Eight False Things The Public “Knows” Prior To Election Day

[gonzomax]

They are backed with “full faith and credit” of the American government. It is not that S.S is insolvent. It is that the government is. SS is way ahead of its obligations. They have collected enough money to pay 100 percent for another 30 years.

[Shodan]

@gonzomax

SS is way ahead of its obligations. They have collected enough money to pay 100 percent for another 30 years.

And where exactly is that money?

Regards,
Shodan

[Little_Nemo]

@gonzomax

It is that the government is. SS is way ahead of its obligations. They have collected enough money to pay 100 percent for another 30 years.

So you’re saying they’ve already collected the tax money to pay the social security budget for 2040? When 2040 rolls around, the treasury department will just give the social security administration back the money they collected for social security taxes back in 2010. There will be no need to collect new taxes in 2040 to pay off the treasury bonds.

[Sam_Stone]

Turning back to the stimulus and whether it worked - there are some new papers out which are not good for the stimulus supporters.

This paper found that multipliers in countries with high debt are ZERO:

How Big(small) are fiscal multipliers?

ABSTRACT

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

The IMF has released a paper on the predicted multipliers from a fiscal stimulus:

Global Effects of Fiscal Stimulus During the Crisis

The study finds that multipliers in various countries ranged from .2 to 2.2, with the U.S. having a short-term multiplier of between .2 and 1.2. The paper also says that the stimulus will have the likely result of permanently reducing U.S. GDP growth because of the increased debt and distortion of the economy.

Another New Paper by Stanford Economists John B. Taylor and John F. Cogan looked at the stimulus from another angle - rather than try to calculate multipliers based on general principles, they looked at real-world effects on government purchases to estimate the multiplier:

ABSTRACT
Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand—the change in government purchases of goods and services that the multiplier actually multiplies. Using new data from the Bureau of Economic Analysis and considering developments at both the federal and the state and local level, we find that the government purchases multiplicand through the 2nd quarter of 2010 has been only 2 percent of the $862 billion American Recovery and Reinvestment Act (ARRA) of 2009. This increase in government purchases has occurred mainly at the federal level. While states and localities received substantial grants under ARRA, state and local governments have not increased their purchases of goods and services. Instead they reduced borrowing and increased transfer payments. These findings explain why, regardless of the size of a government purchases multiplier, changes in government purchases have had no material effect on the growth of GDP since the time ARRA was enacted. The implication is not that ARRA has been too small, but rather that it failed to increase government consumption expenditures and infrastructure spending as many had predicted from such a large package. A consideration of the counterfactual event that there had not been an ARRA supports the hypothesis that state and local government borrowing would have been higher and purchases would have been about the same in the absence of ARRA.

Basically, they’re saying that the stimulus did nothing except bail out states and municipalities, transferring local debt to the federal government. Had the stimulus package not been passed, the result wouldn’t have been a reduction in spending, but an increase in local and state borrowing.

Yet another working paper from economists Robert Barro and Charles Redlick finds that fiscal multipliers are less than one, but the negative multiplier from tax increases is greater than -1.0. This paper includes the latest research from Christina Romer and her husband David, who also found that tax increases are incredibly destructive to GDP and that high deficits are also very damaging.

The CBO report used multipliers in the range of 1.0 to 2.5 as their high and low estimates for the bulk of spending. If these papers are correct, the multiplier overall was significantly smaller.

In that case, the stimulus package merely grew the size of government and added an 870 billion dollar liability to the American balance sheet, permanently reducing GDP growth. Whatever positive effects it may have had were probably small, and will be overcome by the post-stimulus negative effects within a year or two. By the 2012 election, the economy will be worse for having passed the stimulus. And the negative effects will continue to compound for as long as the 870 billion dollars remains an unpaid debt.

John Taylor has a blog post where he discusses their findings. Note that his work involves real empirical data, and not just economic models.

[Gyrate]

@Shodan

And where exactly is that money?

Regards,
Shodan

We were keeping it in a warehouse in Iraq on a pallet and…oh…