What's wrong with the stimulus

[furt]

Okay, so I keep getting sucked into debating the stimulus in other threads, and I have not seen any straight-up yes-or-no threads on the subject. Here is what I see as the problems with the administration’s proposals.

To begin with, we don’t know if it will work, or even if is neccessary. There are still plenty of economists who do not accept the whole premise that increased government spending will spur the economy. (cite, pdf). The CBO – congress’ own experts – have said that
[ul]
[li]The economy will recover in late 2009 or early 2010 even if no bill at all is passed. (cite, pdf)[/li][li]In fact, the CBO estimates that stimulus bill will end up leading to a long-term reduction of GDP. (cite, pdf, pg 4 for long-term effects) Here, take if from the CBO director personally.[/li][/ul]

Of course, in reality, nobody is actually advocating doing nothing. But even people who support governmental stimulus think that it should not be done willy-nilly. Before taking a job from the adminstration, Larry Summers laid out three criteria for effective stimulus:

Poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured. This suggests close attention to three issues:

First, to be effective, fiscal stimulus must be timely. To be worth undertaking, it must be legislated by the middle of the year and be based on changes in taxes and benefits that can be implemented almost immediately.

Second, fiscal stimulus only works if it is spent so it must be targeted . Targeting should favour those with low incomes and those whose incomes have recently fallen for whom spending is most urgent.

Third, fiscal stimulus, to be maximally effective, must be clearly and credibly temporary – with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counterproductive by raising the spectre of enlarged future deficits pushing up longer-term interest rates and undermining confidence and longer-term growth prospects.

I’m no economist, but every word of that makes sense to me.

The current stimulus bill fails on all three scores. It’s already loaded with what the administration itself admits are “long-term investments.” The CBO says that less than two-thirds of the money will be spent by 2011, let alone within the next few months (cite). It’s full of things that will only benefit needy people by a long-chain of trickle-down effects. And it’s full of items that have an excellent chance to make it into the regular budget down the road (you wanna bet congress is gonna hold firm when programs like WIC, Pell Grants, or the Smithsonian say they want their big budget increases made permanant?)

Finally, the whole huge thing is being moved through so fast that there’s no time for full debate on the hundreds of provisions in it. There are all sorts of things in there that aren’t even being discussed.

The final result: we’ll be spending well over a trillion dollars, for something half the country thinks will make things worse. Well, I guess we’re gonna find out.

Pubs, you gave us a trillion-dollar war. Dems, you gave us a trillion-dollar spending spree. If our kids are carrying their cash around in wheelbarrows, at least they won’t have to look hard to find people to blame. It’ll be all of us.

[Sam_Stone]

You missed a few problems with it:

• The spending is set up in a way that ensures that government will be permanently bigger. A ‘stimulus’ aimed at constructing new government office, doubling the budget of the Dept of Education, and funding all kinds of public sector infrastructure means that a significant transfer of wealth will move from the private to the public sector in perpetuity. Taxes will have to be higher to maintain these new programs.

• The bill mixes stimulus and larger public spending. As Clinton’s OMB director, Alice Rivlin pointed out, these two goals are completely at odds with each other. To do infrastructure right, you want to take your time, do lots of analysis and prioritize. To do stimulus right, you have to get the money out now. Mixing the two together means neither will be done correctly.

@Alice Rivlin

The anti-recession package should be distinguished from longer-run investments needed to enhance the future growth and productivity of the economy… I understand the reasons for lumping together the anti-recession and investment packages into one big bill that can pass quickly in this emergency. A large combined package will get attention and help restore confidence that the federal government is taking action—even if part the money spends out slowly. But there are two kinds of risks in combining the two objectives. One is that money will be wasted because the investment elements were not carefully crafted. The other is that it will be harder to return to fiscal discipline as the economy recovers if the longer run spending is not offset by reductions or new revenues.

She advocated splitting the bill into two pieces - the ‘stimulus’ part, smaller and more directed and temporary (as per Larry Summers), and the larger infrastructure bill, which should be properly debated in Congress for a a period of months and passed carefully and with much diligence.

If you want to see what a real stimulus bill looks like, and not a pork-laden spending bill targeted at Democratic constituents, have a look at the proposal that Rep. Walt Minnick, a freshman Democrat from Idaho, is pushing: The Strategic Targeted American Recovery and Transition Act (START).

Details of this bill:

• Total cost, 170 billion dollars
• 80% of the funds must be initiated within 120 days
• Money unspent by 2010 must be returned
• Serious money allocated for oversight of the program, by department.
• 100 billion goes straight to lower and middle income citizens immediately
• All plans, proposals, contracts, and awards must be published publicly on a government web site.

There are a few bad things in this bill, such as the ‘buy American’ requirements, but by and large this is what a stimulus bill should look like. Timely, targeted, temporary.

If the Democrats had put forward something like this, they would have gotten 80 votes in the Senate and probably half the Republicans in the House, and could have called it a truly bipartisan bill, which would have helped with public confidence.

But they were too busy using the crisis as an opportunity to build their empire to worry about such things.

[furt]

No defenders?

[Digital_Stimulus]

@furt

Here, take if from the CBO director personally.

There’s way too much information to peruse for an adequate response from me – and that’s giving myself the benefit of the doubt that I can comprehend it all in the first place. I started one of the 50 page pdfs last night and got about 10 pages in; unfortunately, I’m a being of finite time and resources and had to go to sleep. However, the contents of link above are brief enough that it was a quick read. And I have a question.

The director’s letter says:

To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to “crowd out” private investment—thus reducing the stock of private capital and the long-term potential output of the economy.

I’m not understanding this “crowding out” issue, and (IIRC) it’s one that Sam Stone refers to often. From what I gather, it’s the primary (only?) justification for the estimated negative long-term effect (given in this letter…clearly, that’s not to say there aren’t others). But if it’s the case that “crowding out” is the primary detriment over the long term, it’s sorta, kinda important to understand what it’s all about before any response can be made.

Couldya lend a fellow Doper a hand?

[Hellestal]

@Digital_Stimulus

I’m not understanding this “crowding out” issue, and (IIRC) it’s one that Sam Stone refers to often. From what I gather, it’s the primary (only?) justification for the estimated negative long-term effect (given in this letter…clearly, that’s not to say there aren’t others). But if it’s the case that “crowding out” is the primary detriment over the long term, it’s sorta, kinda important to understand what it’s all about before any response can be made.

Couldya lend a fellow Doper a hand?

When the government spends more money than it takes in, it needs to borrow. And when you borrow, you’re borrowing from people who are saving their money.

Savings is not constant, not a fixed pool of money. The amount of saved dollars changes given the conditions of the economy as a whole. Still, there’s only so much the pool of savings can increase to compensate for the increased demand for funds when the government borrows (think supply and demand). So in normal times, when the government borrows money, private investors lose easy access to that same pool of savings. The cost of borrowing goes up, which is to say, the interest rate goes up, and businesses can’t afford to borrow funds at higher rates. The government has “crowded out” private investment.

Right now, we’re getting sucked into a deflationary trap, and there’s no real demand for investment anyway. That’s why the Fed has dropped the interest rate to 0%. In the short run, there’s no real risk of crowding out private investment, because no significant amount of private investment is being done in the first place. Someday, though, there will be an economic recovery. Things will warm up, interest rates will increase, and our government debt will still be hoovering up some of the savings and push rates even higher than they would otherwise have been. From the CBO letter: “…the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals.”

Keep in mind, though, that that’s an estimate based on this recovery being similar to past recoveries. I don’t see it as likely, but we could perhaps suffer a dollar crisis and see our interest rates explode, which would mean that the CBO underestimates the costs. Or (more likely to my mind) the CBO could be failing to recognize the potential of getting stuck indefinitely in the trap we’re in, since the Fed has already fired off all its most reliable anti-recession ammunition. This would mean that the CBO is overestimating the costs, since it’s comparing the net effect to a baseline that wouldn’t even exist without a sufficiently strong fiscal influx.

But the CBO numbers are still pretty straight-forward: massive relief in the short term that will create a lot of jobs in this vicious downturn, the benefits of which to be slightly outweighed by long-term costs. A pretty fair trade-off.

[Ocean_Annie]

I think it is important to use the most recent CBO analysis and read it in its entirety.

Below are quotes from the most recent CBO analysis. I used bold for emphasis.

The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus.

By CBO’s estimation, in the short run the stimulus legislation would raise GDP and increase employment by adding to aggregate demand and thereby boosting the utilization of labor and capital that would otherwise be unused because the economy is in recession.

In contrast to its positive near-term macroeconomic effects, the legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals

Correspondingly, the legislation would increase employment by 0.8 million to 2.3
million by the fourth quarter of 2009, by 1.2 million to 3.6 million by the fourth quarter of 2010, by 0.6 million to 1.9 million by the fourth quarter of 2011, and by declining numbers in later years. The effect on employment is never estimated to be negative, despite lower GDP in later years, because CBO expects that the U.S. labor market will be at nearly full employment in the long run. **The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because the capital stock is smaller. **

http://www.cbo.gov/ftpdocs/99xx/doc9987/Gregg_Year-by-Year_Stimulus.pdf

http://www.cbo.gov/

[JThunder]

@Sam_Stone

• The bill mixes stimulus and larger public spending. As Clinton’s OMB director, Alice Rivlin pointed out, these two goals are completely at odds with each other. To do infrastructure right, you want to take your time, do lots of analysis and prioritize. To do stimulus right, you have to get the money out now. Mixing the two together means neither will be done correctly.

What about infrastructure projects that have already been planned out and that simply need funding? That argument has been presented on the Dope before.

Personally, I suspect that such projects are few and far between – if they even exist. I won’t make that claim definitively without having more information on hand, though.

[Hellestal]

@furt

To begin with, we don’t know if it will work, or even if is neccessary. There are still plenty of economists who do not accept the whole premise that increased government spending will spur the economy. (cite, pdf).

The clear majority of economists support some form of stimulus. There is legitimate disagreement out there (and a hell of a lot of illegitimate disagreement), but the mainstream position is in favor, for whatever that’s worth to you.

@furt

The current stimulus bill fails on all three scores. It’s already loaded with what the administration itself admits are “long-term investments.”

Long-term investments are fine. The recession has already lasted a year, and it’s still increasing in severity. The recovery will be long and arduous, and stimulus will still be helpful to close the output gap for years to come.

@furt

And it’s full of items that have an excellent chance to make it into the regular budget down the road (you wanna bet congress is gonna hold firm when programs like WIC, Pell Grants, or the Smithsonian say they want their big budget increases made permanant?)

This is a legitimate concern.

@furt

Finally, the whole huge thing is being moved through so fast that there’s no time for full debate on the hundreds of provisions in it. There are all sorts of things in there that aren’t even being discussed.

This is also a legitimate concern, but there are real benefits to haste. The longer we wait, the larger the output gap we have to overcome, and if those recovery estimates aren’t accurate, every extra bit of delay comes with large costs.

And yeah, there’s something to be said for passing the quick measures immediately (such as federal grants to the states) and taking more time with the infrastructure and other long-term projects. Politically, though, there can be problems with the perception of double-dipping. At least putting it all on the table at once makes the size of this thing immediate and clear.

@furt

The final result: we’ll be spending well over a trillion dollars, for something half the country thinks will make things worse. Well, I guess we’re gonna find out.

800 billion is less than 1 trillion. So where you say “well over” a trillion, it would be more accurate to replace that with “about 20% less than a trillion”.

And to be clear on the polling, Rasmussen (a very good election poll) can be a clear outlier on position polls, where poorly phrased questions can skew the results.

[Aji_de_Gallina]

What is the Keynes multiplier? If it’s under 1 it’s wasted money. It’d be better to give the people cash.

[Digital_Stimulus]

@Hellestal

Savings is not constant, not a fixed pool of money. The amount of saved dollars changes given the conditions of the economy as a whole. Still, there’s only so much the pool of savings can increase to compensate for the increased demand for funds when the government borrows (think supply and demand). So in normal times, when the government borrows money, private investors lose easy access to that same pool of savings. The cost of borrowing goes up, which is to say, the interest rate goes up, and businesses can’t afford to borrow funds at higher rates. The government has “crowded out” private investment.

First, of course, thank you. If you don’t mind, as tedious as it may be, can I try to lay this out more explicity? I get the sense that there are some items whose meaning is understood by those more familiar with these things that may be going right over my head.

So. “Government borrowing” is equivalent to the CBO director’s (CBOD, from now on) term “government bonds” (g-bonds, from now on), correct?

And “g-bonds” refers to any of the instruments found on Treasury’s Securities & Programs page (possibly others?), which all have specific maturity dates (ranging from a few days to, say, 30 years).

The “fixed pool of savings” to which you refer is money that private entities have on hand; it could be tucked away as actual savings, but it might also be invested. (We’ll ignore the fact that savings are actually used by banks to make investments…unless that’s noteworthy in understanding “crowding out”?)

Where that on hand money is invested is a function of interest rates, (perceived) risk, etc. G-bonds have low risk (and correspondingly low interest rates).

Given the current high risk economy and the proposed stimulus, that on hand money will (likely) be used to buy g-bonds. In the future – figure 1 to 2 years as the estimated recovery timeframe – people will be more willing to make riskier investments (to private entities).

When the CBOD says, “To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment”, the “crowding out” issue is that people have invested their on hand money in g-bonds; that money is unavailable until those bonds mature; this unavailable money cannot then be used for private investment.

Do I have that right?

[furt]

@Hellestal

The clear majority of economists support some form of stimulus. There is legitimate disagreement out there (and a hell of a lot of illegitimate disagreement), but the mainstream position is in favor, for whatever that’s worth to you.

1. Some of the rhetoric out there is that “all economists agree” or some such. I was just pointing out that that isn’t true.
2. As I said, nobody is seriously advocating doing nothing whatsoever, despite the rhetoric of some that it’s either this plan or nothing at all. There are plenty of much smaller, much more targeted plans that would have had nearly universal approval. Sam linked to one. The question is whether we needed THIS plan.

Long-term investments are fine …
And yeah, there’s something to be said for passing the quick measures immediately (such as federal grants to the states) and taking more time with the infrastructure and other long-term projects. Politically, though, there can be problems with the perception of double-dipping. At least putting it all on the table at once makes the size of this thing immediate and clear.

Fine or not, they are not stimulus, and it’s simply dishonest to say “this bill is needed right now and will help right now” and then fill it up with provisions that will lead to building a new building in 2012. They need to be advanced and defended on their own merits via the normal legislative process.

Putting it all on the table at once simply makes it impossible for congress to approve short-term stimulus without signing on to a whole litany of long-term commitments lock, stock, and barrel. If you think maybe we should hold off on the tax credits for golf carts, or the massive increase in fine arts funding, you’ll get demagogued as not caring about the people who are out of work.

This is not clarity. It is the opposite of clarity.

800 billion is less than 1 trillion.

I’m including the hundreds of millions of dollars of interest we’ll be accruing, which will bring the final bill to ~1.2 trillion.

Of course, since it’s highly unlikely congress is going to turn around and cut things like healthcare and education in 2010, much of the increases now are going to be made permanent; one could argue that it’d be fair to include some of the additional billions of down-the-road deficit spending we’re signing up for.

[Hellestal]

@furt

Fine or not, they are not stimulus, and it’s simply dishonest to say “this bill is needed right now and will help right now” and then fill it up with provisions that will lead to building a new building in 2012.

Yes, they most definitely are fiscal stimulus. They are increases in government spending to make up for the output gap of this recession. That’s what stimulus is. Output might start creeping up within two years, but the output gap won’t close for much, much longer than that. That means that longer-term projects are a legitimate part of a comprehensive plan.

That said, I’m not going to debate the politics of putting long-term and short-term spending together. That mix might feel dishonest to you, but at least by putting the whole thing on the table, the scope of the problem is clear. In addition, it’s good to note that even if a bit of delay is okay for the longer-term plans, sooner is still better than later. There’s a decent bit of planning that needs to be done for some of the bigger projects (like infrastructure), and that process can’t get started without Congress finishing this job. Maybe there are some positives to splitting this thing into chunks, but there are also positives to getting it all finished now. But that’s a political dispute, and I can’t claim to understand politics as well as I do economics.

@furt

I’m including the hundreds of millions of dollars of interest we’ll be accruing, which will bring the final bill to ~1.2 trillion.

Fair enough.

@furt

Of course, since it’s highly unlikely congress is going to turn around and cut things like healthcare and education in 2010, much of the increases now are going to be made permanent; one could argue that it’d be fair to include some of the additional billions of down-the-road deficit spending we’re signing up for.

That’s a credible concern, but I still don’t agree with it. I think any budget shortfalls in the future will be more likely to be caused by an extended slump, indefinite stagnation based on insufficiently aggressive policy today (especially in reforming the financial sector).

At the very least, though, this thread is a refreshing change from most of the other baseless and idiotic criticism I’ve been seeing lately. My brain almost melted when that one Republican dude blamed FDR for causing the Great Depression.

[furt]

@Hellestal

Yes, they most definitely are fiscal stimulus. They are increases in government spending to make up for the output gap of this recession. That’s what stimulus is. Output might start creeping up within two years, but the output gap won’t close for much, much longer than that. That means that longer-term projects are a legitimate part of a comprehensive plan.

But by that logic, ISTM that you’re saying that we need to have a stimulus, not just when things are really bad and getting worse, but anytime there’s a negative output gap.

Following the late-70’s, early-80’s recession, the output gap didn’t get back to the positive side until 1988 or so. Should Reagan have been advancing stimulus packages in 1985?

The chart there indicates that even without any stimulus whatsoever – none, zilch – that we’d heading in the right direction in 2010. Obviously, “heading in the right direction” isn’t much help to the guy who is jobless now; but that’s why I have no problem with direct help targeted to the currently or soon-to-be out of work. But I don’t see the point of continuing to incur massive debt in 2011, 2012, 2013, after things have already turned around, even if things aren’t “perfect” yet – especially as the administration admits, nothing remotely this large has ever been tried before.

[Hellestal]

@Digital_Stimulus

First, of course, thank you. If you don’t mind, as tedious as it may be, can I try to lay this out more explicity? I get the sense that there are some items whose meaning is understood by those more familiar with these things that may be going right over my head.

You’ve got a lot of the general ideas right, but a few details are off.

@Digital_Stimulus

So. “Government borrowing” is equivalent to the CBO director’s (CBOD, from now on) term “government bonds” (g-bonds, from now on), correct?

And “g-bonds” refers to any of the instruments found on Treasury’s Securities & Programs page (possibly others?), which all have specific maturity dates (ranging from a few days to, say, 30 years).

Right.

@Digital_Stimulus

The “fixed pool of savings” to which you refer is money that private entities have on hand; it could be tucked away as actual savings, but it might also be invested. (We’ll ignore the fact that savings are actually used by banks to make investments…unless that’s noteworthy in understanding “crowding out”?)

First and most important: it is not a fixed pool of savings. Savings goes up and down. It fluctuates based on economic conditions.

Next: savings = investment. A dollar saved is a dollar invested. But please note, this is an equilibrium condition. The amount fluctuates based on economic conditons. The economy pushes toward an equilibrium, and it does so when people alter their amount of savings based on the situation. An increase in government spending right now will increase savings. Here’s a link from Krugman that might clear that up.

Remember that in normal times, our economy is basically at its peak output level. GDP can’t just be increased with government spending. The horizontal line on Krugman’s graph is as high as it can go. So if you push up G, I decreases by an equivalent amount and GDP remains constant. But we are not in normal times.

@Digital_Stimulus

Where that on hand money is invested is a function of interest rates, (perceived) risk, etc. G-bonds have low risk (and correspondingly low interest rates).

All of that savings is going to eventually go toward some sort of investment. S will equal I (or S + T = G + I; the government taxes and spends, while people save and invest).

@Digital_Stimulus

Given the current high risk economy and the proposed stimulus, that on hand money will (likely) be used to buy g-bonds. In the future – figure 1 to 2 years as the estimated recovery timeframe – people will be more willing to make riskier investments (to private entities).

Exactly. People are flooding toward g-bonds. It’s gotten so ridiculous that the US government actually managed to charge people for taking their money. Things got so scary out there that the US government was literally charging rent for the hassle of having to take care of other people’s money. If the government wants to spend even more, plenty of people will gladly pony up the cash.

@Digital_Stimulus

When the CBOD says, “To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment”, the “crowding out” issue is that people have invested their on hand money in g-bonds; that money is unavailable until those bonds mature; this unavailable money cannot then be used for private investment.

Right, that money can’t be used.

And it’s not just until the bond matures, because if the US still has yearly deficits, then more bonds will always be issued. Until the budget is balanced, more and more and more g-bonds will be issued. For every one that matures, a new one will be sold in its place. But investors aren’t just going to give their money to the government for no cost–eventually they’re going to demand a premium. That means higher interest rates for everybody, because if the government pays 5%, then everybody else has to pay more than that because the government is always the safest bet.

[elfkin477]

What I object to most is the contents of the stimulus package - it looked either like paying off people who got democrats elected, or alternately like something thrown together without much thought. How much would it have cost to fund Obama’s health care plan? I can’t quite figure out why they filled a stimulus package with so many things that Obama didn’t already have in mind spending-wise. At least funding universial health care would have benefited a lot of people as well as spent enormous amounts of money.

[Hellestal]

@furt

But by that logic, ISTM that you’re saying that we need to have a stimulus, not just when things are really bad and getting worse, but anytime there’s a negative output gap.

From an abstract theoretically perspective, yes. Absolutely. Of course. We’ve got a tool here, one that has worked very well in the past.

But unfortunately, it has some drawbacks. And normally, we have an alternative anyway.

@furt

Following the late-70’s, early-80’s recession, the output gap didn’t get back to the positive side until 1988 or so. Should Reagan have been advancing stimulus packages in 1985?

The difference between those recessions and this recessions is the length and the Fed. This is a big’un, which gives us time to implement fiscal policy even across years, and for us, the Fed has already used its best bullets. Traditional monetary policy (the Fed tinkering with the interest rate) has run its course. They plunged the rate to 0%, and if they could plunge it negative, they would. But money doesn’t work like that. We’re stuck at zero. Our best tool has been used up.

So now, we go to Plan B.

@furt

The chart there indicates that even without any stimulus whatsoever – none, zilch – that we’d heading in the right direction in 2010. Obviously, “heading in the right direction” isn’t much help to the guy who is jobless now; but that’s why I have no problem with direct help targeted to the currently or soon-to-be out of work. But I don’t see the point of continuing to incur massive debt in 2011, 2012, 2013, after things have already turned around, even if things aren’t “perfect” yet – especially as the administration admits, nothing remotely this large has ever been tried before.

Nonsense.

In absolute terms, okay, we’re spending more money than we have before. But as a percentage of GDP, US debt is about half it was after WWII. And it was WWII, when the US government went balls-out with its spending, that truly killed the Great Depression. For all the complaints about it, the New Deal spending was positively tiny compared to the war. And the New Deal was beneficial when FDR decided to spend money. The country got worse again when FDR stopped spending money. He cut back on the heat when the patient was only half-recovered from hypothermia.

Why?

Because during the New Deal, we had people complaining about how we’d never spent that much before.

[furt]

@Hellestal

Nonsense.

Okay, I stand corrected; the quote I was thinking of was Geithner’s

We will have to try things we’ve never tried before.

If things were as bad as they were in 1932, or even 1939 I’d be a bit more open to the idea of “desperate times call for desperate measures.” But they’re not. Unemployment is expected to be 8.8% at it’s worst, not the 25% of 1932, or the 15% with no-end-in-sight of 1939.

More fundamentally, the WWII spending fits exactly with Summer’s three criteria of timely, targeted and temporary: we swung into heavy war production in a matter of months; factory and military jobs were relatively low-skill, and could even employ housewives with no work experience at all; and it was understood that after the war things would be going back to normal.

I have no problem with most of the infrastructure projects in the bill;I don’t think many people do. Those fit, mostly, the 3 T’s. How much we should spend on roads, etc. is IMO a side issue.

But there is a lot of stuff in there that is not specifically aimed at people hurt by the downturn, and is not going to be temporary. No politician is going to say, ever, that the stimulus has worked and so we can drop those increases for education and healthcare. It’s permanent growth in the size and reach of the federal government.

Now those programs may be “stimulus” if the reasoning is that all government spending is stimulative, but I don’t think that’s what most people think of when they use the term – they’re thinking of one-time expenditures aimed at getting things “back to normal.” But this bill seems aimed more at redefining what “normal” is.

There is a case to be made that Americans do want a permanently larger federal government. But that case should be made on it’s own merits, not sold as some kind of emergency-action measure.

[Captain_Carrot]

@JThunder

What about infrastructure projects that have already been planned out and that simply need funding? That argument has been presented on the Dope before.

Personally, I suspect that such projects are few and far between – if they even exist. I won’t make that claim definitively without having more information on hand, though.

Actually, I’m pretty sure there’s a list of them that contains thousands of (substantive) items. No cite yet, since I kind of have to go to sleep, but if somebody reminds me, I’ll try to find one tomorrow.

[Hellestal]

@furt

If things were as bad as they were in 1932, or even 1939 I’d be a bit more open to the idea of “desperate times call for desperate measures.” But they’re not. Unemployment is expected to be 8.8% at it’s worst, not the 25% of 1932, or the 15% with no-end-in-sight of 1939.

Those projections are all based on the notion that we won’t get caught in a deflationary trap and spiral ever and ever downward. This is a real concern. The last time deflation ruled the day was under Herbert Hoover, when people were advising to wait the problem out. It didn’t work then, and it might not work now, even given those projections. There is reason to believe that we could get stuck in a similar way.

The point of stimulus is not just to get us out of a Great Depression-like situation. It’s to ensure that we never again slip into depression in the first place. That’s important to remember, even given an understandable distaste for the politics. Many of the excesses of a big honking stimulus can be countered by the Fed if it comes to that, but there are no practical options left to us if we pull up too short.

[Digital_Stimulus]

@Hellestal

You’ve got a lot of the general ideas right, but a few details are off.

Cool, thank you again. One more post on this sub-topic…and I’ll try to aim the progression back at the OP.

But we are not in normal times…All of that savings is going to eventually go toward some sort of investment.

So this, I think, is one fundamental part of the debate: because right now there is enough supply but not a sufficient level of corresponding demand, the stimulus is meant to promote demand. If credit was as available and as loose as it had been – and I’m not saying it should be – the situation (jobless rate up, consumer spending down, etc.) would be much less dire.

And it’s not just until the bond matures, because if the US still has yearly deficits, then more bonds will always be issued. Until the budget is balanced, more and more and more g-bonds will be issued. For every one that matures, a new one will be sold in its place.

And that’s the practical, “no such thing as a free lunch”, fundamental aspect of the debate.

But investors aren’t just going to give their money to the government for no cost–eventually they’re going to demand a premium. That means higher interest rates for everybody, because if the government pays 5%, then everybody else has to pay more than that because the government is always the safest bet.

And finally, that’s the “crowding out” objection (effectively, item #3 from the Summers quote in the OP). Now, the CBOD used the phrase “To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment”, which made me wonder – is there any method to estimate/measure what that “extent” will be?

As I said, it seems as though “crowding out” was the primary concern expressed in the brief CBOD blog post. Now that I get the abstract concept, it would be really nice to be able to pin some numbers on it to give it practical import.