Bernanke: WE Urgently Need Another Stimulus

What if it doesn't work do we then need another one?

 

"What we need is more of what didn't work before. Trust me."

This guy needs to shut up and focus on keeping the dollar stable, not try to play God with the economy.

It's not his job to end recessions.

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Umm, pushing us towards full employment is specifically part of his job mandate. Nice try, though.

 

He said he wants a bill that combines short term stimulus WITH "confidence-inducing steps to reduce longer-term structural deficits "

Why are you ignoring the second part?

 

Details, details. This would actually be really smart for Obama to jump on. Trade long-term deficit stuff for stimulus spending. He wants to do both anyway, but it makes a perfect opportunity for finding some common ground.

 

Absolutely, it would be the perfect plan. At the same time, I have zero hope of it actually getting done. Both short term stimulus and long term cost cutting are extremely unpopular politically.

 

The problem I think is way deeper than a stimulus can fix. The biggest problem is the Walmartization of america. The people with money would rather invest else were since they can make goods cheaper there. Even if there was another stimulus what would the people who got the money do? Invest in america? That is cost prohibitive and would be basically throwing money away since goods can be produced cheaper else where. Invest in high tech? Well only a small set of engineers are needed to create designs which can be build cheaper in other countries.

What you need is for people to be willing to invest in america. One of the questions a VC will ask is what is your china strategy.

 

WE ARE INVADING MEXICO!!!

Stimulus: Still Not Working!

Unbelievably, the administration and its allies keep insisting that a failed policy was a success.

Imagine that I break my arm, but instead of getting a cast I take a big shot of morphine. The drug will make me feel better, but it won’t fix my arm. When the effect wears off, the pain will come back. And instead of being restored to their proper position, my bones will remain out of place, perhaps solidifying there, which will surely mean chronic pain in the long run.

Stimulus spending is like morphine. It might feel good in the short term for the beneficiaries of the money, but it doesn’t help repair the economy. And it causes more damage if it gets in the way of a proper recovery.

When the American Recovery and Reinvestment Act was signed on February 13, 2009, it became the biggest spending bill in the history of the country. Its original cost of $787 billion was divided into three main pieces: $288 billion in tax benefits such as a refundable tax credit; $272 billion in contracts, grants, and loans (the shovel-ready projects); and $302 billion in entitlements such as food stamps and unemployment insurance.The checks felt good for the Americans who received them. And the contractors who got those grants and contracts were happy to have the work. But the idea behind the stimulus was that this money would not just be a subsidy to those in need; it would revive the economy through a multiplier effect. The unemployed worker, for instance, would cash his unemployment check and spend it at the grocery store. The store owner would in turn spend the money on supplies, and so on, triggering a growth in the economy that goes beyond the original investment and jumpstarts the hiring process.

White House economists used forecasting models that assumed each dollar of spending would trigger between $1.50 and $2.50 of growth. As a result, President Barack Obama announced that his plan would grow the economy by more than 3 percent and “create or save” 3.5 million jobs over the next two years, mostly in the private sector. These models also forecasted that without the spending, the unemployment rate would increase from 7 percent to 8.8 percent.

Since then the U.S. economy has shed another 2.5 million jobs and the unemployment rate has climbed to 9.6 percent. Figure 1 shows the monthly unemployment rate, as measured by the Bureau of Labor Statistics, since the adoption of the act, alongside the cumulative grant, contract, and loan spending as reported by the recipients on recovery.gov.

The stimulus isn’t working because it is based on faulty economics. Using historical spending data, the Harvard economist Robert Barro and recent Harvard graduate Charles Redlick have shown that in the best case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents. They also found that if the government spends $1 and raises taxes to pay for it, the economy will shrink by $1.10. In other words, greater spending financed by tax increases hurts the economy. Even if the tax is applied in the future, taxpayers today adjust their consumption and business owners refrain from hiring based on the expectation of future tax increases, which worsen the economy today.

There are other reasons the stimulus bill has hurt rather than helped the economy. Four of every five jobs reported “created or saved” are government jobs. That’s far from the 90 percent private sector jobs the administration promised. Also, the Department of Education claims it has “created or saved” at least seven jobs for every job “created or saved” by any other agency. In other words, federal stimulus funds have been used to keep teachers on state payrolls. By subsidizing public sector employment, the federal government is getting in the way of addressing the issue of overspending in the states.

These injections of cash may provide a short-term boost, but they don’t increase economic growth permanently. When the money goes away, the jobs go away too, and so will the artificial GDP growth.

In spite of such evidence, the administration keeps touting the success of stimulus. Speaking at the National Press Club in September, outgoing Council of Economic Advisors Chair Christina Romer crowed that “the Recovery Act has played a large role in the turnaround in GDP and employment,” citing as evidence an estimate she prepared before Obama’s inauguration that a stimulus package “would raise real GDP by about 3.5 percent and employment by about 3.5 million jobs, relative to what would otherwise have occurred.” The Congressional Budget Office, she claimed, agreed that the stimulus “has already raised employment by approximately two to three million jobs relative to what it otherwise would have been.”

But no such improvements have actually taken place. Romer was acting the part of weatherman repeating last week’s sunny forecast while ignoring the downpour outside. The only measurable evidence that these millions of jobs exist comes from models—including the CBO’s—that predict that these jobs will exist. Since some of those same models predicted the Recovery Act would cap unemployment at 8 percent, they do not belong in a discussion about the Act’s effectiveness.

Some stimulus advocates do admit that the spending package hasn’t worked. But that doesn’t mean they’ve turned their backs on the stimulus concept. In an August blog post, for example, New York Times columnist Paul Krugman argued that the “stimulus wasn’t nearly big enough to restore full employment—as I warned from the beginning. And it was set up to fade out in the second half of 2010.”

This argument is nonsense. As Megan McArdle of The Atlantic wrote in August, “If we assume that stimulus benefits increase linearly, that means we would have needed a stimulus of, on the low end, $2.5 trillion. On the high end, it would have been in the $4–5 trillion range. I’m going to go out on a limb and say that even if Republicans had simply magically disappeared, the government still would not have been able to borrow and spend $2.5 trillion in any reasonably short time frame, much less $4–5 trillion. The political support for that level of government expansion simply wasn’t there among Democrats, much less their constituents.”

Unless you believe that federal spending magically conjures up purchasing power (or that morphine heals bones), the total GDP will remain unchanged, because the federal government has to borrow the stimulus money from either domestic or foreign sources. This borrowing in turn reduces other areas of demand.

Stimulus spending does not increase total demand. It merely reshuffles it, leaving the economy just as weak as before—if not weaker, since it also increases the national debt. By trying to ease the pain, the administration may well have made the patient worse.

Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fellow at the Mercatus Center at George Mason University.

 

Yay spending! Yay Keynesians! Yay Krugman!

 

Just to clarify, Bernanke wants more short term spending, and a lot more long term spending CUTS.

 

Oh I know. My post was intended more for Glynch and his kind that believe spending is the only solution. And when spending doesn't work as well as they planned, they advocate for even more (Krugman)

Anyways, let's see if Glynch continues to praise Bernanke's solutions when QE2 starts destroying the middle class and the poor in the country.

 

Republicans could spin that massive tax cuts/tax holiday would have the same effect as a stimulus. Then Dems and White House oppose it on budgetary grounds, nothing gets passed either way and the economy tanks further. Fortunately, none of that ensuing animus will spill over into foreign or social policy.

 

Stimulus #2 right here;

 

Not really. I get my economics from real knowledge. You take everything Krugman spits out as gospel.

I'm pretty sure you wont be saying the same thing when the poor and middle class have to spend even more of their income on basic goods. But I don't expect you to evaluate results and consequences of fiscal and monetary policy, so I'll let you slide on this one.

 

rtsy - you need to post links to the articles you put in threads.