That’s not quite right.
The principal purpose of the stimulus was to close the output gap of the recession, in order to avoid getting stuck indefinitely in a macroeconomic equilibrium far below its potential output level. A stimulus is a large one-time cost, but getting stuck for years and years short of our potential is an extremely large opportunity cost which, worse, compounds year after year. The stimulus was large enough to halt the decline, but apparently not big enough to break the stagnant equilibrium.
Juicing the financial markets was to be a secondary result, following a turnaround in the economy. It was the principal purpose of the TARP and the other Federal Reserve loan programs, not the stimulus, to encourage the financial markets.
Changing gears:
Let’s be up front about this: The economic downturn that we were experiencing was just as severe for its first year as the Great Depression. We were completely on pace to have a repeat. (I’m fudging a bit here, but not much–the world situation was a little worse than the US situation in particular.) And yet instead of having a stimulus large enough to counter this output gap, we had a stimulus that was, in the eyes of many notable economists, too small.
We used a smaller-than-recommended stimulus to fight a bigger-than expected problem.
Their forecast came before the true severity of the downturn was realized.
Unfortunately, you’re right. This is what happened to Japan. But you’re right for the wrong reasons.
Japan, like us, went in with half-ass stimulus instead of going balls-out like we did during the militarization of WWII. We wouldn’t be having these problems if we’d started from the outset with a sufficiently large stimulus. Of course, I shouldn’t complain over much. Without the stimulus we had, we’d likely be looking at 12% unemployment or higher.
Oh. Of course. They’re just “rationalizing” their own opinions when they pointed out from the beginning that the stimulus was too small. Unlike the wise, benevolent, prescient Sam Stone, who’s not rationalizing his own opinions at all. He saw with eyes unclouded from the beginning. I understand now. They’re the ones who can’t do the counter-factual analysis. They should’ve been reading your posts here on the Dope all along to realize what the true counter-factual analysis actually is.
There have been a lot of threads on monetary policy lately, and you haven’t participated in all of them, so I’m going to point out this error one more time. I fervently hope you will remember it in the future. It will be quite unfortunate if you develop a sudden case of amnesia three weeks from now when you open yet another thread and drop this fallacy once again. I’m even going to put it in bold so the message sinks in.
We want to devalue the dollar right now. That’s the Fed’s goal (in addition to keeping the financial markets from dying). That’s their current purpose. They want to create some inflation. The faster we get away from this deflationary trap, the quicker we’ll be on the road to recovery. An expansionary monetary policy is, in fact, even more important than the stimulus. So when you blame deficits for devaluing the dollar, you are citing the cure as part of the disease. You are wrong to do so.
It does not matter if nominal interest rates rise a bit. An increase in inflation will, at first, decrease the real interest rate without touching the nominal rate, precisely because we’re in a liquidity trap right now. So an increase in nominal rates will itself be a sign of recovery.
You also had a post in the other thread that I didn’t have time to deal with several days ago, but is still worth addressing since it’s directly related to this topic:
With respect to the jargon you’re dropping, you have not the slightest clue what you’re talking about here.
The permanent income hypothesis does not deal directly with investment. It’s a hypothesis about consumption. It affects investment only by changing consumption, and therefore the pool of available savings left after consumers have consumed. That might sound like a mere pedantic point, but the error goes deeper than that.
The concerns from crowding out, and the concerns related to the permanent income hypothesis, are mutually exclusive. You have to make up your fucking mind. Or rather, you’d have to make up your mind if you actually realized that these are mutually exclusive choices, if you actually understood the economics that underlies the fancy words that you’re typing. Naturally, you don’t. You rush blindly in, without realizing that you’ve flatly contradicted yourself.
If you’re concerned about crowding out, then you are by definition not concerned about the permanent income hypothesis. If people change their consumption patterns in response to their perceptions of long-term income (as Milton Friedman suggested with the hypothesis), then they will naturally be saving more instead of consuming. And that additional savings will provide a buffer against crowding out. The permanent income hypothesis is related to Ricardian equivalence, the idea that there will be no crowding out from gummint spending. (This is to say that the stimulus is wasteful not because of crowding out, but because any increase in government spending will be offset by a decrease in consumption, which will defeat the pump-priming effect.)
If would be helpful to your credibility if you offered one argument that made sense, instead of two idiotic arguments that contradict each other. But of course, you could only do that if you approached the topic honestly for once, instead of rationalizing everything you read to fit your pet ideology.
This is what makes your posts so much worse than the average ignorant one-trick pony who leaves the thread after making an empty irrelevant comment about the broken window fallacy. It actually takes an education in economics to understand the sheer volume of horseshit you manage to mix into otherwise reasonable points.