What if the president of the United States hadn’t proposed an $800 billion stimulus plan back in 2009—but one twice as large? That is the question haunting the intellectual left, led by the economist and columnist Paul Krugman...
...For Krugman’s opposite numbers, the question is the reverse: Might the U.S. economy actually be stronger today if Uncle Sam had done nothing and just let the business cycle play out?
Hmmmmm.
On the question "If It Were Larger", quoting Taylor of Stanford:
Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.
Taylor then opines that "more spending" would have been extremely inefficient, in that the programs were reasonably well-shepherded by Biden. IOW, there wasn't much more to get.
Further,
...as we learned from the permanent-income hypothesis that won Milton Friedman his Nobel Prize, some Americans realize all the massive deficit-financed spending of today will ultimately require raising their taxes tomorrow. So short-term changes in income tend to have little impact on how people spend. “New Keynesian” models, like one used by the European Central Bank, sought to incorporate such factors and predicted that the Obama stimulus would have just a fraction of the impact estimated by Romer and other White House economists. Instead of creating 3 million jobs, perhaps the actual total was 600,000
Pethokoukis moves to the '20/'21 recession. The actions there? Cutting Gummint spending, which worked; recall that the economy boomed in that decade.
...But how would such an approach have worked the past few years? Economist Brian Wesbury of First Trust Portfolios thinks the huge increase in government spending under the Obama and Bush administrations has hurt the economy. Cutting it back would boost growth....
Wesbury's model includes factoring that Gummint spending hinders long-term growth--still a bit controversial but not pulled out of the air.
More at the link, including tax-reductions, consumption tax possibilities,.....(and as it turns out, Feldstein and I were on the same wavelength about Gummint purchases.)
HT: PowerLine
"....some Americans realize all the massive deficit-financed spending of today will ultimately require raising their taxes tomorrow."
ReplyDeleteAgain? Really? Pure Ricardian equivalence. Keynesians put this one to bed.
"Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers."
Yes. Correct. Thank you. THAT's the problem. ARRA funds were primarily distributed towards supporting state and local government's collapsing balance sheets, ineffecient tax cuts which were mostly saved and UI, food stamps and other automatic stabilizers that were manditory unless we wanted to throw people out on the streets with nothing.
AGAIN, ARRA supported demand but did VERY little to boost it. Which is why Keynesians have harped about bigger stimulus focused on the consumer and pulling forward infrastructure projects (at 2.5% interest) that would need to be funded and completed at some point in the future anyway.
And the recession of 1921 was not, in any way, the same as 1932 and/or 2008. I don't know Taylor but I'm sure he's a big fan of the Mises people who use '21 to try and convince people that they know what they're talking about even though they've been wrong on everything for the past 3 years. (and I mean everything).