GIVE THE MONEY BACK!

by Russ Roberts on October 22, 2009

in Stimulus

This (HT: Drudge) is the weirdest story of the year:

A top White House economist says spending from the $787 billion economic stimulus has already had its biggest impact on economic growth and will likely not contribute to significant expansion next year.Christina Romer, the chair of President Barack Obama’s Council of Economic Advisers, said Thursday that the $194 billion already spent gave a jolt to the economy that contributed to growth in the second and third quarters of the year. She told a congressional panel that by the middle of next year, the impact of the stimulus will level off.

So if the biggest impact has already happened and the effect is going to level off, can we have the other $593 billion back, please?

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David October 22, 2009 at 7:44 pm

Of course not! You must not understand how stimulus works. You have to decide on some arbitrarily large number and stick with it. If there’s any doubt as to the effectiveness of your chosen very large number, suggest that we may need an even larger one to do the trick. But never, under any circumstances, stop your stimulus spending.

Anonymous October 22, 2009 at 7:44 pm

Well of course we would be SO much worse off if we did give it back!!! Don’t you remember the graph!?!?! THE GRAPH!!!

Anonymous October 22, 2009 at 7:58 pm

You mean this graph where we’re already much worse than the projections of what would happen WITHOUT the stimulus?

http://www.butwhatthehelldoiknow.com/blog/2009/10/22/about-getting-less-bang-for-the-buck.html

Anonymous October 22, 2009 at 8:03 pm

Yes indeed, just think about how much worse it would be without that $593 bill – our country would be destroyed and descend into chaos. We HAVE to believe the people who didn’t see this coming! Why would we listen to the people who at least predicted that we were inflating a bubble, that would not be very logical?!?!?!

Mike M. October 22, 2009 at 8:57 pm

So, I certainly see the sarcasm in Fritschner’s comment above … but I’ve got to say that my biggest beef with Keynesianism and advocates for government intervention is that they can always say “but it would have been worse”.

It makes those conversations so very difficult.

Justin P October 22, 2009 at 9:56 pm

That wouldn’t be my only beef but it’s a pretty good one.

Anonymous October 22, 2009 at 10:09 pm

I seem to recall Obama saying “without this bill, we may NEVER recover”. How much worse than NEVER RECOVER can we get?

Anonymous October 22, 2009 at 9:56 pm

According to the old philanderer-in-chief Bill Clinton, the public does not know how to spend its money wisely, so should have less to spend.

Keeping the $593 Billion in the government slush fund to be spend by those wiser than ourselves will obviously and logically save us money.

Com’on people, can’t you get behind saving money?

Anonymous October 22, 2009 at 7:45 pm
Bob October 22, 2009 at 7:52 pm

Yeah Right! Russ you have a better chance of a full band member Beatles reunion than getting the “stimulated less” money back. Isn’t it odd that clawbacks or givebacks as far as the “Obamunists” are concerned only travel on the governments one way street!

Anonymous October 22, 2009 at 8:03 pm

Do you ever think that maybe, just maybe, these government economists are just throwing darts like everyone else? Anyone who could actually predict and plan our economy should be a trillionaire.

Justin P October 22, 2009 at 9:57 pm

Hmm I don’t think so. I think they have their own agenda, which is to say, their master’s agenda is their own and that master has a fevah! The only cure is bigger Government!!!

Anonymous October 22, 2009 at 8:03 pm

At this point I think I’d rather them finish spending it. The left over money, and the little that has been repaid, from TARP has already morphed into a sort of slush fund to be dispersed at the executive branch’s whim. $593 Billion is a lot of money to add to that fund. I mean, it’s not like anyone expects them to just use the money to retire the debt, right? That would make too much sense–and why do something that makes sense when you can use that money to pad major campaign contributor’s wallets and placate favored voting constituencies. Democracy is fun for everyone.

Anonymous October 22, 2009 at 8:04 pm

And people wonder why we named our tool for doing the government’s math in counting the number of jobs “created or saved” through the stimulus package “The Porkulator

Anonymous October 22, 2009 at 8:04 pm

Ummm… the impact of the spending will level off in the middle of next year, presumably conditional on the spending from the fourth quarter of this year and the first two quarters of next year going out!!!

Anonymous October 22, 2009 at 9:00 pm

Yeah, and I have some ocean front property in Arizona to sell you.

Anonymous October 22, 2009 at 8:05 pm

I’m personally worried about her unemployment forecasts – which are set to peak very soon.

She did this in January as well – her forecasts were much rosier than most private economists’ forecasts, leading to a lot of criticism later. The baseline she sets is important. I don’t know how she got to 10.1 percent unemployment for her forecast, but I hope for her sake it’s right.

sandre October 22, 2009 at 8:24 pm

I’m personally worried about her unemployment forecasts

Don’t! You might get stomach ulcer or may be worse get high blood pressure.

Anonymous October 22, 2009 at 8:25 pm

Thanks for the concern for my health – I should be fine

Anonymous October 22, 2009 at 8:58 pm

Economic forecasts when they are printed as a general rule apparently ought to be used as toilet paper.

Justin P October 22, 2009 at 10:02 pm

Her calculations were overly rosey because she estimated a big multiplier. She pulled a Krugman, who picks, I can’t remember exactly a closed economy or fixed exchange economy, for his multiplier…because he gets a bigger number that way.
When you realize that the G multiplier is far between zero and one, you realize that all government estimates are overly rosey.

Anonymous October 22, 2009 at 10:57 pm

You’re getting it backwards, Justin. You don’t use a multiplier to forecast what unemployment will be! The multiplier has nothing to do with unemployment projections.

Now, once you’ve made a projection you take a multiplier and apply it to the projection to determine what an adequate fiscal stimulus will be.

The thing is – in January Krugman used the EXACT SAME MULTIPLIER AS ROMER (and everyone else practically).

So how did they get wildly different results? The administration said “given this forecast of unemployment, and a 1.57 multiplier, we need X stimulus”. Krugman said “wow – I got a much worse forecast of unemployment, and using the same multiplier of 1.57 applied to that forecast, I get a much bigger stimulus.”

The difference is in the unemployment forecast, not the multiplier!

However – to give Romer some credit – recent interviews with Larry Summers have revealed that the CEA (ie – Romer) forecasts of unemployment were along the lines of what Krugman suggested and what we actually experienced. Summers, acting as gatekeeper, did not bring those forecasts to the attention of the president.

Justin P October 23, 2009 at 12:42 am

“The thing is – in January Krugman used the EXACT SAME MULTIPLIER AS ROMER”

Yes and that multiplier was too high! It was overly rosey, just like Obama’s deficit proposal in the beginning of the year. That was my point, which you are trying to skirt. To reiterate so you don’t go off on a tangent, Government projections, like the multiplier, are always too rosey!

Why was it overly rosey? Because it’s easier to sell a 1.5 multiplier than one less than 1 (which after all the ineptitude of the Democrats in Congress is added up, will be)
Fiscal stimulus only works if it is Temporary, Targeted, Substantial and Immediate, four things which cannot under any definition of those words, be applied to what the Democrats have done. Which is what the opponents of the Stimulus were saying all along! All it did was increase the power and scope of Government. The only thing G stimulates is GOVERNMENT! That is why libertarians, for the most part, are against Fiscal Stimulus.

Anonymous October 23, 2009 at 9:14 am

No, Justin – the unemployment forecast, which is calculated before any multiplier is applied, was to rosy.

RE: “It was overly rosey, just like Obama’s deficit proposal in the beginning of the year.”

My understanding is the deficit is coming in $400 billion below the expected deficit, isn’t it?

RE: “Fiscal stimulus only works if it is Temporary, Targeted, Substantial and Immediate, four things which cannot under any definition of those words, be applied to what the Democrats have done. ”

Well, it can be partially applied to what Congress has done. The stimulus left a lot to be desired, I’ll agree with you on that. But it didn’t completely fail on these counts.

Anonymous October 23, 2009 at 9:14 am

No, Justin – the unemployment forecast, which is calculated before any multiplier is applied, was to rosy.

RE: “It was overly rosey, just like Obama’s deficit proposal in the beginning of the year.”

My understanding is the deficit is coming in $400 billion below the expected deficit, isn’t it?

RE: “Fiscal stimulus only works if it is Temporary, Targeted, Substantial and Immediate, four things which cannot under any definition of those words, be applied to what the Democrats have done. ”

Well, it can be partially applied to what Congress has done. The stimulus left a lot to be desired, I’ll agree with you on that. But it didn’t completely fail on these counts.

Anonymous October 22, 2009 at 8:40 pm

Politicians in Washington do not care about Keynesian economics when they advocate a fiscal deficit. The flip side of a Keynesian deficit is a surplus when the economy is strong, but even during the height of the boom the U.S. Government was increasing its deficit. If you tried to predict when the U.S. economy was in recession by looking for fiscal deficits and surpluses, then you would think there has been a progressively worsening recession since the mid-70s. Politicians only care about Keynesian economics when it suits them, i.e. when it recommends more borrowing and spending.

Obama’s deficit is equal to the entire Federal budget when Bush, Jr took office. It makes one wonder how the U.S. Government was ever managed to pay for schools and police during the Clinton era, doesn’t it?

The “stimulus” is just a Democratic wish-list. There were many frightening predictions about what would happen without a fiscal stimulus, but only a small fraction has been spent, and unemployment is worse than what had been predicted without it. Proponents of the stimulus might use this fact to argue for a greater stimulus, but even if that is so, there is a lesson to be had here about believing the projections of government economists. Does anyone seriously believe the latest projections from Obama’s Council of Economic Psuedoscientists?

If a central bank policy tends to stabilise price level or nominal expenditure growth, then any stimulative consequence of a fiscal stimulus will be offset by the central bank. Unless every tool at the Fed’s disposal has been exhausted and there is still deflation, there is no good case for a fiscal stimulus of any kind. And the Fed does have tools at its disposal, and it is actually using one of them in a contractionary manner — paying interest on bank reserves.

Democratic governments have a propensity to borrow and spend rather than tax and spend, because spending is good politics and taxing is bad politics. When borrowing, tax increases can be deferred to the future, by which time the responsible politician has moved on or retired. He is remembered as a great man in the popular media for his spending, and meanwhile a successor is lumbered with the job of financing it. Since spending cuts would be unpopular, the most common way for a politician to finance a predecessor’s borrow-and-spend habit is to borrow even more. There is little incentive to reduce the ever accumulating debt pile, because any politician who tried could ruin their career. It is like a game of pass the parcel with a debt bomb inside.

Historically, when the fiscal crisis does explode, politicians remain averse to increasing nominal taxes. Instead, they prefer monetary debasement, i.e. inflation. That is one of the looming threats to the U.S. economy, because it is nigh on politically impossible to reverse the trend of increasing spending. It happened after World War II, but today’s spending increases are primarily subsidies and entitlements, which, because of dependent and self-interested recipients, are much more difficult to cut. For example, programs such as Social Security, Medicare, and Medicaid, although unsustainable and potentially ruinous, have actually been expanded time and again because, in the short run, it is good politics. Government debt and monetary debasement have a long and sordid history together, and I do not expect a change anytime soon.

Anonymous October 22, 2009 at 10:59 pm

RE: “The flip side of a Keynesian deficit is a surplus when the economy is strong, but even during the height of the boom the U.S. Government was increasing its deficit.”

Says who?

The flip side of a Keynesian deficit is a deficit that is smaller than GDP growth in a surplus – but I’ve never heard anyone say it has to be a surplus.

Regardless – however you define “a flip side of a Keynesian deficit”, the Bush administration clearly wasn’t doing it.

Justin P October 23, 2009 at 12:50 am

Don’t forget to add that no Administration has done it, both D and R.
I’d hate for people to accuse you of being biased in favor of the Dems. =)

Anonymous October 23, 2009 at 9:16 am

Of course some administrations have done it. Republicans and Democrats have done it, for that matter. The most recent being Clinton (and you’ve gotta credit Newt too). Good governance is tough, but it isn’t hopeless.

Anonymous October 23, 2009 at 9:16 am

Of course some administrations have done it. Republicans and Democrats have done it, for that matter. The most recent being Clinton (and you’ve gotta credit Newt too). Good governance is tough, but it isn’t hopeless.

Anonymous October 23, 2009 at 6:07 pm

The Clinton administration (nor Newt for that matter) didn’t do anything. They weren’t predicting surpluses or the paying down of the debt in any way that was more useful than what the Reagan administration was doing – they just happened upon that due to the nature of the economy at the time.

Let’s please not buy into the myth that folks in government have any clue what they are doing, because they clearly don’t. They are swept along the tides of history due to the interactions of billions of individuals just like the rest of us are.

Anonymous October 23, 2009 at 9:17 am

RE: “I’d hate for people to accuse you of being biased in favor of the Dems. =)”

There’s no reason to read any bias into any of this. Either the debt is growing faster than GDP during good years or it is going slower. The data is what it is. Bias is irrelevant.

Justin P October 23, 2009 at 6:00 pm

Then don’t specify just the Bush admin, like I said, instead say that all the POTUS from both parties are all to blame.
I read bias based on your past posts, you always seem to try to defend the Democrats, that signals bias. It’s part of your brand, so get used to it.

Anonymous October 23, 2009 at 9:17 am

RE: “I’d hate for people to accuse you of being biased in favor of the Dems. =)”

There’s no reason to read any bias into any of this. Either the debt is growing faster than GDP during good years or it is going slower. The data is what it is. Bias is irrelevant.

Alexei October 22, 2009 at 10:10 pm

You’re kidding, right Don?

Very funny. Really. Hilarious.

Of course, what’s even funnier is the assertion I just heard quoted that somehow the stimulus has saved between 600,000 and 1,000,000 jobs. How, exactly does one measure that? Talk about an assertion that’s impossible to either prove or disprove!

What a freaking crock of %&^%

Not that I have an opinion or anything.

Anonymous October 23, 2009 at 12:53 pm

Even if you take as a given Romer’s high estimate of 1.5 million jobs “created or saved,” that means we’ve spent nearly $130,000 to “create or save” each one of those jobs. That’s ridiculous.

Anonymous October 23, 2009 at 12:53 pm

Even if you take as a given Romer’s high estimate of 1.5 million jobs “created or saved,” that means we’ve spent nearly $130,000 to “create or save” each one of those jobs. That’s ridiculous.

Anonymous October 22, 2009 at 11:11 pm

Ha! Who is the comedian you allowed to post under your name?

The first thing every government worker learns is that if your department has money left over at the end of the year their budget will be cut by that amount in the subsequent year. The only department head to ever not spend their budget was shipped the next year to Nome Alaska to measure annual snowfalls. There is no way a penny of this does not get spent.

Those politicians worked damn hard for all those earmarks and they will only be removed from their cold dead hands.

Anonymous October 22, 2009 at 11:54 pm

What is this “give the money back” nonsense? There is no money. The government hasn’t borrowed it yet. It simply needs to cancel the future projects and future budget increases.

Justin P October 23, 2009 at 12:51 am

Yeah like that will ever happen!

Dave October 23, 2009 at 2:14 am

I think Romer is basically looking at stimulus spending per month and concluding that the peak of stimulus spending is in the middle of 2010, so that’s when it’s contribution to growth will stop. By this logic, withdrawing the stimulus spending afterward should contribute negatively to GDP growth.

Charles N. Steele October 23, 2009 at 4:36 am

No, you may NOT “have the money back.”

It should go back to its rightful owners, the Chinese, who are financing (rather being forced to finance by the People’s Bank) our whole federal fiasco.

Anonymous October 23, 2009 at 1:15 pm

Chinese maybe. But to me it looks more that the money put in US govt debt originates from the Fed, via the American banks.

The Chinese and the rest of the world should be demanding much higher interest rates on US debt. But they can’t, since they are crowded out by internal US demand.

I think the Chinese are accumulating other dollar denominated assets, in Asia, Africa and in the Americas.

Anonymous October 23, 2009 at 1:15 pm

Chinese maybe. But to me it looks more that the money put in US govt debt originates from the Fed, via the American banks.

The Chinese and the rest of the world should be demanding much higher interest rates on US debt. But they can’t, since they are crowded out by internal US demand.

I think the Chinese are accumulating other dollar denominated assets, in Asia, Africa and in the Americas.

Charles N. Steele October 23, 2009 at 4:36 am

No, you may NOT “have the money back.”

It should go back to its rightful owners, the Chinese, who are financing (rather being forced to finance by the People’s Bank) our whole federal fiasco.

Methinks October 23, 2009 at 2:23 pm

Give it back? But, all of the political cronies haven’t been paid and who knows when we’ll have a crisis big enough to replenish the slush fund!

Anonymous October 24, 2009 at 1:45 am

The stimulus money didn’t come from taxes.

Anonymous October 25, 2009 at 2:25 am

I will take mine in 10′s and 20′s please!

Anonymous October 23, 2009 at 6:04 pm

lee_kelly specifically refered to “the height of the boom” in the quote I was refering to.There was only one administration in office at the height of the boom, Justin. If you read bias into my past posts then you’re missing the point as much as muirgeo is when he insists you all are Republicans.

Justin P October 24, 2009 at 4:24 am

Fair enough

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