Why Isn't The Stimulus Stimulating?

[Storebought]

The whole reason why we have this recession is the same we have any other recession -- misallocated resources brought about, in this case, by a nation that thought it could achieve riches without "getting its hands dirty," through debt and swapping real houses and real factories for valueless scrip just to generate a commission.

Unfortunately, instead of letting the sectors of the economy that catered to this folly fail, we are using taxpayer dollars to keep up the shell game that much longer.

That leads me to my second point: If the decayed parts of our economy are in contraction, why, then, of all of this talk about digging ditches, only to be refilled, or building schools even as student populations decline, as a "stimulus" (see Fallacy of the Broken Window)?

If we didn't arrive at this recession because of poor infrastructure, then we certainly will not leave this recession by building new roads, or, worse, wasting manpower and resources by constantly repaving already-paved highways. And even if we did, how many people who are unemployed or underemployed can dig a ditch or lay asphalt?

And that is only for the portions of the "stimulus" package that actually have some benefit as such. The other remedies listed as "economic stimulus" are better termed as "unemployment relief:"

Dollar-for-dollar, this is one of the most effective forms of stimulus available.  Virtually all of an increase in food stamp benefits would be spent, since food stamp households — about 90 percent of whom live below the poverty line — generally spend all their resources to meet their daily needs.  Martin Feldstein, chairman of President Reagan’s Council of Economic Advisers, recently joined those calling for a temporary food stamp increase, noting that it would be stimulative because it would provide resources to people with a high propensity to consume.

Relief, in itself, has not and will not stimulate economic growth. People who have an immediate propensity to consume will spend it on small consumables that have, at best, a marginal impact on the economy. They will not spend their money on big-ticket items like washing machines or cars, let alone on items like jet aircraft or, particularly, the capital goods that make economic growth possible.

Ultimately, the CBPP, and the left in the US in general, seem to have the notion that economic growth can be achieved through increased government transfer payments (i.e., taxation) to the underemployed population. If the fundamental unsoundness of our economy isn't rectified, or, worse, isn't allowed[/i] to be rectified, then no amount of government taxation will ever effect a 'stimulus.'

[Storebought]

I think that's a horrible solution for several reasons. First of all, a huge chunk of the rebates went to people who don't even pay income tax in the first place. If you look at the fine print, many people making $3,000 or so got several hundred in the mail.

1. This is precisely what you want in a stimulus, Mint!  Your rightwing delusions get in the way of dealing with reality.  The idea is to give the money to Spenders, not owners/savers/privileged.  Poors spend.

Besides being a backdoor welfare check, this really doesn't do anything to encourage productivity in the same manner a tax cut would.

2. Its a Stimulus, Mint!  Yuo want to discourage productivity, and encourage consumption.

Third, the root of this problem is unsustainable spending and borrowing in the first place.

3. No, that isn't the root of the problem at all.  Right wing claptrap.

The way out of this mess is to encourage production and savings

4. OK, what does 'encourage production' even mean if it isn't consumed? Do you mean you will have the government buy this sh**t and throw it in the ocean?  Because consumption is what is missing.   

Perhaps I'm waiting my typing energy here, but Mint, do you know what is happening right now?  Lots of productive capacity - already extant - going unused, and lots and lots of saving.

1. We don't deny that people who are on welfare spend -- but what do they buy? Besides food (and even that's not much of an exception), things of marginal value.** If that were the case, the parts of the US that had the highest proportion of people with a desperate need to consume would generate the most income.

2. No, that's not stimulus. That is poor relief.

3. Government deficit spending and an overreliance on consumer and corporate debt within the US is widely seen, hell, is universally seen, as the major cause of this recession, caused as it is by a deflating credit bubble.

4. Sure, people want to consume. But what good is increased consumption if (1) the item is badly made, which wastes resources (2) uses up money better spent elsewhere (3) causes more debt, either personally, or as a whole for the US, as we borrow or print money to keep people idle.

**Things of marginal value can become things of great value if (a) lots of them are sold, or if (b) fewer of them are sold, but at higher quality and higher price. China specializes in (a), while Europe (b). The US does neither.

[Storebought]

3. Government deficit spending and an overreliance on consumer and corporate debt within the US is widely seen, hell, is universally seen, as the major cause of this recession, caused as it is by a deflating credit bubble.

You must be logged in to read this quote.

Our creditors seem to disagree with that notion, considering that both the Chinese and the Germans were concerned enough about the impact of continual budget deficits financed with borrowing, with both Bush's war spending, and now Obama's stimulus packages, to go public with their grievances. Not that we should base our fiscal policy entirely with what they say, it still seems absurd that unpaid -- unpayable -- trillion dollar budget deficits spending packages will not have any impact on future growth.