I quite liked this article:-

We’re starting to hear more talk about “stimulus.” I put “stimulus” in quotes, following my usual practice of placing a latex barrier around other people’s ideas, so nobody gets infected. Just the word, “stimulus,” carries certain assumptions and expectations which are often flawed from the beginning. It implies that the economy is sort of lagging around due to its own difficulties, and that the government is an independent savior, an economic paramedic or something like that. Smells like more metaphor economics. Very often, the problems are caused by the government itself, through taxes, regulation or mismanagement of the currency. Also, it tends to lead to certain short-term “solutions” that rarely achieve anything at all except to distract policymaker’s attention during the time that it takes to devise a plan, pass it through the legislative process, implement it, and wait and see what the results are. There’s 12 or 18 months right there, during which the government could have been thinking about real solutions, but instead is distracted by “stimulus.” Then, when the “stimulus” is deemed to have been somewhat ineffective, what comes next? Usually, more “stimulus.” In this way, months stretch into years, and perhaps years into decades. The Japanese government has been so fascinated by “stimulus” over the years that they still haven’t figured out that they helped blow up the property sector themselves with huge tax increases in the early 1990s. Maybe they should do something about that hmmmm? (I have some hope for the new prime minister, Taro Aso, because Aso is indeed the one and only upper-rank Japanese politician I know of that correctly identified the huge tax hikes as a major contributor to the collapse of the property market in Japan — the short-term capital gains tax rate on property went to 90% for several years, if I recall — and recommended returning to the successful property tax system of the 1980s.)

I was just watching an interview with Paul Krugman (unfortunately no link) where he said that yes, the government needs to spend some money quickly on “stimulus.” However, he cautioned against any sort of long-term, complicated plan — like investment in rail infrastructure perhaps? — that would take a long time to work out the details and implement. We need the “stimulus” right now! Also, the stimulators typically want things that are sort of self-contained. If all you’re looking for is a pop in the next quarter’s GDP, you don’t want to get involved in a multi-year investment project. This is all a recipe for something that accomplishes absolutely zero. It’s a movie I’ve seen before. Over time, they may even conclude that it makes the most sense to just mail out some checks in the mail, again, which would have roughly the same effect as the last round of checks in the mail. (I didn’t notice anything. Did you?) After a few years, we might discover that all those repeated “stimulus” efforts added up to jack squat, and another half-trillion to a trillion in extra debt (could be more at this rate), when we could have had a nice rail system instead.

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10 thoughts on “Stimulus

  1. Hmm, the government should construct railways, cut taxes and peg their currencies to the Euro zone. I guess one sound idea out of three shouldn’t be discounted in the current silly ideas stakes. And maybe building the railway by the private sector could be facilitated by government removing taxes and planning impediments.

  2. I thought the new ‘magic’ words were ‘RESCUE PACKAGE’ … they started in the USA for the financial sector and now we seem to have adapted the idea to fit the childcare and car industries. What’s next?
    What about cutting taxes and letting US (taxpayers) decide what to do with the surplus? Wouldn’t that be fairer and more efficient?

  3. Markets are a process people use to fulfil certain ends charles.

    You’re saying you’re controlled by an urge to go shoe shopping. Have you discussed shoe sniffing with your doctor?

    Paulson is cutting back the stimulus. It is about time that people realised, rather than causing misery, ending failing companies relieves everyone else of the misery of supporting them and having resources bidded up with their unwanted, expensive, poor quality goods.

  4. Government spending doesn’t “stimulate” the economy, they just bring forward spending that would have happened anyway. Hence why the US downturns are always in years proceeding election years.

  5. We need someone to stimulate our crowd! Where are you all? Jim Fryar wasn’t that much of a commentator, was he?

  6. Rudd has been told to cut spending by Access Economics, who have been seen in the past as an economic consultancy with Keynesian leanings.

    Commonsense is prevailing. We can’t pull ourselves out of a bucket by the handle.

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