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Fiscal Stimulus Doesn't Work

jimtimmy
Posts: 3,953
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9/13/2011 1:07:54 AM
Posted: 5 years ago
Firms and consumers make hiring and investment decisions for the long term. A short term boost in spending is not going to lead to recovery, just more debt and uncertainty...
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RoyLatham
Posts: 4,488
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9/13/2011 11:50:34 PM
Posted: 5 years ago
True. The temporary jobs have been costing $250K to $400K apiece. That's not a good deal.

Government spending is equated with "doing something" in the liberal orthodoxy, and "doing something" is a moral obligation in that book. Stimulus will never be abandoned, even though it doesn't work.

Prosperity would return overnight if the government allowed energy exploitation, cut regulation dramatically, changed to a flat tax, and dropped taxes on repatriated capital. It's not going to happen without regime change.
darkkermit
Posts: 11,204
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9/13/2011 11:58:19 PM
Posted: 5 years ago
At 9/13/2011 11:50:34 PM, RoyLatham wrote:
True. The temporary jobs have been costing $250K to $400K apiece. That's not a good deal.

Government spending is equated with "doing something" in the liberal orthodoxy, and "doing something" is a moral obligation in that book. Stimulus will never be abandoned, even though it doesn't work.

Prosperity would return overnight if the government allowed energy exploitation, cut regulation dramatically, changed to a flat tax, and dropped taxes on repatriated capital. It's not going to happen without regime change.

Isn't it possible that in theory that stimulus projects could be successful? After all, recessions occur during an underutilization of resources (Ex: high unemployment). Resources are just idle because the circular flow of money has been reduced through savings. People are not investing since they are uncertain about the future,and tend to invest during booms and do not during busts, even though busts are the best times to invest while boom are times not to invest. This is a basic psychological phenomena. Therefore, companies can not obtain capital, since banks give out loans, not stockownership or investments. And the money supply is contracting, creating sticky wages.

What a stimulus does is do what the economy isn't doing: Investing and pumping the money supply to increase aggregate demand and return the velocity of money to normal speed.
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jimtimmy
Posts: 3,953
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9/14/2011 12:15:30 AM
Posted: 5 years ago
At 9/13/2011 11:58:19 PM, darkkermit wrote:
At 9/13/2011 11:50:34 PM, RoyLatham wrote:
True. The temporary jobs have been costing $250K to $400K apiece. That's not a good deal.

Government spending is equated with "doing something" in the liberal orthodoxy, and "doing something" is a moral obligation in that book. Stimulus will never be abandoned, even though it doesn't work.

Prosperity would return overnight if the government allowed energy exploitation, cut regulation dramatically, changed to a flat tax, and dropped taxes on repatriated capital. It's not going to happen without regime change.

Isn't it possible that in theory that stimulus projects could be successful? After all, recessions occur during an underutilization of resources (Ex: high unemployment). Resources are just idle because the circular flow of money has been reduced through savings. People are not investing since they are uncertain about the future,and tend to invest during booms and do not during busts, even though busts are the best times to invest while boom are times not to invest. This is a basic psychological phenomena. Therefore, companies can not obtain capital, since banks give out loans, not stockownership or investments. And the money supply is contracting, creating sticky wages.

What a stimulus does is do what the economy isn't doing: Investing and pumping the money supply to increase aggregate demand and return the velocity of money to normal speed.

Only according to Keynesian theory do recessions occur due to underutilization... Of course, this theory may be right... But, there are many other competing theories...

Regardless, stimulus spending does not solve the problem of high unemployment...

Basically, the idea is to give consumers money to spend, which creates AD... AD makes businesses hire...

The problem is that consumers don't spend temporary increases in disposable income (this is known as the Permanent Income Hypothesis) and firms don't hire and make investments based on temporary increases in consumer demand... This is the problem with stimulus, it does not take into account the fact that hiring decisions are made on a long term basis...
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Cerebral_Narcissist
Posts: 10,806
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9/14/2011 12:16:52 PM
Posted: 5 years ago
Stupid question but why doesn't stimulus work? It may less efficient than just lowering taxes, but why doesn't it work?
I am voting for Innomen because of his intelligence, common sense, humility and the fact that Juggle appears to listen to him. Any other Presidential style would have a large sub-section of the site up in arms. If I was President I would destroy the site though elitism, others would let it run riot. Innomen represents a middle way that works, neither draconian nor anarchic and that is the only way things can work. Plus he does it all without ego trips.
jimtimmy
Posts: 3,953
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9/14/2011 2:37:08 PM
Posted: 5 years ago
At 9/14/2011 12:16:52 PM, Cerebral_Narcissist wrote:
Stupid question but why doesn't stimulus work? It may less efficient than just lowering taxes, but why doesn't it work?

People making spending/investment decisions for the long run. A short term increase in spending isn't going to get the economy started...
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