Why Isn't The Stimulus Stimulating?

[phk]

Why Isn't The Stimulus Stimulating?
Bruce Bartlett, 06.26.09, 12:00 AM ET

It's no secret that the Obama administration is deeply troubled by the continuing rise in unemployment. The national unemployment rate has risen to 9.4% from 7.2% in December and 5.5% in May 2008. The number of employed workers has fallen to 132 million from 135 million in December and 137.5 million in May 2008.

Unemployment animates Democrats the way taxes animate Republicans--it's the issue that is important to them above all others. It's also the issue on which the Obama administration believes voters will primarily judge it in 2012. The recent dip in Obama's poll ratings could easily become a collapse if the economy doesn't turn around soon.

Obama and his advisors knew this coming into office. That's why they put so much effort into enacting a $787 billion fiscal stimulus as their first order of business. They knew that the sooner the stimulus was enacted, the sooner its impact would be felt.

The problem is that Obama was always much too optimistic about how quickly stimulus spending could have an effect. As I warned in a January column, it takes far more time for it to impact the economy than most people think. Moreover, not all government spending is necessarily stimulative, and the parts of the stimulus package that provide real stimulus are among the slowest to come online.

Congressional Budget Office Director Douglas Elmendorf recently presented a report to the International Monetary Fund in which he walked through some of the problems with implementing the stimulus program.

First of all, 60% of the stimulus package was never going to have much of a stimulative effect. These were programs like extending unemployment benefits and tax credits with no incentive effects that may have been justified on the merits, but don't really do anything to increase growth or reduce unemployment.

For a program to be stimulative, it must bring forth economic activity that otherwise would not have taken place. The classic example is public works. When a new road or bridge is built, construction companies have to purchase concrete, steel and other materials that create business for other companies. They also employ workers that otherwise would not be working, paying them wages that they will spend, producing jobs and incomes for other workers.

If this works the way it is supposed to, stimulus spending has a multiplier effect throughout the economy. A Council of Economic Advisers study estimated that government purchases of goods and services raise the gross domestic product by $1.57 for every $1 spent. By contrast, tax credits and income transfers are much less stimulative, raising GDP by considerably less than $1 for every $1 rise in the deficit.

Since 60% of the stimulus package had a multiplier effect of less than one, only 40% of the package went to programs like public works that have a high multiplier. Moreover, the programs with a low multiplier were the fastest ones to implement; those with a high multiplier take much more time to come online. According to Elmendorf, by the end of fiscal year 2009, which ends on Sept. 30, about a third of the least stimulative spending will have been spent vs. only 11% of the highly stimulative spending.

Even at the end of fiscal year 2010, we will have spent only 47% of the highly stimulative spending. By the end of fiscal year 2011, more than a quarter of the stimulative spending will still remain unspent.

The CBO bases this estimate on many years of experience with various types of government programs. Increases in defense spending are the quickest to stimulate because 65% of the money is usually spent in the first year, rising to 88% the second year and 96% in the third. By contrast, only 27% of highway spending is spent the first year, rising to 68% the second year and 84% the third. Spending on water projects is even slower to come online, with only 4% spent the first year, rising to 24% the second year and 54% the third.

The reason is simple. Much of what the Defense Department buys involves things that also have civilian uses. In effect, it is buying off the shelf so spending can be done quickly. But to build a new highway or dam is much more complicated. Plans have to be drawn up, land acquired, environmental impact statements prepared, public comments solicited, political and other objections dealt with, contracts written and put out for bid, etc. This takes years and years.

Of course, there were a few shovel-ready projects for which all the preliminary work had been done that only needed money to start work. But there were far fewer of these projects than generally believed. Moreover, as Popular Mechanics reported, many of those that were ready to go were those that had been shelved because they were outdated or had other flaws.

Even the simplest public works projects such as road repaving take months to get moving from the time a federal check arrives. And in the short run such small projects have very little stimulative potential because state and local governments will simply use the workers and materials they already have on hand to do the work.

Information compiled by the Obama administration confirms the slow pace of federal stimulus spending. According to Recovery.gov, the main government Web site tracking stimulus spending, contracts worth $152 billion had been let as of June 19. However, of this amount only $53 billion has actually been spent in the four months since the stimulus bill was enacted.

When one looks at some of the detailed accounts, the numbers are even more dismal. The Department of Transportation, for example, has only spent $369 million of the $19 billion it has made available for highways, airports and other construction projects.

And remember that "spent" means only that the Treasury has cut a check to some state or local government. It doesn't necessarily mean that any workers have been hired or new economic activity generated. It could still be months before the money that is already out the door has a meaningful impact on jobs or GDP.

Another government Web site suggests that the lag in spending may be even worse. According to USAspending.gov, less than $3 billion of government contracts have been let as a direct result of the Recovery Act. In fact, overall government contracting seems to be slower than usual. As of early June, only $221 billion in total government contracts had been let with two-thirds of the fiscal year already passed. Assuming that the federal government will do at least as much contracting this year as it did last year, which totaled $527 billion, there's obviously a lot of contracting to do in the next couple of months.

Some years ago, I did a study of every anti-recession program in the postwar era. I found that they invariably impacted on the economy too late to really help. There were many reasons for this. First, economists were slow to see a recession coming and often didn't see one at all until we were already well into it.

Then it took time to convince policymakers to do something and get legislation enacted. By the time a countercyclical program was signed into law, the recession was always over. Consequently, the stimulus stimulated when the economy was already on the upswing. The result was that these programs stimulated inflation more than they stimulated jobs and growth.

Many years ago John Maynard Keynes warned against using public works for stimulus for precisely this reason--they are too hard to reverse once the need for them has passed. With many economists already warning about inflation coming back in the near future, the ultimate legacy of the stimulus bill may be to make it harder to tighten fiscal policy when it will be needed.

Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. His new book is available for pre-order: The New American Economy: The Failure of Reaganomics and a New Way Forward. He writes a weekly column for Forbes.com.

[opebo]

I'm sure it is stimulating, just insufficiently.  It should have been many times as large, and obviously focused very differently - no tax cuts or credits, and much large transfer payments to the poor and direct government purchases.

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

[jokerman]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

[○∙◄☻¥tπ[╪AV┼cVê└]

It's making things less bad, but it's not enough to make things good.

[opebo]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

[War on Want]

The Stimulus was ineffective because Obama tried to be a moderate hero with it. Some parts of it were necessary but it wasn't big enough on infrastructure, work projects etc, or food stamps and unemployment benefits. Instead we got tax cuts that probably had no effect on the economy.

[minionofmidas]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

Vine Deloria suggested to solve the problems of unemployment on Pine Ridge and not offending the Sioux' selfview as a Warrior People by having the government run a subsidized wagon train across the reservation everyday, and paying the Dakotas the minimum wage for attacking it.

[Ban my account ffs!]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

Vine Deloria suggested to solve the problems of unemployment on Pine Ridge and not offending the Sioux' selfview as a Warrior People by having the government run a subsidized wagon train across the reservation everyday, and paying the Dakotas the minimum wage for attacking it.

I think the best way to help the Pine Ridge people would be to give each family a plot of land to grow food or raise animals that they could call their own.

You could also put windmills on the land and the revenue could go to the tribe.

Also, they should be allowed a Pine Ridge reservation run casino in Sioux Falls.  That revenue would go to the reservation as well.

Poverty would end on the reservation.

[opebo]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

Vine Deloria suggested to solve the problems of unemployment on Pine Ridge and not offending the Sioux' selfview as a Warrior People by having the government run a subsidized wagon train across the reservation everyday, and paying the Dakotas the minimum wage for attacking it.

Minimum wage is neither very romantic or stimulative.  The scheme might work better if there were simply bales of cash inside the wagons.

[minionofmidas]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

Vine Deloria suggested to solve the problems of unemployment on Pine Ridge and not offending the Sioux' selfview as a Warrior People by having the government run a subsidized wagon train across the reservation everyday, and paying the Dakotas the minimum wage for attacking it.

Minimum wage is neither very romantic or stimulative.  The scheme might work better if there were simply bales of cash inside the wagons.

That can be easily combined... (I'm not sure right now, but I think Deloria implied combining it, actually).

[opebo]

For example I would be very much in favour of buying things and throwing them into the ocean.  This simple expedient alone could solve all the car industry's 'problems' in a trice.

Indeed, Keynes pointed out that burying bottles stuffed with cash deep underground and then unleashing a vast workforce of miners to dig them up would be an effective stimulus.

Haha, well I suppose we'd need a similar sized workforce to bury them in the first place.  Why not just set the cash out in bales in the ghetto?  Perhaps Keynes feared this would undermine the 'work ethic'.

Vine Deloria suggested to solve the problems of unemployment on Pine Ridge and not offending the Sioux' selfview as a Warrior People by having the government run a subsidized wagon train across the reservation everyday, and paying the Dakotas the minimum wage for attacking it.

Minimum wage is neither very romantic or stimulative.  The scheme might work better if there were simply bales of cash inside the wagons.

That can be easily combined... (I'm not sure right now, but I think Deloria implied combining it, actually).

Yes, after all bales of cash could be hoarded by the leaders of the bandits, while a dull stipend will be doled out predictably. 

[Marokai Backbeat]

The stimulus "isn't stimulating" because it was too small and compromised too much of tax cuts (or rebates, or breaks, or whatever semantic game you want to play) and didn't focus enough on the critical projects and safety-net programs that are incredibly effective in this area. I've explained this before, and I'll quote myself from another thread here just to repeat myself.

(By the way, some of the assumptions in this article are just flat wrong, unemployment insurance is incredibly effective and stimulates the economy efficiently, as food stamps do, and not all projects take years to plan. If you're building a dam, obviously it's going to take awhile, but there are alot of projects out there that can be done right now, or have stalled out due to lack of funds. There's also no shame in planning & building alot of projects for the future economic benefit.

You must be logged in to read this quote.

We've accomplished a great deal in a short time with past infrastructure projects such as the WPA, and it's all possible again, if we actually created large programs such as this to do it, and poured alot money into a very sensible and direct Administration. Remember, we're not designing a thousand freedom towers. We could be digging ditches, repaving roads, repairing and rebuilding schools, finishing already-existing projects, and so on. These are stimulative not only now but forever.)

The stimulus will take time to come into full effect (construction projects are getting started in many areas of the country right now, and I've personally seek the increase in some safety net benefits like unemployment compensation and food stamp increases) however it's important to keep in mind that it was probably woefully inadequate.

Government spending is the most efficient way in these times (in one way or another, usually target spending or goods and services directly, accompanied by public works projects) and if the spending is kept under a certain limit pretty much "just because" and hampered further by tax cuts (or rebates, whatever you prefer, they are in effect, tax cuts) which, according to the Wikipedia article, amount to a whopping 37% of the bill, essentially leaving us with about 45% for direct spending, and 18% for aid to the states, which as I've explained why in the past, is critical.

Unfortunately we skimped on some of the most important aspects of government stimuli. Education (paying more people to stay involved and prevent cutbacks), infrastructure (roads, bridges, schools), welfare (food stamps are one of the most, if not THE most, effective safety net program we have running, unemployment compensation is similarly effective) and so on. If you get down to the specific provisions, only 82 billion is spent on the safety net (leaving out medicare) and only 51 billion are spent on "core" infrastructure projects, things like bridges, roads, etc.

Some of THE most important and critical government stimulus amounts here to only 133 billion! If you look where the individual payments are going, less than 20 billion is going to food stamps! That's right, the most effective program for stimulus is receiving a paltry 19 billion dollar increase. That should have been, and could have been, easily doubled. Similarly, unemployment benefits, the second most effective on our list, could have been doubled, being originally placed in around 40 billion dollars and 25 dollar increases in benefits.

Infrastructure projects in the stimulus don't amount to much in the fine print either. Quite frankly, the entire plan for infrastructure spending should have been quadrupled. Less than 30 billion for highway and bridge construction, a pitiful 8 billion for railway construction and development, and more disappointing investments in infrastructure. Infrastructure projects are another important component on our list here, and have the potential, as was done during the New Deal under the Works Progress Administration (a model we should replicate) build an infrastructure for future prosperity, and improve public transportation to lessen the burden on individuals paying ever rising gas prices.

Other minor investments could have made a big difference in people's lives, such as greatly increasing the amount of money for free lunch programs at schools, which I also know from personal experience is a substantial drain on a family's resources when lacking it. Tax relief, while certain tax relief measures are stimulative, are not that effective because the general strength of a tax cut or a rebate isn't a long term benefit or isn't strong enough to make a big difference in an individuals like, but could, collectively, cause a great deal of harm to revenue coming into the federal government. I think Verily explained quite well in this thread why tax cuts aren't effective stimulus, so there's no need for me to explain that here. Even if, for the sake of argument, we were to conclude that tax relief is somewhat effective if you do it right, other measures are still far more effective on the dollar. The main problem with tax cuts though, is that it's not a targeted relief measure, so it usually just goes to paying off a minuscule portion of an individual's debt or to some sort of useless entertainment source.

In any case, I'm ending up rambling now. There are a great deal of solutions that could help and past models to look to for advice on what to replicate today, but sufficed to say, the stimulus could very well fall flat on it's face and do little to nothing because alot of the money was either A ) Insufficient for the targeted projects to make an impact, or B ) Not targeted at all, often in the form of some sort of tax relief that goes to a useless source. Tax relief measures should have been stripped from the stimulus almost entirely and direct spending on the safety net and infrastructure projects beefed up to include the vast majority of a nearly 1.5 trillion stimulus bill. It's a shame. I remain cautiously optimistic that it will have some sort of impact, but I'm not seeing it so far, and I fear we may has wasted a ton of money because we didn't go nearly as far as, say, the New Deal projects went.

[Vepres]

The stimulus "isn't stimulating" because it was too small and compromised too much of tax cuts (or rebates, or breaks, or whatever semantic game you want to play) and didn't focus enough on the critical projects and safety-net programs that are incredibly effective in this area. I've explained this before, and I'll quote myself from another thread here just to repeat myself.

(By the way, some of the assumptions in this article are just flat wrong, unemployment insurance is incredibly effective and stimulates the economy efficiently, as food stamps do, and not all projects take years to plan. If you're building a dam, obviously it's going to take awhile, but there are alot of projects out there that can be done right now, or have stalled out due to lack of funds. There's also no shame in planning & building alot of projects for the future economic benefit.

You must be logged in to read this quote.

We've accomplished a great deal in a short time with past infrastructure projects such as the WPA, and it's all possible again, if we actually created large programs such as this to do it, and poured alot money into a very sensible and direct Administration. Remember, we're not designing a thousand freedom towers. We could be digging ditches, repaving roads, repairing and rebuilding schools, finishing already-existing projects, and so on. These are stimulative not only now but forever.)

The stimulus will take time to come into full effect (construction projects are getting started in many areas of the country right now, and I've personally seek the increase in some safety net benefits like unemployment compensation and food stamp increases) however it's important to keep in mind that it was probably woefully inadequate.

Government spending is the most efficient way in these times (in one way or another, usually target spending or goods and services directly, accompanied by public works projects) and if the spending is kept under a certain limit pretty much "just because" and hampered further by tax cuts (or rebates, whatever you prefer, they are in effect, tax cuts) which, according to the Wikipedia article, amount to a whopping 37% of the bill, essentially leaving us with about 45% for direct spending, and 18% for aid to the states, which as I've explained why in the past, is critical.

Unfortunately we skimped on some of the most important aspects of government stimuli. Education (paying more people to stay involved and prevent cutbacks), infrastructure (roads, bridges, schools), welfare (food stamps are one of the most, if not THE most, effective safety net program we have running, unemployment compensation is similarly effective) and so on. If you get down to the specific provisions, only 82 billion is spent on the safety net (leaving out medicare) and only 51 billion are spent on "core" infrastructure projects, things like bridges, roads, etc.

Some of THE most important and critical government stimulus amounts here to only 133 billion! If you look where the individual payments are going, less than 20 billion is going to food stamps! That's right, the most effective program for stimulus is receiving a paltry 19 billion dollar increase. That should have been, and could have been, easily doubled. Similarly, unemployment benefits, the second most effective on our list, could have been doubled, being originally placed in around 40 billion dollars and 25 dollar increases in benefits.

Infrastructure projects in the stimulus don't amount to much in the fine print either. Quite frankly, the entire plan for infrastructure spending should have been quadrupled. Less than 30 billion for highway and bridge construction, a pitiful 8 billion for railway construction and development, and more disappointing investments in infrastructure. Infrastructure projects are another important component on our list here, and have the potential, as was done during the New Deal under the Works Progress Administration (a model we should replicate) build an infrastructure for future prosperity, and improve public transportation to lessen the burden on individuals paying ever rising gas prices.

Other minor investments could have made a big difference in people's lives, such as greatly increasing the amount of money for free lunch programs at schools, which I also know from personal experience is a substantial drain on a family's resources when lacking it. Tax relief, while certain tax relief measures are stimulative, are not that effective because the general strength of a tax cut or a rebate isn't a long term benefit or isn't strong enough to make a big difference in an individuals like, but could, collectively, cause a great deal of harm to revenue coming into the federal government. I think Verily explained quite well in this thread why tax cuts aren't effective stimulus, so there's no need for me to explain that here. Even if, for the sake of argument, we were to conclude that tax relief is somewhat effective if you do it right, other measures are still far more effective on the dollar. The main problem with tax cuts though, is that it's not a targeted relief measure, so it usually just goes to paying off a minuscule portion of an individual's debt or to some sort of useless entertainment source.

In any case, I'm ending up rambling now. There are a great deal of solutions that could help and past models to look to for advice on what to replicate today, but sufficed to say, the stimulus could very well fall flat on it's face and do little to nothing because alot of the money was either A ) Insufficient for the targeted projects to make an impact, or B ) Not targeted at all, often in the form of some sort of tax relief that goes to a useless source. Tax relief measures should have been stripped from the stimulus almost entirely and direct spending on the safety net and infrastructure projects beefed up to include the vast majority of a nearly 1.5 trillion stimulus bill. It's a shame. I remain cautiously optimistic that it will have some sort of impact, but I'm not seeing it so far, and I fear we may has wasted a ton of money because we didn't go nearly as far as, say, the New Deal projects went.

I disagree. I think the problem was that most of the money hasn't even been spent yet. Really they should've done something like Bush's stimulus where they mailed out rebate checks (bigger ones obviously) combined with significant investments in infrastructure. I don't know if they did this, but they should encourage the states to spend on education, particularly college to reduce its price.

However, I think it would cause enormous inflation in the coming years if the stimulus was 1.5 trillion dollars.

[Mint]

I disagree. I think the problem was that most of the money hasn't even been spent yet. Really they should've done something like Bush's stimulus where they mailed out rebate checks (bigger ones obviously) combined with significant investments in infrastructure. I don't know if they did this, but they should encourage the states to spend on education, particularly college to reduce its price.

However, I think it would cause enormous inflation in the coming years if the stimulus was 1.5 trillion dollars.

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. Besides being a backdoor welfare check, this really doesn't do anything to encourage productivity in the same manner a tax cut would. Secondly, the rebates are temporary which makes their effects even more limited. Third, the root of this problem is unsustainable spending and borrowing in the first place. The last thing we should be doing is trying to increase consumption, because even if that 'succeeds' (I don't buy that) it will only set us up for failure again later down the line. The way out of this mess is to encourage production and savings again while clearing the zombie banks and bad debt off the market. That means if there is to be intervention, it needs to be targeted at reforming the regulatory system and establishing a non-bubble economy. Obama's talked a lot about green jobs on the campaign trail, how about spending money getting bio-tech, alternative energy, etc. off the ground?

[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.'

[opebo]

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.

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.

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.

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

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.

[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.

[opebo]

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.

You seem to be assuming that production and consumption take place in the same locale (there are trucks you know).  But regardless, if you want them to buy washing machines and Cadillacs, give them more money.

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.

Really?  What nonsense.  It was caused by inadequacy of income (demand), which was itself caused by inequality.  Credit bubbles are always created because of this.  Transfer payments (privilege reduction) are the solution - not just Welfare but also Unionization, massive government hirings, free health care, creation of new and previously unheard of public services, etc.

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.

Money is nothing but a symbol for power, SB.   The key is to order the productive capacity of the nation to be used. Whether the item is 'badly made' is very unimportant in a crisis, and in any case quite subjective. 

**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.

Those things will only be of value if the State decrees it, SB. 

[Mint]

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.

'Poors' only spend because of a combination of inadequate services (odd coming from a libertarian leaner, but undeniable) and a consumer culture that really didn't exist until the '80s at earliest. Do you really think it's healthy for people to be $10,000 in debt on credit card debt alone (on average!) in addition to their mortgages, tuition, etc.? Can you point to any other country that lives like this? I can't think of any. I hate to sound like Carter here but he had it right, at some point people  need to learn to live with less.

What we need is re-structuring of the economy coupled with significant government incentives for future growth. Basically, a period of controlled liquidation and scaling back of government in certain areas alongside more investment into viable industries. As I said before, I liked Obama's talk about 'green jobs' and more funds/tax cuts (or credits) for scientific research in this country. We have tons of industries we could have developed by now, but haven't despite so many Democrats calling for that since at least the mid-'80s. It's essential that we start doing that now.


TL;DR: If we want to get out of the bubble/burst cycle we need to do two things: 1) Start living within our means more and 2) Establish a viable, 21st-century manufacturing base again.

[opebo]

...Do you really think it's healthy for people to be $10,000 in debt on credit card debt alone (on average!)

No, Mint.  If you pay any attention at all to what I post you'll see I advocate income support, redistribution, privilege reduction.  In other words no need for debt if we create a real welfare state/unionized economy, where worker incomes are much, much higher, and owner incomes are lower.  Or rather, another way to put this is debt is only a problem if income is inadequate - so just make the income adequate.

people  need to learn to live with less.

They are, Mint - the depression is its own solution for you.. you prefer the condition of economic depression and want.  If so, then why do anything?  Just exist in the current meager way - living with less.

[Marokai Backbeat]

I disagree. I think the problem was that most of the money hasn't even been spent yet. Really they should've done something like Bush's stimulus where they mailed out rebate checks (bigger ones obviously) combined with significant investments in infrastructure. I don't know if they did this, but they should encourage the states to spend on education, particularly college to reduce its price.

That would've been a horrible solution that ignored a great deal of other effective measures we could be taking. Just handing people money like that (and subsequently losing revenue) has never really worked as a catch-all solution, even if it did accompany a flurry infrastructure projects. Government programs are more effective on the dollar if you, largely, ignore taxes and focus more on goods and serves and narrow spending measures. Like food stamps.

As for encouraging states to spend. Please, no, that's a horrible idea. If anything we should be encouraging states to cut their spending (state spending combined has reached scary heights that at one point, started rivaling federal spending) on the promise of large aid from the federal government.

You must be logged in to read this quote.

I sincerely doubt it. The risk of that happening is actually higher if we do less over time rather than a massive, swift response reminiscent of the New Deal. The government estimates, if I recall correctly, there's a nearly 3 trillion dollar hole in the economy, and 800 billion dollars, comprised mostly of unhelpful spending and tax cuts, is not going to do it.

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.

I agree with Opebo, this is nonsense. Individual and corporate debt were critical components in the economy's fall, but deficit spending wasn't. There's no correlation there. If any government spending was part of the problem, it would be the increasing reliance on state and local government and their increasing debt because of the lack of federal government support.

Also, I must say I'm depressed to see the usual suspects here, but not really responding to anything I've said the third time I've made a major economics post.

[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.