According to Recovery.gov, the government has now paid out $415 billion of the stimulus funds. Tax rebates account for $163 billion. Of the $252 of direct spending, the Department of Transportation has paid out $14 billion. That’s 5.5%.
Maybe it would have done more stimulating if the spending had actually been directed at projects that use shovels.
But if you’re a Keynesian, spending is spending. It’s all part of aggregate demand. Keynesians believe it’s better to do something productive with the spending but even digging ditches and filling them back in boosts aggregate demand. (I heard Joseph Stiglitz say this in response to a question during Congressional testimony.)
Googling to find out how much money was supposed to be spent each year in the stimulus legislation brought up Iowa State University’s accounting of their stimulus funds:
About 70 percent of the $31.6 million in education federal stimulus funds awarded to Iowa State this fiscal year will be used for personnel expenses, including about $10.6 million that is paying salaries and benefits for employees whose positions are expected to continue — on another revenue source — after June 30.
Companion amounts — $5.9 million and $5.8 million, respectively — will be used to pay employees participating in the first retirement incentive option and those whose positions will be eliminated by June 30.
The figures reflect university plans for the ARRA (American Recovery and Reinvestment Act) funds as of Feb. 15, and change as expenditures are completed. As of this week, units actually have spent nearly $15.1 million. By June 30, the ARRA funds must be either spent or committed to an expense with a firm timeline to be spent.
As planned, the university also will spend about $8.1 million of federal stimulus funds on other one-time projects, including $2.2 million for classroom improvements, $1.6 million for research equipment, $1.8 million for bridge funding for regular programming (for example, in Extension 4-H, Study Abroad Center, Honors Program, university marketing), $993,000 for IT upgrades and $750,000 for faculty start-up costs.
As planned, the university also will spend about $8.1 million of federal stimulus funds on other one-time projects, including $2.2 million for classroom improvements, $1.6 million for research equipment, $1.8 million for bridge funding for regular programming (for example, in Extension 4-H, Study Abroad Center, Honors Program, university marketing), $993,000 for IT upgrades and $750,000 for faculty start-up costs.
Why would anyone expect this kind of spending to create many jobs for people who are unemployed? I don’t get it.
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Why not ACTUALLY pay people to dig holes and fill them back up? Send out a big fat paycheck to every American asking them to, in return, go into their yards, or to a local park, and dig a hole and fill it back in. Tell them to do it within the next three days, and that the check will arrive within 4 weeks.
See, rapid stimulus spending of any amount is extremely easy, if keynesiacs actually believed their own nonsense.
The most prolific “shovel ready” part of the Obama Adm. is the BS of their propaganda!
The examples also demonstrate, to me, the destructiveness of crowding out. The discussions I see of crowding out tend to compare aggregate figures of economic activity. But, the real damage is that the work funded in these examples is one-time work, within existing institutions. Even if for every dollar spent, there were only 10 cents of private activity crowded out, it would likely have been activity directed at ongoing employment and the development of new, dynamic organizational growth directed at sustained production.
Russ,
I've put together a back-of-the-envelope picture of Keynesian stimulus, which I submit to you for comment.
Stimulus is kind of like a loaves-and-fishes story. Jesus has a big crowd of followers who are far from home and without food. So he tells his disciples to distribute to the crowd the small amount of food that they have brought for their own use. The disciples do this, and the whole crowd eat their fill, and the leftover food is more than the original.
The Bible records this story as part of the evidence for the divinity of Jesus. But to a Keynesian what happened there is no miracle; it's just the way the world works. So now the Government plays Jesus, collecting money and redistributing it in the expectation that when it is consumed everyone will be better off.
I figure what really happens is something like this:
Government borrows $1 and spends it on something. Unfortunately it's in the wrong part of Friedman's box chart: it's money taken from one party and spent on a second party by a third party. So the efficiency E_s of the spending (the value of what is bought divided by the money that has been spent) is likely to be low. Call it 0.5, on a linear scale where 1.0 is the efficiency produced when the giver, the spender, and the recipient are all the same party.
Now there's a multiplier effect which causes the economic activity produced by Government spending to be M times the money spent. I think I remember reading that Keynesians think this multiplier M is around 1.5, so each $1 spent produces $1.5 of economic activity.
But “economic activity” is not the same as “creation of wealth”. For example, a car factory can be humming along consuming labor, capital, and raw materials and producing finished cars, but this in itself does not indicate that wealth is being created. In the case of a recession, one would expect that the economic activity most effective at creating wealth would tend to continue while the least effective would be the first to shut down. So the economic activity stimulated by deficit spending is likely to be less effective at creating wealth than the “natural” non-stimulated activity is. It may in fact be negative, i.e., wealth-destroying.
The key insight here, assuming I have it right, is that the very reason the multiplier can be greater than 1 is that the equilibrium level of economic activity is set by the condition that the marginal wealth created by increased activity is zero. If it were positive the activity would be profitable in the absence of stimulus spending and would presumably be ongoing. So the slope of the curve of wealth creation vs activity is very shallow, and a small bias (make-believe wealth creation) can push the equilibrium a long way in the direction of increased activity.
So to sum up, for each $1 spent on stimulus, we find $0.5 destroyed by the direct inefficiency of the spending itself, and perhaps somewhat more by the increased economic activity the stimulus was intended to create.
Of course this does not account for the need for the Government to replace that $1 at some time in the future, and to pay interest on it meanwhile.
I like your idea but think we should go even bigger. Digging the hole should make 100% of your income tax exempt. Then we do not have to waste the effort sending the money to the government in the first place.
We would not even have to wait for a nation wide depression. I feel depressed every time I think about all the money we send to the government. That would be good enough.
Carried to extreme these Keynesian ideas might work after all.
Russ, you wrote: “Why would anyone expect this kind of spending to create many jobs for people who are unemployed? I don’t get it.”
The answer is, of course, that no one would IF he/she took the time and effort to think about it.
But if you forget about rational ignorance, you will miss the chance to see far from the shoulders of giants.
For those of you interested in following where all the money is going this site: http://recovery-and-reinvestment-act.findthebes... has all the information from Recovery.gov in one database that you can sort through. Also, you can sort by how many reported jobs were, “created or saved” by the stimulus. I don't know how they come up with these numbers but it that's what is reported by recovery.gov
Econ 201: The Myth of the Economic Multiplier
A direct examination shows that money is used for transactions. Money and goods are repeatedly exchanged, but extra production is not “stimulated”. Only the original production that earned the money is created, then it is traded. The multiplier is 1.
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The appearance of 6 rolls at the table is new value appearing in the dinner table economy. The wave of spending and re-spending sends value around the table. The Economic Value approach sees 6 rolls of spending, followed by a wave of 5+4+3+2+1 of re-spending, for a total of 21 rolls of Economic Value, and a 3.5 Economic Multiplier (3.5 x 6 = 21).
But there are only 6 rolls. The re-spending distributes the rolls; it doesn't create more rolls. The real value of 6 rolls is overcounted by looking at the roll-passing transactions.
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Some researchers find economic multipliers by looking at production and GDP statistics. They even find different multipliers for different industries, a sure sign that something is amiss with their methods. They are double-counting the effects of spending.
The government provides a greater lie. Obama's team promotes the idea that taxes are better by a factor of 1.5 than private spending for stimulating the economy. The offered reason? The government spends all of the tax money, but the individual would save some of it.
By this admission, there is no extra stimulus from government spending, they are just spending the money that you wouldn't spend for yourself! Stealing from you is supposed to be good for the “economy”.
Cargo Cult Economics: Government Multiplier on Taxes
Russ,
You copied a paragraph twice.
“Government borrows $1 and spends it on something. Unfortunately it's in the wrong part of Friedman's box chart: it's money taken from one party and spent on a second party by a third party. So the efficiency E_s of the spending”
It's worse than inefficient.
The economy is mobilized for the pathologic activities that lead to recession. People stop spending in it when they realize it. That is rational and good. Then the government confiscates and borrows the money that people wisely chose to wait to spend, and IT spends it on the recessionary economy. This of course keeps those pathologic recessionary activities active.
That's right. The federal government subsidizes the recession at the expense of recovery. The more federal “stimulus” spending, the longer the recession can be maintained. And the more resources are consumed that would otherwise be available for recovery.
It is madness. Keynesiacs are power mad, leaving a swath of economic destruction in their wake, all to satisfy their lust of controlling other people's resources.
“they are just spending the money that you wouldn't spend for yourself”
You judged a particular spending to be wasteful and imprudent, so the government comes along and forces you to do it. Somehow the spending is magically productive when the government does it.
Keynesiacs don't believe there is such a thing as waste. But of course, spending cannot only be wasteful, it can be WORSE than wasteful–it subsidize your own destruction. And massive spending on your destruction will show up as an upward tick on your quarterly GDP calculations.
You clearly don't understand economics. You see, the multiplier for government spending is higher than the multiplier for tax cuts. Therefore, having the government send that money to the taxpayers results in more stimulus than allowing the taxpayers to keep it in the first place.
Hard for you to understand the difference? That's the genius of Keynes! It's best if you don't think about those things, and just leave it to the experts.
</sarcasm>
Therefore, having the government send that money to the taxpayers results in more stimulus than allowing the taxpayers to keep it in the first place.
It's not so much that as that taxpayers will spend the money on the wrong things.
It would be so much better if taxes were closer to 100% and expert decided how the money should be spent. They would spend the money on the right things because they're experts.
</sarcasm>
The economy recovered from the 1920 and 1987 crashes each in less than two years.
The economy took more than a decade to recover from the 1929 crash, and we're past the two year mark since the last crash with no recovery in sight.
It's got to be pure coincidence. A fluke. Revisionist history. Lies put forth by the greedy capitalist profiteers. Because according to Keynes only government spending can get us out of a recession.
ij – I'm not sure most people believe it even if they don't take the time to think about it because of your point about rational ignorance. It doesn't result in much direct consequence to them if they're wrong so they feel more satisfied to feel like something was tried. Little do they know that they tried to send a rock to the moon with a slingshot.
No, it was probably because of divided government, right?
Drippy dork!
“It's not so much that as that taxpayers will spend the money on the wrong things.”
In the keynesiac's defense, I did glibly gloss over their defense of tax cut versus government spending multipliers.
In my defense, the keynesiac textbook models that demonstrate those multipliers are nonsense.
If the money is not going to go to everyone, then you are right, it certainly does matter to whom it goes. The politicians like to take people's money and channel it to their political allies, with the result of strengthening their own political positions–and that is what every real stimulus spending package is.
But here we've come up with a better keynesiac solution that doesn't require the delays associated with identifying how best to get the loot to their political buddies. This is a nearly 100% shovel-ready project that conforms to classic keynesiac principles, and will be 100% implemented within 1 month.
You get more of what you subsidize. Stimulus spending subsidizes recession.
Not that that is the only thing the Federal government is doing to prolong the recession, but that is certainly a part of it.
Man, Christ, that's one hell of an envelope you have!
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