« Double Exports in Five Years? Posner | Main | Fiscal Stimulus Packages: What are their Effects? Becker »



Feed You can follow this conversation by subscribing to the comment feed for this post.


The fact that so few Americans believe that the stimulus saved any jobs suggests a profound failure of communication on the part of the Administration, not to mention financial journalists and public-intellectual economists.

That's rather insulting to the American people, isn't it? Aside from some of the well-documented dubious claims of job creation by states that received stimulus money, you're completely ignoring the very likely possibility that that money would have created more jobs if left in the hands of the taxpayers it came from.


Surprise, surprise. Arrogance, elitism, covering political and academic rear ends. Send them all back to real jobs if antone would hire them.


"ignoring the very likely possibility that that money would have created more jobs if left in the hands of the taxpayers it came from"?

The money was borrowed, mostly on from other countries. So your point is moot.

Tom Rekdal

Does anyone seriously believe that policy-makers decide upon the size and structure of a "stimulus package" based upon its multiplier effects? This is all a matter of political theatre, which, in this case, obviously did not work. Since not even economists can agree upon the consequences of the stimulus, this discussion displays some of the worst features of an "academic" discussion.

What I think most investors would like to know is how much public debt (as a percentage of GDP) we can carry before we reach the "tipping point" at which debt buyers start to disbelieve our capacity to pay back the money. Some serious observers (e.g. Niall Ferguson) seem to think we are close to that point; others (e.g. Andrew Scott) doubt that we are anywhere near the limit. Is this even an answerable question? Inquiring minds really would like to know that.


I know it's not a competition, but I give this round to Prof Posner for a detailed and readable article.

John, Jim, if you're going to criticize (and there is a _lot_ to criticize), try to do so in a way that a) makes sense, and b) is constructive.
Otherwise you make people like Tom Rekdal look bad by association, despite his excellent points.


Tom: I suppose it's much like looking at a stock than a strict ratio of debt to GDP. At one end investors like utilities. Despite their typically heavy debt burdens their predictable incomes streams make them attractive, conservative, investments. At the other an idea like Amazon draws investors despite having lots of debt and no earnings for its expected bright future.

We, who after the golden years of the post WWII era, should be a blue chip mature company, have A. paid out too many dividends for our revenues B. Not made adjustments fast enough in a rapidly changing world.

So we're a bit like a GE? or perhaps AT&T that woke up belatedly to find they no longer held a near monopoly on voice transmission. America has, inherently, more assets and staying power than does any company, but still we're faced with making a corporate turn around in a short time, and unlike GE and others, we don't have the luxury of ignoring the needs of our labor force.

Like a turnaround much will depend on our making some right choices to position ourselves for a world much different from the one that made us the wealthiest nation. America sleeps too long and soundly when thing are going well or the problems still fit under the rug, but once awakened can make changes rapidly. I think we've been awakened!

Lastly, at least in terms of government debt, we should optimistically recall that from 1996-2000 deficits were small and manageable with Gspn wringing his hands as to how T-bonds would be properly priced if sales were not being made. Today I heard Greece's president call on his people for sacrifices to pay their bills, as our costly wars dragged on we should have been asked to at least make the "sacrifice" of rolling back the Bush Admin tax breaks as well.

pat toche

"The economic effect of such an increase in GDP depends on what is done with the money. Suppose all the recipients used it to buy Treasury bonds. Then its economic effect would be zero: the government would be lending the money and then borrowing it back from the borrowers."

you're discussing tax cuts/rebates not fiscal expenditure stimulus.


Pat: While it's unlikely that "recipients" (those earning money from a stimulus package) are likely to use it to buy Treasuries, you touch on an interesting area.

That is, the propensity to spend an increase in income is much higher at the lower incomes where there is always an urgent use of the income for near-necessities while at upper incomes it may well be used "to buy Treasuries" for other investments or perhaps to spend abroad.

Thus when the Bush administration came in proclaiming "we're in recession" despite no dip in GDP growth,


and unemployment remaining at historical lows of 4.00%


there was no economic justification for inviting, predictable, deficits of $250 billion/year by tax cuts largely benefiting upper, and even the topmost income sectors, and especially not as interest rates were low reflecting, as was the case, a surplus of investment capital in the US and the world and few worthy projects in which to invest.

For the most part all those tax cuts did was to accelerate the disturbing trend of growing wage inequality that denies those in the lower half of incomes a participation in productivity increases and leaves them strapped and unable to consume or buy the services upon which most of our economy depends. (The 2nd graph illustrates well)


So what happened? What can we learn and where are we now after $5 trillion plus of deficit government spending plus at least another trillion in spurring from a false housing boom that built a million more homes a year than there were household formations?

Despite all this spurring the eight years ginned up only a couple million jobs and those lower paid ones to boot, with unemployment creeping up until the meltdown when the rate exploded.

Even if the tax cuts (of half the $5 trillion) were poorly targeted and military expenditures are not efficient spurs to economic growth, is something so fundamentally wrong with our economy that it won't function w/o massive, unaffordable deficits?

Have we reached a plateau of 1% or less of GDP growth, but more worrisome "official" rates of unemployment of 10% with under-employment rates adding another 7% for a decade or more? If not, where are the labor intensive industries that might generate 10 - 20 million jobs in the near term?

Walter Jones

If I may post a surly rejoinder to the blogs on the effect of the stimulus, if the outcome is neutral or even slightly negative, that will be a screaming success.

As the quote goes, "in the long run we are all dead." The result of not doing a stimulus would have been deep depression. To use the current term of art, it is not even close. And the cost of a depression, not represented in the above arguments, would be staggering.

Headline unemployment is about 10%, actual is perhaps 15% to 16%. Think for a moment about the outlook if headline were 20% and actual 30%.

As it is, we must now solve three difficult problems: structural unemployment, transparency of financial instruments, and infrastructure. Without addressing these three issues, the US will only emerge as a shadow of its former self.

Structural unemployment: 4 to 5 years of deep unemployment means rebuilding a generation of college students.

Derivations: they are not going to go away, all of the whining to the contrary not withstanding. Lehman brothers is the perfect example. The net loss was pretty miniscule, but it was not known at the time and so we had wild gyrations in the financial markets as bankruptcy ensued and the positions were wound down. Barclays did very well by buying it. Wealth transfer to the UK for pennies on the dollar, underwritten by the US Gov. (That is us.)

Infrastructure: the US is becoming a third world country with the poor quality of infrastructure, decaying bridges, deteriorating roads and leaking water pipes. No country can succeed, let alone grow, without being able to move stuff around and insure the health and well being of its citizens.

My complaint of the focus of the stimulus is that it would have been a perfect time to restock the US Military, in particular the National Guard. Useful, "shovel ready," and many of the jobs are US based. We still have that burden to look forward to over the next decade.




Walter: You're right that we've a trillion or more in delayed maintenance to attend to and I'd thing that is what would be both timely and stimulative.

"Restocking" the military is typically much less stimulative and as we've projects in progress for new fighters and subs to go up against real or imagined foes of great power, I'm not sure what should be restocked. Looks like an age of people power and intelligence to find international bad guys prior to their attack.

Derivatives don't strike me as being an inherently bad thing Trouble is they were used as part of massive international Ponzi scheme "backed" by a foolish bet that US housing prices that look like the following graph would not have plateaued or had a sharp correction. At lending ratios of 30 to 1, all it would take is a pullback of a few percent to wipe out the underlying asset base.

For this last decade I've had a strong hunch there was no one in the wheel house and now we see our highly compensated financial wizards buying and selling boxes of "assets" w/o knowing what's in the box. Wouldn't you think a firm buying or insuring billions worth of mortgage backed securities at sky-high margin ratios would at least spot check a percentage of them before placing their wild gambles? Ha! but dumbly "not knowing" does keep one out of prison!


Housing bubble graph for above post:


........... now wouldn't any rational investor buying huge chunks of mortgages margined at 30 : 1 have gotten very, very nervous about 2001 or 2002?

The comments to this entry are closed.

Become a Fan

May 2014

Sun Mon Tue Wed Thu Fri Sat
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31