A $787 billion mistake?

I’m not as sanguineas this Forbes columnist that ur economy is beginning to reboundbut my liberal friends are, and if it is, then this guy’s right: we’ve only spent $37 billion of the Stimulus funds so far, much too little to have had an effect, so we didn’t need it and when it does show up in the pipeline it will do nothing but push up inflation and increase our debt, just as many economists and commentators said.

Given the rapid improvement in the economic outlook, and the slow rate of stimulus spending under the act thus far, most of the spending under ARRA will likely occur well after recovery is under way. A new CBO studyshows that through late May only about $37 billion has been spent, which is just under 10% of authorized spending under the ARRA. In fact, the Departments of Education, Transportation and Energy all have spent 2% or less of their allocations. Recovery is on the way, without massive government spending.

But wasn’t the whole idea for fiscal stimulus that there was no way we would recover without it? And didn’t Vice President Biden indicate that virtually all economists agreed with this view? Given the improving economic outlook, ARRA now represents a significant and very expensive public policy mistake. And in contrast to the vice president’s view about economists’ support for the program, it is well known that many of them who specialize in macroeconomic policy significantly criticized the need for substantial fiscal stimulus before ARRA was passed.

The economic arguments for ARRA were badly dated and erroneous. The stimulus bill was promoted under the old-fashioned Keynesian view that only the federal government is big enough to dig us out of the hole that we had gotten ourselves into, and digging us out of that hole required massive federal spending. But there was significant opposition to this premise by many economists who not only predicted that spending would be significantly delayed–with the bulk of spending not taking place until after recovery was well under way–but who also sharply disagreed with the premise that enormous increases in government spending were required to restore economic prosperity.

In fact, the 1930s Keynesian model that was used to sell the idea of fiscal stimulus to Americans was eliminated from economics decades ago.And this abandonment of Keynesian multipliers does not reflect any ideological or partisan issues that divide conservatives and liberal economists. Rather, it is because the old Keynesian model does not come anywhere close to meeting today’s standards for economic analysis.

Of course, I never believed this spending had anythig to do with a “crisis” except to use that scare word to seize power. We now have Government Motors, run by a 31 year old Obama politico, a Wage Czar, government controlled banks and nationalized medicine coming up. The economy can go its merry way – Obama and his crowd have gotten what they want.

10 Comments

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10 responses to “A $787 billion mistake?

  1. Towny

    despite the fact that major banks are virtually insolvent, the economy is bouncing back?

    • christopherfountain

      I don’t think so, Towny, but the boys on Wall Street sure act as though it is. More fools they, I fear.

  2. Shoeless

    They’ve only just begun……

  3. anon 1

    The several large banks repaying TARP funds are not insolvent.
    The recent small declines in jobless claims are being interpreted as the bottom, but it’s too early to tell. Two significant risks posed to the economy are rising gas/energy prices and rising interest rates.
    I think this author’s claim that Keynesian fiscal theory was entirely discarded decades ago is not correct.
    Chris, I also don’t believe that the various government actions taken with the banks, autos, etc. are all driven by the idea of Democrats pushing goverment to grab power. I think this will be proven as the stakes in these various companies are sold off in coming few years. If the gov’t wanted more control, why would it let the banks repay TARP funds now and thereby get out of various TARP restrictions? Health care is a whole other debate…

    • christopherfountain

      I hope you’re right, Anon 1, and we’ll see. I’m dubious that we’ll ever get rid of GM – I read somewhere recently that it will need a market capitalization of something like $67 billion before US taxpayers can be repaid, but if that’s the worst of it, great. If not, well,I understand Paulu is accepting refugees.

  4. fred

    CF:
    Heck, Dailmer sold Chrystler a couple of years back to Cerebus(Feinberg and Merkin) for only 9 B. -in relatively stable times. How much has been committed so far to keep it afloat?

    Anyway, Fiat dosent give a shit about the car production, they want in on the US GOVT federally supported bank that is Chrystler Finance and the 51% of GMAC. They are still cas cows even if they are temporarily insolvent.

  5. fred

    the banks that want to give back TARP are the one’s that dont trust the Obama administration, as this administration has proved, -in a very, very short time period- that they can’t be trusted not to change the rules of the game. Its more or less a no confidence vote.

    Anyway, they already got “our” billions, free and clear, from the AIG payout. So there is no need for some to dance to the Obama tune.

  6. Anonymous

    Anon1,
    “If the gov’t wanted more control, why would it let the banks repay TARP funds now ”

    “The Goldman Sachs Group, Inc. To Repurchase TARP Preferred Stock
    Tuesday, 9 Jun 2009 11:32am EDT
    …..The repurchase amount, together with accrued dividends, will be paid at a time determined by the U.S. Treasury. ”
    http://www.reuters.com/finance/stocks/keyDevelopments?symbol=GS.N&rpc=66&timestamp=20090609153200

  7. Anonymous

    Anon1
    “If the gov’t wanted more control, why would it let the banks repay TARP funds now and thereby get out of various TARP restrictions?”

    The NEW rules of the game are that, even when the banks repay TARP, the government are to continue to hold the warrants, this defies your argument.

    “Until the firms buy back warrants the government received as part of its capital injections, they remain subject to some TARP restrictions…”, “The restrictions include limits on common stock dividends and repurchases as well as the Treasury’s own compensation provisions”.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aziwVj2QFoFI

  8. anon 1

    “defies your argument” — umm, no. You really don’t know what’s going on. The main issue with repurchasing the warrants is valuation. This has been an issue hanging out there for months and isn’t a “new rule of the game” as you suggest. The issue isn’t whether the pref and warrants get repaid — it’s when, which should be weeks.

    I don’t think the TARP problems are really the fault of the administration (Obama and cabinet). The real problem was in Congress, particularly the House, and a bunch of knee-jerk idiots pandering to their blue-collar constituencies and making political theater of flogging executives in public hearings. I think Dodd and Liberman are both embarassing in different ways – time for both to go. Himes was a huge disappointment in voting for the idiotic 90% bonus tax — you need to make serious amends for that Jim — the clock is ticking.

    Chris, as for GM, I am very confident that the government will eventually sell its stake. But I agree with you that it will probably be at a huge loss. Is there strategic value in having a domestic auto industry? That remains to be seen.

    Speaking of Palau, I just started snapping up some great condos there. It’s the next Mustique – buy now!

    Is there truth to the rumor that some local builders are marketing their spec mansions as excellent accommodations for Gitmo detainees? I thought I heard someone saying that large rainforest showers are well suited for waterboarding.