Stimulus Plan

October 8th, 2009 at 3:22 pm by David Farrar

Grant Robertson blogs:

Barack Obama is facing all kinds of issues in the US at the moment- healthcare reform, whether to put more troops into Afghanistan, climate change, you name it. All the while, he faces huge expectations on the left and visceral anger on the right.

But one thing he can point to is a stimulus package that  has made some big investments in covers green jobs, extensive social assistance and research. The stimulus package included $21.5 billion in funding for research and development, particularly in leading edge genetic research. The money has been spread around the US, and is having a great effect in encouraging research where private sector funding has dried up.

This is the kind of long term thinking that has been missing from NZ’s response to the recession. Of course we don’t have $21 billion to do this, but our government has set on the sidelines, and worse still pulled back from research funding. If we want to improve productivity and develop a new economy, we need large scale investment. On this issue, the Obama administration is showing the way

While I am all for genetic research (then we can clone Hayley Holt), I think Grant’s drooling over Obama’s is rather regrettable. Even if one puts aside the huge fiscal deficit Obama is running (which makes you wonder about how large a deficit NZ Labour is planning), have a look at this graph from Harvard Economics Professor Greg Mankiw that someone linked to in the comments.

stimulus-vs-unemployment-september-dots

So the light blue line is what Obama said would happen without his fiscal stimulus, and the dark blue line is what he said would happen with his fiscal stimulus. And the red line is what has actually happened.

And this is Labour’s solution to rising !

Incidentally in NZ, where we had a more modest fiscal stimulus, consisting of tax cuts and advancing necessary infrastructure investment, the unemployment rate is just 6.0%. It was projected to peak at 8% (or even 9.8% on the downside scenario), but the latest Reserve Bank forecast is now for it to peak at 7.0%.

Now this doesn’t mean a massive fiscal stimulus spendup makes unemployment go even higher. I am not saying Obama caused unemployment to go higher than projected.

The lesson is that the Government impact on unemployment is limited. The private sector is what creates job, not the Government. Government created jobs are funded from private sector taxes and you need private sector jobs to pay those taxes.

Obama has saddled future generations with an out of control deficit, and debt which will soak up money which could be spent on health or education.

This is what Labour wanted for New Zealand. They have proposed mounds of extra spending that would have stuff all impact on unemployment, but leave a massive debt burden for the future.

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34 Responses to “Stimulus Plan”

  1. scrubone (3,104 comments) says:

    I can only repeat the question I posed on Halfdone some weeks ago: If stimulus’ work, how come we ever have recessions in the first place?

    To put it another way, if governments can tax (or borrow) and spend their way out of trouble, how come trouble ever happens in the first place? You’d think it was easy to fix.

    But the reality is that Obama’s stimulus is stacked with pork – there is a large amount of money being spent on pet projects that are simply going to soak up money for almost no benefit.

    Oh, and nice use of the graph. This one’s been a bit overused in some blogs, and it’s nice to see some reasonable commentary on the issue. Sadly Obama is not to blame for all the world’s problems any more than Bush was.

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  2. Ryan Sproull (7,284 comments) says:

    While I am all for genetic research (then we can clone Hayley Holt)

    DPF, cloning someone just to be able to shoot them more than once is ethically dubious at best.

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  3. nickb (3,696 comments) says:

    Anyone that questions Obama is just racist.

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  4. nickb (3,696 comments) says:

    And scrubone- your answer is because keynesian economics is commie nonsense.

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  5. Chthoniid (2,047 comments) says:

    Out of interest, in NZ the Marsden Fund has just announced the successful applications for blue-skies research, and this fund is up $9m on last year.

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  6. dimmocrazy (286 comments) says:

    None of these leftist twats have any idea whatsoever what they’re talking about, they’re just regurgitating each others’ brain farts. IS it just me or are we having a big travel around the world happening with Robertson and Street blogging from the US? Carter has been discussed, and Fenton seems to be in AUS?

    About time we have some openness in finding out what the purpose of all that traveling is.

    I for one can see very, very little point in opposition MP’s going anywhere, that’s simply not their job, they don’t have any mandate whatsoever and cannot fulfill any useful purpose. If they want to hook up with their Marxist mates all over the globe they can darn well pay for this out of their own pocket.

    The only sort of exception I can see is for instance Goff showing a unified face in important trade negotiations, just to keep the other side from becoming too cute with their tactics.

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  7. davidp (3,588 comments) says:

    Spain’s experience with “green jobs” is that they increase total unemployment:

    “For every new position that depends on energy price supports, at least 2.2 jobs in other industries will disappear, according to a study from King Juan Carlos University in Madrid.”

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2PHwqAs7BS0

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  8. Repton (769 comments) says:

    Quoting from Wikipedia (yeah, yeah):

    Nominal debt in dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992, and remained at about the same level by the end of the Clinton presidency in 2000. More recently the debt increased from $5,629 billion to $9,926 billion during the George W. Bush presidency from 2000 to 2008. The debt is now projected to double under the Obama presidency to a level close to 97% of GDP.

    So, doubled under Reagan, doubled under Bush Snr, doubled under Bush jnr, projected to double under Obama. Seems like the Clinton years were the only period in recent history where the US debt hasn’t been out-of-control..

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  9. Big Trev (14 comments) says:

    pffft – that guys just a professor of economics at Harvard University – what would he know.

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  10. Fale Andrew Lesa (473 comments) says:

    Sighs,

    I think we’re all forgetting who got America into this mess in the first place, the honorable Former President George W Bush. Bill Clinton provided the American economy with enough economic fairy dust to last at least a decade, if implemented in the right areas – Ideally creating jobs, investing in education, health care and domestic security.
    Instead Bush offered tax cuts, and a load of them – particularly to the top brackets of American tax payers. We all know that the government should NEVER expect the top earners to spend more when receiving these tax cuts, they tend to bank the difference almost immediately where as the mainstream brackets are in more need to do so. In doing so economic stimulus is encouraged further…

    Bush also failed to ensure proportionate accountability for the foreign aid it was throwing abroad in bucket loads – a recent report showed how just under 50percent of Pakistan’s aid from America was spent as specified, the rest ended up in illegal military arrangements, I would also question the current amount to Israel – which is beaconed on its own future of economic independence and superiority within its region.
    There were plenty of areas where Bush could have acted differently and we could cry over it until the cows come home BUT Obama is president now and if we are to fully embrace a progressive future for America and the greater Western world it should start with proactive discussion, debate and questioning over Obama’s proposals, policy implementations and reforms.

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  11. GMDI (70 comments) says:

    Ahh, Fale, i think what DPF has done here is engaged in proactive debate and is questioning Obama’s proposals, policy implications and reforms. taking the toe rag approach and blaming bush for all evils is not engaging in proactive debate about what Obama might be doing. And for the record, stimulus packages that involve borrowing lots of money are stupid. Gordon “i ended boom and bust” Brown tried that and has failed, miserably.

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  12. Hurf Durf (2,860 comments) says:

    Grant Robertson? Wasn’t he RAM, or am I thinking of another Grant?

    we are to fully embrace a progressive future

    Take your Marxism and shove it. Maybe you can skip round the meadow with Progressive Gordo when he gets kicked out of power in May.

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  13. radar (319 comments) says:

    “The lesson is that the Government impact on unemployment is limited. The private sector is what creates job, not the Government. Government created jobs are funded from private sector taxes and you need private sector jobs to pay those taxes.”

    Try telling that to some of the most popular conservative bloggers in the United States. From what I have read, they believe Obama is solely responsible for unemployment. Not to mention every other problem he inherited from Bush, like a rising national debt, Iraq, Afghanistan, global financial crisis etc.

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  14. Jeff83 (745 comments) says:

    It is misleading to stay it is the stimulus per say which has saddled the US with a redicolous level of debt, rather it is the bailing out of the financial institutions ‘which were to big to fail’ which have made their books incredibly red (incidently as a proportion of GDP I understand the US debt ratio is not to bad, it is the UK who is really in the shitter on this one).

    In effect you could compare now, to what happeend in early 1930s when the opposite, ie no stimulus was undertaken. Fairly starkly different outcomes in all reality.

    Whether the debt is unmanagable will depend on whether the bad debts bought can be recovered or not.

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  15. nickb (3,696 comments) says:

    Radar Obama is quadrupling the deficit from what he inherited. Is that Bush’s fault as well?

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  16. TCrwdb (242 comments) says:

    Good analysis DPF – on the money, and ditto scrubone.

    All the Obamessiah has done is pour fuel on the fire, and as a result he will be a one-term wonder.

    Looking forward to November 2012, the reaction from Oprah alone will be gold.

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  17. Repton (769 comments) says:

    taking the toe rag approach and blaming bush for all evils is not engaging in proactive debate about what Obama might be doing.

    I recall reading something a while ago, I think it was in the NYT. Perhaps six months ago.

    It was looking at dividing up blame for the US deficit, compared with the projections from the end of Clinton for big surplusses.

    Basically, from rough memory, they accounted for the deficit as:
    30%: reduction in tax take because of the global recession
    30%: policies of Bush Jnr that Obama has not continued
    30%: policies of Bush Jnr that Obama has continued
    10%: new policies of Obama

    Of course, things could have changed since then..

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  18. Victor (7 comments) says:

    DPF, this is such crap analysis. Grant Robertson is just following John Key’s footsteps and drooling over Obama. A variant of our colonial cringe. Yes, the US economy is in deep structural trouble. Their choice though is guns or butter, and they keep wanting both. The real issue is that the US is in decline, but is unwilling to adjust, kind of like Muldoon.

    But this has nothing to do with Labour in NZ.

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  19. jabba (280 comments) says:

    dimmo .. you will be happy to know that Fenton is due back today .. have a look at the stupid list she posted on Redalert.

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  20. OECD rank 22 kiwi (2,753 comments) says:

    Grant Robertson an idiot alright, much like the people who voted for him.

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  21. Victor (7 comments) says:

    And by the way, the Iraq War led the US into this mess. Larry Lindsey warned it would cost $200bn a year and was fired. The uncertainty about the war in 2002/03 contributed to the low rate policy of Greenspan – which inflated the housing bubble. Oh, and this was a war that Johnny Howard, Don Brash and John Key all wanted a part of. And Greg Mankiw joined the administration after Lindsey had left, warning of an economic disaster.

    So tp tie the economuic aftermath to Labour-type economic policies is more than absurd . ..

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  22. nickb (3,696 comments) says:

    Victor did your mate Obama pushing for the Community Reinvestment Act have anything to do with it?

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  23. Hurf Durf (2,860 comments) says:

    it would cost $200bn a year

    As opposed to a trillion in nine months.

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  24. redqueen (582 comments) says:

    I’m sorry Victor, but you appear to have misunderstood the situation. That the Bush Administration wasted absurd amounts of of money is not an excuse for Obama wasting absurd amounts of money. That Bush did it with war and Obama is doing it with useless projects and open-ended liabilities is not ‘Oh, well, that justifies it’. The US private sector is what creates wealth, jobs, and tax revenue, or it should be. That the Americans have been operating on negative interest rates for some time now makes it unsurprisingly that they’ve had a housing bubble and an economic crash. But what has Obama done? He’s done exactly the same thing, but at an even faster rate and with monetary policy even looser.

    That Labour, and in this particular case Grant Robertson, hold Obama’s economic policy in such high regard is worrysome. It will not limit unemployment, it won’t create private sector jobs, and even if they managed to give everyone a public sector job, this will just stiffle our productive economy and do what we’ve been doing for far too long: creating government jobs, screwing our exporting industries, keeping business finance expensive, and complaining about a balance of payment situation that makes us look like a banana exporter. So yes, let’s all diss DPF for making sense…right…

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  25. Victor (7 comments) says:

    nickb, I am no mate of Obama’s. It is clear he has lost his way already.. . But the only person I know in NZ who claims to be a mate of Obama’s is one JK, so maybe you want to send that question to him.

    Hurf Durf, exactly. But Lindsey was fired for the $200bn call. And bet you DPF was dissing him back then for saying that

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  26. beautox (422 comments) says:

    So Bush started the fire; Obama poured gasoline on it.

    But that’s simplistic of course. The fire was started by many people.

    But Obama is not helping put it out – he’s only making it worse. Economic illiterate that he is.

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  27. Victor (7 comments) says:

    Exactly beautox, but to argue where goes Obama, there goes Labour – as DPF is – is just nutty

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  28. side show bob (3,660 comments) says:

    Even a silly farmer like myself can see Mac daddy and his lefty lackeys are as mad as march hares, loons the lot of them. Fuck if I ran my business the way they run that country I would have been put down long ago. Oh well at least there will be cheap shit house paper on the market in a year or two, what else could they do with all those worthless dollars.

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  29. dad4justice (8,311 comments) says:

    Bob if you ran the farm like the do nothing I got nice teeth NObama then all the cows would die.

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  30. Fale Andrew Lesa (473 comments) says:

    :D

    I think there’s a very relevant proverb that should be inserted into this thread – “things often get worse before they get any better”.

    Obama has been president now for barely even a year and already there are people that have thrown in their towels and cast pebbles at his feet.

    How long did it take for NAZI Germany to become Europe’s strongest economy from once the brink of economic melt down 1929? How long was it for Nakita (the most influential leader of Russia Post-Stalinism) to reengage the homeland with international competition and economic supremacy?
    Good things take time and I will not foolishly assume that Obama has let the water from the sink of prosperity drain before the end of his term.

    Its interesting how quick people can move from attacking one president to blaming the next, Bush had a full term as president – Obama, barely even a year yet. On this basis the comparison some have made here is extremely weak and unstable.
    :D

    We have to spend money to make it. clearly Bush’s economic policies were a FAILURE!

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  31. XChequer (298 comments) says:

    Slightly off topic here:

    Question to all: if the Us Dems are one termers, who is liable to be the GOP’s candidate of choice, do you think?

    McCain? Too old, one would have thought.

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  32. nickb (3,696 comments) says:

    Xchequer- RON PAUL!

    :)

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  33. Luc Hansen (4,573 comments) says:

    As Keynes famously said, “In the long run, we are all dead.”

    This is the problem with DPF’s analysis. The world can change very quickly. I remember the so-called “Asian crisis” very well.

    Shipley, Birch and English responded with the mean-minded wasp attitude (yes, I know Bill is a left-footer, but he was a junior partner then and he seems to have adopted the parsimonious Brash demeanor so well) and imposed a long term fix (raising the age of superannuation entitlement) to what proved to be a very short term problem.

    We are living through the worst financial crisis since the great depression. Stimulus is essential. It’s the worst luck that our Minister of Finance is a Brash clone. But I suggest Key will do a Bolger and English will be gone at an opportune time.

    DPF, all forecasting is an inexact art. Ask Treasury. They have misled governments since their inception. I suggest that your prescription would have ushered in the next depression. Thankfully, we should never know.

    Xchequer: they are all pussy whipped. It will be Sarah!

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  34. Alistair Miller (501 comments) says:

    Luc, you’re taking your life in your hands quoting looney lefty bloody Keynes around here! :)

    And you’re right, stimulus is essential, but it depends what form the stimulus takes. Clearly, spending vast sums bailing out institutions that were “too big to fail” is the ultimate FAIL. They (the banks and auto-makers) lived by the sword and they should die by it.

    Equally stupid is handing cash over to a bunch of bogans to go our and buy big-screen TVs and home theatres (a la Kevin dickhead Rudd). Of course, Rudd now gets the headline that he “avoided a recession”, although I wonder how Australia’s children and grandchildren will feel about being saddled with the debt?

    It seems to me the most economically conservative and sound form of stimulus is mild reductions in taxes and the bringing forward of infrastructure spending. I wonder which government did that? It was especially prudent in light of the fact that, despite a decade of boom-times, the socialists had emptied the cookie jar and stolen the rent money before they left the big offices.

    The thing is, now the economy is starting to recover slightly, what will they do? Will they start acting like a right-leaning government, slash the size of the bureaucracy, reduce taxes further and reduce welfare? Or are they afraid to take the bold steps needed to put the economy on a sure foundation? My pick is the latter, at least until after the next election.

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