Thursday, 2 July 2009

Stimulus packages just don't work

Over the last 12 months, the US has had two fiscal stimulus packages - one Republican, one Democrat. The government has run up a 10 percent of GDP fiscal deficit. The fed has cut interest rates to zero. What is the result of all this policy activism so far? Continued recession and a remorseless increase in unemployment.

The US unemployment rate is now 9.5 percent, a 26 year high. The economy has shed jobs in every one of the last 18 months, and total number of jobs lost is now over 6.5 million. In June, the US economy lost almost half a million jobs.

Why haven't zero rates and double digits deficit created employment and stopped the recession? Because an irresponsible policy stance today creates huge adjustment problems in the future. Firms anticipate these difficulties when making today's investment and hiring decisions. This brings forward the economic consequences of today's stupid policies.

Fiscal stimulus packages and printing money doesn't create prosperity, as today's US employment numbers so amply demonstrate.


Anonymous said...

Bailing out failure only sucks money away from the productive people, and hands it to the losers. Losers are having a party right now and are laughing. This is what they should have done:

1) Broken up the TBTF banks
2) Made them declare all toxic assets and then declare them worthless
3) Let Chrysler etc. go to the wall
4) Take the bailout stimulus and use it for R and D and business loans and venture capital
5) Infrastrucure investment

Mitch said...

for all the good it did they could have burnt the bailout money just to keep warm.

Anonymous said...

How do any of you geniuses know the problems would not have been worse without any government action?

Oh wait - you don't.

OldSouth said...

In the end, only one thing creates jobs: profitable businesses.

The Obama administration is pushing through bill after bill (such as cap-and-trade) that will increase the tax and regulatory burden, as well as the size and scope of government. It will make the creation and survival of the next generation of small business much more difficult.

It reminds me of the cartoon of the old cavalry general seated backwards on his horse, brandishing his saber, and crying 'Charge!'.

Perhaps, given the behaviour we are witnessing from the White House, Mr. Obama and company don't want a real recovery? Crises are useful, create political room to maneuver, passing bills that no Congress member has time to read.