On the subject of stimulus, I'm an agnostic. While I think the long-range benefits are doubtful in most cases, I do think the record is pretty clear that stimulus measures can succeed at least in juicing the numbers temporarily; see FDR's measures from 1933 on, Japan's history since 1990, China's measures in the past year, or even the modest $168B US stimulus package in early 2008, which was followed by positive GDP growth in Q2 2008 even though the Great Recession was gathering steam at the time.
So to me, the puzzling question in looking at the US economy now is the rather lukewarm response to a dose of stimulus that I think can only be compared in size to the stimulus program applied by Tony Montana at the end of Scarface (specifically, the part where he sticks his face directly into the mini-Matterhorn of cocaine on his desk). By rights, the US economy should now be on a bender worthy of Keith Richards in his prime; instead, it's been more like my grandmother sipping an extra glass of sherry before bedtime. Why is this? Let me propose an answer based on my Taxonomy of Stimuli. I'll divide stimuli into three categories:
A) The few, the proud, unquestionably worthwhile stimuli. This category includes stimuli that are truly good investments, in that they provide long-term economic returns. Of course, almost all US stimulus plans claim to be in this category, usually by including the word “investment” somewhere in the name of the plan, and in fact it isn't that hard to think of stimulus programs that would have decent long term returns. However, in practice it seems the odds are close to zero of getting something in this category through the sausage factory that is the US lawmaking process.
B) Your garden variety stimulus. This includes programs like handing out money to people to spend, or directly building stuff, or directing banks to loan money to businesses to build stuff - it covers most of the stimulus programs that have been enacted in the past. As I said above, I think these programs may be of doubtful long term value, but do tend to juice the near-term numbers pretty well.
C) Your Double Reverse Stimulus. These are the stimulus programs where much of the result is to actually dampen future demand. Or, in other words, this amounts to treating a narcolepsy patient with sleeping pills.
Perhaps the dampened response to stimulus in the US is a result of too many programs in category C. For example, recapitalizing banks without any restriction on risk taking ... so that traders at banks and hedge funds can again run up the price of commodities ... so that banks can clear a few billion in “profits” and “pay back” the government ... so that John Q. Public can send an extra few hundred billion abroad to pay for those commodities back in the real world. Or, giving John Q. Public a chunk of cash as incentive to buy things in favored areas like houses and cars ... which requires borrowing a much larger chunk of cash to complete the purchase ... which then reduces John Q. Public's ability to buy anything for the extended period it takes to pay that debt pack.
I hope I'm wrong about this, but lately I've been getting the feeling people will be shaking their heads about some of this stuff a hundred years from now ...
I think the only thing you're wrong about is that we won't be waiting a hundred years before shaking our heads.
ReplyDeleteLove this site, thanks for keeping it up, btw. It's interesting comparing comments of the 1930's to that of today.