John Taylor and John Cogan have a very important Wall Street Journal op-ed on what the Obama Stimulus did, or to be more precise, what it didn’t do. The critical point:
The bottom-line is the federal government borrowed funds from the public, transferred these funds to state and local governments, who then used the funds mainly to reduce borrowing from the public. The net impact on aggregate economic activity is zero . . .
The lesson is to beware of politicians proposing public works and other government purchases as a means to stimulate the economy. They did not work then and they are not working now.
Odds are Keynesians will quickly respond that transfer to state governments and actual public works purchases are not the same thing – something on which they were fairly quiet when they helped the president sell the stimulus last year.
There is something else, though, that has been overlooked: the Stimulus essentially became a vehicle for states and localities to temporarily deleverage themselves (i.e., reduce their debt levels), but they’ll either have to “releverage” when the money runs out or engage in the retrenchment that the stimulus delayed.
In other words, the president’s stimulus has created at government bubble, in which state and local governments look healthier than they really are.
The “dot-com bubble” led to the recession of 2000-1; the housing bubble led to the Great Recession. What will be the result of the inevitable popping of the government bubble?
Saying the stimulus does not work ignores the fact that even locally in Spotsylvania – we retained dozens of teachers and deputies who would have been laid off otherwise.
It also ignores the fact that real live people are now working on the Lake Anna Parkway and widening Route 3.
How do you reconcile saying that these things do not work when clearly there are people with jobs as a direct result?
Will they still be employed when the stimulus runs out? Or was this just delaying the inevitable?
That’s the point. We’ve put off the restructuring and the recovery that would follow by trying to preserve the bubble. That will make the retrenchment all the more painful.
they won’t be but doesn’t that prove that the stimulus DID ACCOMPLISH it’s STATED purpose of TEMPORARY saving of jobs?
Most economists – say that the theory of stimulus is to preserve jobs until the economy comes back and will then be able to support those jobs from higher tax revenues from the improved economy.
In Va – the forecast is for gradually improvement in sales and income tax revenues that will be able to cover some of the positions that are currently supported by stimulus.
The tax cuts themselves are viewed as temporary stimulus that we will not be able to continue because they are ADDING TO the deficit and the debt.
Again – you are fixated on the steps that are being taken with respect to the economy but you completely ignore the CONTINUING Defict and Debt that has to be confronted.
You continue to believe that tax cuts need to be permanent but you won’t deal with the deficits and the debt – that result.
This seems almost congenital.
The “theories” about tax cuts that generate increased revenues and jobs is WORTHLESS if you fail to cut the deficit and debt.
If your “theories” work – then the deficit and debt get reduced.
But if the deficit and debt do not get reduced you don’t seem to care – as long as you get your tax cuts.
That’s not a responsible position.
No, a stimulus is supposed to get the economy growing again. What you’re describing is “stabilization,” and it, too, is temporary.
As for tax cuts, the more I think about it, the more that needs a post all its own.
DJ – you have to stabilize before you can grow.
That’s why they say – SAVE or CREATE jobs.
It IS temporary until tax revenues recover to pick up where the stimulus left off.
There is not a precise way to accurately measure the effectiveness stimulus (nor tax cuts for that matter) because you really don’t know the precise trajectory of the economy.
Without stimulus – it’s clear – we would have had much higher unemployment.
In Spotsylvania alone – we would have laid off teachers and deputies and no one would have been employed to build the Lake Anna Parkway nor widen Route 3.
No, it’s not clear. You don’t know what would have happens with the money the government borrowed for the stimulus. Even New Keyneisanism admits that the “crowding-out” effect is substantial – enough to make the stimulus not worth the money spent on it (IMF put the “multiplier” at 0.7, The ECB has it at 0.5).
yeah you do. You know that dozens, hundreds of teachers and deputies would have lost their jobs – and your local taxes would be the same.
If the stimulus was paid for with CURRENT taxes that divert money from other govt functions, you’d be right.
We’d be trading the stimulus for some other function.
No one is out of any money right now – to pay for the stimulus – as it is simply rolled into the longer term debt – to be paid back – in theory from higher tax revenues in the future once the economy recovers.
In both cases – whether it’s stimulus or tax cuts – when they are not paid for – they are rolled into the deficit and longer term debt – to be paid back in the future.
Clearly you don’t know what “crowding out” even means. Then again, in your Keynesian world, it doesn’t exist anyway.
“crowding out” guy is a theory. You don’t have a way to prove it any more or less than you can prove that tax cuts ALWAYS generate jobs and increased revenues.
At the end of the day – your theories are not worth SQUAT if you don’t end up with a balanced budget at the end of it and that’s the problem.
ya’ll are so fixated on these theories that you apparently don’t care if we end up with a deficit or not… as long as you can put your policies in place.
Ya’ll can’t see the tree for the forest.
What good are your policies for our country if they don’t actually result in less deficits and debt?
Isn’t that the entire point of your advocacy?
or do you advocate for things you believe in no matter whether they produce the claimed result or not?
come on DJ – you’re a smarter guy than that.
Oh noes, teachers will lose their jobs! Now who will pretend to educate our children at grossly inflated costs?