Stimulus effect beginning to unfold, MSM starts to take notice.
The Boston Globe has a story this morning worth reading, by Steve Rosenberg, outlining how Massachusetts has utilized about $4 billion of the $17+ billion in stimulus funds to retain and create street-level jobs.
Lets hope this is the trickle before the flow, and more MSM outlets will start covering the stimulus effect on state and local economies.
If you read the story, take note that it says this money helped not only create jobs, but RETAIN public service jobs. Here's a paragraph that goes there;
"The group's report, to be released this week, is one of the first attempts by an independent organization to document the effects of the stimulus on Massachusetts. It said the stimulus helped preserve the jobs of municipal police officers, teachers, and firefighters, while generating jobs at new building and infrastructure projects across the state. By extending unemployment benefits and providing tax credits, it also fueled new consumer spending."
It is safe to say that the rest of the nation is expriencing similar stories from state to state and city to city. The stimulus money is, at least in most part, flowing, not trickling, down to the working class consumers, where it will actually enter the general economy, and not some billionaire's personal portfolio.
Which seems to me to be the difference between the bank bailout money and the stimulus money. The easy credit that the bailout was supposed to produce, to put more money into consumer circulation, never reached the consumer level to maintain and create jobs (anybody know where it is now?), the way stimulus money appears to be working.
Correct me if I'm wrong, (please, I'm an economic layman, so any expertise would be humbly appreciated) but it seems as if those who need it the least, who hold it in big pools of personal wealth as some sort of bloated form of security, got the bulk of the bailout money, while everyday American consumers got the benefit of the stimulus money.
And thus the stimulus money actually gets into the economic cycle, rather than augmenting already over-bloated bank accounts.
Lets hope this is the trickle before the flow, and more MSM outlets will start covering the stimulus effect on state and local economies.
If you read the story, take note that it says this money helped not only create jobs, but RETAIN public service jobs. Here's a paragraph that goes there;
"The group's report, to be released this week, is one of the first attempts by an independent organization to document the effects of the stimulus on Massachusetts. It said the stimulus helped preserve the jobs of municipal police officers, teachers, and firefighters, while generating jobs at new building and infrastructure projects across the state. By extending unemployment benefits and providing tax credits, it also fueled new consumer spending."
It is safe to say that the rest of the nation is expriencing similar stories from state to state and city to city. The stimulus money is, at least in most part, flowing, not trickling, down to the working class consumers, where it will actually enter the general economy, and not some billionaire's personal portfolio.
Which seems to me to be the difference between the bank bailout money and the stimulus money. The easy credit that the bailout was supposed to produce, to put more money into consumer circulation, never reached the consumer level to maintain and create jobs (anybody know where it is now?), the way stimulus money appears to be working.
Correct me if I'm wrong, (please, I'm an economic layman, so any expertise would be humbly appreciated) but it seems as if those who need it the least, who hold it in big pools of personal wealth as some sort of bloated form of security, got the bulk of the bailout money, while everyday American consumers got the benefit of the stimulus money.
And thus the stimulus money actually gets into the economic cycle, rather than augmenting already over-bloated bank accounts.
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Whether or not the Stimulus is working depends on how you define success. Was the Stimulus done in order to increase GDP? Help unemployment? Or just give money to states and people that desperately needed extra cash?
The Stimulus has not helped consumption. Look at the $250mm that was paid out as one-time payments to people receiving Social Security, VA benefits and temporary reductions in income tax witholdings. These payments were made to increase consumption and help get the economy going again. But these one-time payments didn't help consumption. Because people viewed the payments as temporary, they instead saved the money. We've seen that before with one-time rebate checks from the government under other administrations. They are never very effective.
If you look at GDP growth, you will see things getting "less bad" as GDP went from negative 6.4% in Q1 to negative 1.0% in Q2. But you need to look at what was responsible for this improvement. If you look at the government data, the largest positive contributor to this improvement was PRIVATE INVESTMENT. Personal consumption was still a negative contributor to GDP in Q2.
I have a hard time trying to see what parts of the stimulus plan caused private businesses to spend more money. The free fall in business investment stopped in Jan/Feb of 2009, which is well before the Stimulus money started to flow.
The government contribution to GDP in Q2 was meaningful, but half of that government spending was defense related and that doesn't come from the Stimulus.
So I see little evidence that the Stimulus was responsible for the improvement in GDP decline from Q1 to Q2.
Perhaps the stimulus has helped and things would be worse without it, but that is hard to quantify. What we can say with certainty is that things haven't improved. Consumption is still in the doldrums and unemployment has not improved.
October 12, 2009 9:19 AM | Reply | Permalink
"that is hard to quantify."
But not so hard to find.
I think that you can get a good idea of that "quantity" just by driving along the interstate and around town, and seeing all the infrastructure work underway.
While the people who hold those jobs are likely trying to tuck some of it away, their basic daily expenses represents consumerism much more than the wealthy class.
The percentage of their income that actually enters the economic cycle immediately once it is in the hands of the working class is notably higher than what a millionaire or billionaire contributes to the economy.
"How many yachts can you own?"
Bill, I think some conservatives actually WANT the stimulus to fail, it is part of that Obama derangement syndrome, where people whose ideology was defrocked when Obama got elected now prefer that our nation fail rather than see it flourish under someone they did not support.
I'm not saying you are one of them, though.
October 12, 2009 9:35 AM | Reply | Permalink
I am a big supporter of infrastructure spending, whether as part of the Stimulus or in other projects. But a large part of the Stimulus was in non-infrastructure type spending. That's why I think the Stimulus was not a good project. Does that mean I want it to fail? It doesn't matter what I "want". But I do think it will fail because it was poorly designed. I don't think we can spend our way to prosperity.
The real question is whether all of the non-infrastructure welfare spending that will happen this year and next year is just temporary. If it isn't, then we're in big trouble because we already can't afford spending increases.
What we need to do now is just swallow our medicine. We should be cutting spending, reducing the size of our military, cutting social security benefits, raising taxes, and fix our financial system so we stop bailing out firms that our "too big to fail".
October 12, 2009 10:00 AM | Reply | Permalink
I agree with everything you propose, but cutting Social Security benefits. If we were to do the other three, it would not be necessary to take that security net away from people who really need it.
And one thing is fairly reliable; Social Security checks get directly into the economy, they aren't typically tucked away as savings, and they aren't invested in other financial instruments, they pay for the necessities of life.
Which is consumerism, at it's roots.
October 12, 2009 11:23 AM | Reply | Permalink
We should be cutting spending, reducing the size of our military, cutting social security benefits, raising taxes . . ."
So, basically, you think John Maynard Keynes was a dangerous crank and you put your faith in the Chicago neo-classicists who got us into this mess in the first place.
God help us all. A lot of people think like that and all the empirical evidence (including a little expiriment we ran from 1929 - 1941) shows they're dead wrong and, yet, they still think like that.
For those who want the short version of why this is wrong, here's .
For those willing to invest a little time in understanding how bad economic ideas got us into this mess, here's a graduate course in an hour, Krugman's How Did Economists Get it So Wrong?" from last month. It is essential reading, IMO.
October 12, 2009 12:42 PM | Reply | Permalink
Whoops. A little course in html coding might be helpful too.
That should be "here's Krugman today."
October 12, 2009 12:44 PM | Reply | Permalink
Steve - Krugman is one economist with one opinion. (Remember that Krugman's Nobel was won for international trade, not how to fight a Great Recession). Keynes is another economist whom I would pay more respect to. Unfortunately Keynes isn't around to opine on the current "Stimulus" package.
I don't think Keynes was a "crank". And the fact that I am proposing that we gradually RAISE taxes over the next 4-5 years would mean that I don't fit in with those who you call a "crank".
But the Stimulus is not growth oriented, but rather focused on social spending. There is already so much wasted spending in the government's budget, that to just add to it makes no sense. Government spending cannot create long-term sustained job and industry growth.
We experienced a one-time shock that has sent our Debt-to-GDP ratio sky high. We need to implement policies that drive the growth rate of the numerator down and the growth rate of the denominator up. In my view the Stimulus will drive the ratio up, not down.
As I wrote above, much of the improvement in Q2 GDP cannot be attributed to the Stimulus. Yet Krugman says we should have more stimulus. I guess he would prefer to have another bubble and deal with it later.
October 12, 2009 2:36 PM | Reply | Permalink
Steve is right. Krugman's view is widely held, and the closest thing to a consensus opinion among mainstream economists, if you exlude "alternative history" types like George Will. Stimulus doesn't have to be growth oriented, it just has to pick up the slacking. Any talk of "cutting spending" now is reckless and unwise. That would be a replay of 1937, where reckless and premature "austerity" measures served to choke off the nascent recovery.
The only bad thing about the stimulus was that it was too small and too many tax credits. But it certainly has helped. Consumers are the least bad part of this economy. Last year we had 1.4% growth in consumer spending, this year -0.7%. The real malefactors right now are companies which have laid people off, in many cases for no reason -- preemptively or out of fear of recession, not because they really needed to.
October 12, 2009 8:42 PM | Reply | Permalink
Krugman's view is a consensus? Says who? Plenty of people disagree with him. Winning a Nobel prize on international trade doesn't make you an expert on how to get us out of this recession.
We are spending like drunken sailors with the Stimulus, TARP, etc. I'm not saying we cancel those but to spend any more than what we've already done would be suicide. How about we use the remaining unspent Stimulus and TARP funds for a payroll tax suspension?
Private companies were the major factor in GDP growth becoming less negative in Q2 compared to Q1. The stimulus had little effect. And we're at unemployment levels way in excess of where White House economists predicted they would be is we enacted the Stimulus.
What makes you think that companies have laid people off for no reason? That's one I haven't heard before.
October 13, 2009 10:20 AM | Reply | Permalink