Stimulus: If I take my hammer and smash it down on your big toe, that's technically a stimulus. I provided an input that elicits a response, "your screaming and yanking your foot away". That in a nutshell is the problem with stimulus, it is not a positive or negative term, it is neutral, (If I tickle you, you laugh).
Economically speaking, the more appropriate term is "incentive". Government induces desired behavior by the offer of reward. For example, telephone companies may compete in the long distance market (the reward) if they allow competition from other companies within their own infrastructure (the desired effect).
The problem with incentives is that they sometime lead to undesirable results due to the subject behaving in an unexpected manner. CEO stock options were initiated as an "incentive" aimed at producing higher and better CEO productivity. The problem was, that as CEO's soon learned, one could induce higher stock prices (the desired effect) through bad business decisions, claim the reward, and bail before the bottom fell out. The long term result being stinking rich (and retired) CEOs, and shaky and unmanageable companies.
Let us take a theoretical example of "economic stimulus" through the use of government spending (admittedly the numbers are completely made up).
The US government implements a $1 Trillion dollar stimulus package along the lines of the old WPA. The project: The maintenance and upgrading of the federal interstate highway system, federal buildings, and the like. We will grant them the same effectiveness as the old WPA in creating 3.3 million jobs paying a "security wage" to the recipients at the going regional rate. We will also grant the same time period of the old WPA of 8 years (1935-1943).
So, the government creates 3.3 million jobs for an 8 year period. The question then becomes what happens when the money and jobs run out? The government through the use of expenditures can only provide economic support while expending funds. The system is not self-sustaining... the government produces an artificial market...withdraw the funding and the whole house of cards comes falling down. Without WWII... we would either still be running the WPA or long since bankrupt (or socialist). The WPA was only made unnecessary by the economic stimulus induced by the war.
If the stimulus undertaken by government simply 'artificially' creates the desired end-state (employment) we are no better off than we are now, in fact we will be worse off, as we will be forced to continue pumping money into the programs established. Government action must be focused on those areas that can produce long-term positive effects in the economy, anything else is just a hand-out.
Think about it.
19 comments:
Good analysis. We'll actually be doubly bad off: That money government "spreads around" is money that could have been more efficiently spent by the private sector. Government money is stupid money.
"Government action must be focused on those areas that can produce long-term positive effects in the economy, anything else is just a hand-out."
What are some examples of these areas? Theoretically, a good gov't that pays off debt and deficit during economic booms, and puts money into ____ programs during busts to stimulate the economy towards another boom (or at least a better cushioned bust) should spend money at a time like this.
It sounds like you're actually advocating the stimulus package so long as it meets the condition of stimulating sectors of the economy that will produce long-term economic growth (e.g. more and more jobs for Americans).
Let me ask you another question... whose fault is it that America wasn't paying off the debt during the periods of economic growth?
Oh, it's Obamas fault for being given a terrible situation to work with; and it's his fault that he's trying to make the best of it by doing what any sensible gov't would do during a recession.
I wish the republican position was that gov't should spend money that wil positively stimulate the economy, but as far as I can tell from people like Silverfiddle ("government money is stupid money") the options are between stimulus and nothingulus.
The GAO has said that about 5% of this bill is actual stimulus, so spend $45 billion and get it over with.
Also, even artificial employment is employment. When the economy starts getting better and the gov't created jobs aren't there anymore, employers aren't going to look down at peoples resumes and scorn them for only working artificial jobs.
Those jobs will eventually disappear, but the skills and experience gained by the workers will benefit them greatly when they look for a job in the private sector (when, hopefully the economy eventually gets better).
Who or what is GAO?
Unless the rest of it (95%) creates no jobs at all, I don't see how it is not stimulus.
Giving people who are struggling tax breaks so they can put their money in the bank is not stimulus. That's stupid money.
Those jobs will eventually disappear
You are so naive. Government jobs never disappear.
GAO: Government Accounting Office. Do your research before you start spouting off about US politics! BTW, I meant to say CBO, not GAO.
I know people who did the asphalt work in front of the new library here in North Vancouver. They moved from that to asphalting our back driveway. I knew I could trust them to do the job right because their work was on display.
That's a disappearing gov't job. One that doesn't disappear seems okay as well, so long as it is not riddculously cushy and easy. No one is in support of bureaucrats putting their feet up on their desks.
I find humor in the absurdity of thinking a gigantic middleman like govt can stimulate anything.
Just think about it. They produce nothing. Well except for obstacles & barriers between the transactions of free peoples.
SteveH
Yah, well your ideological barriers are stopping you from understanding a fairly basic idea.
Boom -- pay down debt/deficit
Bust -- spend money/create jobs
During what might have been called the boom, Bush spent more money than he had rather than paying down the debt. That's a big reason for the current bust (at least in the US). The only way to cushion the current bust or turn it into a boom as soon as possible is for gov't to get involved.
I know that's a counter-intuitive scary idea for you guys, but that's just how it goes.
Canada is actually weathering the storm better than the US right now. We were running a surplus in BC up until a few weeks ago when the finance minister said that we'd have to go into deficit. Not a big problem for us (comparatively). We can weather the storm having had a surplus for so long. That's with universal health care, with cheap college/university tuitions, and everything else.
Did you even hear the story about the industrious mouse and the lazy mouse?
candian liberal-Ur comments about this country USA should be left amongst your fellow country men becasue really we don't give a crap what you think. Stick to conversations-whether Canada's national lanuguage should be english or french?
Ew, the claws finally come out. Canadas national language is a bilingual country. Americans don't know what bilingual means. Hum... Yah, and notice that this article isn't about Canadian cultural waste.
We speak alot of different languages here in the USA. I actually have 2 languages spoke with in my casa and sometimes 3 when I get pissed, Dork. The article is abut USA and not Canada, Then Americans should be discussing amongst themselves and not the UN.
Canadian:
Boom -- pay down debt/deficit
Bust -- spend money/create jobs
This is standard Keynesian economics; we're all familiar with it, so stop being pedantic.
The trouble is that we start in a huge hole because we had already spend ourselves into oblivion before this crisis started.
Here's another point on American politics for you, since your ignorance is on such blatant display: The president cannot spend one dime without congressional approval, so don't hang all this on Bush. Bush, and Congress cooperated to get us into this mess. There's enough blame to go around for everybody.
The Republican majority congress that is.
I remember Clinton and the dems of old having payed down the debt if I'm not mistaken.
Despite the fact that frivilous spending during the good times isn't allowing for an easy go at it now, stimulating the economy is still the only way to go.
45billion, as you problably know will not have a huge effect on the economy.
Clinton achieved a balanced budget but did not pay down the debt. I do give him credit for following sound free market principles to keep the Reagan economy blazing along.
45billion, as you problably know will not have a huge effect on the economy.
That is how much of it the CBO (non-partisan Congressional Budget Office) has identified as actual stimulus. Anything above that is a waste of taxpayer money and our kids and grandkids will have to pay it back.
Again stay in Canada!!! Your understanding of american politics sounds like Nancy Pelosi's understanding of birth control. Of course she only has to look in a mirrror with a look only blind man could appreciate. Dork!! Redneck Ron OH!! I forgot to say if you would have said that stuff about slavery within my house--I would kick your ass and have all my black and hispanic friends join me in the roust!!! That is would have been my American style politics to you!!!
You really exhibit naivete in thinking that the economy responds in four or eight year increments aligned with our national elections.
The mortgage crisis is the direct result of a reduction in mortgage lending standards by the Clinton administration which resulted in the ballooning of the sub-prime mortgage markets, i.e a liberal socialist financial adjustment to allow people who did not previously qualify, buy into the American Dream of home ownership. And as Gomer Pyle would say, "Surprise, Surprise, Surprise"... these people who didn't previously qualify for a mortgage under the old rules are now defaulting in droves under the new.
Now, don't get me wrong, I am not blaming poor people, because the change in rules allowed all classes to buy homes they could not afford, and are now defaulting on. More proof that given the opportunity the masses in droves will, like lemmings plunging over the cliff, vote for Bread and Circuses.
~Finntann~
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