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Posted: Tue May 19, 2009 3:30 pm
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Posted: Tue May 19, 2009 6:16 pm
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Posted: Mon May 25, 2009 8:31 am
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Posted: Mon May 25, 2009 6:18 pm
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Posted: Mon May 25, 2009 11:13 pm
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Posted: Tue Jun 02, 2009 1:41 pm
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Posted: Tue Jun 02, 2009 10:28 pm
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It won't. The theory is, you inject the money into the economy through these temporary government projects. People make the money, and then spend it, injecting it into the economy. Businesses then circulate the money by paying employees, etc.
The flaw with the stimulus is that the money is insufficient to alter business plans. Think of it this way. The stimulus opens a bridge project down the road. The bridge is scheduled to be completed in a month. The workers eat every day at the local diner. For a month, it's busy in the mornings and the waitresses are making fat tips. Then the bridge is built, and the crew moves on. Business settles back down to normal levels. The effect is nil.
Two scenarios alter business models long term; sustained mobilization of a sector of the economy through repeated government expenditures, and of course natural economic growth.
Scenario 1: Same town as the bridge. The government decides it wants to stockpile steel reserves. So, the government contracts the local steel works to start cranking out steel round the clock. This is scheduled as a 4 year program. So, the steel mill needs extra workers to fill the government contract. These workers eat at the local diner every day for 4 years. The waitresses not only make extra money for the next 4 years, but the diner needs to hire more waitresses to cover the extra business. The waitresses now have more disposable income and spend on consumer goods (in addition to all the steel workers doing the same). As a result, local commerce starts making money, expanding, adding more workers, etc. The 4 years is enough to alter economic patterns. However, barring any other external growth, once the four years are up everything will eventually settle back down to pre-government spending levels.
Scenario 2: Same town as the bridge several years after the steel mill contracts are gone. Jeff Widget invents a new thing, the Widget. He decides to open a factory in town and mass-produce widgets. The widgets are popular and so Jeff makes money. Jeff continues to build widgets, and introduce new lines. The subsequent economic patterns in the town are affected in the same way as they were in Scenario 1 with one important caveat; Jeff doesn't pull up shop after 4 years. Jeff continues to operate as long as he makes money with his operation. Therefore, the economic growth in the community is sustained without an externally occurring termination date.
So, the real hope is that we return to scenario 2 as the primary model of reviving our economy. Innovation, investment, and capitalist venture do not drain public resources create the longest term growth. The idea behind government stimulus is that hopefully spending with inject capital needed to trigger the sort of innovative growth that comprises scenario 2. The current stimulus is highly unlikely to do this since it cycles through the economy too quickly to alter economic patterns. Scenario 1 is much more likely to provide this sort of jump start, and indeed worked during the Reagan years when we underwent a protracted mobilization of the industrial base to fuel the military expansion. The stimulus ideas being tries now essentially failed under the Carter administration once already.
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Posted: Tue Jun 02, 2009 11:41 pm
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Posted: Wed Jun 03, 2009 5:48 am
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Well, most of what I was talking about was macroeconomics, which is more of a hobby of mine than anything else. I did extensive grassroots politics for a while, but most of what I did didn't pertain to economic policy. I was a double-major in history and poli. sci. Most of what applies in these cases is the historical track record of government intervention in the economy globally. Most of the time government intervention results in either no effect whatsoever or even unintended consequences.
As to the economic fallout of the bailout, the main causes for concern really have been pre-existing issues anyways. The Chinese have considered divesting in the dollar, but mainly that's because they've realized since the economic troubles that being so heavily invested in the dollar could burn them majorly. So yeah, they'll probably stop buying up debt sooner or later, necessitating either major tax increases in the US, huge budget cuts, or re-shopping our deficit funding to other willing financiers. Paying off our debt would be a great idea at this point. It would be a tough go, but it would free us up financially from the diplomatic burden of being so heavily indebted to an emerging power on the global stage.
As to the financing of the stimulus, it's not coming out of increased taxation. . . yet. Right now it's all through deficit spending. Sooner or later they will have to up revenue to cover the spending initiatives Obama is proposing. That will happen later down the road, though.
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