« BACK  |  PRINT

RS

MEMBER DIARY

CBO Director Admits Stimulus Will Shrink Economy

Another Keynesian beast has been slain

By: Daniel Horowitz (Diary)  |  November 15th, 2011 at 08:24 PM  | 

RESIZE: AAA

We could have done a lot of good things with the $830 billion that was flushed down the toilet through the 2009 stimulus.  That money could have been used to permanently transform our entitlement programs to free-market personal ownership accounts.  It could have been used for massive pro-growth tax cuts.  Instead, it was used to grow perennial dependency and for special interest handouts.  But all of the supercilious smart economists say that it helps stimulate the economy, right?  After all, it is called stimulus.

Well, earlier today, CBO Director Doug Elmendorf admitted to Senator Sessions that in the long run the stimulus will shrink the economy.  He testified at a  Senate Budget Committee hearing that the stimulus will indeed “be a drag on GDP” over the next ten years.  Any diligent student of history already knew that, but now we have the “gold standard” of budget and economic scoring to affirm that self-evident truth.  Nevertheless, fear not, the stimulus will have a stimulating effect in the short-term.  That’s why we are enjoying a robust annual average GDP growth of…..1.4%.

 

Tags: , , ,

COMMENTS

POSTING RULES  |  LOGIN TO COMMENT  |  REGISTER TODAY
  • goformitt

    Elmendorf said a lot of things today, but I’m not sure you characterized them in their entirety. I think he said that some aspects of stimulus, like increased unemployment aid would be beneficial – returning more than what is invested.

    USNews: “Elmendorf told senators that the short-term spending increases and tax cuts are likely the best paths to growing the economy”

    As far as your suggestion that the money could better be spent on “massive pro-growth tax cuts” the CBO actually reported that reducing business tax would likely result in adding only 0.3 dollars –
    The USNews article provides what seems to be a fairly balanced summary of the CBO report and the Senate hearing today:

    http://www.usnews.com/news/articles/2011/11/15/cbo-unemployment-benefits-extension-an-economic-booster

    • donald_24

      There were actually a large number of tax cuts in the stimulus. I beleive about a third of it was tax cuts. Correct me if I am wrong.

      • JSobieski

        The stimulus didn’t include the one thing we know works—long term reductions in marginal rates. Everything else is just picking winners and losers, i.e. crony capitalism.

      • acton27

        The “tax cuts” in the stimulus bill were payroll tax cuts — thus reducing the solvency of Social Security further and borrowing from our kids — and a few targeted tax cuts for low (and some middle) income taxpayers. They were not designed to be stimulative, just give-aways.

        Elmendorf admits the long-term negative effect of the StimuLESS package, but still continues to insist there was — or will be — a positive short-term effect. The economy has not seen that, and a study posted in the WSJ nearly a year ago showed that the federal money simply replaced state money that was already going to be spent. There may be some good in making the states more solvent, but it was not stimulative.

        And this does not take into account the NEGATIVE effect of taking money away from the productive side of the economy to pick winners among the less productive side of the economy. No, Sessions needs to hone in on why this is overall a bad idea and a bad idea in perpetuity.

  • donald_24

    Here is a direct link to the CBO data. They list extending unemployment benefits as the most stimulative and extending the Bush tax cuts as the least stimulative.

    http://www.cbo.gov/doc.cfm?index=12437

    • acton27

      Is the CBO’s position that unemployment benefits are stimulative because people who are not adding to the economy will be buying groceries that they would otherwise not buy? Or clothes? Or refrigerators or cars? Unemployment benefits aid a lot of people who do need the help, but to the extent that they incentive the unproductive side of the economy, they cannot be stimulative.

  • wbf

    From a newsletter I subscribe to I not only found the article that I linked to in my diary about “System D” and the black market economy, I also was given a link to this video.

    Wealthy people in Italy are preparing for the worst.

    • nathanalbright

      My concern is what happens when people realize, not just intellectually, but seeing with their own eyes, what happens when their socialist governments have lied to them year after year and made false promises about taking care of health and old age care and there’s nothing left to pay. That moment looks to become very soon. What happens then? Who gets the blame?

  • goformitt

    I think we have to be a bit careful about asserting “the stimulus didn’t work”. Avoid it, that is, because it is a too transparent argument. After all, we don’t know exactly what would have happened without the stimulus and I don’t think anyone ever claimed it would return the economy to boom-times.

    I think, like most people, I can see a pretty big impact of the stimulus – lots of people who would have lost their jobs without it – at the city and state gov’t level, but also a bunch of construction / road crew type workers.

    An those that did loose their jobs at least had extended unemployment. I know one couple who would have had to walk away from their home with out it.

    Most economists agree with the CBO that we have a double wammy – a short term need for stimulus and a long term plan to bring down debt/deficit.

    With Congress at an unbelievable 9% approval rating, we we should finally start to see some consensus. And the consensus will probably acknowledge the complex nature of our current economic troubles.

    • iidvbii

      Ever get tired of being wrong about everything? The argument you put forth is the same as Oromney uses just about everyday. Jobs created or saved. Of course this I conveniently cannot be empirically proven or in your case disproved. But here is a simple question? If Oromney and his economists where right as you contend where is that 8% unemployment we where promised?

      • goformitt

        The argument would be that we avoided the 12% unemployment that we would have seen without the stimulus. Not saying that is a true statement, but it is hard to disprove and it also reflects many people’s personal experience. I know a number of people who have a job today, and have been able to keep their homes – one was able to buy a first house (single mom with a child and earning about $40k), because of the stimulus.

        A large company that I am familiar with used the stimulus as a bridge to get their financial house in order. They allowed positions to go unfilled, provided early retirements, got serious about cutting costs, etc.

        As a result, they only had to lay off 10% of their work force instead of the much larger cuts they had anticipated.

        My feeling about the stimulus changed when I read the pleas for funds from my GOP Senator that emphasized the jobs saved / created by the money.

        So again – I’m not saying it was perfect, or that it provided any long term solution to our economic problems, but that it was not “worthless” as many are trying to claim. Thats just an untenable position in my opinion.

      • goformitt

        It can’t be proven that the stimulus created or saved jobs, but it can’t be proven that it was a total waste and did nothing either. The easy answer to the assertion that the stimulus didn’t bring unemployment down to the promised 8% is that it did keep unemployment from going up to 12%. Neither can be proven of course.

        But since, as I’ve already said, many people’s personal experience is that it has helped, the argument that it was a waste is weak.

        Just find and read your state’s requests for stimulus funds -

        • iidvbii

          Quick question for ya… What’s the difference between a revenue contributing state (Texas) and a revenue utilizing state? Give up? If you knew the answer you wouldn’t be re-hashing that tired old Perry used stimulus money line. Here I will help connect the dots for you. Contributing states Texas for instance are actual net positive contributors, meaning we pay more in then we receive back. So when someone at the federal level does something completely stupid such as Obomney did with his FAILED stimulus plan. The bill eventually gets passed to the haves (Texas) to pay for the have nots. My point? I know big government libs like you and Obomney could care less who pays for these things but we do, its our money. When Perry “requests” stimulus funds. What he is really saying is “We will keep all of our own money we can, thanks”. Of course a lot of this “stimulus” had strings attached in the form of short term funding for long term mandates. We will pass on that, we like being low tax and high revenue in Texas.

          Although your “people have told me it worked” justification is much more pathetic. My friends agree with me so I must be right is pitifull even for a Obomney-bot.

          Continuing on, ever wonder why you have never heard a president use the term “jobs created or saved” before? It’s a made up metric, it’s a way of claiming things aren’t as bad as they are without someone calling you on it. It’s candy for the weak minded zombies who buy into Keynesian economics. As validation of this see 1979,1980-83. 2000-2002 and finally pre-Obama 2008. All different presidents at periods of economic recession with mounting unemployment and yet no fictitious metrics in any of their speeches.

          And finally, the didn’t goto 12% argument is really, really pitiful. Lest we forget we weren’t @ 10% when Obama passed the Romney endorsed stimulus. We were @7% and climbed past 10% during all those shovel ready jobs. Oh wait there weren’t any. “They weren’t as shovel ready as Obomney thought”. Today 9% and on the verge of another dip…. Tsk Tsk Tsk… If that’s how you measure success please switch party’s, please.

          While we are on the subject, compare your positions on this subject or the government take over of healthcare for that matter. With that of any prominent democrat. They are identical, you use Obama’s own talking points to justify your and by extension Romney’s position in this very conversation. Doesn’t that disturb you? Seeing as you are so committed to defeating Obama this next year and all?

          Perhaps huffington post would be more your speed, just sayin.

    • wacowboy

      BO promised that unemployment would stay below 8%. It’s now around 9% and got awful close to 10%. That’s a failure no matter which way you slice it.

      Stimulus created an artificial boom in housing with the 8k tax credit. As soon as that ran dry, the housing market continued its descent.

      Stimulus created another artificial boom with cash for clunkers. once that program was done, new car sales slowed once again, but now there aren’t many cheap used cars because they all were euthanized.

      Stimulus “created” jobs in government agencies, etc. But what is happening to those jobs now that the stimulus money is gone? So are the jobs. Again, stimulus created an artificial job market that suddenly went away.

      the problem with stimulus is what it says to the job creators — “your taxes are going up.” What else could be the conclusion when a job creator sees the government drop almost a trillion dollars? it has to be paid for somehow, doesn’t it?

      So the end result of stimulus is perhaps short term gain, but long term loss because whatever gained in the short term is artificial growth.

      • goformitt

        Maybe. I think the CBO’s estimates were that much of the money spent on the stimulus returned more than it cost. Thats a far cry from claiming it was a waste of billions of dollars. If the money spent provided a bridge to a better economy, or even if it kept people in their homes another year, than it did measurable good.

        I agree completely that these were short term benefits. But if one imagines life without the stimulus (and the bailouts, for that matter) we can easily see much that would be worse right now – again, in the short term.

        I’m not claiming the stimulus was unmitigated good, just that it is only fair to look at it in its entirety and not try to claim it was “worthless” when many, many people can say that it was a definite help to them.

        BTW, having a position that the CBO is a tool of the president is a pretty crazy claim. It would need a good deal of proof – which doesn’t exist unless your a conspiracy theorist!

        • wacowboy

          that short term gain at long term expense is not a good thing.

          think of it this way. If you’re short of money, you can take a payday advance loan, and can pay your rent for a month or two with those funds, but pretty soon that money is run out, and then not only do you have to pay rent, but now you have debt on top of it, and therefore you are in a worse situation than before.

          that’s the case with stimulus. It didn’t provide any long term solutions.

          The stimulus did give many people jobs. But now most of those jobs are gone. I live in an area that had a stimulus boom of hiring. But most of those people have now been laid off because the stimulus money is gone. they are exactly where they were two years ago, but the country is a trillion dollars deeper in debt.

          I think when people say the stimulus was a failure, they’re not discounting some short term benefit that people received. The failure is that in the big picture the stimulus has not gotten the country out of its current funk — which is now three years long.

          There is no doubt that I have benefited from the $800 making work pay tax credit. but would I trade that $800 for a healthier government and economy? you bet.

          • goformitt

            Completely – the stimulus provided no long term benefits. In fact, I agree that it served to forestall inevitable lows in housing, for example. But as in my example below, some companies used the money in a way that saved jobs and increased efficiency.

            For example, look at how the auto bailouts have benefited the US automakers. That is the sort of long term benefit that is possible – not that it was used that way by all.

            But I believe, and a bunch of economists do to, that in the current slump, government can play a role in stimulating demand with spending.

            As pointed out in the USNews article, its hard to deal with a recession and debt at the same time. So many people believe short term spending couple with a serious plan to cut long term debt is the way to go.

    • http://moelane.com/ Moe Lane

      …about whether you’re a sockpuppet for booboola7896.

      http://www.redstate.com/moe_lane/2011/11/09/the-aside-from-that-mr-lane-how-was-the-cnbc-debate-overnight-open-thread/#comment-58185

      My bad, I completely forget to keep up with that. So why don’t you answer it now? – And, yes, this is a question from a site moderator, so don’t duck it.

      • goformitt

        What is a sock puppet? Someone pretending to be someone else? If so, then no – I am not. You should be able to do a trace route on my IP and verify that.

        • http://moelane.com/ Moe Lane

          Since you misrepresented his response as him being an internet tough guy making threats.

          Next post. And no “Sorry if you were offended,” either. It’s “Sorry that I messed up.”

    • Bill S

      Hearing pro-Romney folks spouting the same defenses of Obama policy as Obama’s own people.

      Oh, no, Romney’s not a liberal. Nope. Not at all. He’s completely different from Obama on everything. Except for this. And that. And everything else.

      I’ll give you one thing – you haven’t flipped yet. But there’s still time.

  • ihateliberals

    Everyone with even a hint of intelligence knew the Stimulus package was a payoff for being elected. It woul dhave been better to have just taken the money and divided it by the Number of Tax returns and just giventhe mney to them. $843 Billion divided by 155 million is $5.438 per tax returned filed. That money would have found its way intot hte economy big time.

    The CBO works for congress and better yet they work for who is in control of congress. They are not independent and wil never give the right numbers about anything. I am surprised when they actually add 2+2 and get 4 as the answer.

  • goformitt

    Haven’t heard anything that crazy since the tin-foil hat days. :-)

  • blarman

    remains that government spending does NOT grow the economy. It’s like fertilizing a plant – you might see some initial growth, but unless the ROOTS of the plant can grow to sustain the forced growth, the plant DIES.

    If we want real GDP growth, it has to come from a REDUCTION in government spending, a REDUCTION in taxes, and REDUCTION in government meddling in the market – NOT MORE. Our economy can not recover until the liberals in Washington are willing to admit that Keynesian policies don’t work – EVER.

    If only there were a 2×4 long enough to thwack each and every one of them … Problem is I don’t think they WANT to do what’s right by America.