What if stimulus works — but only in theory?
Since the financial crisis hit, we have borrowed and spent $5.7 trillion, or 41% of 2008 GDP (7.8% of total GDP over the period). That is an enormous sum. Presumably, it has raised output somewhat higher than it otherwise would have been–just as an accounting identity, it would almost have to–and yet it has left us with unemployment in the range of 8%, and per-capita GDP that is still below the pre-crisis trend. How much would have been needed to force that growth back up to trend?
On Professor DeLong’s chart, the output gap seems to be about $4,000 per capita, or $1.25 trillion. In the context of our ongoing debt, that doesn’t actually seem to be so much. If you assume a multiplier on the high side, we would only need to have spent something like $600 billion dollars, perhaps over a series of years.
But this seems simultaneously too much and too little. Can it really be that adding $125 billion a year would have solved all of our economic woes? The US government has consistently gone over its projections by at least that amount several times over the last four years, and yet we are not better.
Blowback
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You mean just like marxism?
davidk on February 1, 2013 at 4:25 PM
What if unicorns exist but only in a fantasy world?
The Rogue Tomato on February 1, 2013 at 4:25 PM
The only thing the ‘stimulus’ has done/worked for is to see to it foto’s got their wallets fattened and the taxpayers got the royal
‘here it comes again’! And by that probably bho/mo as well got their wallet fattened!
L
letget on February 1, 2013 at 4:26 PM
The theory doesn’t take into account political graft, a.k.a. a fact of life.
apostic on February 1, 2013 at 4:26 PM
look its simple stimulus works if and only if you have a budget surplus. what part of this is hard to understand? If you have savings you can use that savings to jump start an economy. If however you are in the red then the money you borrow will not in the long run help the economy because the interest on the money will simply eat up the ROI. And if you don’t borrow and instead tax for the added revenue to use for stimulus then economic aticity takes a direct hit. furthermore stimulus is directed by people with skin in the game and the amount of it that will be wasted to polictical agenda and freinds defeats the entire idea of stimulus.
The best way to stimulate the economy is to lower energy costs across the board. Barring that reduce taxes again across the board.
unseen on February 1, 2013 at 4:27 PM
great point. Maxism works in theory if and only if you live in an infinite world. Since we don’t and resources will always be finite there has to be some type of rationing system in place. Capitalism use money and work to ration resources. Maxism is reduced to having a select few ration the resources and since its about fairness and not who better provides for society it quickly falls to the everyone being poor except a very select few that ration the resoucres.
unseen on February 1, 2013 at 4:31 PM
What do you mean what if??
SuperBunny on February 1, 2013 at 4:34 PM
“Wayne LaPierre Testifies at Senate Judiciary Committee Hearing”
http://proteinwisdom.com/?p=47028
(Autoplay)
davidk on February 1, 2013 at 4:39 PM
Take a look and the answer is pretty obvious…
Charts of the Day: Obama: Worst. Economics. President. Since. The. Great. Depression…Bar. None.
Resist We Much on February 1, 2013 at 4:40 PM
and Mitt lost to him…ROFL. Talk about a terrible candidate.
unseen on February 1, 2013 at 4:42 PM
Is this more of that “meta” crap?
Fallon on February 1, 2013 at 4:45 PM
http://www.michellesmirror.com/2013/01/a-needed-stimulus-for-our-robust.html
davidk on February 1, 2013 at 4:59 PM
If something only works in theory, then the theory is incorrect.
Mitoch55 on February 1, 2013 at 5:04 PM
Government “stimulus” is like, as someone once said, pulling a bucket out of one end of a pool in order to dump it into another, expecting the water level to go up.
Continuing the analogy, the water level actually goes down, because of all of the drips and spills that happen in the process.
Count to 10 on February 1, 2013 at 5:12 PM
It wasn’t the candidate — any candidate would have lost. It was the ground game — and the democrats know that they can win every election using it now, unless the Republicans can set up similar voter generation machinery in the cities.
Count to 10 on February 1, 2013 at 5:16 PM
Almost … claimed “growth” in GDP over that same time was less than $1.5 trillion. So, we borrowed (i.e. conjured up) $5.7 trillion and spent it only to record the economy had “grown” by $1.5 trillion. And this doesn’t even take into account the LARGER figure that the Fed has been dumping into the economy – through printing and artificially, insanely low interest rates – which also has to be figured as a COST, since the Fed will have to unwind its balance sheet and positions … some day.
Government stimulus doesn’t work – not even in theory. Every dollar spent by government is a dollar doing much less work than if it had been spent by just about anyone else. The only advantage of government spending (“What do they think spending is??!? Spending IS stimulus!!” — noted retard from Indonesia) is that the costs can be masked and the accounting done like no sane person or organization would ever accept. Government spending is good for politicians and no one else.
ThePrimordialOrderedPair on February 1, 2013 at 5:18 PM
davidk on February 1, 2013 at 5:19 PM
Then the theory is wrong!
How effing stupid are economists?
Lonetown on February 1, 2013 at 5:22 PM
It moves from the theory category to the bad guess category.
Lonetown on February 1, 2013 at 5:24 PM
My mistake. It’s also good for entropy-raising leeches who feed off of the blood of the rest of society. i.e. the dem constituency.
ThePrimordialOrderedPair on February 1, 2013 at 5:25 PM
LOL. Only a total idiot would assume that. If you take opportunity cost into account, the money multiplier for government spending is well below 1. That’s what we call “waste”.
ThePrimordialOrderedPair on February 1, 2013 at 5:27 PM
In theory, theory and real life have identical outcomes. In real life, not so much.
RoadRunner on February 1, 2013 at 5:28 PM
Keynesians literally believe that it doesn’t matter how the government spends its money, the mere act of getting it into the economy is enough to cause the desired stimulus. So massive waste isn’t seen as counterproductive.
HidetheDecline on February 1, 2013 at 5:30 PM
Funded by the aforementioned $5.7 trillion in public debt.
Steve Eggleston on February 1, 2013 at 5:31 PM
pathetic. Imagine being stuck in an elevator with this one
As if it does not matter who spends the money or how the money is spent or whence the money originates.
Money flushed down the slush fund toilet is not necessarily productive. Sinkholes are not necessarily investments. Intestines do not necessarily expel dividends. And money printed out of air, as so much of this money was, is self devaluing.
If the stock market was indexed for inflation, what would be the real value today? It is a bull market, as in B.S. and this author is full of it
entagor on February 1, 2013 at 5:32 PM
“How do you tell a communist? He reads Lenin and Marx. And how do you tell an anti-communist? Someone who understands Lenin and Marx”~Ronald Reagan
davidk on February 1, 2013 at 5:40 PM
Don’t get me wrong — this isn’t about using tax money to pay them off, its about getting people out there to knock on their doors, insinuate themselves into their communities, and pressure them into voting republican. Actual conditions, policies, or government programs are irrelevant except to the extent that they energize the foot-soldiers — the last election proved that.
Count to 10 on February 1, 2013 at 5:41 PM
The problem with Marxism or any other Leftist-ideology isn’t that we lack infinite resources. Rather their fundamental flaw stems from the failure to recognize two key facts: 1) wealth doesn’t exist apart from humans, it is created by the effort and ingenuity of humans; and 2) humans will only willingly work if they benefit directly from their work.
Any form of redistribution of wealth creates a disconnect between a persons effort and the amount of benefit he/she receives. This leads to less productively from people which then causes a reduction of wealth for the entire society. You can not simply shift the wealth of one person over to someone else and maintain the same level of wealth overall, people just don’t work that way. The only way a leftist economic system could work is if it were applied to robots.
HidetheDecline on February 1, 2013 at 5:47 PM
Actually, Marxism works in a static, stagnant, unchanging world. Any dynamics or movement or growth in society or technology kills marxism (and pretty much any other centralized structure) which is why those structures tend to force stagnation on the societies unlucky enough or stupid enough to adopt them, as the central planning committees and authoritarians hold back the world so that it still fits with their concept of it or the committee’s rules and procedures.
I got to see all of this up close when I lived on Israeli kibbutzim, which was the best lesson in leftism that one could ever have. These were leftist worlds that implemented pretty much every demented leftist theory in the best of all possible circumstances so one could easily see where the leftist constructions faultered and broke down. Even the simple dynamic of population growth caused immeasurable damage to the idea of property equality as new homes had to be built for the growing families and, even though things were totally equitable and equal at one point, there soon appeared a stratification in housing that was glaring and caused much consternation among the leftists. And that was the simplest of the problems of reality that the kibbutzim had to deal with. Needless to say, the kibbutzim pretty much all went under (even as they were given huge government support for decade upon decade).
Leftism is the ideology of the static mind. It depends on a stagnant world that never really grows or changes, which is why leftists are always looking to cut up a pie they think will always remain as it is rather than grow to allow more the opportunities of bounty and the benefits they get of living off of the creations of others.
ThePrimordialOrderedPair on February 1, 2013 at 6:02 PM
http://1.bp.blogspot.com/-4tM0u1GhZwY/T99Y7NsJbGI/AAAAAAAANLI/RdRTUvGUQMI/s1600/TEA+Party+Sign+13.jpg
davidk on February 1, 2013 at 6:08 PM
Or animals.
visions on February 1, 2013 at 6:29 PM
A single hive of ants, maybe, but “animals” in general would just eat each other.
Count to 10 on February 1, 2013 at 6:35 PM