The Stimulus Seems to have failed

[Piggy]

The main problem with the far right-wing philosophy (it can't be graced with any more rigorous name, and it's certainly not a traditional conservative notion) of tax cuts and deregulation is that it's like trying to drive a car that's run out of gas by removing the brakes.

It won't get the car moving again, but once it does get moving, watch out!

The notion that businesses will start hiring again if "government gets out of the way" is patently absurd.

The only reason to hire new employees is this: There's so much demand for your product or service that you need to hire new people to keep up, and the resulting sales more than pay for the new employees' compensation.

Failing that, you'd be a fool to make a new hire.

Therefore, the only way to jump-start economic recovery -- as opposed to allowing it to arise organically, which means slowly -- is to put money in the pockets of people who need goods and services (that is, folks who currently have less cash on hand than they require) and the best way to do that is to give them jobs. And under the current circumstances, public works is the only sector capable of doing that.

If the private sector could do it, it would have done it already, very willingly.

You could reduce taxes to zero and remove all regulations and it wouldn't cause any noticeable increase in employment because it wouldn't put money in the pockets of people who have to spend it.

Tell you what, let's suppose you and I are competitors, and our circumstances are pretty much equal, but we each get to choose one of two advantages: lots of cash on hand, or customers with money to spend.

If I get to pick first, I'm taking the customers with money to spend.

Why? Because without them, cash on hand does me no good. But with them, I'll soon have cash on hand and outcompete you.

So no, tax cuts and deregulation won't create jobs. It will only enrich the already-wealthy and the unscrupulous.

Of course, the far left-wing philosophy is equally flawed. Yes, it's to everyone's advantage to keep massive numbers of people from falling into poverty, but let's face it, everything has to be paid for, and avoiding pain now means facing a greater pain sometime later.

So the question is, where is the sweet spot, and how much current pain is necessary, and how is it distributed?

The radical Republican insistence on no tax increases for anybody is absurd. So is the radical Democrat insistence on no changes to entitlements.

The reality is that the majority of expenditure lies in defense, Social Security, and Medicare, and our current revenues are insufficient. This means we're going to have to cut defense, make changes to Social Security and Medicare, and raise taxes one way or another.

Another reality is that we're going to have to accept some short-term increase in national debt, while at the same time planning for mid- to long-term debt reduction.

The best analogy I've heard is that it's like a house with a flooded basement and a fire in the attic. You've got to put out the fire to save the house, even though it means increasing the flood in the basement, but you'd better be figuring out how to pump the basement, too.

Seems to me we're running up against Obama's inexperience, which was the most substantive objection to his candidacy. And not only his lack of history with these issues, but also his lack of previous interaction with the tip-for-tap of DC... nobody owes him anything, which makes it very difficult for him to get things done.

And of course there's the wildcard of Europe, which is currently dominating the play of the hand, and which we really have very little control over.

But despite revisionist history and current right-wing dogma, it certainly seems that the current crack we find our collective butts in now won't widen any until and unless we find some equivalent of the Depression-era programs that put able-bodied people into productive work for the short term.

Sadly, our political environment is now so poisoned that it's difficult to imagine how such an effort could be realized.

 

[mhaze]

Good-bye era of stimulus, hello era of cuts.

How're you liking it now?

Guess it depends on whether you are inside or outside of the grotesquely obese, bloated stinking monster of government.

TO one it's starve the beast, to the other it's "why are you mean"?

 

[Puppycow]

Ezra Klein takes a look back at what was known at the time and what we know now.

. . .
By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.

So, even at the very beginning, the stimulus was reduced in size for political reasons, not on the advice of economists. But that's not all: they didn't yet realize how bad things actually were in the real economy.

To understand how the administration got it so wrong, we need to look at the data it was looking at.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

So, long story short: the stimulus was not big enough to the task. It simply made a horrible recession into just a really bad recession. It helped, but not enough to be perceived as a success.

Now, for the skeptics:

Some partisans offer a simple explanation for the depth and severity of the recession: It’s the stimulus’s fault. If we had done nothing, they say, unemployment would never have reached 10 percent.

That notion doesn’t find much support even among Republican economists. Doug Holtz-Eakin is president of the right-leaning American Action Forum and served as Sen. John McCain’s top economic adviser during the 2008 presidential campaign. He’s no fan of the stimulus, but he has no patience with the idea that it made matters worse.

“The argument that the stimulus had zero impact and we shouldn’t have done it is intellectually dishonest or wrong,” he says. “If you throw a trillion dollars at the economy, it has an impact. I would have preferred to do it differently, but they needed to do something.”

A fairer assessment of the stimulus is that it did much more than its detractors admit, but much less than its advocates promised.

“The thing that people who want to argue that the stimulus failed have to deal with,” Bernstein says, “is that if you look at the trajectory of job losses, you will find that right on the heels of the Recovery Act, the rate of job losses began to diminish and then the jobs numbers turned positive. The Recovery Act worked. The problem is we didn’t keep our foot on the accelerator.”

But what about all the debt that would incur? Is that not a worse problem?
Well, there are trade-offs to be made. Yes, the government would have incurred more debt in the short run, but if the economy began growing again, it would have been easier to pay that debt back down in the long run. Fewer people unemployed would also mean fewer people drawing on government benefits and more people paying taxes.

 

[psionl0]

Yes, the government would have incurred more debt in the short run, but if the economy began growing again, it would have been easier to pay that debt back down in the long run. Fewer people unemployed would also mean fewer people drawing on government benefits and more people paying taxes.

You would expect politicians to say that but when the time comes to stop talking about paying off debt and actually start doing it, they always blink.

 

[Piggy]

A fairer assessment of the stimulus is that it did much more than its detractors admit, but much less than its advocates promised.

Which is pretty much the opinion I get from most well-informed, non-partisan people.

 

[mhaze]

.....for the skeptics:


But what about all the debt that would incur? Is that not a worse problem?
Well, there are trade-offs to be made. Yes, the government would have incurred more debt in the short run, but if the economy began growing again, it would have been easier to pay that debt back down in the long run. Fewer people unemployed would also mean fewer people drawing on government benefits and more people paying taxes.

So here's an analogy.

You've got a serious financial crisis, and you've got some money in your pocket. You just go to Vegas and gamble it. If you win, you can solve your problem. But wait. You don't have really enough. So you borrow a pile of cash. Now you can really go do some gambling. Sort it out after the gambling's done.

Hey, a lot of people would be cool with that.

Oh, you know what?

There are trade offs to be made.