
Stimulus: A history of folly - gaius
http://www.commentarymagazine.com/viewarticle.cfm/stimulus--a-history-of-folly-14953
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trevelyan
"Despite Franklin Roosevelt’s aggressive spending, unemployment reached 25
percent in 1933, fell only to 14 percent by 1937, and was back up to 19
percent in 1939.1 "

The level of ignorance in this article is astonishing. If the author knew
economic history, he would know that Roosevelt's actions and the departure
from the Gold Standard were responsible for the expansion of the money supply
starting in 1933 and the massive reduction in the unemployment rate between
1933 and 1937. Roosevelt cut back on federal spending in 1937 against the
advice of Keynes, making it ludicrous to claim the subsequent downturn was the
result of aggressive Keynesian spending. It was the result of exactly the
opposite.

He also conflates monetary and fiscal policy. He questions why fiscal
expansion is expected to work when monetary stimulus has failed and TARP is
not working. Disregarding the obvious reasons why banks aren't lending (they
are insolvent black holes that are hoarding cash instead of lending), this
shows a colossal ignorance of basic economics. It asserts that public spending
cannot stimulate the economy because government spending will somehow crowd
out private investment and push interest rates higher. But if interest rates
rise then monetary authorities can lower them and increase the money supply.
We would be very lucky to have this problem.

There are definitely long-term problems with current government policy. It is
appalling to see to the public purse so eagerly take on such large amounts of
private sector debt in starts and dribbles, especially when shareholders in
institutions should have been the first players liquidated. I do not find
Greenspan's argument that senior debt-holders need to be protected by the
government to be very compelling. But these problems are overwhelmingly in the
current efforts to salvage the banking system. The worst that can really be
said for the fiscal stimulus plan is that it is probably too small, and about
10% of the funds spent will not do much stimulating at all, but were necessary
to buy the bill through Congress so there would be ANY stimulus.

As the far right passes further into ignominious lunacy I am very glad the
Internet is here to preserve this sort of dreck for posterity. May it come
back to haunt them, each and every one.

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mynameishere
You're taking FDR's heroism as a matter of faith--as you've no doubt been
taught. "Economic history" is a history of booms and busts. The busts normally
were short, whereas the Great Depression was extremely long--not really ending
until after WWII (or, if you prefer, the beginning, though I'm tempted to
discount military activities as anything 'economic'). I would suggest, in a
basic way, that the policies associated with circumstances should take
responsibility for those circumstances.

 _It asserts that public spending cannot stimulate the economy because
government spending will somehow crowd out private investment and push
interest rates higher._

Well, it is.

 _Though Berkshire’s credit is pristine – we are one of only seven AAA
corporations in the country – our cost of borrowing is now far higher than
competitors with shaky balance sheets but government backing. At the moment,
it is much better to be a financial cripple with a government guarantee than a
Gibraltar without one._

<http://www.berkshirehathaway.com/letters/2008ltr.pdf>

If you think that can have a positive outcome, well...

~~~
biohacker42
You're confusing government spending with government lending.

Also, banks which are in no way, shape, or form in trouble have taken TARP
funds because the cost of borrowing is so attractive.

I forget the name of the bank, but it's CEO was on CNBC, as an example of a
healthy bank.

Why does the TARP allow this? Because the program is a mess.

But it's not crowding out private investment, and it's not even crowding out
private lending, because it does allow healthy banks to borrow form TARP just
the same.

~~~
anamax
> Also, banks which are in no way, shape, or form in trouble have taken TARP
> funds because the cost of borrowing is so attractive.

They were also told to take the money by the regulators. Apparently banks not
being in trouble looks bad.

Then Congress said "you took our money, so you have to do biz our way".

Northern Trust is now trying to get out of TARP.

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michael_nielsen
Coming from James "Dow 36000" Glassman, I think this article can safely be
ignored.

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gabrielroth
The central fallacy here is "The stimulus money that flows to taxpayers,
government agencies, and businesses has to come from somewhere (the unseen)."

The short explanation for why this is false is that the velocity of monetary
circulation is a variable rather than a constant. A slightly longer
explanation is here: [http://delong.typepad.com/sdj/2009/01/time-to-bang-my-
head-a...](http://delong.typepad.com/sdj/2009/01/time-to-bang-my-head-against-
the-wall-some-more-pre-elementary-monetary-economics-department.html)

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zupatol
I like how he emphasizes that economists really don't know much about the
economy and often change their minds. Nobody knows what effects the stimulus
will have. Whatever happens will not be the effect of the stimulus alone, so
the question of its success will most likely remain unanswered.

But this completely destroys his point that the stimulus is a mistake.

