Monday, June 8, 2009

Economists Surprised That People Read the Paper

The Grand Unification Theory of Sucking
06/07/09 - VodkaPundit by Stephen Green

[edited] Big Government Spending Programs are Having an Opposite Effect

The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.

But this and other big government spending programs are having the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.

Well, duh! Stimulus spending can’t work, because these things happen, and I’d say we will indeed get all three:

1. Extra spending means extra taxes, which means the whole thing is a wash. It is a big, fat lie that Government spending has a “multiplier” effect different from consumer or business spending.

2. Extra spending means extra debt, driving up interest rates and choking growth.

3. Extra spending means printing money. Resulting inflation makes any growth an illusion.

This is a great comment by Shannon Love who posts at ChicagoBoys

[edited] Leftist economists don't understand that people read the paper.

The problem with their stimulus theory starts with their assumption that everyone will behave just as they would have without a stimulus, up to the point that the stimulus spending reaches a critical mass sometime next year.

However, people read the newspaper, see the tsunami of taxes, regulation, and inflation coming their way, and they alter their behavior immediately. Passing the stimulus bill today and planning to raise taxes tomorrow, alters people’s behavior right now. The expectation of paying for the stimulus later drives down economic activity now, long before the stimulus can hope to have any effect.

Obama’s team can’t see this because they have an ivory tower model of the economy. They think people do not make economic decisions until they actually receive money. They can’t seem to grasp that the economy results from the choices of real, live, human beings who can and do make plans based on their predictions of future conditions.

Obama expects people to stand around passively until Obama does something that makes them react. Instead, they’re anticipating him.

+ + + +
Stimulus Does Not Cure a Recession
Jobs change when people change what they want to buy or can afford. This takes time and adjustment. Businesses won't hire because of a short-term boost to their income that is being borrowed from later taxes.

Why Spending Stimulus Plans Fail
Government spending merely transfers jobs and income from one part of the economy to another.

Econ 201: The Myth of the Economic Multiplier
Government spending doesn't multiply anything. It takes resources from taxpayers and applies them to government projects. You get a bridge or some paperwork, that is it.

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