Saturday, February 20, 2010

Stimulus101

      I have written before about the fact that the success of a republic is dependant upon having an enlightened electorate (See blog of Jan. 24, 2010). But the more I see of the public reaction to the stimulus bill, the more I realize that the electorate has been kept in the deep shade.
      Most economists agree that the stimulus was the right thing to do, and that it prevented a bad recession from sinking into one much worse. Private sector analyses estimate that ultimately it will preserve or create 2.5 million jobs. Why, then, has it got such a bad rap?
      It’s not that the administration has not tried to get the message across; it’s just that the Beck, Hannity, Limbaugh, Palin crowd (BHLP) has shouted louder to get a skewed version across.
      Joseph Goebbels, the Nazi propaganda chief said, “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”
      I do not mean to imply that the most strident voices of the right are Nazis, far from it, although Limbaugh has not hesitated to apply the epithet to others. (At times the controversy raised by the term “Feminazi” in his 1992 book “The Way Things Ought To Be,” caused him to back away from its use. In 2005, however, Limbaugh defended his use of the term: "I haven't used that term on this program in years. But it still gets to 'em, doesn't it? And you know why? Because it's right. Because it's accurate.") However, I find it hard to believe that these people can be as ignorant, with the possible exception of Palin, of Economics 101 as they appear to be. But I digress.
      The BHLP would have us believe that once a stimulus dollar is spent, it’s gone forever. It’s like throwing diamonds down a dry well. The government has thrown money away, and will eventually be required to print more money in order to recoup it.
      But it’s not like that. Suppose you get a dollar, never mind where from; what do you do? You spend it. If it’s for a product, some manufacturer has to buy raw materials and supplies, and hire employees to produce it. Even if you buy a service which has no redeeming value, say, for a prostitute, that person will spend it for something which someone will have to produce.
      If you just put the dollar in a bank, the bank now has a dollar to lend to a business to produce something, which requires materials, employees, office supplies, fuel, etc. Whether you spend it or save it, the stimulus dollar will multiply to the point where enough tax revenue will be generated to pay off the original outlay.
      Of course, the government wants to spend the stimulus dollars on projects which are highly labor intensive, e.g., education, infrastructure, construction, household tax cuts, etc. (See the blog of February 7, 2010). The more jobs that are created per dollar spent, the quicker this recession will end, and the sooner the money will be available to repay the outlay.
      Now suppose the government did nothing; 2.5 million more people would be out of work. None of the money those people would earn will be buying products or services, which would result in even more job cuts. The economy would spiral down and down to stop…where?
      Which scenario do you prefer?

No comments:

Post a Comment