Fiscal policy

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WHEN THE FISH ARE BITING, YOU GET A NIBBLE AS SOON AS YOU THROW YOUR LINE IN THE WATER

If I'm not mistaken 80% of the stimulus has been spent (not 65%). Not withstanding this discrepancy, the answers to a few basic questions seems to point to a consensus. Has unemployment risen since the stimulus? Answer: Yes Has the housing market gotten worse? Answer: Yes Have Public Corporations increased final sales revenue? Answer: No, Public Corporations are surviving only because of deep cost cutting and thus, get "better than expected" earnings." Is the Main Street economy thriving? Answer: No
Stimulus has not worked. Why? Stimulus can rev up an economic engine needing rejuvenation. But stimulus cannot fix a broken, smashed, structurally damaged economic engine. In the latter instance, only the laws of supply and demand provide the wherewithal, the sales revenue and profits to buy a new economic engine. The U.S. economy will continue to decline because the economic engineers keep putting oil in the structurally damaged engine parts expecting it to run. If stimulus, under these market conditions is going to work, by now, the U.S. economy would be off and running. Didn't happen. Not going to happen.

Warmest,


Richard Michael Abraham, Founder
The REDI Foundation
http://www.redii.org
Nationwide Non Profit Research and Educational Foundation
Registered with Attorney General, Massachusetts

Both fiscal stimulus and monetary stimulus are measures to shift private and regional government liabilities onto the central government balance sheet.

Imagine that a yakuza oyabun, or the casino owner, who is supposed to hold his den and get the cuts to maintain and flourish the den, is making a bet himself quite seriously in the hope of flourishing the den and reducing his debts. When the yakuza loses, some of the participants get money by that much and, if allowed, go somewhere else to drink and eat and bet at other oyabuns' dens (even by saving some of them at banks which often bet at other dens). The yakuza regards that he is successful when he and most of the participants win. He gives out some money to the losers so that they can pay their debts and are loyal to his den. When the total amount of the traded money does not increase after such stakes, the yakuza mints more medals to lend to them and guarantee that his medals will not depreciate. If his medals is about to depreciate, he borrows money from the participants and other yakuza oyabuns so that the medals will not depreciate; thus participants’ liabilities eventually shift onto his balance sheet – if both the government and central bank favour stimulus, or monetary expansion, when the potential growth rate is stagnating.

But, it totally depends on the participants' personal will whether they will keep betting at this yakuza’s den when they are increasingly worried that the oyabun will not be able to secure enough cash to pay to losers and creditors and will drastically increase the cuts (not on the basis of the medal but money).

Of course, the yakuza can either confine the participants in the den to intimidate them into keeping betting with increased cuts or welsh on his debts. In the latter case, his fellow oyabuns, who are both owners of other dens and creditors to this oyabun, will get mad and may come, with katanas or pistols or whatever, to try to get the money back. In both cases, the participants might also get mad to kick the oyabun out of the house to choose someone else as new oyabun.

Here's a good perspective on the President's "infrastructure bank":

"The closest thing today to Obama's proposed infrastructure bank is the Export-Import Bank of the United States -- a government agency that finances U.S. exports. It's a nice pot of cash for the special interests: A majority of Ex-Im's finance dollars are spent subsidizing one company -- Boeing."

"Ex-Im also shows how such government "banks" are subject to political pressure. Earlier this year, the agency rejected a subsidy request from a Wisconsin company, Bucyrus, which was seeking a contract to build a power plant in India. Wisconsin Sen. Russ Feingold, a Democrat facing a difficult re-election battle this year, leaned on the administration to reverse its decision and bypass the environmental rules that had killed the deal. Ex-Im listened to Feingold and did an about-face -- and Feingold sent out a press release bragging about it."

http://www.economicpolicyjournal.com/2010/09/obamas-proposed-infrastruct...

It makes some sense for the admin to wait until the last minute to do new tax cuts. The threat of the taxe hike should shift profit taking to this year and losses until next year, making thing look better than they are for the election.

PS. I am not trying to place blame or criticism with my last post - but unfortunately, governmental spending patterns do appear to be as opaque as it gets. Clearly a core goal of any added stimulus measure should be to ensure that any spending increase is matched by increased reporting and clear performance metrics. Pushing money out the door is just not enough now days, nor is even pushing money towards projects based on productivity metrics.

"Time-To-Market" is the term that comes to mind from the private sector, spending must be simultaneously: productive, accountable and timely... What applies to consumer goods & business technology should also apply to government spending.

TS

@TheEconomist: Am I correct to assume that the remainder of the pie chart (beyond the outstanding $213 bln) was spent over the course of the last 8/9 months?

The mechanics and cashflows of these mega-stimulus bills always worried me - it's odd how a private sector corporation can present a powerpoint package with 5 slides and manage to raise multi-billion capex plans over the markets, but for governments it comes through to hundreds of pages of legislation and everybody half-nodding that this time they know where the money is coming from/going to.

So gleening from public records, I read that the American Recovery and Reinvestment Act of 2009 planned recovery outlays as follows: $202 billion in 2009, $353 billion in 2010, and $232 billion in 2011 forward. I then see from your chart that $790 was set out for 2010 alone, though if I understand right, this stimulus spend might have started already last year?

But then, to make things more confusing, I go to Recovery.gov (the US 'official' stimulus spend tracker) and see that only $85 bln has actually been paid-out, though up to $219 bln might have been awarded for the H1 2010 period.

My concerns are two folds:
1. Is it right for us to claim that 2011 is really the year when the economy will lose "its training wheels" given the still planned $232bln (or is this actually 2010 spend)?
2. Why can't governments give us clear cashflow business plan summaries (powerpoints please) and then assign basic performance management skills to stick to these?

Tariq Scherer
http://scherer.dyndns-web.com/

"If a synchronized swimmer drowns, do the other swimmers have to drown too?"

No, but clearly the market is producing fewer drownings than the social optimum.

Unfortunately, the first stimulus bill was both too small, and wasted too much money on tax cuts. When people have decided that they want to pay down debt, they are not going to borrow and spend. That's when the government has to spend directly to keep things from getting too bad. It is simply foolish to let sound businesses go under. That is not "creative destruction", it is a loss of capital that could have contributed to future growth.

The Republicans know this, and would rather let Americans suffer unnecessarily for their political advantage than put them to work.

Why not use the unspent stimulus money to offset tax cuts or other Federal spending instead of continuing more of the same? The Democrats seem stuck on a one-note policy of deficit spending and most economists seem resigned to let it happen regardless of its inefficient and ineffective nature.

If a synchronized swimmer drowns, do the other swimmers have to drown too?

This should have been planned for in the original stimulus. We've spent the last three years at the state and Federal levels doing things we maybe shouldn't because we left ourselves no other choice because we weren't prepared. I think that excuse has worn out.

At this point, this is not a crisis but a bad economy.