Thursday, September 24, 2009

The 'Stimulus' We Feared It Would Be


The $787 billion economic recovery package also is stimulating growth in the federal government as agencies hire thousands of workers and spend millions of dollars to oversee and implement the package...

Fourteen of the top federal agencies responsible for spending under the American Recovery and Reinvestment Act say they've hired about 3,000 workers with stimulus money. That's helped fuel the continued growth of the federal government, which increased by more than 25,000 employees, or 1.3%, since December 2008, according to the latest quarterly report. During that time, the ranks of the nation's unemployed increased by nearly 4 million, Labor Department statistics show.

The growth of the amoeba-cancer. Somehow I don't think that's going to contribute to GDP.


Realism said...

Fortunately, those newly employed government employees will spend their paychecks and stimulate the economy.

Dad29 said...


Recall that 100% of their income is derived from taxes, meaning that (ultimately) either taxes or debt must rise to finance the payroll.

UNLIKE private-sector employment.

So adding Gumminters is NOT a productive idea.

Realism said...

So please explain how their paychecks, which are derived from taxes, which are derived from economic activity are less stimulative than paychecks from private sector employees.

The option isn't between government investment and private sector investment during a recession. The option is government spending or no spending. If the government weren't artificially stimulating demand, the recession would be worse.

As an analogy, consider a lifestyle as it relates to cardiovascular health. In general, you want to take care of your heart by eating well and getting exercise (low taxes, fiscal responsibility, surpluses instead of deficits). But, if you have been living on a diet of red bull and cocaine for the last 8 years, and then you have a heart attack, eating well and exercise is not going to help. You need to take drastic measures like using a defibrillator or injecting adrenalin (Obama's stimulus). Now, obviously, you don't want to sit around injecting adrenalin under normal circumstances, especially if your heart is already weakened from years of bad living. But following general rules during exceptional times doesn't make sense.

Realism said...

And although it's true that taxes must rise to pay for government spending, that doesn't mean that tax rates have to rise.

The point of the stimulus is to increase demand for private sector goods and services, which leads to an end to the vicious cycle known as the "Paradox of Thrift". This means more revenue, and, in turn, higher tax receipts.

Dad29 said...

You present a false dichotomy.

The OTHER alternative is a tax reduction, allowing spending without creating new present (and future) tax requirements.

Economic activity flows from disposable cash. NOT from "gummint" spending, although I'm willing to grant that gummint spending on goods (cars, tanks, aircraft, ships) is another method of stimulus.

Hell, if the private sector is stimulated enough, they could hire otherwise useless bureaucrats from Gummint payrolls!

Realism said...

Normally, that is true. However, during times of economic uncertainty, recipients of tax cuts do not spend the additional cash in a stimulative manner. Obama's stimulus was comprised of 35% tax cuts, and we saw that people and businesses didn't rush out and create new demand for goods and services. People use the money to pay down debt or they save it. Normally, that would be great. But when the economy is suffering from a lack of demand, the tendency of people to hoard their money away creates a vicious cycle.

During uncertain economic times, individuals and businesses hoard their money, which reduces demand, which leads to more economic uncertainty, which leads individuals and businesses to tighten their belts even more.

If you give a business owner a tax cut in the face of a collapse of demand, he/she is not going to go out and hire more employees or expand. They will almost always wait until they see the situation improving to jump in.

The government can "prime the pump" so to speak, to start the demand ball rolling.

Dad29 said...

That 'prime the pump' methodology is better done through purchase of hard goods, as I indicated above.

The principal problem with Gummint hiring is the future liabilities (those hires are NEVER leaving the payroll except to collect retirement benefits).

Thus, they will drag on the economy long past the time when their payroll dollars increased demand (if that's what happened.)

There is a demand problem in the US, which has to do with Greenspan's perma-bubble; the one which first showed in 1988 and simply moved through dotcoms and finally housing.

But hiring tax-eaters merely pushes the problem further down the road.

And O's tax cut was NOT "35%."

Anonymous said...

"And O's tax cut was NOT "35%.""

My paycheck went up by almost $10 biweekly! That sure will help stimulate the economy! Thanks O!

Realism said...

35% of the stimulus was in the form of tax cuts. Look it up.

"That 'prime the pump' methodology is better done through purchase of hard goods, as I indicated above." - Some evidence or reasoning would be nice here...

"those hires are NEVER leaving the payroll except to collect retirement benefits" - Are you saying that the government never lays people off? Because that is demonstrably not true.

The fundamental point on which we disagree is the best means of increasing demand. You are saying that direct purchases of hard goods is a better method. That is ironic, since I am guessing that you are not a big fan of the cash for clunkers program, which was a subsidy for consumers to do the same thing.

Dad29 said...

Your "suspicion" is ill-informed. I gave clunkers a 60% on a 100% scale.