Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

October 2, 2009

Quote Of The Day

by Brad Warbiany

From the WSJ:

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

Government taking your money and spending it is less likely to help GDP than government taking LESS of your money and letting you spend the difference yourself.

Not that this is a new idea, of course… But it’s good to see some academic support.

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  • oilnwater

    the bank rescue packages of last year cannot properly be defined as “stimulus,” and especially in light of the fact that the money given to the banks are actually still sitting on their computer screens and not being released into the real economy. not to businesses, and not to individuals. they are still sitting on the bank screens in preparations for future losses. the auditor of the TARP program said so himself, on video in an interview with the Huffington Post.

    so the “stimulus” $ cannot in any way be considered a stimulus for the real economy. that really is the bottom line. when some people talk about “throwing this money into a black hole” they are much more correct than they could ever imagine.

    so of course defense spending can beat this. renting an inflatable spacewalk for Congressional pages to play in would beat this.
    ————————————————-
    GDP = C + I + G + Nx

    C = private consumption
    I = business investment
    G = Government investment, mainly physical goods purchases and employee salaries
    Nx = net exports
    ————————————————–

    to give an example of a real stimulus package, take the Federal Reserve under Greenspan initiating the incentive for banks to lend to housing. that was actual investment, for better or worse. of course, it turned out to be for the “worse.” but at least that was actual stimulus in terms of GDP (the Investment variable).

    So what about tax reductions? i’m always, at any and every time, for them. are they going to save or even dent GDP decline in this environment? no, they won’t. (C)onsumption is dead, and it will take more than tax cuts to make the consumer come back from the dead. if the banks aren’t lending, nothing else matters for now.

  • oilnwater

    oh, you may just wanna Google ‘Huffington Post interviews TARP auditor’ and find the video, it’s going to open your eyes about exactly what kind of absolute black hole the bank bailouts were. the ‘populist’ rhetoric that opposed it were 100% correct, and it comes straight from the auditor’s own lips.

    Americans were right last year, and the govt ignored it.

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