In Defense Of The Stimulus

Any regular reader of this blog knows that I have been critical of the “stimulus” legislation and the government response to the current recession, which has featured lots of spending.  In the interests of being even-handed about it, attached is an op-ed piece in today’s Philadelphia Inquirer from the chief economist of Moody’s Analytics that defends the stimulus bill and other actions taken by the federal government.

I’ll let readers judge for themselves, but I don’t find the defense especially convincing.  It seems to be short on objective proof, and long on the notion that if nothing had been done things would be worse than they are.  That argument is tantalizing because it is impossible to prove or disprove.

What we do know is this:  when the stimulus legislation was passed, we were told that it would keep unemployment below a certain level, and it didn’t.  We know that much of the money went to keep government workers employed, and in some instances to give them raises.  We know that the “jobs created and saved” statistics cited in defense of the stimulus legislation often were phony and unreliable.  And we know that the stimulus legislation, and the other federal bailouts that have occurred, have added enormous sums to our federal debt — sums that will burden our economy for decades to come.  In the face of such hard realities, the argument that things would have been worse without the stimulus bill seems very thin, indeed.

4 thoughts on “In Defense Of The Stimulus

  1. The stimulus is responsible for only a small portion of the deficit. Most of the increase in the deficit was from high unemployment and the deficit was already extremely high from the irresponsible tax cuts during the Bush administration as well as the two wars.

    Read the news instead of just right-wing opinions.

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    • Actually, I do read the news, which is how I found the piece linked to in this blog post. I just happen to question the points made by the author of that piece. I think it is important to have a healthy skepticism about what we are being told by politicians of both parties — as well as by economists. In my view, both parties are to blame for the overspending and fiscal irresponsibiity we have seen in our federal government.

      The reality is that we are incurring and have incurred enormous debt, and the cost of servicing that debt will hamstring us for years to come. In view of that problem, I think it is fair to ask whether we are getting what has been promised from legislation like the stimulus bill. In my view, at least, we have not received what has been promised — and in the meantime, the hundreds of billions of dollars amounts spent as a result of the stimulus bill have been added to our already great debt burden. For what purpose, and to what effect?

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  2. [I think it is fair to ask whether we are getting what has been promised from legislation like the stimulus bill. In my view, at least, we have not received what has been promised]

    No, we are indeed getting what was promised. It created or saved millions of jobs, there are much needed construction projects underway across the nation, there is investment in renewable energy, which hopefully will help wean us off our oil dependency, and many economists believe it kept us from descending into another depression.

    That’s a hell of a lot better investment than the trillion dollars we’ve spent on the wars.

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  3. Bob,

    I see an inconsistency in your last several posts on economic issues. When it comes to stimulus spending and unemployment compensation, you express great concern over the increased deficit, but yet you protest the notion of ending the last Bush tax cuts. Which is more important, a balance budget or tax cuts?

    History has shown us that a complete laissez-faire attitude toward the economy may be lead to wild boom-bust cycles with the resulting human suffering and destabilization of governments. In times of major economic recession, a government stimulus whether in the form of tax cuts or government spending may be needed to inject more money into the economy to stop a downward spiral. While I am generally a free-market believer, I think an argument can be made that tailored government spending on infrastructure and extended unemployment benefits can boost the economy in times of deep recession better than a tax cut, because businesses or more well-off citizens may be more likely to hang on to extra money rather than spend it. The problem will all of this is, of course, that we have no great objective way of measuring the effect of the stimulus efforts

    The idea that it is time to cut extended unemployment benefits because it has been two years seems arbitrary to me. Unemployment compensation is designed to provide a safety net for someone who has lost their job through no fault of their own. There is normally a limit to unemployment because in most circumstances people can find a new job and unemployment compensation certainly can be a disincentive to work. However, where the economy is still stuggling, there are no jobs to be had. Therefore extending unemployment benefits continues to provide that necessary safety net and is not disincentivizing people from taking available jobs (because there are none.) Indeed, cutting unemployment benefits for people for whom there are no jobs at the moment would lessen consumer spending and further restrict the economy. The timing of ending unemployment benefits should be based on an objective assessment of when there is enough new job availability that ending extended unemployment would do more harm in disincentivizing recepients from taking new jobs, not based on some arbitrary time period.

    It seems to met that the decision as to whether the governemnt should be in a stimulus mode or a deficit reduction mode likewise depends on an objective analysis of the economy. Normally the biggest problem with deficit spending is that it drives up demand for credit, causing a rise in interest rates, which in turn restricts economic growth. (Or the government just prints more money, which leads to inflation.) None of that is occurring right now.

    That is certainly not to say that defcits should not be watched and that plans for reducing the deficit should not be formulated, but I think that the timing is critical. We cannot, however, continue to drink the Kool-aid that cutting taxes while engaging in expensive wars is all well and good, but spending money on those in need (as long as it is not us) is too expensive.

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