November 10, 2009

Questioning the stimulus...

Chris Thorman forwarded me a piece he did on the effect stimulus funds have had on construction jobs. He did a really fantastic job analyzing the data without skewing in one direction or the other. The verdict is that at this stage of deployment, it's clear the stimulus is having a positive impact, albeit a small one. That will likely change on a go-forward basis as more funds are deployed and projects approved and funded enter more labor intensive phases.

This piece is exactly the sort of thing the MSM and bloggers should be writing about, not the process stories involving the he-said, she-said between R's and D's in DC over 'wasting' money and deficit spending. Politicians don't know what the hell they're talking about, especially on the Republican side.

While we're on the subject, it might be good to actually learn a little something about stimulus in an economic decline. Stimulus, and this is what's so confusing to our rightard friends, is a stop gap measure to arrest decline, stabilize and reignite growth. You can do it every time you have a recession, however there's a big difference between monetary (the Fed lowers rates) and fiscal (the government spends money) stimulus. You can only do the latter under limited circumstances when certain monetary factors are in place and the net effect on inflation is zilch. Otherwise, you extend UI bene's, drop interest rates and wait it out. During this cycle, we hit the trifecta... we have tightening of credit due to an asset bubble and collateral overvaluation, we have tons of capital sitting on the sidelines not being being invested in any sort of recovery and a massive write down of assets that functionally eliminated trillions from the economy and caused massive deflationary pressures. In that type of environment, the Fed can't just lower interest rates (monetary stimulus) and we'd recover. The problem, as CR and Krugman have been pointing out, the Fed would have lower rates below zero to promote growth and you can't do that. Thus, you need the government to spend lots of money. Voila! Fiscal stimulus.

Despite what some have lied about, fiscal stimulus is not always the cure for a recession and no one (outside of the rightard spin machine) is saying that, cue Krugman yet again. It's also why some deficit hawks, myself included, have done an about face and said the government should be spending a lot more and borrowing at least another trillion. The key in this type of situation is to think about things in terms of the house on fire metaphor. When your house is blazing, you don't worry about what that water used to put it out is going to cost or fret about how much of it will soak your furniture. So, yeah, inflation is not so much a concern when facing a deflationary death spiral that leads to a nasty depression.

Which takes us back to Thorman's piece and this, also from Krugman. We knew, months ago, that we needed more stimulus and that it needed to be more spending than tax cuts. Instead, the D's (at the urging of the President who either ignored good advice or was given bad, or some combination of the two) cut a deal with R's and gave us a stimulus package that was too small for the crisis at hand. Thus, the jobs saved number has been low and we're still seeing declines in employment. When the book is finally written on the government's response to the crisis, it's going to note that what was done to shore up the financial services industry was laudable with few exceptions (see here and here). However, the government's fiscal stimulus was woefully inadequate and caused unnecessary suffering for Americans as a result of political posturing. If you want someone to blame, look no further than the teabaggers, Limbaugh, Beck, Hannity and Savage. None of them knew what they were talking about yet they pontificated at length on the evils of 'encroaching government' and drove a political movement made up of people who were, in effect, hurting themselves.

Then turn to blame the chickenass politicians who ignored good advice and went with political expediency rather than take on the forces of stupid in a head on PR war. Let this be a lesson for all voters... do not support candidates who are wishy washy and wrong on issues. Support the ones who'll take a stand and fight, the ones who'd rather convince those who disagree with them than compromise with naysayers in some useless gesture.

We have always had issues that the vast majority of people in this country just don't understand. We've had one party who has turned lying to them into a cottage industry which has helped them get elected and re-elected. We have another party who polls incessantly, finds out what people think, and agrees with them. We need politicians strong and bold enough to stand up and say 'I know that's what y'all think, but it just ain't so. The other sumbitch is lying to you and here's why...'.

And yeah, it really is that simple.

Posted by mcblogger at November 10, 2009 12:10 PM

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