Let Stimulus = x
I feel the need to mention this because it looks like the mainstream news isn’t covering this like it should.
It’s not that the government found $800B in the sofa cushions and said, “Hey, here’s an idea: how ‘bout we use this to stimulate the economy? It’ll be a blast!” No, we’re already running a $1 trillion deficit (thanks, Bush!) so this is going on the national credit card. We will have to pay finance charges on this, and we’ll pay for them in stagflation.
This is the starting point for the discussion. It’s possible that the deficit spending will boost the economy to the point where the future stagflation will be manageable. A lot of good economists think so. A lot of good economists don’t. (I don’t, but that should be a big surprise.)
President Obama said last night that only the federal government has the resources to get us out of this recession. That’s a misleading way to say it. Even if the economists endorsing the stimulus are correct, it’s not fair to say that the federal government has the resources. It’s not in the bank account, and it’s emphatically not in the budget. The only resource Obama has is a high limit on his credit card.
In summary:
Stimulus = deficit spending.
That is all the stimulus is. That is what the stimulus was meant to be. This is the critical design feature, not an oversight. This is a straightforward deduction from the soundest Keynesian economic theory anyone has.
With that groundwork set, we can proceed to ask how much we should spend, how urgent it is, and what will work best.
3 years ago