You can't "Stimulate" the economy in a sustainable form when the economy is overloaded with debt. The debt needs to be cleared first, or the "stimulus" will have a short-term positive effect on GDP but a long-term negative effect, and the negative may well REALLY kill you and a lot faster than you think, especially if buyers of Ts figure out the game and say "no mas!"
To read this excerpts in context, go to:
http://www.tickerforum.org/cgi-ticker/akcs-www?post=81851Other quotes include:
Genesis (Denninger): How does taking $500 in tax dollars from taxpayers, filtering it through government (slippage loss) then paying it to someone (further slippage loss in the employer) who then buys a dryer from Sears actually create economic value?
Remember where the money came from in the first place; the direct impact of all such government programs is a circle jerk.
Antediluvian: Ovis, let me clear up what I mean by economic value. When a job is created by the market, if working efficiently i.e. free from overbearing government intervention, then it fills a demand that a consumer needs or wants and the employee will be paid according to the value of the product.
The danger is when the government takes money from the private sector and creates jobs, the created jobs are not filling a real demand. In reality, government jobs create nothing.
Read about
http://en.wikipedia.org/wiki/Parable_of_the_broken_window">the broken window fallacy.
The parable describes a shopkeeper whose window is broken by a little boy. Everyone sympathizes with the man whose window was broken, but pretty soon they start to suggest that the broken window makes work for the glazier, who will then buy bread, benefiting the baker, who will then buy shoes, benefiting the cobbler, etc. Finally, the onlookers conclude that the little boy was not guilty of vandalism; instead he was a public benefactor, creating economic benefits for everyone in town.
Bastiat's original parable of the broken window went like this:
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Lowbeyond: I will say this bill is so far from perfect that it's ridiculous. We go into more debt to throw money down the singularity in the hopes that the people from planet government will choose wisely ? What is in this bill that is stimulative, that if spent, will lead us on the path to growth in the future ? Is it a small, medium, large percentage of it ? I will argue that it is minuscule. Is it the part that throws hundreds of millions for new government hybrid cars ? Or is it the STD thing ?
This bill is an abomination. And should be DOA, but it won't be. So we'll spend 8-900B on someone's masturbatory fantasy, and then when people are really starving, then what? Eat the hybrid cars ? Live in the newly "green" remodeled government buildings ?
Lkruvant: Stimulus through debt can only work if the debt can be repaid, plus interest, at some future point.
We can borrow ourselves to the hilt to "feed the hungry" and, unless we increase our INCOME to a point sufficient to sustain that, at some later point, they will all just starve again.
You cannot keep an unsuccessful venture alive FOREVER on credit!
Keynes advocated surpluses in good times to be spent during the bad times. He did not advocate tons of debt during good years then even MORE debt during the bad.
This stimulus bill is an exercise in futility. A lot of it is a bunch of feel-good nonsense that has NO basis in "investment." Roads? Bridges? Laughable. We have seen the absolute zenith of passenger-miles in this country and the world. There is no need going forward for more roads and bridges. Repairing them will not help either. Surely it would keep things from getting ostensibly "worse," but where is the return on this investment?
Anyone who is in favor of this stimulus bill, please specifically identify the investments that will generate returns. If the bill does not create at some point MASSIVELY increased tax revenues as a result of its borrowing and then spending, then it will be a net negative as the additional interest and debt service costs consume a greater proportion of the national budget.
For nearly 40 years we have been "borrowing" to sustain upward mobility, and in the last FY tacking on $1.1T of new debt. This cannot last forever and an inevitable downward revision in expectations and lifestyle is inevitable. The government should probably refocus the war machine or the entitlements system towards providing basic food and shelter because the rate of collapse of "the system" is suggesting that this will be a hell of a hard landing.
Essex, quoting a NY Times article:
Japan’s Big-Works Stimulus Is Lesson for U.S.
By MARTIN FACKLER
HAMADA, Japan — The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.
And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.
Nor is this remote port in western Japan unusual. Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.
Now, as the Obama administration embarks on a similar path, proposing to spend more than $820 billion to stimulate the sagging American economy, many economists are taking a fresh look at Japan’s troubled experience . . .
http://www.nytimes.com/2009/02/06/world/asia/06japan.html?_r=1
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