people that real recovery had already arrived

If I borrow $50K on my credit card and then take a gun and rob my neighbors of another $50K, I can “create” a maid job and a butler job in my home… of course, my neighbors will have less to spend causing unemployment somewhere else… and then when the credit payments come due, I will have to rob my neighbors again to pay the interest… even if I fire my employees. My only other alternative is to borrow more.

The problem is that no job was created as a result of natural, market forces. Thus they were unsustainable. Existing wealth was concentrated into fewer hands (me, the fake jobs, and the creditors) and greater economic damage was spread across a larger segment of the population. In the end, the created jobs are lost, debt remains, creditors are at risk (and therefore they do not invest in real growth). If I declare bankruptcy, the bank is now open to loss as well.

Whereas it is true that the butler and maid will spend money, wealth has been concentrated, the velocity of money has been slowed, their jobs (being manufactured) will end.

Short term thinking to benefit a few… long term disaster that will affect all.

mankai on July 6, 2011 at 11:13 AM

The question is, are there enough “normal” Democrats to heed the obvious and admit the Chicago Jesus and his minions have made things ten times worse?

Tim Zank on July 6, 2011 at 10:39 AM

No. The “JFK Democrats,” as I call them, are long gone. The Dem party has been taken over by folks that just 20 years ago would have been (rightfully) labeled as fringe Leftists. See: Nancy Pelosi, etc.

The real question is: Will the apolitical, casual Dem & “independent” voters recognize how far-gone the modern Dem party has become?

visions on July 6, 2011 at 11:23 AM

visions on July 6, 2011 at 11:23 AM

+1

They still hate Reagan and have been waiting 25 years to try and prove he was wrong.

mankai on July 6, 2011 at 11:26 AM

Did they include the face that all money borrowed is money not available to invest in more productive enterprises? It isn’t just that you have to pay it back, it’s that you are taking from the private sector in the first place.

Count to 10 on July 6, 2011 at 11:28 AM

Can someone tweet this to @AskObama?

I don’t think he knows this.

darwin on July 6, 2011 at 10:59 AM

“If only Stalin Obama knew!”

aquaviva on July 6, 2011 at 11:33 AM

When the government of Zimbabwe goes to the World Bank for a loan, they have to demonstrate that the money will be spend on a project that will have a positive impact on development and a reasonable rate of return. If they said they were going to take the money and use it to pay service workers or the military, they would be laughed out of town.

But the US government took our tax money (present and future) and transferred it to all and sundry without the slightest requirement tha the money be spent wisely or create any return at all. We are holding our state and local governments to a lower standard than the World Bank holds Zimbabwe, which is just sad.

Haiku Guy on July 6, 2011 at 11:36 AM

We’re intellectual authorities and we’re here to ~shudder~ help you.

tommyboy on July 6, 2011 at 11:36 AM

I am, sadly, over-educated in the field of economics. I took one 3-hour course in it, and the last 2/3′s of it was an absolute waste of time. After the first few dozen ways of expressing the concept “supply and demand,” everything beyond that point is just an infinite number of ways to confuse the rubes.

logis on July 6, 2011 at 11:37 AM

I’m waiting for highway contraction signs that say:

“This Project Supported by President Hu Jintao of China”

tomg51 on July 6, 2011 at 11:41 AM

So, here we have a piece in Hot Air that explains how Obamanomics is failing, but where is the LSM on this. I also get a kick out of them bringing up Bill Clinton and his economy. For those of us paying attention, in those days, his economy was based on the dot.com bubble, Enron, Global Crossing, and World Com, all of which collapsed right after he left office. He also benefited from a Republican Congress that didn’t try to out-Democrat the Democrats and actually worked to balance the budget.

George W. Bush had 9/11 which could have put this country into a recession worse than this one, but the tax cuts saved us. If the Republicans, under Bush, hadn’t tried to out-Democrat the Democrats, we wouldn’t have had the problems we have today. Had they not allowed the Democrats to talk them out of dealing with Fannie and Freddie and they had just done their jobs, we wouldn’t have had these problems today. I’m not saying Barack Obama wouldn’t have been elected, but it would have been much more difficult for the Democrats to nominate him since people had obviously had enough of the Republicrats.

Vote Republicans and only be called a racist one more time.

bflat879 on July 6, 2011 at 11:44 AM

In order to accelerate growth in a real and sustainable manner, the US government has to create an investor-friendly environment


The regulatory jihad
that is cranking up sure won’t help investment or production.

forest on July 6, 2011 at 11:45 AM

I’m always amazed at leftists who claim that spending on the wars helped cause the recession… but that the only answer is more government spending.
mankai on July 6, 2011 at 11:10 AM

The military is of value to society. But even that isn’t completely necessary. If all the government did was build extraordinarly complex machines, and then dump them in the ocean, that would could at least theoretically stimulate some sectors of the economy – albeit at the expense of other, more productive enterprises.

But forced wealth transfer is counter-unproductive. And even if the government-forced wealth transfer payments were done completely at random, that would be better than the way the government actually does it.

Step One: Take capital away from the only people in the country who have a proven capacity to use it to create more wealth.

Step Two: “Loan” that money specifically to the most blatantly irresponsible financial institutions in the country, and give the rest to people who use drugs and have children out of wedlock.

Step Three: Economic stimulous?

The people who came up with that idea are the ones liberals call “intellectuals.” Every word in the LiberalSpeak dictionary is its own antonym.

logis on July 6, 2011 at 11:53 AM

You know it is getting bad when you have to quote foreign newspapers.

tomas on July 6, 2011 at 10:44 AM

It’s been that way for a long time. The UK press has been willing to point out the lack of clothing on the Emperor.

Our domestic press? “I don’t care, Obama is awesome.”

iurockhead on July 6, 2011 at 12:04 PM

I have a funny feeling the Stamford – Harvard endowments and donations are being hit pretty hard right now, hence their willingness to get “closer” to the fiscal calamity via Obama and his admin.

Factor in the poor rate of return on these college investments… and well – you are messing with elite liberal paycheck’s.

Odie1941 on July 6, 2011 at 12:04 PM

No. The “JFK Democrats,” as I call them, are long gone. The Dem party has been taken over by folks that just 20 years ago would have been (rightfully) labeled as fringe Leftists. See: Nancy Pelosi, etc.

The real question is: Will the apolitical, casual Dem & “independent” voters recognize how far-gone the modern Dem party has become?

visions on July 6, 2011 at 11:23 AM

Sad that the reasonable wing of the democratic party is named after the Kennedy Crime Family.

slickwillie2001 on July 6, 2011 at 12:12 PM

Facts, truth… that are out of line with their ideology are irrelevant and can be ignored.

“Ideology above truth” is the disgustocrat mantra. Second only to “destroy those who disagree”.

ClanDerson on July 6, 2011 at 12:26 PM

“The stimulus acted stupidly.”
/PBHO

Khun Joe on July 6, 2011 at 12:42 PM

Intellectual authorities agree that Brooks should fact-check his scribblings before publishing them, especially on economic/public policies.

AH_C on July 6, 2011 at 12:56 PM

No. The “JFK Democrats,” as I call them, are long gone. The Dem party has been taken over by folks that just 20 years ago would have been (rightfully) labeled as fringe Leftists. See: Nancy Pelosi, etc.

The real question is: Will the apolitical, casual Dem & “independent” voters recognize how far-gone the modern Dem party has become?

visions on July 6, 2011 at 11:23 AM

Sad that the reasonable wing of the democratic party is named after the Kennedy Crime Family.

slickwillie2001 on July 6, 2011 at 12:12 PM

This is what happens when you lionize murderers, cheaters, liars, drunks, philanderers etc. The party reflects the values of its leadership, in spirit and deed.

If only the GOP reflected Lincoln & Reagan in spirit and deed…

AH_C on July 6, 2011 at 1:05 PM

Obama’s class-warfare rhetoric, including the ridiculous new war on corporate-jet owners, as well as his legislation (ObamaCare, financial reform) and regulatory expansion all signal a determined hostility to capital.

I don’t think that they are hostile to capital, they are just stupid. His cabinet has never been engaged in commerce; they don’t have the knowledge, the wit, nor the brains to have any opinion about it.

ss396 on July 6, 2011 at 1:07 PM

Paul Krugman: “We must spend lots and lots and lots of money that we don’t have in order to cure the ills created by people spending lots and lots and lots of money that they don’t have.”

That’s the extent of intellectual authority for this sorry administration. Even a fool can see that this cannot work.

ss396 on July 6, 2011 at 1:11 PM

But you weren’t paying attention to my intellectal authorities.

/whiny Brooks

Scrappy on July 6, 2011 at 2:10 PM

In fairness, the “stimulous” was never intended to do anything for the economy – it was for payoffs to union members (i.e., state and local employees, such as teachers) and other democrat constituancies.

So, it had its intended effect there.

Monkeytoe on July 6, 2011 at 3:09 PM

The stimulus had its intended effect, laundering money (our grandchildren’s) through state and local public unions to the DNC.

gbear on July 6, 2011 at 3:34 PM