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Keynesian stimulus: ARRA

A.K
Posts: 8
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4/19/2014 6:07:35 PM
Posted: 2 years ago
In 2009, Obama passed the American Recovery and Reinvestment act.

Personally, I support Keynesian stimulus in theory. Historically, it has worked (the great depression, anyone?). But the ARRA was a miserable waste of time.

Here's why:
1) As Paul Krugman (a liberal) pointed out, the ARRA was only $0.8 trillion dollars. It needed to close an output gap of over $2 trillion. That means that we would have needed a multiplier of 2.5. Not a snowball's chance.

2) The ARRA money was poorly spent. According to this (http://www.washingtonpost.com...) breakdown of the spending, most of it went towards education, energy, and direct payments to individuals. All of these are horrible things to spend stimulus money on. Education is great, but the true benefits of it will likely not be seen until state middle and high school students graduate. Also, there are doubts about whether more cash will fix our education issues in the first place. Most energy spending was on "investments" (Fisker cars?), which even if successful, will not be returned for a long time. Payments to individuals are too short lived, and much of the money is saved, not spent.

3) Only $30 billion was spent on building highways. This is generally one of the most efficient vehicles for stimulus (pun intended). Also, the most successful stimulus in history was WWII, but the ARRA's defense spending was a measly $4 billion.

4) It has taken five years for the economy to "recover". Were the stimulus successful, the economy would be far stronger today.

Thoughts, on the ARRA or stimulus in general?
AnonCastillo
Posts: 12
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4/20/2014 11:00:12 AM
Posted: 2 years ago
I disagree that increasing spending, especially increasing it beyond what we can afford to pay for through current tax revenues and paying for it through inflation, is a good idea. Increasing economic activity doesn't necessarily increase prosperity, especially when a combination of inflation and corporate welfare are robbing the poor and middle class to give to the rich.

Consider that today a higher percentage of the population works than worked at any point from the end of WWII until after the end of Bretton Woods (1945-1971), despite the recession and growth of the retired population. The average worker also works more hours, is better educated, and more productive per hour worked. And yet, their hourly compensation is about the same as it was in 1971. Is the problem that we don't have enough jobs, or is the problem that our jobs don't pay what they're worth?

Increasing the minimum wage will only help so much; as long as inflation is constantly driving down the purchasing power of every dollar earned, the purchasing power of a minimum wage income will continue to fall every year until it's back to what it is today. This video gives an explanation of how the income of the poor and middle class has stagnated dispute rising productivity, what's caused it, and what we can do to eliminate wasteful economic activity and stop people from enriching themselves at the expense of others. https://www.youtube.com...
A.K
Posts: 8
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4/20/2014 12:48:06 PM
Posted: 2 years ago
At 4/20/2014 11:00:12 AM, AnonCastillo wrote:
I disagree that increasing spending, especially increasing it beyond what we can afford to pay for through current tax revenues and paying for it through inflation, is a good idea. Increasing economic activity doesn't necessarily increase prosperity, especially when a combination of inflation and corporate welfare are robbing the poor and middle class to give to the rich.


Hold on. Increasing GDP through higher spending is an increase in opportunity. A growing economy means more jobs. I challenge that "inflation and corporate welfare are robbing the poor and middle class to give to the rich." Inflation does not help the rich, and corporate welfare (while I do not support it) does not necessarily help the rich. I also do not understand how government robs the poor. And in terms of inequality, the top 10% earn (not take) 19% of income, but pay 37% of the taxes. Source: http://www.heritage.org...

Consider that today a higher percentage of the population works than worked at any point from the end of WWII until after the end of Bretton Woods (1945-1971), despite the recession and growth of the retired population. The average worker also works more hours, is better educated, and more productive per hour worked. And yet, their hourly compensation is about the same as it was in 1971. Is the problem that we don't have enough jobs, or is the problem that our jobs don't pay what they're worth?


Hourly compensation has been steadily rising for years, even relative to inflation. Source: http://research.stlouisfed.org...=

Increasing the minimum wage will only help so much; as long as inflation is constantly driving down the purchasing power of every dollar earned, the purchasing power of a minimum wage income will continue to fall every year until it's back to what it is today. This video gives an explanation of how the income of the poor and middle class has stagnated dispute rising productivity, what's caused it, and what we can do to eliminate wasteful economic activity and stop people from enriching themselves at the expense of others. https://www.youtube.com...

I don't buy into the notion that income inequality truly exists, or that we should do something about it. We should focus on poverty. Poverty rates are at 15%, where they were when LBJ started the war on poverty.
AnonCastillo
Posts: 12
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4/21/2014 3:38:35 AM
Posted: 2 years ago
At 4/20/2014 12:48:06 PM, A.K wrote:
Hold on. Increasing GDP through higher spending is an increase in opportunity. A growing economy means more jobs. I challenge that "inflation and corporate welfare are robbing the poor and middle class to give to the rich." Inflation does not help the rich, and corporate welfare (while I do not support it) does not necessarily help the rich. I also do not understand how government robs the poor. And in terms of inequality, the top 10% earn (not take) 19% of income, but pay 37% of the taxes. Source: http://www.heritage.org...

Hoooo boy. During the last 40 years, the US has had significant constant inflation. During that time, wealth inequality has increased significantly, and the US has one of the highest levels of wealth inequality in the industrialized world. The average CEO went from having 50 times the compensation of the average worker to 300 times the compensation of the average worker. During the same time period, Japan has had frequent bouts of deflation, and their level of wealth inequality has decreased while ours was increasing, to the point that Japan has one of the lowest rates of wealth inequality in the industrialized world.

And I think you mean the top 1% had 19% of the earnings, while the top 10% had 48% of the earnings. http://www.cnbc.com...

But yes, inflation does completely screw over the poor and middle class. When you inflate the currency, the price of goods and services increases very quickly, especially things like gas and food that can change prices daily. However, wages adjust very slowly, as the average worker receives a raise only once a year. So from the time when the price of goods and services increases until the time when wages increase enough to catch up, workers are losing purchasing power while corporations increase their profit margin (which mostly goes to the people at the top). When you're constantly inflating the currency, wages never catch up.

Say you're a worker earning $10 an hour, and say there's 5% inflation during your first year. Now say your boss offers you a $0.25 an hour raise after your first year. Even with that raise, you're making $10.25 an hour when you would need $10.50 an hour to buy the same amount of stuff you could buy for $10 an hour when you were first hired, but because you got a raise you'll be convinced you're better off, and less likely to complain or organize or look for another job. The higher inflation is, the easier it is for businesses to screw you out of the income you deserve while convincing you they're not.

Hourly compensation has been steadily rising for years, even relative to inflation. Source: http://research.stlouisfed.org...=

Only if you include management and supervisory workers with everyone else. For non-supervisory workers, their productivity has increased 80% over the last 30 years, while their compensation has increased only 8%, something you'd know if you'd watched the video (but here's the source of that particular fact: http://www.nytimes.com... ). If you believe in the capitalist moral that you should be paid based on your contributions to society, the fact that worker pay is not keeping up with productivity increases is a problem.

I don't buy into the notion that income inequality truly exists, or that we should do something about it. We should focus on poverty. Poverty rates are at 15%, where they were when LBJ started the war on poverty.

Income inequality is fact. You can see that it exists because people don't all make the same amount of money. While you want a certain amount of income inequality based on the differences in productivity between different workers, the amount of income inequality in our society today greatly exceeds the differences in productivity, and many of our highest earners are not adding anything productive to our society. Many of our highest earners are making what they make because the government has rigged the system in their favor, giving the big companies handouts while screwing over smaller companies and new competitors and stealing the wealth of the poor and middle class.