He is facing criticism from all over the place on this one.
As a senseless policy:
And as a tactical move:
Australia didn’t, technically, go into recession during the GFC. The quarterly GDP results in Dec08 was -0.6%, but Mar09 was +0.4%. The drop in demand and employment would indicate that the technical definition isn’t definitive.
The primary reason for this was the Federal Government budget being strongly in surplus at the the start of the GFC. It is probable that we overstimulated, and that we didn’t get full bang for our buck. Inflation is on a (slow) rise and that the Reserve Bank is now is increasing interest rates.
Australia had no viable option but a government stimulous, the only question was how much and that’s much easier to determine in hindsight. The IMF is indicating Australia will grow around 2.5% (not 3.9%) in 2010, inflation is snugging up towards 3% and official interest rates likely up again in Feb to 4.0%. The stimulous package has taken us from zero debt to around 9.5% of GDP in 2012. But it’s a better position to be in than most of the players.
Yeah, he is. Frankly, it took big brass ones to propose something like this, knowing his own party would wig-out, and that the Pubs would knee jerk be against it simply because it’s coming from him. I have to say that, on this score at least, I’m glad I voted for him.
-XT
Can’t argue with any of that. Some of the deals they made haven’t turned out too well, and they’ve financed some real doozies, for the fees, no doubt, but I suspect things would have been a lot better if they hadn’t created such a demand for high paying mortgages. But a disaster of this magnitude has lots of fathers - all desperately trying to deny paternity.
Hmmm. Maybe he;ll let the Republicans defeat it, and then say, “I tried to reduce the deficit but the Republicans wouldn’t let me.” Now that alternative I like.
It depends on the situation you’re in. There are two conventional things you can do to get out of recessions and grow the economy. You can increase economic activity by cutting interest rates. Make money cheaper and you stimulate thhe economy.
You can enact tax cuts, but there are qualifiers to this one. If you’ve got a surplus then you can cut taxes with no consequences. If you’ve got a deficit however, cutting taxes is just going to give you a bigger deficit as tax cuts don’t pay for themselves. The Bush 43 years are the perfect example of this.
The situation we currently find ourselves in is a tricky one. We’ve got zero percent interest rates since the meltdown so cutting them isn’t an option. As far as tax cuts go 40% of the $850 billion stimulus that was enacted ws tax cuts but the evidence shows that most of the money was saved and that the spending parts of the stimulus were much more effective as economic stimulus.
Another big chunk of the stimulus was what’s known as “automatic stabilisers” in most other advanced economys. This is government money that’s automatically paid out in inccreased welfare payments, payments to local government to prevent cuts in services and payments to employers to prevent layoffs. In America this was $275 billion of the $850 billion that was in grants and loans to states. This is why your child’s teacher wasn’t laid off, why the fire station has remained open, why there are still local police and why you’re not paying higher state and local taxes to close the local budget hole.
The third part is infrastructure spending. That helps you long term as it adds value to the economic infratructure, improved electric grid, train system etc., and also obviously provides jobs in the short term.
So it’s pretty clear that what we should have done is less tax cuts and more spending on infrastructure spending, local government support etc.
In the short term this adds to the deficit but it’s a drop in the bucket compared to the long term picture and most importantly it means that when the economy does pick up it’s doing so from a much higher base than it would have if there’d been no stimulus spending.
Or, maybe he’ll get it through and stick the same kind of thumb in their collective eye that Clinton did. I’d like THAT a lot more, personally. I concede that MMV though…
-XT
Britain’s economy is a basket case because Britain can fairly be described as a large bank attatched to a medium-sized economy. You comparing the various stimuli from countries that were hardly touched by the financial meltdown like Canada (due to excellent financial regulation) and Australia with countries that were devastated economically by the meltdown of their gigantic financial sectors like the USA and UK is disningenuous and par for the course for you.
Here’s Britain’s GDP per capita growth per capita during the period they were expanding the size of government so dramatically.
I’m not going to bother going into your posts in much detail, spending time refuting endless misleading rubbish and then you always run away anyway.
Uh huh. And Germany? And France? And the other OECD nations?
The fact is, the U.S. had one of the largest stimuluses in the world, as a percentage of GDP. I think Saudi Arabia, China, Indonesia, and maybe one or two other countries had larger ones. That’s it. And yet, the U.S. is currently being outperformed economically by a whole bunch of countries that had much smaller stimuli. Why is that?
And why would a financial meltdown affect the response of the economy to a fiscal stimulus? In fact, wouldn’t the countries that had bigger fiscal meltdowns respond better to a fiscal stimulus? You’re trying to claim that I cherry-picked the data, but I don’t even understand why you think this difference matters. It looks to me like you just had a superficial look at the countries and tried to find some reason to call my comparison bogus.
Uh huh.
Here’s Germany, the EU and the US :
The European Union has pledged 200 billion euros ($260 billion) of stimulus measures that it says amount to 3.3 percent of the 27-nation bloc’s GDP, and EU policy makers are resisting calls to do more. Germany, Europe’s biggest economy, is spending the equivalent of 1.5 percent of its GDP this year to fight the recession and 2 percent in 2010, International Monetary Fund data show. The U.S.’s planned stimulus amounts to 2 percent of output in 2009 and 1.8 percent next year, the IMF says.
http://www.bloomberg.com/apps/news?pid=20601087&sid=af2rkgeqQz40&refer=home
And that’s what they spent as outright stimulus, it doesn’t include the large economic stabilisers that kick in in social democratic economys every time there’s a downturn. Apart from increased welfare payments Germany has a program called *Kurzarbeit which pays part of workers’ salaries and puts them on part time hours to keep them in employment. Those kinds of things are outside of the stimulus spending. *If you trim out the tax cuts and the automatic stabiliser part of the US stimulus then it’d only be a couple of hundred billion dollars, smaller than other countries.
And economic stimuli can only go so far to repair the damage caused by the financial meltdown. In countries like the USA and UK where the financial sector is such a huge part of the economy then the financial sector being decimated, trillions of losses etc. is not going to be counteracted by a few shovel-ready stimulus projects. In those countries you’re going to have a gaping hole in gdp caused by the meltdown of the financial sector which then feeds into the wider economy, plus the effects of the housing bubbles caused by US/UK financial sectors. In countries that haven’t had sectors of their economy that have rung up trillions of dollars in losses, haven’t run up massive debts bailing them out and haven’t got huge housing bubbles then the effects of the recession will obviously be more muted. That’s why the US and UK got hit so hard. Nobody else had the kind of financial sector size relative to the overall economy, same level of losses/gdp, and so on. Except Iceland maybe. I wonder how Iceland’s economic stimulus worked out? Jeebus.
EDIT: well done for not running away this time.
Just thought I’d add this cite from CNN, as it’s interesting and has to do with how and where the stimulus is being spent.
-XT
Here are the numbers for the OECD. The U.S. has the largest stimulus of the bunch, totaling 5.6% of GDP. Germany is at 2.8%, Canada 2.5%, and France hardly any at all, at 0.8%. Interestingly, France’s economy is expected to outperform Germany’s this year, and appears to have outperformed it last year. Spain also had 0ne of the biggest stimulus packages in the OECD, but its economy is underperforming that of France, which had virtually no stimulus at all.
In fact, I’m not seeing a correlation between stimulus and economic performance in the OECD as a whole. It would be interesting to chart the size of the stimulus against real economic performance for each country, and see what kind of trend line develops. Maybe I’ll do that later if I have time. If I do, I’ll post the chart here regardless of whether it supports my thesis or not.
And it also doesn’t count the U.S.'s massive financial bailout, the extreme loose money policy, the bailouts of Fannie and Freddie, or the housing price support programs in the U.S.
I don’t follow this. Why would you want to trim out tax cuts? Every country included tax cuts as part of their stimulus. And where are you getting the ‘couple of hundred billion dollars’ number from?
That’s not what the proponents of the stimulus said before it was passed. I seem to recall that it was going to hold unemployment below 8%, and that there was going to be a huge multiplier. What happened to that? Where did the multiplier go? The U.S. government spent 5.6% of GDP with borrowed money. I’m sure it helped the GDP number somewhat - it had to. But it sure as hell didn’t help it enough to keep the economy from shedding jobs, and it doesn’t seem to have been enough to even keep the economy from contracting.
And if these stimuli across the OECD had the effect the pure Keynesian analysis said they should have, then there should be a direct correlation between the size of the stimulus and the absolute number for GDP growth, right? How would a Keynesian analysis explain a situation where countries varied in their stimulus response by as much as 6% of GDP, with no apparent correlation to the amount their economies grew or declined?
The argument we had on this board when we debated the stimulus centered around the size of the multiplier. People on your side were claiming multipliers anywhere from 1.5 to 4. I was arguing that the multiplier was going to be less than one - perhaps .8, as one economist showed in a study of past stimuluses, or perhaps even lower. So far, I’m seeing no evidence whatsoever of a multiplier greater than one, and plenty of evidence of a multiplier of much less than one.
Tell you what - why don’t YOU make a list of countries that would make for a good comparison? Be prepared to justify why you included them in the list. If we can agree that they are similar, we can compare their stimuluses and see how they worked out.
I tend to try to use the OECD as a whole, because they are all roughly free market economies at roughly similar levels of development, and by using all the countries as a whole it sidesteps accusations of cherry picking. Also, the OECD publishes lots of economic data which allows for good comparisons. Do you have a problem with that?
Of course it matters how they are getting richer. We do not live in a socialist utopia where everyone is going to be the same no matter how bad you wish otherwise.
If they can get richer (through the help of the government this time) then by all means.
It shouldn’t fall upon the banks to ensure people are with jobs. That should have been accounted for BEFORE the government started handing out money to banks to ensure they spend it in the fashion it was designed (or maybe it was an afterthought eh?)
Those numbers come from some Asian institute I’ve never heard of nand are clearly nonsense. The IMF numbers, the ones every reputable business media/media outlet uses, show similar levels of stimulus. Here are the IMF numbers, the ones used in every article on Bloomberg, WSJ etc. that discuss the stimulus.
And I’m happy to let the people reading this make their own determination over whether countries with gigantic financial sectors like the US/UK which were devastated economically by the meltdown could have their economic recoveries reasonably compared with countries that don’t have gigantic unregulated financial sectors, massive housing bubbles, huge personal and general credit bubbles etc. The UK for instance holds 80% of the entire credit card debt in the EU, it’s the closest thing in Europe to the US where everybody is in massive debt. Obviously in the middle of a financial meltdown with UK consumer spending being (exactly like the US) 70% of UK GDP you’re not going to get massively overleveraged UK consumers starting to spend like the bubble years as their house prices are plummeting (like the US). So the US and UK with massively in debt populations, zero national savings levels, and hugely increased national debt relative to other countries can’t possibly be expected to recover as quickly as countries that don’t have these problems. You’re making dishonest apples to oranges comparisons to try and back your ideology, as per usual.
As you’ll remember, during the presidential debates McCain advocated general spending cuts which Obama criticized as using a hatchet where a scapel was needed. With Obama now proposing general spending cuts and freezes, does this mean that McCain was right and Obama was wrong in that debate?
Extra points (and a WH press secretary job) if you somehow work it out that McCain was wrong, Obama is right and it’s Bush’s fault that Obama massively increased the deficit last year even beyond Bush’s (considerable) levels.
I’ve merged Saint Cad’s post (originally a separate OP) into this thread as well.
Depending on who you listen to, they’re not general spending cuts and freezes. While he’s getting flack from both sides right now, if you listen to what he’s actually saying, it sounds (to me) more like the “scalpel” than the “hatchet”. Though, of course, we’ll see tonight…
McCain was wrong, I don’t know if Obama is (currently) right, and – while the deficit did increase – Obama didn’t “massively increase the deficit beyond Bush’s levels”. (I believe the numbers are: Obama inherited a $1.3T deficit from Bush, up to $1.9T in 2009, forecast to drop to $1.3T this year.)
I really wish the deficit lies (and those who are spreading them, e.g., Fox News, Republican talking heads, etc.) would go away.
People might find this useful to the discussion as a window in to how economists look at this stuff:
Stimulus arithmetic (wonkish but important) - Paul Krugman
Nonsense. Wesley Clark and other posters linked to various cites for quantitative claims before you bothered to link to or cite anything. In fact, you didn’t provide anything at all in the way of a cite in this thread until I called you on it. You threw in a few unsourced numbers with no specific cites to contextualize them, but mostly you were just doing your usual big-picture libertarian pontificating with no evidentiary support at all.
If you want to re-use cites you posted in other threads, then fine, you can link to those other threads. But don’t expect us to take everything you say at face value just because you vaguely claim that you’ve substantiated it somewhere else.
Dick Dastardly has rebutted a number of your specific claims since our little disagreement on page 1, so I won’t repeat what he’s said. For the present, I’ll just note the following:
Has it occurred to you that there isn’t a list of countries that are meaningfully comparable to the US in terms of the broad economic phenomena we’re considering here? The combination of sheer economic size and levels and types of regulation, along with the substantial state-by-state variations, just doesn’t have any across-the-board counterpart in other countries. Sure, we can compare particular features of the US case to foreign counterparts, but we have to be very clear about the substantial differences between them that limit the scope of the comparisons—something that you are egregiously neglecting to do.