The Stimulus Seems to have failed

[BeAChooser]

Would you like me to copy paste long chunks of Keynesian economists to match your long chunks of Friedman economists? I addressed that approach with BAC, when he posted the writings of the same people. In the context of this discussion, it's nothing but an appeal to authority.

At least we have authorities. What do you have?

 

[BeAChooser]

There are also mechanisms that other types of economic policies have.

And how successful have those other types of economic policies been? Especially the types of policies being espoused by Obama and the many socialists/communists that stand shoulder to shoulder with him in this struggle against "the rich"? Again, look back at history.

It's difficult to choose not to do business with a company that has a patent on an item that's used in everyday life. Or to choose not to do business with a company that has such a great market share that they dictate the cost of an item.

Any more difficult then choosing not to do *business* with a government that has coopted the workings of the free market and has the power to make laws you have to obey under threat of force?

The fact is there are very few instances of companies dominating a market because they own a patent that eliminates competition. It's amazing how when free marketeers put their minds to it and see profit potential, they will come up with alternative ways ... even better ways ... of doing something.

Also, there are very few companies that have such a great share of a given market that they can dictate the price. Indeed, the suggestion that they can do that in the first place is counterintuitive to the workings of the free market. Even if you are giant corporation with 99% of the market, if I come along with a widget that works as well as yours and sell it for 10% less, you will lose market share and I will gain it. Now you could try to buy me out, but that's the free market. I'm free to sell if I want.

Also, no one here is advocating a market without any regulations or controls. There are laws against monopolies for reasons that have long been debated. I doubt anyone here now wants to change those laws. We just don't want to see the government become the biggest monopoly of all.

I've seen ridiculous price increases in the coatings industry. One of the reasons given is their reluctance to reopen a plant that was closed 2 years ago. There are shortages for various raw materials used in common coatings. Am I to believe that ALL business decision makers decided it would be better to raise the prices rather than add a second shift? This would theoretically reduce demand, and inhibit growth. Doesn't exactly sound like a capitalist strategy to me.

So what's your solution? A planned economy ala the type tried by the Soviets, or Cuba, or the Kymer Rouge, or Red China under Mao?

Do you find it amazing that a lot of the publicly traded companies are recording record profits?

Good for them. Looks like they found out how to be more productive and eliminate some of the inefficiencies and waste that must have crept into their businesses over time. That's one of the things recessions do. Cause companies to streamline operations to be more productive and profitable. If only government had a similar mechanism.

Besides, why are high profits bad? Isn't that a good thing? As long as those profits are the result of a monopoly or oligarchy. Perhaps they are a sign of impending improvement in the economy? Wouldn't that be good? You folks really need to make up your mind about profit, I think. Evil or not? And also, note that some companies will do well in recessions. Is that bad? Not all companies necessarily suffer during recessions. So which ones in particular incense you?

Tell me, do you find it amazing that groups that are more friendly with Obama and democrats … like Hollywood producers, like trial lawyers, like union leaders … earn far more than even the CEOs of many of those publically traded companies you dislike?

Don't you see the hypocrisy of the Obama adminstration and democrats railing against the profit margin of the health insurance industry when it ranks 86th in profit margin relative to other industries? Here: http://1.bp.blogspot.com/_otfwl2zc6Qc/SoMLoWBKM4I/AAAAAAAAK4g/wKdZyg5LxQ0/s1600-h/profits.bmp . Why should the Beverages - Brewers industry, for example, be allowed to make a 26% profit without comment while we focus anger on an industry that averages just 3.3% profit? Because they makes beer rather than making people better?

Do you find it amazing that the salaries of government workers are so much higher on average than the salaries of comparable workers in the private sector? You see, you can do something about those companies whose profit margins you don't like. Just don't buy their goods. But there is not a thing you can do about government salaries and waste.

Except make government smaller.

10 pages of bickering.

I don't bicker. I debate. I inform.

Tell you what, if you tell me what page(s) you had these epiphanies I'll take over from there.

Sigh. Very well.

You asked, why do I think government stimulus stifles?

I'll list *some* of the reasons, not necessarily in order of importance.

1) Every dollar the government spends has to come from someone who would have used it in one form or another, thus stimulating the economy anyway. Even those who are saving instead of spending, aren't just sticking the money in a sock under their bed. They put it in a bank which then does something with it (unless of course government intervenes in the economy creating conditions that are so uncertain that the bank then decides to wait and see and not risk the capital). Logically, the net gain is zero … or even negative when you consider the size of the government monster needed to monitor and manage this transfer of wealth (have you looked at all the new bureaucracies that are part of Obama's stimulus?).

2) Government has proven over and over that it is very bad at managing resources and economies. Just ask Chile. Just ask the USSR (oh that's right, it's defunct in large part because it was so bad at managing its economy). Part of the reason for that is that other factors than economics are put into the decision process by the government. Like desires to change the behavior of citizens, regardless of what the citizens actually want. Another important reason is that government lacks the tools that the free market has to efficiently evaluate success of projects, allocate resources, change allocations in a timely manner, and determine prices and wages. In fact, government has many features which makes it inherently inefficient and unable to rapidly deal with change and customers.

3) When a government stimulates a recession, especially when it does so near the end of the downturn, it may end up using labor and capital that the private economy needs to grow. It "crowds out" (as they say) consumer and investment spending, leaving no net stimulus to the economy down the road. Many of the stimulus jobs being put into place by Obama are permanent, thus allocating resources in a fashion that the private sector economy (and public sector, because most of the jobs are public sector) might have decided to allocate differently if the stimulus money didn't *need* to be spent *now*. This leads to enormous waste and inefficiency. Look at what happened in Spain recently? They've been subsidizing the solar and wind industries for years. They just canceled all the subsidies to the green economy and numerous businesses that started as a result of that interference (just like those businesses Obama is now starting here in the US via similar subsidies) are going belly up because in reality they never were economically viable in the first place (which is why the free market wasn't going there at the moment). Those companies ate up resources and probably prevented businesses that could have stood on their own from being formed. And their employees may not have learned skills that can applied to the real needs of the free market, so now they too are dependent on Federal subsidies.

4) The private economy has mechanisms for eliminating businesses that are not profitable, for redistributing manpower to more productive tasks, for taking care of corruption and theft, etc. Government does not. At least nothing that operates in any timely, consistent or effective manner. As a result, there are many multi-trillion dollars government programs that have completely failed to meet their goals yet they still continue to this day? THAT will be the result of this stimulus. Huge entitlements and programs that fail to meet their goals but continue indefinitely. And those projects will end up a drain on future GDP growth.

5) The Stimulus Bill is called the Porkulus Bill for good reason and you don't find private enterprise attaching pork to their projects. The inclusion of pork (and, for that matter, many of the non-pork items) in the bill was not done by the sort of careful analysis the free market would use to evaluate and approve projects. To begin with, you can be sure that the private sector reads contracts before signing them. Not so the Stimulus bill. Many congresscritters admitted they hadn't even read the legislation they were signing. Instead, the details of the legislation and the votes of the congresscritters were the result of backroom dealing, political pandering, paybacks, and political calculations about what will bring home a vote for that congresscritter and the President no further in the future than the next election, two years from now. Plus, pork may employ workers that are in short supply, thus stifling free market projects. Pork pays wages above those determined by the free market and this also distorts the free market allocation of good workers. If pork were a good thing, then why is West Virginia still the third poorest state? Afterall, the late Robert Byrd was the prince of pork, bringing untold billions in "roads to nowhere" (http://online.wsj.com/article/SB10001424052748704111704575354870221777334.html?mod=googlenews_wsj ) and other such projects to WV during his career in the senate. His is an excellent example of how government misallocates resources.

Now I could go on but I think that should be enough to answer your question.

 

[BeAChooser]

http://www.washingtonexaminer.com/p...-percent-unemployment-next-year-99125304.html

White House predicts record $1.47 trillion deficit this year, 9 percent unemployment next year

Wow, that stimulus and debt control Obama's talked about at every opportunity sure has been successful.

By the way, guess what the Whitehouse predicted would be the deficit for this year at this time last year? $1.19 trillion. And they predicted their policies would lower it to $533 trillion by 2013. Anybody think it will get that low … with all this … stimulus spending? Not likely, given that now the Whitehouse is predicting a deficit over $1.4 trillion for next year, too. And according to the OMB, it won't dip below $700 billion in the next 10 years. Bets, anyone, that it will actually get down to $700 billion with Obama in power and if democrats regain Congress? Bets that it will *only* rise back up to $1 trillion by 2019, as is still predicted (based on what, who knows?) by the OMB ... given their track record so far?

Oh and by the way … lest you think we will be getting something more for all that spending …

http://www.brookings.edu/opinions/2010/0201_halls_budget.aspx

These projections assume that total spending for discretionary domestic programs will decline from $553 billion next year to $529 billion a decade later—a trajectory without precedent in modern U.S. history.

But the economy needs more stimulus. Right Obama supporters?

 

[Malerin]

Well, at least there's a Keynesian plan to pay down the debt when the economy improves. Oh wait....

 

[BeAChooser]

http://www.cbsnews.com/stories/2010/07/24/business/main6709368.shtml

The seven bank seizures announced Friday bring to 103 the failures so far in 2010. The pace of bank closures this year is well ahead of that of 2009, which saw a total of 140 banks shuttered amid the recession and mounting loan defaults. That was the highest annual tally since 1992, at the height of the savings and loan crisis.

Wow! That stimulus sure is working.

 

[SezMe]

The GOP only opposed the extension because it's not Pay As You Go …

So the Elephants are also opposed to extending the Bush tax cuts because they don't confirm with PayGo.

Oh, wait....

 

[kevinquinnyo]

When the economy finally gets completely back on track, and unemployment falls, this thread may be buried in the back pages. Someone will look it up, shift the goalposts, and explain in elaborate detail, how the stimulus was responsible for "fixing" the economy, and that this was the plan the entire time.

Mark my words. Actually, you won't have to. BeAChooser will quote this when it does inevitably happen.

 

[BeAChooser]

Speaking of quoting:

http://blog.heritage.org/2010/07/26/morning-bell-an-admission-of-failure/

July 26, 2010

It is established practice in Washington that if you have to release bad news, it is best to do it on a Friday … the later in the day the better. So not only did the White House schedule the publication of the “Mid-Session Budget Review” for last Friday, but they then released it three hours late to ensure that as few reporters as possible were left in the nation’s capital to cover it. But Heritage’s*dedicated budget team patiently waited the Obama administration out, and their analysis shows that this year’s mid-session review is nothing short of a complete admission of failure of the White House’s economic policies.

When President Obama sold his $862 billion economic stimulus to the American people, he promised that, if enacted, it would prevent unemployment from ever rising above 8%. With unemployment currently at 9.5%, the American people are now well aware that the President’s stimulus has been a complete failure. … snip … According to Friday’s report, the Obama administration now projects that unemployment will average 9% throughout all of next year and 8.1% throughout 2012.

And if that news wasn’t bad enough, the report pegs this year’s budget deficit at $1.471 trillion, or 10% of the entire U.S. economy. … snip … And the Obama Administration concedes that these large deficits are here to stay. It projects another $1.42 trillion deficit in 2011, which is $150 billion worse than previously predicted. Looking ahead, the President’s budget includes deficits that never fall below $698 billion and leaves our children with $18.5 trillion in debt by 2020. And all this assumes the economy will grow 4% from 2012-2014. The only times the economy performed that well in the past thirty years was from 1997-2000 and from 1983-1985.

… snip …

President Obama wants to close the gap between what our government spends and what it takes in by raising taxes by $3 trillion. His Treasury secretary was on television yesterday claiming this massive tax tsunami would have no effect on economic growth. After last Friday’s Mid-Session Budget Review exposed the failure of this Administration’s economic stimulus claims, does anybody believe anything this Administration says anymore?

 

[Malerin]

When the economy finally gets completely back on track, and unemployment falls, this thread may be buried in the back pages. Someone will look it up, shift the goalposts, and explain in elaborate detail, how the stimulus was responsible for "fixing" the economy, and that this was the plan the entire time.

Mark my words. Actually, you won't have to. BeAChooser will quote this when it does inevitably happen.

The economy will eventually recover (hopefully). It will still be questionable what positive effect the stimulus had. As someone in this thread already pointed out, it failed long ago, when unemployment passed the eight percent mark. All the "successes" since then have involved extreme goal-post moving.

 

[BeAChooser]

Wow! That stimulus just keeps cranking out the good news.

http://news.yahoo.com/s/ap/20100729...Ec2VjA3luX3RvcF9zdG9yeQRzbGsDYXBzdXJ2ZXlhYmxl

The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists.

The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before.

 

[Kthulhut Fhtagn]

Well, at least there's a Keynesian plan to pay down the debt when the economy improves. Oh wait....

*groan* According to the theory of rational expectations it may actually be better not to tell people how it will be paid off. For that matter there does exist a Keynesian method of paying off debt, raise taxes or cut spending to increase revenue and pay the debt off with that. As a matter of fact, that's the plan that everyone has to pay off the debt.

 

[Kthulhut Fhtagn]

Wow, that stimulus and debt control Obama's talked about at every opportunity sure has been successful.

Debt control in the middle of a recession is insane. This is basic economics here Choosey old pal. In the midst of a recession or depression people hoard wealth, the government must respond through fiscal policy to ensure that wealth continues to circulate.

But the economy needs more stimulus. Right Obama supporters?

Yes, what recovery we've seen is unusually low for an economy in recovery. And the amount initially proposed for the stimulus package is far, far lower than what was actually passed.

 

[Malerin]

*groan* According to the theory of rational expectations it may actually be better not to tell people how it will be paid off. For that matter there does exist a Keynesian method of paying off debt, raise taxes or cut spending to increase revenue and pay the debt off with that. As a matter of fact, that's the plan that everyone has to pay off the debt.

So what's the plan? Exactly what entitlement cuts are going to happen and when (discretionary spending cuts won't do it)? How much will taxes go up and when will they go up?

I ask because the only plan offered by the president so far involves increasing the debt by ten trillion over the next ten years.

After that, we'll start worrying about deficits

 

[Kthulhut Fhtagn]

So what's the plan? Exactly what entitlement cuts are going to happen and when (discretionary spending cuts won't do it)? How much will taxes go up and when will they go up?

I ask because the only plan offered by the president so far involves increasing the debt by ten trillion over the next ten years.

After that, we'll start worrying about deficits

You didn't read that article did you?

Obama's tax-cutting agenda is by far the biggest contributor to those budget gaps, the CBO said. As part of his campaign pledge to protect families making less than $250,000 a year from new taxes, the president is proposing to prevent the alternative minimum tax from expanding to ensnare millions of additional taxpayers. He also wants to make permanent a series of tax cuts enacted during the Bush administration, which are scheduled to expire at the end of this year.

"Over the next 10 years, those policies would reduce revenues and boost outlays for refundable tax credits by a total of $3.0 trillion," wrote Douglas W. Elmendorf, the CBO director. Combined with interest payments on that shortfall, the tax cuts account for the entire increase in deficits that would result from Obama's proposals.

Obama is convening a special commission to bring deficits down to 3 percent of the economy, but the CBO report shows that Obama could accomplish that goal simply by letting the Bush tax cuts expire and paying for changes to the alternative minimum tax.

I'll have to read the CBO report for myself, never understood why people are so eager to go to second-hand sources myself, but it seems Obama is increasing the national deficit via listening to your side of the aisle. This is supply-side economics here, Reaganomics. Not demand-side Keynesian economics.

 

[Malerin]

You didn't read that article did you?



I'll have to read the CBO report for myself, never understood why people are so eager to go to second-hand sources myself, but it seems Obama is increasing the national deficit via listening to your side of the aisle. This is supply-side economics here, Reaganomics. Not demand-side Keynesian economics.

What is "my side of the aisle"? Both parties are totally screwed up.

Please tell me "the plan" is not a special commission.

 

[Kthulhut Fhtagn]

What is "my side of the aisle"? Both parties are totally screwed up.

Please tell me "the plan" is not a special commission.

I apologize, you seemed to be arguing in favor of de-regulatory, free market economics. If that's the case though I retract my apology.

Increasing tax revenue through tax increases or spending cuts, those are two perfectly viable ways to pay down the debt. The rest is a matter of figuring out what taxes need to be raised or what programs need to be cut. Tax cuts, however, aren't going to help in either case.

 

[Malerin]

I apologize, you seemed to be arguing in favor of de-regulatory, free market economics. If that's the case though I retract my apology.

Mostly I've argued the debt has to be taken much more seriously than it is by some some economists (Krugman). Just because you can get a cheap loan from the Chinese doesn't mean you should get a cheap loan. That said, if the stimulus had focused on one specific stimulative effect (e.g., infrastructure improvement) instead of being a scatter-brained pork-laden mess, it might have done better. If Obama could actually get something like that through Congress, I might support it. But I doubt it will happen.

Increasing tax revenue through tax increases or spending cuts, those are two perfectly viable ways to pay down the debt. The rest is a matter of figuring out what taxes need to be raised or what programs need to be cut. Tax cuts, however, aren't going to help in either case.

I know. I don't know what we're going to do. Americans love their entitlements and politicians lack the courage to make fundamental changes to put us on a sustainable path. It's sad that I don't think my son will have as good a job as I have.

 

[Kthulhut Fhtagn]

Mostly I've argued the debt has to be taken much more seriously than it is by some some economists (Krugman).

I haven't seen any instance where Krugman has not taken debt seriously. Simply because deficit spending is advocated as sound fiscal policy during years of recession does not mean he approaches taking such a measure casually.

Just because you can get a cheap loan from the Chinese doesn't mean you should get a cheap loan. That said, if the stimulus had focused on one specific stimulative effect (e.g., infrastructure improvement) instead of being a scatter-brained pork-laden mess, it might have done better. If Obama could actually get something like that through Congress, I might support it. But I doubt it will happen.

Well we're in broad agreement. I certainly think that the stimulus pushed through by the Democrats was sorely mismanaged and underfunded. Though I would consider the stimulus a weak-plus, too weak to really do much of anything I'm afraid. Time will tell though.

I know. I don't know what we're going to do. Americans love their entitlements and politicians lack the courage to make fundamental changes to put us on a sustainable path. It's sad that I don't think my son will have as good a job as I have.

Well there is no political capital for either move, unfortunately. Americans are in favor of cutting spending as a means of reducing the deficit but polls show they aren't in favor of cutting spending in any area that would seriously affect tax revenue. I also suspect more than a few equate spending cuts with tax cuts, basing that off of how many Republicans get credit for cutting taxes but not spending, and would assume that spending cuts to pay off the deficit would have the paradoxical effect of also putting more money in their pockets.

And I think we both know how much Americans hate tax increases.

 

[BeAChooser]

The following article demolishes KF's argument:

http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704738404575347302831199046.html

President Obama and congressional Democrats are blaming their trillion-dollar budget deficits on the Bush tax cuts of 2001 and 2003. Letting these tax cuts expire is their answer. Yet the data flatly contradict this "tax cuts caused the deficits" narrative. Consider the three most persistent myths:

- The Bush tax cuts wiped out last decade's budget surpluses.

... snip ...

- The next decade's deficits are the result of the previous administration's profligacy.

... snip ...

- Declining revenues are driving future deficits.

... snip ...

The Bush tax cuts are a convenient scapegoat for past and future budget woes. But it is the dramatic upward arc of federal spending that is the root of the problem.

Read the details and you'll see what I mean.

 

[BeAChooser]

http://www.cnbc.com/id/38536966

Contracts for pending sales of previously owned U.S. homes fell to a record low in June as buyers sat on the sidelines, a survey from the National Association of Realtors showed on Tuesday.

Wow, all the signs of recovery are finally there.