In recognition of the fifth anniversary of the American Recovery and Reinvestment Act of 2009, the “stimulus package”, there’s a brouhaha going on over its effectiveness. As will surprise no one Republicans are saying it was a flop. The White House retorts that it saved the economy.
Other than the tiresome reality of where you stand depending on where you sit, how do you judge the effectiveness of the ARRA? There are any number of ways. The White House persistently evaluates it in terms of inputs rather than outputs—that’s consistent with just about every model you’ve ever seen of the effects of the ARRA.
You could judge it by how it was advertised.
I judge it by suitability to task. Did it accomplish what needed to be accomplished? Based on that criterion my evaluation is that it was a failure. If you think it was a success, please include in your response why you think that so many people who have remained unemployed in the long term and possibly forever is a good thing.
Almost five years after the start of the “recovery”, we still have fewer people employed than we did before the start of the “recession”. The numbers are even worse for full-time workers. The advertized unemployment numbers have come down mostly due to people dropping out of the workforce, or never entering in the first place as the population has grown. Median income is down. More and more of the productivity gains go to the few at the top while the middle gets hollowed out. That’s after almost FIVE YEARS of “recovery”.
So I totally get why the White House thinks this is a success, and why rich Democrats like Michael and steve think this is a successful economy. They’re getting more of what they want: a stratified society with themselves at the top and a huge mass of peasants that will vote for the notionally leftist party regardless of results.
And Republican politicians are only claiming a failure because they’d like to win a little more power for themselves, but their masters in corporate America are pleased, too, so the Republican pols won’t make too much of a real fuss. After all, they’re getting paid regardless.
Out of power Republican think-tank types that want positions in the government are obviously going to be upset. (The Republican counter-parts to Matt Yglesias and the like.) But that’s only because they’re not getting theirs. Republican voters aren’t happy because they don’t like paying for poor people. (I have yet to hear someone who PROUDLY voted for Romney or McCain state that perhaps, just maybe, most of the new poor are victims of a for-shit economy, rather than that we’re lazy, shiftless, drug addicts who deserve what we get. Think Drew and jan.) The Republican voters are mainly upset that they’re not getting to keep a little more of what they’re making instead of having to pay for all those goddamned poor people. They’re not really upset about a bad economy at all. If they were, they’d insist on a different set of politicians leading their party. But instead they’re happy with the lot currently running the party, and will vote for them and fund them.
The ARRA saved my job, which is obvious because I still have it, but it didn’t get the Cardinals the World Series, so I have to say the results are mixed.
I’ll also note people that complain about Republican politicians not caring about the long-term viability of the Republican Party are missing the mark entirely. (This usually comes up when people wonder why the Republican pols want to grant citizenship to millions of people who will vote Democratic heavily in the future.)
Republican pols don’t give a shit about the Republican Party, or its alleged “ideals”, but rather care about their own jobs. And to keep those jobs they need to keep their corporate masters happy. The current set don’t give a shit whether or not their seat gets held by a Republican when they’re gone (unless they’re planning on passing it down in the family), they only care about keeping their seats for themselves. And thanks to gerrymandering and the advantages of holding office, their main concern is that their corporate masters keep the money flowing to the campaign coffers of said pols.
So you aren’t going to see many Republican pols that will really propose anything all that different from what Bush II or Obama are doing. They just don’t care about the economy or the state of the nation so long as they get theirs.
but it didn’t get the Cardinals the World Series
So, are you from MO, or do down-staters just dislike Chicago that much?
To use the analogy of the supporters, the economy was sick, and the stimulus was used to stabilize the patient. The problem was that the patient had a sucking chest wound, but the doctors treated for a heart attack. The patient is getting better, but it is not because of anything the doctors have done.
If down-staters are like St. Louisans, they don’t have to like the Cards but they do have to hate the Cubs. I’m not a sports fan but you’ve got to admire Cubs fans as exhibiting the highest sort of sportsmanship, untainted by things like winning, for example.
To channel Steve Verdon, I think he used the line graph the Administration put out to show how the unemployment rate would quickly top out and return to normal. The difference between the modeled outcome and the actual outcome is the failure rate, either because the models are too simplistic, the spending and tax cuts weren’t effectively employed, or the assumptions about the economic problems were naive.
Elipses, I’m from Peoria originally. Its generally 50/50 Cards/Cubs fans in Central Illinois. Springfield is almost dead center in the middle of the state, but its just 100 miles to downtown St. Louis and 200 miles to Chicago. Tradition of winning is part of it though, Chicago Bears are much more popular than the St. Louis Rams in Central Illinois
Tasty’s analogy dovetails into my thinking, in that to successfully treat the symptoms of a problem you first have to diagnose it correctly. The stimulus monies, like so much of the taxpayer’s money, are applied according to the “ideology du jour”, and then often spent unwisely. How the dems explain the poor results of this stimulus is that it was “too little,” while the republicans say it was not only spent in the wrong places, but just negatively added to the already high deficit. The R assertion is that growing the economy is best achieved by government getting out of the way, not by injecting it with more money, debt, and regulations which only discourages business creation/expansion.
However, reading the economy is much like an ink blot test. It all depends on your political mentality. For the dems, they harp on stemming the bleeding of jobs, and then point to the frenzied stock market rise, which always seems on the verge of collapse when the Fed thinks about withdrawing the printed money needle from it’s veins. They coo about the UE dropping, but gloss over the low worker participation rate, that, if the 2009 stats had held steady, would be well over 10%, rather than the current-day 6.7%. That’s why, even with these government-fed numbers people are not ‘feeling’ the recovery that is supposed to be upon us. Except for the Warren Buffet’s and Obama bundlers of the world, as well as those on forced subsidized dependency, people are not feeling the love of this hope and change agenda.
PD, given that the Rams are mere interlopers, that doesn’t surprise. And why would anyone not related to a team member have rooted for the football Cardinals?
Schuler, I just don’t get Cubs fans. I understand rooting for a franchise that can’t win because of either bad fortune or temporary ineptitude or even because no other options exist. But for more thana century? Mystifying.Give it another twenty years and there won’t even be anyone alive who can say their father told them about seeing the Cubs win it all. The beer can’t be that much better at Wrigley Field!
As I say, it’s fandom in its purest form.
Sorry, but coming from SEC Country, I can’t fathom fans that don’t want to win. We got a name for those folks down here. We call then Vanderbilt fans. Don’t understand them, either. The snake cultistS make more sense.
I’ve thought about posting on that subject. It’s kind of interesting. As it works out, snake-handling goes back to the very earliest days of Christianity. It’s a fringe practice now but once upon a time it was pretty mainstream.
The only reason I mentioned it was because I was stuck watching Ashleigh Banfield while eating lunch, and she was covering that when not trying to figure out who should be sued over air turbulence. I think the snake cultists are kind of out there, myself, but it seems a fairly straightforward practice from a faith point of view.
I suspect that as long as they are kept well fed they are fairly docile. Being handled often, the snakes should be accustomed to humans, but as Siegfried & Roy learned, a wild animal is never really tame.
TastyBits: To use the analogy of the supporters, the economy was sick, and the stimulus was used to stabilize the patient. The problem was that the patient had a sucking chest wound, but the doctors treated for a heart attack. The patient is getting better, but it is not because of anything the doctors have done.
Actually, a heart attack is a good analogy to the banking crisis. Overnight, banks stopped lending, even to one another. There were huge amounts of bad debt being traded, and no one knew who was stuck. And if you can’t trust Bank of America or Lloyds or Deutsche Bank to pay its bills, then no one can be trusted.
The proper action was to put immediately liquidity into the system. That happened, which prevent the immediate death of the patient.
But a lot of damage is done during a heart attack. The patient was provided stimulants in order to make sure organs and limbs didn’t die.
The patient is still weak, but recovering.
The patient has been counseled to avoid the sorts of behavior that led to the heart attack, such as a diet rich in profits but lacking basic nutritional value, irrational exuberance followed by recession, and wacky prescriptions such as tax cuts that promise a debt-free future. Only time will tell if the patient heeds that counsel.
@Zachriel(s)
How many times are we going to have to go through this? Again, you all have no idea of what you are talking about.
I guess you all heard somebody talking about overnight banking, and this is the next thing you all are going to try. TARP would be the answer for this, and you all would need to credit President Bush.
Bubbles are credit phenomena, and the financial crisis was caused by using financial instruments that leveraged that credit. When the credit began to go bad, it caused other assets to collapse, and this caused the credit supported by those assets to go bad. It had nothing to do with tax cuts.
Stringing together political slogans is no way to conduct a debate.
TastyBits: TARP would be the answer for this, and you all would need to credit President Bush.
Of course. The Emergency Economic Stabilization Act of 2008 counteracted the seizure in the banking sector. The Economic Stimulus Act of 2008 was important, but too small to counter the deepening effects of the recession.
TastyBits: Bubbles are credit phenomena, and the financial crisis was caused by using financial instruments that leveraged that credit.
Credit is certainly a factor, as credit is a factor in nearly all economic phenomena. However, there are other factors, one of which is forgetfulness about the last market bubble.
TastyBits: It had nothing to do with tax cuts.
Tax cuts are an accelerant, not the cause. Allowing taxes to return to Clinton-era levels would have tempered the bubble by drawing money out of the overheated economy, while leaving the government in a much better financial position to weather any financial storms. A few trillion dollars on hand would have been very helpful.
@Zachriel(s)
I notice that you all have a habit of jumping in just as the discussion is about to fall off the page.
What we were in, are in, and will be in is a depression not a recession. This is why the stimulus did not work and could not work. The geniuses you keep appealing to for answers do not understand what was, is, or will be going on.
Bubbles are a credit phenomena. Period. Asset prices are inflated upon purchases made through credit, and the credit is extended on easier and easier terms. The inflated asset is collateral securing the credit, and it is all a shaky house of cards. Asset inflation alone is not a bubble.
The financial crisis was caused by leveraging the credit into other financial instruments – CDS’s and others. This is what is the problem.
There was no liquidity problem. There was an insolvency problem and more specifically a re-capitalization problem. Amazingly, nobody wants to invest in an insolvent bank. Banks did not lend to one another because they had no money to lend.
All the gyrations were to make them appear solvent, and it has succeeded. Except for the banks and regulators, everybody thinks they are solvent, and they wonder why they do not lend.
The cause of the housing collapse had nothing to do with tax cuts. The 2007 ARM resets were defaulting at higher rates than the models predicted, and the 2008 ARM resets were defaulting at much higher rates. (All of this had been predicted as early as 2006.)
The 2008 recession was a fart in the 2008 financial storm, and the stimulus was a drop in a bucket. The bad news is that all the theories have been shown to be worthless. If economists had any sense of shame, they would have gone to ground, but instead, they still claim to be the smartest people in the world. Sadly, there are idiots who still believe them.
A few trillion dollars on hand would have been very helpful.
The US does not have a bank account with money in it. The president does not have a debit card that he uses to pay for things. The government has as much money as it says it has.
I think that’s true within limits. Where I think our problem resides has to do with miscalculations. I don’t think people (economists, policymakers, etc.) are calculating aggregate production correctly under the conditions we have. I think that the collapse of a bubble is different from an ordinary cyclic recession. During a bubble production doesn’t increase as it should—it just appears to increase. When you calculate aggregate production based on conditions before the collapse of the bubble, you’re bound to arrive at too high a figure.
That’s why I keep harping on increasing production. If we’re going to employ more people, we’ve got to produce more. Simple as that.
TastyBits: I notice that you all have a habit of jumping in just as the discussion is about to fall off the page.
Our first comment was the same day as the original post. We comment when the planets are aligned.
TastyBits: What we were in, are in, and will be in is a depression not a recession.
That’s a question of definition. The orthodox definition of depression is “a severe and prolonged downturn in economic activity”. The U.S. economy is growing, and current GDP is higher than before the crisis. The economy is weak, but the situation is certainly not comparable to the Great Depression.
TastyBits: Bubbles are a credit phenomena… Asset inflation alone is not a bubble.
Again, you just seem to be arguing semantics.
TastyBits: The US does not have a bank account with money in it.
While denominated in dollars, the U.S. does have debt. Some monetary inflation is probably expected by investors, but if the dollar is to maintain credibility, the debt has to be serviced by production.
@Zachriel(s)
If you want to hunt with the big dogs, you need to stay out in the open. Otherwise, hide on the porch with the pups.
We are in a severe economic downturn. There are a few government programs that are helping to keep some people afloat, but a lot of people are not doing well. The top 1% is doing great, but they got what they paid for.
The numbers have been rigged to give a rosier picture and more homes have been saved than during the Great Depression, but the fat cats have also kept their fortunes. This is a replay. We even have had calls for a wartime economy to get things rolling.
Bubbles are credit phenomena, and they require a cheap source of money – low Fed interest rates, GSE’s, money market funds, etc. The available credit drives the asset prices up. Because pricing is based upon available credit, it will accelerate as more credit becomes available. More credit will be extended in order to profit from the increasing returns of the loans due to the increasing asset prices.
Each positively reinforces the other, and the accelerating cycle draws in more borrowers and lenders. When borrowers or lenders are removed, the asset prices fall, and because the asset prices were collateral for each loan, the loans begin to collapse. This is a bubble, and this is a bubble collapsing. Period.
Beanie babies experienced asset inflation. Some real estate markets are experiencing asset inflation. Super Bowl tickets experience asset inflation. These are not bubbles.
First, the US needed “a few trillion dollars on hand”, and now, you are babbling about debt, monetary inflation, and debt servicing. What’s next LIBOR?
TastyBits: We are in a severe economic downturn.
In fact, the economy is growing.
TastyBits: Bubbles are credit phenomena, and they require a cheap source of money – low Fed interest rates, GSE’s, money market funds, etc.
Credit is often the fuel for bubbles, especially when borrowing against the inflated asset creating a positive feedback, but credit is not sufficient. There also has to be unrealistic expectations concerning growth.
TastyBits: Beanie babies experienced asset inflation. Some real estate markets are experiencing asset inflation. Super Bowl tickets experience asset inflation. These are not bubbles.
Argument by definition doesn’t make for a substantive position.
http://www.investopedia.com/terms/s/speculativebubble.asp
@Zachriel(s)
In fact, the economy is growing.
The economy is growing, but the economy is limping along. The stimulus saved the economy, but the stimulus was not enough. Jobs are being created, but unemployment benefits need to be extended. Income inequality has soared over the past 5 years, but we need to do something about the income inequality we created. Have you no shame.
Bubbles require credit. Without borrowers and lenders, there is no bubble. Period. Any source you find that does not understand this will also be confused by the past 8 years, and they will continue to be confused. Ask yourselves, did this person question the ARRA?
Unrealistic expectations cannot exist without credit, and easier credit allows for more unrealistic expectations. The credit precedes the unrealistic expectations. The easy credit is in search of an asset to purchase. The asset can be a house or a tulip.
Expectations did not need to become unrealistic in the housing bubble. Had regulators such as Timothy Geithner pushed on the brake instead of the accelerator, some of the easy credit could have been slowed, and less available credit would have slowed asset price inflation.
For anybody who thinks that there were too few regulations, think again. The problem was regulators such as Timmy, the Fed Chairman Greenspan holding interest rates low, Rep Frank and Sen Dodd urging the GSE’s to purchase as many MBS’s as possible. They were all working for the best interests of the financial industry.
If you look behind many (all?) of the various market collapses, I suspect that you will find they were credit driven in the form of shorts/puts and margin calls, but a collapse is different than a sell-off.
Without easy credit, prices are limited to available funds, but other assets are also competing for those funds. Therefore, a bubble never forms.
Are you really going to school me on how to construct an argument?
TastyBits: The economy is growing, but the economy is limping along.
We agree. You had said the economy was in “a severe economic downturn” and a “depression”.
TastyBits: The stimulus saved the economy, but the stimulus was not enough. Jobs are being created, but unemployment benefits need to be extended. Income inequality has soared over the past 5 years, but we need to do something about the income inequality we created.
Well, bank stabilization was the most immediately critical, but the stimulus certainly helped ameliorate some of the damage. Otherwise, we agree with you.
TastyBits: Bubbles require credit. Without borrowers and lenders, there is no bubble.
You’ve already pointed to asset bubbles that were not credit based; you just choose to define them away. Certainly most bubbles involve credit, the fuel as it were. Nowadays, credit is required for any large concern. But credit is not sufficient. It also requires irrational expectations.
TastyBits: Unrealistic expectations cannot exist without credit,
That’s clearly false.
TastyBits: and easier credit allows for more unrealistic expectations.
Yes, credit extended against the inflated asset acts a positive feedback. It looks good on the books, at least.
TastyBits: The asset can be a house or a tulip.
Or it could just lead to general inflation.
TastyBits: Without easy credit, prices are limited to available funds, but other assets are also competing for those funds.
Available funds can include substantial savings, which can certainly cause a speculative bubble.
TastyBits: Are you really going to school me on how to construct an argument?
We had suggested (twice) that you were merely arguing by definition, but you have yet to address the objection.
@Zachriel(s)
My assessment of the economy is depression.
Your assessment is the economy is good and not good. You want it both ways. It is only good for the top people, but you cannot admit that the policies you support have not worked. Actually, you are cannot explain why those policies are not working except to blame the Bush tax cuts.
When a bubble bursts there is a catastrophic collapse due to credit. As asset prices fall, the credit that the asset was supporting goes bad, and there is cascading effect.
When simple asset inflation stops increasing, there is no catastrophic collapse. One person loosing their life savings does not affect another. When beanie baby prices broke, nobody had taken out loans using the beanie baby as collateral. Many people still have overpriced beanie babies, but there were no margin calls on beanie baby loans.
I am betting that you have no idea of how investing works. Here is a clue. The big dogs have an account(s) with an investment bank(s), and they borrow against their account. Their account consists of cash and the worth of their holdings. They are required to have a certain margin of cash/holding to borrowed money. A margin call is to make up the difference. Guess what causes market collapses.
unrealistic expectations
You are correct. I should not have used this. I wanted to reword it, but I got lazy.
Using precise concepts are important. Leading up to the housing collapse, the people who could have done something about it thought it was simple asset inflation. We have people who do not understand how things work designing fixes for the messes they created.
I would construct my arguments within the confines of the comments section of a blog. As it is, my comments usually dwarf most others including the original post. I try to be as brief as possible while keeping as formal a structure as possible.
My sentences and paragraphs are nowhere near what I would like, but nobody would read anything I write. I am probably far too wordy for many. I lay out my points and build upon them, but again, there are limits within the format.
I have been kind, but you can be assured that it has not gone unnoticed. Each post you include new terms, and these terms are usually used in the wrong context. You have no deep knowledge of anything you read about, and therefore, you have no idea of how it interconnects.
I would suggest that you lay out at least one reasoned argument before you begin to school others. I would also suggest that you begin studying primary sources before reading the commentary.
Zachriel(s)
To be clear, the credit is at the investor level. In the housing bubble, this would be MBS’s, housing industry stocks, other financial instruments, or actual houses.
For the individual homeowner, asset deflation is not necessarily a problem if the mortgage is being paid, but the homeowner will be stuck in an overpriced house.
TastyBits: My assessment of the economy is depression. Your assessment is the economy is good and not good.
Our assessment is that the economy is “limping along”.
TastyBits: It is only good for the top people, but you cannot admit that the policies you support have not worked.
The policies have been tepid at best. The economy required a major restructuring, including the banking system.
TastyBits: Actually, you are cannot explain why those policies are not working except to blame the Bush tax cuts.
As we said, the tax cuts were not the cause of the problem.
TastyBits: When beanie baby prices broke, nobody had taken out loans using the beanie baby as collateral.
That’s right, yet it’s still called a bubble. The balance of your comment doesn’t seem to be relevant.
Sadly, the policy of the last two administrations (if not any conceivable administration) has been to double down on existing structures. The big banks are bigger today. They’ve been indemnified against the consequences of excessive risk-taking.
“Doubling down on the existing structures” has been the policy WRT healthcare, foreign policy, energy, transportation, trade, the economy, you name it. All well and good if the policies were working. They ain’t. At least not for most of us.