Remember that GDP is added to every time money changes hands. This is why giving money into food stamps boosts the GDP, it causes the money to change hands very quickly many times over.
American Recovery and Reinvestment Act of 2009: What Would You Do to the Bill?
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Integral
Can't you hear it?
Close, but not necessarily. Pure transfers do nothing to GDP. GDP is added every time money changes hands as a result of a purchase of a good or service.
Not all transfers are stimulus, but some stimulus can come from some types of transfers.
Merkinball
Deity
Ifs ands buts Integral. What if my investments are still earning 10% and are being reinvested in my stocks or mutual funds? I also think your point about the banks is moot. Cash is trash right now. CD's are worthless. Savings accounts are worthless. People are largely spending what they have ANYWAY!
Voila? That's it? Just...voila? Hey, you've just answered the greatest question of the economic universe! Just take peoples savings and give it to people to spend! Or wait, we should just outlaw savings altogether. That way we have an infinite wealth cycle!
What's that? It doesn't really work that way? Come on Integral, you're a pretty bright guy. This is a bunch of phony-balogna for a number of reasons.
Except it doesn't work like that.
Primarily because we are borrowing money, and dumping into the pre-existing currency. You're a smart dude. It's called inflation. And it may be called hyper inflation before we're done. You mentioned the CBO report. It's good stuff isn't it? We have to pay all of this back with interest. We're treading water by accumulating more debt. This doesn't work.
Whatever happened to entrepenuerism?
sonorakitch
Overseas hunter
I think it is important to recognize the right kind of stimulus as we discuss our options for this economic situation. A food stamp is about the most artificial stimulus out there, as it doesn't do a thing for fixing the system apart from cycling money through particular retailers and suppliers.
So I then concur it is a stimulus, but I would argue still it is the wrong kind of stimulus. And the Moody's thing has been around for a little while and the logic behind their conclusions has been questioned by many.
To me, it would be much wiser to direct stimulus towards a more lasting outlet than a food stamp.
~Chris
sonorakitch
Overseas hunter
Not at all. Our problem right now...the must be solved quickly, is not consumer spending. Cutlass, it is the need for recapitalization of the banking sector. Without that immediate fix, there won't be food stamps at all. And so once we figure out our liquidity crisis, then we can examine other more lasting solutions. A food stamp, in my mind, is not a lasting solution.
Again, our problems today are much bigger than slow Wal Mart sales, reduced truck tonnage shipments, and rotten crops in a field.
This food stamp stuff is just a carpet excuse really.
~Chris
Not really. Banks are not lending in part because they don't know if the companies they are asked to lend to can pay them back. Raising the sales and revenues of retailers and wholesalers will increase confidence that companies will pay their bills. That will loosen up credit more than giving the banks money will. You can give banks all the money in the world, but if they are afraid to make loans then the system is dead in the water.
As Cutlass pointed out, and as Integral outlined, it's quick. And it has at least a good multiplier, as the CBO (0.8 - 2.2) and Moody's (1.73, even though it's apparently been questioned by many unnamed persons) suggest. And it's not just "a food stamp," any more than buying a share of stock is paying money for "just a piece of paper." It's spending money in the economy.
Cleo
sonorakitch
Overseas hunter
Again though, this capital crisis is beyond a "fear" to lend (although I don't deny at some point soon it ought to be addressed). The fundamentals of the banking sector are melting down, and without a radical fix (aka. suspending mark to market accounting and dumping these garbage assets from the books) we will be in big trouble. Again, some sort of massive food stamp stimulus won't fix this crisis as quickly as argued by you and Cleo. The problem right now, which deserves our full attention, is the still-deteriorating banking sector. It is obvious, in fact this stimulus bill probably won't work, as the financial markets around the world are reacting very poorly to the Obama plan. And that, to me, is a very bad sign that what needs to be done isn't.
Cleo said:
It still doesn't fix the immediate problem, and only addresses a segment of this enormous economy. Again, if a food stamp is spent at Wal Mart, how long does that really take to ripple through? A month? Three months? The multiplier business is fine, but we need solutions now. Not to say this isn't an easy thing to solve overnight.
Cutlass said:
A good plan...indeed. And I love that quote.
At the end of the day, a good plan now would be to address the immediate looming crisis. The general recession can be dealt with after we fix the fundamentals of our system. As we probably agree, a regular recession is fine, and even healthy, but this is not a regular recession for obvious reasons...and those reasons need the full attention of Congress and the President.
~Chris
sonorakitch,
It doesn't help the fact that banks are insolvent (the root cause), but we have to address that and provide effective fiscal stimulus. You have to stop the infection, but you also have to make sure the fever doesn't kill the patient.
Cleo
It doesn't help the fact that banks are insolvent (the root cause), but we have to address that and provide effective fiscal stimulus. You have to stop the infection, but you also have to make sure the fever doesn't kill the patient.
Cleo
sonorakitch
Overseas hunter
I completely agree, which is why a stimulus needs to be injected into the patient at a point soon in time. However, recapitalization and accounting standards must be addressed in quicker fashion in order to save the system itself, and without this being addressed first, it will fail. It was evident today when world markets reacted to the stimulus bill passage with a resounding thumbs down. My own would be this: you have to quickly stop the infection that is quickly eating away the patients internal organs before you address the patients quality of life issues brought forth because of the vicious infection.
~Chris
Integral
Can't you hear it?
Nice quote, but the decision right now is between funding a bad plan now versus the possibility of a better plan a week or two from now. Particularly since the Senate "compromise" has made the bill substantially weaker.
[Gutting the state stabilization fund? Really? It's depressing that the so-called compromise ended this badly.]
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@Merk
I see your response and will get to it momentarily.
Integral
Can't you hear it?
Know that "savings" in my little example is a metaphor for the entire stock of underemployed resources right now. Regarding your point, savings are important in that they fuel investment; right now, the state of the banking sector is such that there are serious problems in tbat process of converting savings into actual loaned funds. More generally, the fiscal stimulus will attempt to drag up the aggregate demand for goods and services and thereby re-employ those unemployed resources.
There is only a "voila" aspect because we aren't in a good place right now; there is excess slack in the overall economy, and the argument is that fiscal stimulus could improve the situation. If we were in good straits, the stimulus package would have pronounced crowding-out effects as the government drove up bond prices to shift savings from private investment into government spending. The crowding-out aspect will be smaller right now given the state of the economy as a whole.
We are unfortunately caught in a situation where it would likely be desireable to have a decline in consumer spending and increase in net investment as components of GDP - that is, it would likely be a "good thing" if, at this time, consumption generally decreased and private savings generally increased. However, this decline in consumption is being paired with massive recessionary pressures stemming from the financial sector. The needs of the short term and those of the medium term are sadly not in line. (My full views on the place of overall consumption, the recession, and the stimulus are more complex and complete than this, but it would be tedious to go into it here.)
Regarding the inflation and debt side of things - rest assured that I have thought about the long-term effects of the stimulus package. There is a reason why I'm still insisting that it remain timely, temporary and targeted. On inflation specifically, the proximate worry is of deflation; it would actually be nice if the Fed could commit to keeping inflation slightly positive over the next eighteen months or so. Regarding debt, there will be large implications for the fiscal situation of the country even though this is (supposedly) a one-shot deal.
I don't really want to get too much into detail about the macro-effects of the stimulus, unless you insist. My only aim with the previous post was to show how it is plausible to interpret extending food stamps (either specifically or as a metaphor for transfers in general) as an economically "stimulating" act, particularly if there are large amounts of idle resources lying about.
Did world markets react to the stimulus bill's passage -- which was assumed for some time -- or Secretary Geithner's apparently nonsensical plan to rescue troubled financial institutions? Since the latter seemed to be more of a surprise, and was received overwhelmingly negatively by all experts I saw, I would think it would have had more effect today.
Cleo
Merkinball
Deity
Improve what though? The near term viability of the economy? I think it's still unclear that this will do any such thing. From what I understand a substantial portion of this bill is dragged over a few years time. My problem is not the now. I mean, if it was as easy as voila, you'd have it answered. I have a few concerns though.
A.) The current attitude of the American people. The attitude of, "I'm out of work, so save me gubmint" is extremely bad! We cannot have this attitude! Inevitably a government that is big enough to your savior, is the government that is big enough to take everything away.
B.) I'm concerned about the long term attitude that this will foster. If do this, then come ten years from now when we hit another recession everyone will STILL expect the government to bail everybody out. We need to bail ourselves out. I mean, Barack said we need to pull our boots up, and dust ourselves off. I didn't think we were supposed to walk to the end of the welfare line afterwards though. We can't have this mentality creeping into the mindset of America any more than it already has. It will simply foster more laziness.
C.) We gotta pay all this back.
D.) I would be willing to bet that by the time we pay this back we will not have any return on investment whatsoever. We'll be worse off in the aggregate than when we started.
E.) This is not the best thing to do! The best thing to do is encourage entrepenuerism, reshape our education system, and provide massive tax relief and cut government spending. We can't keep bailing out our debt by taking on more debt. You can only tread water for so long.
Yes, for now this is the case. But this is largely because TARP is still sitting on the sideline and the economy is going down. If you infuse TARP I, TARP II, the stimulus bill, and Geitners lunacy all at once, you will flood the currency in a way that's never been seen in our time.
Inflation is an inevitability. It's completely, and totally inevitable. You cannot borrow money, flood the currency, and NOT get inflation. Everyone will have more money than they earned and they will be vying for the same pot of tangibly produced goods. Result? Prices will shoot up.
Ziggy Stardust
Absolutely Sane
http://www.thedailyshow.com/video/index.jhtml?videoId=217704&title=clusterf#@k-to-the-poor-house
Daily Show, douze points.
Daily Show, douze points.
What's really weird is that things could fix themselves a pretty decent amount if fulltime employed people figured out how to work (and get paid for) more hours. This could allow greater savings and greater spending, and all the ripple benefits.
Integral
Can't you hear it?
Update: via calculatedrisk, it appears that the payroll tax cuts have been pared down to $400 per worker, down from the original proposal of $500 per worker. That brings the total cost of the bill down to $790 billion.
$6 billion in funding for school reconstruction has been re-added to the bill; the state stabilization fund, which had been cut to $39 billion from $80 billion, now stands at $44 billion. That's still far too small, but it's progress.
$6 billion in funding for school reconstruction has been re-added to the bill; the state stabilization fund, which had been cut to $39 billion from $80 billion, now stands at $44 billion. That's still far too small, but it's progress.
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