Thursday, January 27, 2011

Stimulus - what it is and why it doesn't work



I tried going off the cuff. I don't know, it could have gone worse. I talk about what the purpose behind a stimulus program is, and give four reasons why it doesn't work. Please leave a comment.

John Gustavsson

6 comments:

Anonymous said...

John, first I'd just like to discuss spending propensity in general, and in some ways philosophically. My first question to you is this:

Does the need for a high spending propensity perhaps indicate that we, as a culture and a society, are too reliable on consumer spending?

In other words, if we do not continue to oil the machine, the machine breaks but perhaps the machine has grown to large to begin with but it seems that at this point, for our own economic safety net, we need the cogs in the machine to continue to run..it seems like a catch-22.

Since this is such a long podcast I'll address a little at a time as I have the time to do so.

BTW, I appreciate you posting these podcasts but it seems that they might be a bit too long to generate a discussion...just something to think about for future podcasts.

jerseyrepublican

OhioJOE said...

Great post John!

John said...

Jerseyrepublican, thanks for your questions.

First of all, I did not want to make it sound as if I am a supporter of a high propensity to consume/spend. I completely agree that the american economy is depending too much on spending today, as opposed to spending tomorrow (in economic terms, savings is simply money that will be spent tomorrow).

Economic models teach us that american savings would have to almost triple for american growth to reach its highest, stable point (meaning it would be growth that would not be temporary like the one we saw in the last decade, but permanent and eternal). I have done the math myself. At some point, an economy can get too much savings - meaning there is so much capital available and the return gets very low. But there is no economy in the entire western world which is even close to that point.

Revolution 2010 said...

What happens when a large percentage of the spending is by credit. By people who really don't have the means to purchase the amounts that they spend. Another words, the amount consumed is based largely on the. I'll pay for it later, MAYBE!

John said...

If anyone bothers to listen to the whole audio, you'll hear that I am not supporting stimulus. I just go through the perceived benefits in the beginning.

Borrowing money means you can spend more money than you have temporary. A good idea, if it means you can get more money later. Otherwise, usually not so good.

ConMan said...

No more stimulus money. It's make or break time!