How effective is economic stimulus.

[Teeninvestor]

From my POV, it doesn't seem like economic stimulus(Or pork) packages are any effective.

In a minor recession, economic stimulus wouldn't been needed. I mean, if the gov spent 1.2 trillion we wouldn't have the 2001 recession, but that would do more harm than good.

In a major receession/depression, it seems that government spending has little effect other than create inflation and increase the debt.

For example, I show to you Japan in the 1990's.

The Japanese government spent a sum equivalent to the country's GDP, yet Japan still went through the "Lost decade" of economic stagnation.

So for all those who like keynesian economics, I have a question: How does government spending stimulate the economy more than it hurts?

 

[JerichoHill]

Government spending is not perfectly correlated with inflationary pressure, as I have stated repeatedly.

Further, the US does not have a similiar industrial / business setup like the Japanese economy had in the 1990s.

There is something called "consumption smoothing" that comes from the RBC model and that's from Friedman. That is why it is best to dissave during bad times and save during good times.

I think you need to brush up on your understanding of keynes's model, the rbc model, and newer dsge model's. You're arguing economics that was argued about 40 years ago. That was all settled now.

Fiscal / Monetary Policy , and specific kinds of policy, have different stimulative (or not) effects. The world is not black and white teeninvestor.

Please crack open a non-introductory economics book.

 

[Gogf]

From my POV, it doesn't seem like economic stimulus(Or pork) packages are any effective.

In a minor recession, economic stimulus wouldn't been needed. I mean, if the gov spent 1.2 trillion we wouldn't have the 2001 recession, but that would do more harm than good.

In a major receession/depression, it seems that government spending has little effect other than create inflation and increase the debt.

For example, I show to you Japan in the 1990's.

The Japanese government spent a sum equivalent to the country's GDP, yet Japan still went through the "Lost decade" of economic stagnation.

So for all those who like keynesian economics, I have a question: How does government spending stimulate the economy more than it hurts?

Explain how the Great Depression ended.

 

[Cutlass]

If things aren't getting worse as fast as expected, or if they even started to get better, then they are effective.

That doesn't mean that a different program wouldn't have had even greater effectiveness.

 

[Bill3000]

Explain how the Great Depression ended.

It wasn't deficit spending that got us out, it was massive deficit spending!

 

[Fugitive Sisyphus]

There is something called "consumption smoothing" that comes from the RBC model and that's from Friedman. That is why it is best to dissave during bad times and save during good times.

We save during good times?

 

[Teeninvestor]

Explain how the Great Depression ended.

World War II, full mobilization.

Government spending is not perfectly correlated with inflationary pressure, as I have stated repeatedly.

Further, the US does not have a similiar industrial / business setup like the Japanese economy had in the 1990s.

There is something called "consumption smoothing" that comes from the RBC model and that's from Friedman. That is why it is best to dissave during bad times and save during good times.

I think you need to brush up on your understanding of keynes's model, the rbc model, and newer dsge model's. You're arguing economics that was argued about 40 years ago. That was all settled now.

Fiscal / Monetary Policy , and specific kinds of policy, have different stimulative (or not) effects. The world is not black and white teeninvestor.

Please crack open a non-introductory economics book.

Not too supportive of Friedman either. But my point was that the US may be at risk of repeating Japan's experience in the 1990's; our credit losses are just as, if not more bigger.

Also, the point is not whether fiscal spending has stimulative effect; it is whether the good outweighs the bad.

Government spending may not be perfectly correlated with inflationary periods, but how do you think this money will come from? It's going to come off Bernanke's printing presses.

There is something called "consumption smoothing" that comes from the RBC model and that's from Friedman. That is why it is best to dissave during bad times and save during good times.

The problem is that the deficit spending continues even after the "recession" ended.

I'm not too familiar with this, but isn't there a reverse view that argues deficit spending raises the rate of interest which cancels it out?

 

[Cutlass]

World War II, full mobilization.

ie, massive deficit spending.

 

[Dachs]

World War II, full mobilization.

Sounds like a lot of government spending.

 

[Gogf]

World War II, full mobilization.

Oh right. Tax cuts.

 

[AngryZealot]

 

[luiz]

Explain how the Great Depression ended.

The Fed, very very lately, expanded the monetary base finally ending the credit crunch. Spending had little or nothing to do with it, depending on who's telling the story.

 

[Antilogic]

The Fed, very very lately, expanded the monetary base finally ending the credit crunch. Spending had little or nothing to do with it, depending on who's telling the story.

Could you point out on the graph above your post where this point is? Just for the sake of all of us wanting a picture.

 

[AngryZealot]

To be fair, I don't know the specifics of the graph -- most importantly, I have no idea what it's scaled to.

 

[Dachs]

To be fair, I don't know the specifics of the graph -- most importantly, I have no idea what it's scaled to.

Percent increase over US GDP at its lowest (I don't know the exact number or date) in the winter of 1932-3.

 

[Shekwan]

I had no idea that fanboyism extended to Economics. Thanks, teeninvestor.

 

[Icaria909]

World War II, full mobilization.



Not too supportive of Friedman either. But my point was that the US may be at risk of repeating Japan's experience in the 1990's; our credit losses are just as, if not more bigger.

Also, the point is not whether fiscal spending has stimulative effect; it is whether the good outweighs the bad.

Government spending may not be perfectly correlated with inflationary periods, but how do you think this money will come from? It's going to come off Bernanke's printing presses.



The problem is that the deficit spending continues even after the "recession" ended.

I'm not too familiar with this, but isn't there a reverse view that argues deficit spending raises the rate of interest which cancels it out?

World War II ended the american depresion, but it wasn't specifically because america mobalized for war, it was because suddenly america had new markets to sell it's goods (specifically the allies and the USSR). Farmers produce prices increased because of increased demand, mass urbanization as factories expanded to meet war production, and suddenly america needed not only supply its own vast army with weapons but those of the other great powers also fighting axis domination. How this can be applied today, free trade agreements and gaining access to foreign markets is a good thing, but today america already has greatly expanded free trade so a WWII economic miracle won't happen again in the forseable future.

As to the Original question, does the economic stimulus plan work, in its present form it will provide some stimulating effects to the economy, but it is aimed at too many different things, with many of the things that the bill is aimed at will not directly help the economy. The plan would be better if it modernized transportation, improved the banking system by setting having a better ability to judge what is a bank, and improve the credit crisis by subsidizing cash to people who start banks by decreasing the amount of money the person needs to start a bank and supplying them with rest of the money from the government. A few other things are needed, but this economic stimulus plan seems to be a constantly changing bill that I expect will be changed several more times before this economic crisis is over.

You are right that japan provides an insight to what can work for the american economy, but Japan is a slightly different case. Its economic problems, while similar to the american crisis, were different, and that the inflationary policies that should have worked to put the economy back on track were badly put into place at the wrong time, further exasperating the economic problems (There was no reason to expect that these policies would not work as for the last thirty years they had stopped depressions from occuring and significantly decreased the size and scope of recesions). Japan further ruined it's chances at solving the disaster by implementing defecit spending at a time when it no longer would produce the intended effect (if used at the correct time it can be beneficial, but at a certain point the government will waste money). Not being privy to the complete facts of the economic crisis, I don't know if defecit spending would still be beneficial at this point. I hope washington's actions align with the facts of the recesion, or Teeninvestor will be right that all of this will be a monumentous waste of money.

 

[JollyRoger]

World War II, full mobilization.

Nice pwn goal

 

[luiz]

Could you point out on the graph above your post where this point is? Just for the sake of all of us wanting a picture.

The quantity of money in the USA declined by one third from 1929 to 1933, when the trend begun to reverse (slowly). This, not some fancy spending schemes, ended the Depression.

Fact is the Depression should have been just a strong recession that would have ended by 1931. Instead the failed policies of the Fed turned it into a catastrophe, and Roosevelt's BS like cartelization and price controls, coupled with trade restrictions that he inheritted and made worse, caused the recovery to be much slower than it should have been.

 

[Bill3000]

The quantity of money in the USA declined by one third from 1929 to 1933, when the trend begun to reverse (slowly). This, not some fancy spending schemes, ended the Depression.

so uh... how do you remove other variables from the equation in order to make this conclusion? Did you clone the US to create a control or something?