Why the Stimulus Failed

The Rabbi

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From this AM's WSJ.
The stimulus failed because it was based on the failed notion that gov't could substitute demand fro the private sector. But there is no substitution because the private sector spends money differently from the gov't. Note in this story how one contractor was told to use smaller tiles to inflate the cost so they would use the money up.
More at the source.
Review & Outlook:Why the Stimulus Failed - WSJ.com

Even zero jobs growth in August doesn't seem to have disrupted President Obama's faith in the economic policies of his first three years, so one theme we'll be listening for in tonight's speech is how he explains the current moment. Why did his first jobs plan—the $825 billion stimulus—so quickly result in the need for another jobs plan?

For readers who want to know, an important account is offered in a pair of new Mercatus Center working papers by the George Mason economists Garett Jones and Daniel Rothschild, who did field research on what they call the supply side of the stimulus.

The Keynesian theory was that a burst of new government spending would take up some of the slack in aggregate consumer demand. This was justified in 2008, again in 2009, and is still defended now based not on real-world observation but on abstract macroeconomic models that depend on the assumptions of the authors. The Congressional Budget Office's quarterly studies—often cited to claim the stimulus created tens of thousands of new jobs—are based on such a model. By informative contrast, Messrs. Jones and Rothschild interviewed actual people who received stimulus dollars and asked how they spent the money.
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In the first paper, the authors survey 85 different businesses, nonprofits and local governments across the country and conclude that "As is often the case when economic models are transferred from the blackboard to actual public policy, there was a gap between theory and practice."

One of the major patterns Messrs. Jones and Rothschild uncovered was that the top-down stimulus was poorly targeted. In one redolent example, a federal contractor said he was told to use smaller, nonstandard tiles that are harder and more expensive to install in order to increase the cost of the project. That way, the government could claim the money was moving out the door faster. The famous Milton Friedman line about government ordering people to dig with spoons to employ more people comes to mind.

In another case study, a budget shortfall forced a mid-size city to lay off 185 public workers—but the city received a $4 million stimulus grant to improve municipal energy efficiency. The manager of a construction company received funds for "the last thing on our list; and truthfully, the least useful thing." It happened to be a crane and a forklift.



A carpenter forman surveys a construction site funded by federal stimulus in Lakewood, Colorado, in 2010.

The authors are careful to note that such anecdotes do not mean that all of the stimulus was a waste, and they did find some success stories. The problem is that all but the most reductionist Keynesians of the Paul Krugman school believe it matters what the government spends money on. A dollar that eventually will be taken out of the private economy through borrowing or higher taxes to fund pointlessly expensive projects—a la the tiny tiles—is not the way to nurture a recovery.

The second paper suggests that the stimulus did not "create or save" nearly as many jobs as the models indicate. On the basis of 1,300 interviews, Messrs. Jones and Rothschild estimate that merely 42.1% of the firms that received grants hired people who were unemployed. Instead, they poached workers from their competitors.
For those who say the stimulus prevented Great Depression II, the evidence is simply not there.
Here is Michael J Boskin showing how Obama failed to deal with the issues he was handed.
Michael J. Boskin: The Obama Presidency by the Numbers - WSJ.com
 

Avatar4321

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Did it fail?

If it's purpose was to stimulate the economy, yes.

But it seems to me it was just a pay off to all Obama Campaign contributors. And in that way it worked just as planned.
 

Truthmatters

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The stimulus worked and only right wing partisan hacks say it didnt
 

Avatar4321

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The stimulus worked and only right wing partisan hacks say it didnt
It didn't stimulate the economy.

But if by claiming it worked you are saying that Obama successfully paid off campaign contributors you are absolutely correct.
 

Immanuel

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It did not fail
That's right, Keep Hope Alive, despite the failed policies of this administration.

Although, Avatar is correct, this policy was not about stimulating the economy but rather rewarding the friends who got this President elected.

Immie
 

Truthmatters

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Your fight is with the economists and the CBO.

you live in a conland hate circle
 

Avatar4321

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Your fight is with the economists and the CBO.

you live in a conland hate circle
You fight with the numbers.

Unless your saying that the administration is lying when it is announcing higher unemployment. Why would they do that TM?

Why do you want to look at everything but the raw data?
 

Jarhead

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Creating 3 million jobs using government money while losing more than 3 million jobs in the private sector is proof that it created jobs, but also proof that it did not stiumulate the economy.

But of course taking 500 billion dollars to create jobs will create jobs...that is not rocket science......but it did nothing for the economy...and it was marketed as an economy stimulus.

It wasnt...it was noithing more than pay back
 

boedicca

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The stimulus worked and only right wing partisan hacks say it didnt

I call Shenanigans. Please explain, in your own words, how the stimulus worked and what it accomplished. Include a comparison of actual unemployment vs. the Obama Administration's claim that unemployment would peak at 8% with the Stimulus in place.
 

boedicca

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All you have is lies.

All you have is links to articles citing bogus computer models that use circular logic.

The same models used to predict the impact of the Stimulus are now used to measure its success. The models assume a certain amount of spending has a certain multiplier - and these bear no resemblance to reality.
 

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