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NEWSWEEK’s Samuelson on the Stimulus

There’s nothing new here, but these words are from a particularly respected mainstream economist who is, in principle, a stimulus hawk. Using the stimulus for unrelated policy goals radically decreases its stimulating power, and spending increases for particular programs--although allegedly temporary--will be just about impossible to reduce later. The economic logic of stimulation has probably been fatally compromised by politics.

Discussions - 5 Comments

The economic logic of stimulation has probably been fatally compromised by politics.

While Keynesian economics might be "logical", the evidence is that it is not "valid" - no matter what Robert Reich says :)

Even if one assumes the premise (Keynesian stimulus works) this country has crossed a certain line where neither political party could bring it about.

The GOP version of this bill would look like this: It would have been about 100 billion less (hardly significant), and would have been full of tax cuts instead of new government growth. The tax cuts would have simply left the already planned government growth the same, which is a foundational cause to the current "crises". Also, the GOP practically invented the current FED policies of promoting unrealistic growth with easy money policies.

In other words, any "stimulus" plan is really besides the point - the cause and solutions of the current "crises" lie elsewhere...

The main reason why the stimulus won't work (even if in theory it could):

Notice the unsustainable price spike starting in 1997

Freedom's (and free markets) a biatch, ain't it

Maybe Obama is himself something of a sceptic on whether a 'stimulus" would make the difference in turning around the economy. It is an open question whether even a well designed spending program will turn things around. It is another open question whether a well designed program ("timely, targeted, temporary") could pass Congress. Certainly it would have been a desperate fight that would have estranged him from his party to questionable economic benefits. Knowing these uncertainties and challanges, maybe Obama opted for a spending program because he could get policies he wanted anyway (especially getting more people on government provided health insurance and buying off state and municipal employee unions) and calling it a stimulus program. The emergency situation allows this wishlist to be passed with a maximum of speed and a minimum of thought. It might be inefficient as a "stimulus" but it might be very efficient for other purposes which are not Robert Samuelson's.

Pete,

To your last post, well yes! Besides, what does it really matter whether Obama was a "skeptic" or not. The facts are the facts, and this "stimulus" is not a stimulus but what we know is in Obama's heart: Big Government Liberalism

As to whether any "stimulus" could have helped, I don't think it is much of an open question. Even if you accept Keynesian theory, the structural causes of this recession don't lend itself to such a solution...

Christopher, I lean more towards your view (though with very little certainty on my part) rather than Samuelson's on the likely success of a spending led stimulus but there was the possibility of one that would be a fairer test of the theory, be less of a long term economic burden, and do less to increase government dependency. Even a sceptic like me wouldn't have minded such a policy too, too much. That Obama did not produce, nevermind fight for such a policy maybe tells us a little about what he thinks about how important his stimulus plan is AS SIMPLY economic stimulus and alot more about his longer term statist priorities.

You could of course argue that partisan politics and the general ideological climate would have made a much better stimulus plan (in the Larry Summers "timely, targeted, temporary" sense) impossible. I think that it would have been difficult but that Obama could have gotten it if he was willing to fight for it. It would of course have hurt him with his own party to tell them to put off their grab bag of spending till later. That he did no such thing is significant, though its exact meaning is open to multiple interpretations.

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