The “Stimulus” Stopped the Recession? Not So Fast!
A Stimulus Sequel Would Be a Flop
By William L. Anderson • Posted November 04, 2009
I don’t intend for this column to be a weekly response to Paul Krugman, but there are times he writes such outrageous things that I won’t be silent. The New York Times column of November 2 is one of them.
Krugman declares that the American Recovery and Reinvestment Act (the “stimulus”) has “worked,” but still is “not enough.” Its supposedly curative economic powers are described as such:
- …not that long ago the U.S. economy was in free fall. Without the
recovery act, the free fall would probably have continued, as unemployed
workers slashed their spending, cash-strapped state and local governments
engaged in mass layoffs, and more.
- The stimulus didn’t completely eliminate these effects, but it was enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. If you want to see the recovery act in action, visit a classroom: your local school probably would have had to fire a lot of teachers if the stimulus hadn’t been enacted.
- The stimulus didn’t completely eliminate these effects, but it was enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. If you want to see the recovery act in action, visit a classroom: your local school probably would have had to fire a lot of teachers if the stimulus hadn’t been enacted.
Unfortunately, according to this star of Princeton University’s all-star faculty, the near-trillion dollars of this program, which came entirely from borrowing and printing money, must have a sequel or the U.S. economy will have high unemployment for years to come. The only thing that can “save” us is another round of borrowing and printing.
- The effects of the stimulus will build over time it’s still likely
to create or save a total of around three million jobs but its peak
impact on the growth of G.D.P. (as opposed to its level) is already
behind us. Solid growth will continue only if private spending takes up
the baton as the effect of the stimulus fades. And so far there’s no sign
that this is happening. [Emphasis added.]
- So the government needs to do much more.
- So the government needs to do much more.
An economy is not a “blob” into which people pour money, the Keynesian view. It is an intricate combination of factors of production which individuals harness to meet the real needs of real people. It is a process constrained by the law of scarcity, which means that the workings of an economy – if individuals are permitted the freedom necessary to make it work – are going to be directed toward individual needs.
Factors used for one purpose cannot simultaneously be used for something else, and it matters that these scarce factors be directed properly. Unfortunately, the dominant thinking among professional and academic economists is that the economy is an empty tank into which one pours the fuel of money and magically it “creates jobs” and goods. This is as nonsensical as Aaron’s explanation to Moses that the Golden Calf simply rose out of a fire after he threw a bunch of gold jewelry into it.
The “stimulus” has not “saved” anything. It has been a huge misdirection of resources from things that would meet real-live individual needs to those things that meet the “needs” of politicians to be reelected. As I noted in an earlier column, where I live almost half a million dollars was spent rolling sod onto a narrow median strip on I-68 near my home, an unnecessary and wasteful project if ever one existed.
Our economy is moribund because for many years the government and the Federal Reserve misdirected resources into lines of production that never could be sustained. While the boom lasted, things seemed to be great, but it now is time to pay the piper. Unfortunately, the politicians and intellectuals seem to believe that the “solution” is even more wasteful spending.
http://www.thefreemanonline.org/columns/not-so-fast/the-%E2%80%9Cstimulus%E2%80%9D-stopped-the-recession/?utm_source=The+Freeman&utm_campaign=6544b153ff-In_brief_10-20-2009&utm_medium=email
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