The Stimulus Seems to have failed

[drkitten]

I can think of at least one other major news event in 2001 that threatened consumer and investor confidence. Perhaps pulling the plug in 2003 may have made more sense.

Growth in the US is slowing right now but is it really reversing course?

Not clear. That's the sort of question that's hard to answer except in hindsight; my understanding is that most of the leading indicators have turned negative.

From an economic perspective, does it matter to you that much whether GDP growth is 0.2% or -0.2%?

If so, why?

 

[lomiller]

I can think of at least one other major news event in 2001 that threatened consumer and investor confidence. Perhaps pulling the plug in 2003 may have made more sense.

9/11 was a shock, but consumer spending came back very quickly if it dropped at all.

 

[BeAChooser]

What they're not pointing out, is that we're in a recession, and those jobs should not be saved. Recession is the collective realization that we've misallocated a lot of productive resources (eg: housing, wall street finance).

Careful, Tippit. Or one of your debating opponents around here will decide to turn your statement into a signature line mischaracterizing what you just said, like one did to me.

 

[BeAChooser]

http://money.cnn.com/2010/08/27/news/economy/gdp/index.htm

GDP report: Sharp slowdown in economic growth

NEW YORK (CNNMoney.com) -- The U.S. economy sputtered to a near stop in the second quarter, according to new estimates from the government released Friday, although the slowdown wasn't as bad as many had feared.


... snip ...

"There are spots of strength here and there, but looking ahead growth will be anemic and that's why the probability of a double dip is so high," said Sung Won Sohn, economics professor at Cal State University Channel Islands. He estimates that the risk of a double dip has risen to 40% from only a 25% chance at the start of the year.

Wow, that stimulus sure worked. What's not pointed out in this CNN article (which tries to make things seem less gloomy than they are) is that even the top GDP growth rate recorded post recession so far in this recession is still anemic compared to what we've seen in other recessions (deep ones, too) where no stimulus was applied. Go figure. For example, the 1981-82 recession, which saw unemployment over 10%, saw an average of 7.5% GDP growth in the first three quarters after the recession ended. This *recovery* has seen an average closer to 3.5%. And now even that pitiful recovery is sputtering to a stop whereas the 80s recovery continued quarter after quarter after quarter. You'd think democrats could learn from history. But no, they defy that expectation ... again.

 

[BeAChooser]

Meanwhile, Obama's riding bikes and playing golf. How many times is it this year?

 

[ThermionicScott]

Meanwhile, Obama's riding bikes and playing golf. How many times is it this year?

The Shrub slacked off plenty himself. What's your point?

 

[lomiller]

For example, the 1981-82 recession, which saw unemployment over 10%, saw an average of 7.5% GDP growth in the first three quarters after the recession ended.

For future reference, examples should support your point not undermine it...

The 1981 recession wasn’t as deep as the current one, wasn’t occurring in parallel to a finical system on life support and received twice as much stimulus on a dollar adjusted basis.

IOW it’s simply more evidence the stimulus was too small.

 

[lomiller]

The Shrub slacked off plenty himself. What's your point?

Sure Bush took more vacation days then any other president in history, but he gave up golf to help out the troops in Iraq, shouldn’t that count for something!

 

[BeAChooser]

The 1981 recession wasn’t as deep as the current one, wasn’t occurring in parallel to a finical system on life support and received twice as much stimulus on a dollar adjusted basis.

Liar. At the time the stimulus was declared the 81 recession was much worse (far higher unemployment, etc) than the current recession, banks were failing right and left, and the primary stimulus was tax cuts to help the private sector rather than $250,000 to $600,000 per job scams to help democrat constituents like unions, teachers, etc.

 

[MikeMangum]

[Shrug.] Well, you wouldn't have had it, because the 800 billion dollars was created by Congress through deficit spending.

No. Congress does not create money. That's what the Fed does. Congress spends money, either money that it has taken out of the economy via taxes or money it has taken out of the economy via borrowing. Either way, that money is existing money that must be taken out of the economy before Congress can spend it. When Congress borrows money, it sells bonds to you, me, and the guy behind the tree. To purchase those bonds, we need to take dollars (that we already own) and give them to the US Treasury and we get bonds in exchange. Nowhere in that exchange did Congress create money, nor did it inject money into the economy. It took money from the economy and then pats itself on the back for putting that money back into the economy, with rent seekers siphoning off some portion greater than 0%.

 

[jimbob]

http://thehill.com/blogs/on-the-mon...t-sees-increased-odds-of-double-dip-recession

An economist who advised Democrats on the $787 billion stimulus has increased his prediction of the odds of the economy entering a double-dip recession.

Mark Zandi, the chief economist of Moody’s Analytics, pegged the chances of a second recession at one in three. Just a few weeks ago, he saw only a 20 percent chance of another economic slowdown.

I heard an interview with him(?) ("A top economic advisor" who also advised the Clintons and gave a one in three chance of a double dip). on the UK "PM programme" (BBC radio-4) on Friday evening.

He also stated that monetarist measures were not sufficient and that fiscal measures would also be needed. In particular that the federal government sholud provide money to the states, so that "firemen and teachers" would not lose their jobs, because this reduction in jobs would cause more economic damage than any deficit associated with keeping them.

He also stated that the fiscal measures should be coupled with long-term measures to balance the budget but that, in the short-term, deficit spending would be needed.

He also stated that "Of course" the government should have been running a surplus during the boom. but that "a rainstorm is not the time to start thinking about fixing the roof".

From what I understand this is standard neo-Keynesian econmics.

He also stated that this fiscal stimulus was insufficient in the US, and this was due to political pressures. He was asked about what the UK should be doing with respect to its deficit, and after the usual caveats about not wanting to poke his nose into other countries, stated that our system should allow the government to respond properly, which also included increased short-term spending coupled with long-term measures to reduce the structural cost of government.

 

[Tippit]

Yes, being rational actors, they try not to point out things that aren't true.

So all jobs should be saved? If not, which jobs should be saved? Government jobs? Private sector jobs? Which ones are more important? Be specific.

What bothers me is that you and your ilk maintain the presumption that it was the "free market" that was responsible for the current calamity, when clearly, the free market did not exist, or perhaps only in the arcane world of wall street derivatives.

 

[lomiller]

Liar.

Well that’s certainly a convincing argument…

At the time the stimulus was declared the 81 recession was much worse (far higher unemployment, etc

What does “at the time the stimulus was declared” have to do with anything. In the 81 recession US unemployment rose by from 7.5% to 10.5% or 3% of the US workforce lost their jobs. In the current recession that number is over 5%. GDP decline in the current recession is much larger as well.

banks were failing right and left

These were small banks that had no real systemic risk.

and the primary stimulus was tax cuts to help the private sector

Stimulus is actually supposed to create demand. Without demand “stimulating the private sector” is about as effective as pushing on a string. Those tax cuts ultimately caused the massive run up of US debt that occurred in the 80’s

job scams to help democrat constituents like unions, teachers, etc.

most people consider police, teachers, firemen, etc good things to keep around…

 

[Mark6]

1930's style depression? Simply hyperbole. Do you believe every nutty thing you read?

My mother-in-law was born in 1931. From 1933 to 1941, she had a cheese sandwich every day for lunch, went to school in a two room school house and then got to see many of her cousins go off and fight in a world war.

We are not even close to 1930's style Depression.

 

[BeAChooser]

What does “at the time the stimulus was declared” have to do with anything.

Because Obama made the claim/decision that we needed the stimulus because of the level of unemployment as it was at that time. Not what it is now. In fact, Obama claimed back then that without the stimulus, unemployment would rise to the staggering figure of 9%. So even if you want to dishonestly claim that he was projecting fears of what unemployment would become in making his decision, how in the world did we manage to recover without a stimulus back in 1981/82 when unemployment reached 10.3%, more than a percent higher? Obviously, a stimulus was not required then, so why was it required when unemployment was more than 2 percent less? Hmmmmmm?

In the 81 recession US unemployment rose by from 7.5% to 10.5% or 3% of the US workforce lost their jobs. In the current recession that number is over 5%.

But it wasn't at the time the stimulus was proposed and passed. At that time, a smaller percentage of the workforce had lost jobs than lost jobs in 1981-82 recession. And if unemployment had only risen to 9% as the Obama administration claimed would happen without a stimulus, then obviously it wouldn't have approached 5% of the workforce you claim either. So the decision to ram the stimulus through really didn't have anything to do with unemployment in comparison to the 1981/82 recession.

GDP decline in the current recession is much larger as well.

But not at the time the stimulus was proposed and passed. The 1981/82 recession saw a 4.9% drop in GDP in the fourth quarter of 1981 and 6.4% drop in the first quarter of 1982. That's more than the drop in the fourth quarter of 2008 and the first quarter of 2009 when the stimulus was proposed and rammed through Congress. I suggest the stimulus only made the current recession worse by blocking the normal process that leads to recovery with high GDP growth … as happened after the 1981/82 recession.

These were small banks that had no real systemic risk.

I don't agree that the current recession's banks posed a systemic risk. And the 1981/82 financial crisis went beyond banks. Remember the S&Ls? In 1982, the tangible assets of the entire S&L industry was virtually zero.

Stimulus is actually supposed to create demand.

Only in the minds of folks who don't understand economics.

most people consider police, teachers, firemen, etc good things to keep around…

But not at what their salaries and pensions have become. Then they will bankrupt the system and no rational person can imagine that's a "good thing".

 

[mhaze]

The 800 billion wasn't created by anyone yet. Congress has no power to create wealth. Take wealth from others yes, but not create it. The wealth they took this time hasn't been earned yet. The money that was borrowed has to be paid back by other people and generations.

As to your aspirin example, no I wouldn't blame the aspirin. I would blame the doctor who prescribed it, if what I really needed was something else. While I was wasting my time with aspirin, the condition that was really causing the headache was getting worst, perhaps beyond repair. But you are right, it is not the aspirin's fault.

Next you gonna be arguing that more booze don't fix those hangovers?

http://www.youtube.com/watch?v=d0nERTFo-Sk

 

[lomiller]

Because Obama made the claim/decision that we needed the stimulus because of the level of unemployment as it was at that time. Not what it is now. In fact, Obama claimed back then that without the stimulus, unemployment would rise to the staggering figure of 9%.

So you are going to move the goalposts to talk about quality economic predictions? Can I take that as you conceding your other claims?

Not that these new goalpost work any better for you, predictions are tough for an economy in freefall, I think everyone understood there was a possibility things could be a lot worse but the president talking about a possible depression in while there was that much uncertainly would not have been a wise move, much better to keep the estimates conservative. 9% was scary enough.

 

[joobz]

Careful, Tippit. Or one of your debating opponents around here will decide to turn your statement into a signature line mischaracterizing what you just said, like one did to me.

I get the sense you are referring to me, but that couldn't be as I didn't mis-characterize your argument.

Liar. At the time the stimulus was declared the 81 recession was much worse (far higher unemployment, etc) than the current recession, banks were failing right and left, and the primary stimulus was tax cuts to help the private sector rather than $250,000 to $600,000 per job scams to help democrat constituents like unions, teachers, etc.

This is like saying that the titanic wasn't a sunk ship because at the time they declared they were sinking they hadn't taken on all the water yet.

 

[jimbob]

Not that these new goalpost work any better for you, predictions are tough for an economy in freefall, I think everyone understood there was a possibility things could be a lot worse but the president talking about a possible depression in while there was that much uncertainly would not have been a wise move, much better to keep the estimates conservative. 9% was scary enough.

Our company intranet has a webpage that shows a consensus economic forecasts* for various years, and how they evolved over time.

I won't post it because of copyright etc but it does show that the consensus was good at predicting what would happen when nothing was changing (lots of fairly steady lines). The initial forecasts for 2010 were still highly positive, and they dropped basically as the economy was contracting.

During the downturn, and the climb up, the forecasts have been really poor (judged by how they keep changing).

*the trends go to some time after wards, so for example, one point is the June-2010 prediction for the global GDP percentage change in 2009. (Another point on the same line wold be the April-2009 prediction for global GDP percentage change in 2010.

 

[Malerin]

So you are going to move the goalposts to talk about quality economic predictions? Can I take that as you conceding your other claims?

Not that these new goalpost work any better for you, predictions are tough for an economy in freefall, I think everyone understood there was a possibility things could be a lot worse but the president talking about a possible depression in while there was that much uncertainly would not have been a wise move, much better to keep the estimates conservative. 9% was scary enough.

The goalposts were moved long ago. The stimulus was supposed to cap unemployment at 8.5%. Remember?

You know what else I just remembered? This is supposed to be "recovery summer". Remember that term? I haven't heard that in awhile. Hey, I also haven't heard "green shoots" in awhile. What gives!??!?