Will Stimulus Become a $3 Trillion Nightmare?
From comments in the Reason.com Stimulus Symposium:
Like all fiscal stimulus packages in the past, the current one will not impact the economy at the right time for the intended stimulus effect, due to the inevitable problems of long lags. Much of the intended expansionary fiscal effects won't happen until next year and even 2011, and it's likely the economy will have recovered sufficiently by then so that the fiscal stimulus will be unnecessary, and might actually be destabilizing.
The graph below from the Cato Institute (using CBO data) illustrates the problem of long lags for expansionary fiscal policy. Only about 21% of the increased spending would take place in 2009, and 38% would be spent in 2010 and 41% in 2011 and after. Let's be optimistic and assume an economic recovery sometime in 2009. There are two conclusions from that outlook:
1. The stimulus package would not be responsible for much of the economic recovery because almost 80% of the spending would take place after the economy has recovered.
2. The majority of the fiscal stimulus would impact the economy in 2010 and after, at a time when the economy no longer needs a stimulus. Stimulating an economy already in recovery would be potentially destablizing.
Chris Edwards at Cato suggests an alternative and even more pessimistic outcome:
What if special interest groups successfully lobby to extend all the new benefits and subsidies? One possibility would be that the 2010 funding level of $206 billion is extended permanently, as shown in the chart below. Rather than the stimulus bill costing $546 billion through 2019, it would trigger spending totaling $2.2 trillion over the period.
In sum, here are the budget effects through 2019 of the stimulus nightmare scenario:
Temporary tax cuts in the Senate bill: $292 billion
+ Spending continued permanently at 2010 level: $2.2 trillion
+ Estimated additional federal interest costs: $500 billion
= Total increase in federal debt under nightmare scenario: $3 trillion
Extending the (mainly useless) tax cuts in the stimulus package would make deficits even larger. And, of course, all this increase in debt would come on top of the debt piling up from financial industry bailouts and regular budget spending. It’s madness.
Thanks to Paul Sebastian for the Cato tip
7 Comments:
Not to worry, the Prez has a plan
MP"And, of course, all this increase in debt would come on top of the debt piling up from financial industry bailouts and regular budget spending. It’s madness."
funny. you don't seem to care about deficit spending when W and Reagan were running the show
LOL. back in W's day the repubs were the kings of pork!
now repubs are wringing their hands over government spending
Nice chart. Informative post.
$3,500,000,000,000 on top of the existing $11,000,000,000,000; on top of the unfunded liabilities of $70,000,000,000,000 for (a) Social Security, (b) Medicare, (c) Medicaid; on top of $5,000,000,000,000 for federal workers' pensions and health care benefits.
And to my fellow idiot young liberals, aka moronic "youth," who fell for Barack Hussein's empty promises and deceitful rhetoric:
You deserve to inherit a huge debt and lower standard of living.
P.S. That's change you can believe in. LOL
Obama has repeatedly stated he doesn't want to go back to the failed policy of tax cuts. However, the reality is:
Bush's timely tax cut in 2001, after the end of a spectacular structural bull market from 1982-00, over the worst stock market crash since the Great Depression, and during a quick and massive Creative-Destruction process turned a potentially severe recession into a mild recession.
Bush's timely tax cut in 2008, after the biggest global economic boom in history, a huge U.S. housing boom, severe global imbalances, and after the S&P 500 hit an all-time high turned a potentially severe recession into a soft-landing, until September 2008 (when Lehman was allowed to fail freezing the credit market). The tax cut allowed the Fed to catch-up easing the money supply.
A tax cut will have an immediate and powerful effect stimulating the economy, unlike Obama's spending programs, which are slow, inefficient, and unfair.
-----------------------------------
In 1990, GHW Bush made a deal with Congress to raise taxes and cut spending at the tail end of an eight year expansion. Carter was most fiscally conservative, since the national debt shrunk to the smallest proportion of GDP since WWII, in 1979, before the 1979-80 recession. The U.S. has never had a 10 year period without a recession.
> Will Stimulus Become a $3 Trillion Nightmare?
I thought it was already a nightmare. All we're doing is discussing the size...
:-P
> funny. you don't seem to care about deficit spending when W and Reagan were running the show
bobbie, you prove, once more, that you're a complete, unmitigated idiot. And that's an insult to idiots everywhere to compare them to you.
In fact, everyone cared about it, but for Reagan it was the DEMOCRATS IN CONGRESS who controlled the show. They're the ones who control spending, not the PotUS.
And, even if we adopt YOU reasoning that it's the PotUS somehow -- then, by those lights, Obama's doing a spectacular job of proving that both of them were flat out, grade-A pikers compared to him. Using your reasoning, O's the Madoff of Deficits.
In this sense, it took G-Dub three YEARS in office to tack a trillion onto the deficit.
The Big O's not even out of his first thirty days, and he's done it.
(and yeah, notice that, in fact, it's the Dem Congress who's in charge of this porkulent crapfest)
As the saying goes:
Hellooooooo KETTLEE!!!
This is THE POT!!!
"You're BLACK!!!"
Might be a bit of a difference worth noting, YA think? Oh, sorry, that activity is far beyond your capacities.
Never Mind.
None of this matters. The Dems wanted something, anything passed so they could get ahead of any recovery (which might be happening as we speak) and claim the plan ushered in or caused the rebound. If the rebound doesn't happen, then they can tell us to "stay the course."
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