are fiscal stimulus really necessary

[Free Thinker]

Quote from Index piker:



Economic productivity plays NO PART in a govt program.

sure it does. what do you think the government program of building the interstate highway system did for economic productivity?

 

[truehawk]

Quote from Index piker:

It might not be exclusively busywork but it comes directly at the expense of private capital.

Private capital has the hurdle of needing to create wealth to justify it's continuation.

govt has no such hurdle as a matter of fact the worse the results the program or entity performs justfies throwing more money at it , (sec madoff failure, gm loans bailouts , stimulus 1, 2 : fannie freddie,), or it's justified as a vote buying program for politicians.

Economic productivity plays NO PART in a govt program ( concerning it's continuation or deletion).

If you were talking about the "privatization" programs where KBR does the Army's laundry badly and at twice the price, or Haliburten, or Blackwater, or the way the NAVY is not allowed to overhaul it's own ships but has to pay twice the price for half the overhaul, then I agree with you that the un-economic consequences have nothing to do with the program's continuation,.

But in general, the transfer in this country has ALWAYS been from public development to private capital.
The public pays for R&D or construction that private capital would not touch with a 10 foot pole, then the government gives it away.
Most great fortunes in this country trace to a government contract, or a government subsidy. Tiffany, DuPont, Rockefeller, Boeing, GE's jet engine business the CFM56 which is directly based on the F101 military engine etc. Etc.

 

[Scataphagos]

Quote from morganist:

what is the stimulus being spent on.

I don't think it really matters (to the politicos) in the short run. It's just money pushed into the economy and spent... => boost to GDP, => "looks better" (to those who don't bother to look below the surface) => increases incumbents' chances of getting re-elected.

 

[scriabinop23]

Quote from morganist:

i was just thinking about the fiscal stimulus and thought is it really necessary.

if you think about it it has been done to meet inflation targets. they have deflation and need to plug the deflationary gap. so my point being is it really that bad to have deflation some a short period. it means there is a problem in the free market and the government has stepped in. however if the free market was left alone like in previous times it would progress and recover. the point being which is worse the consequences of deflation for a short or medium term or government debt for a medium to long term.

also why does the inflation target have to be meet does it even matter at all. if you think about it why is it two and a half percent and why is that a magic number. each year if we hit that target if there is only one or two years of deflation at two to three percent you are only back where you were two years before. so why is it worse to back track two years than it is to have debt for twenty or thirty.

what do you think. is there logic here.

What you forget is almost every economic trend/force has a tendency to be self-reinforcing in an exponential sort of fashion (ie deflation sends a signal to producers to cut back, which reduces size of the economy and labor force, which reduces demand, which sends continued signal to producers to keep cutting back, etc. etc). The whole point of stimulus and monetary policy control is to mute this amplification effect and lessen the damage.

In the end, deflation amplifies the worth of existing debts, so in real terms a government budget may be even worse off than (necessitating more firings) without stimulus that causes future borrowing. In the end, the value of the underlying currency falls victim to this sort of policy. The bright side is you have diversification options.

Another point to be made... the compounding effects/benefits of saving and lending money (at risk free rates) are in the long run entirely offset by the loss of the buying power, at least empirically if you look at US data the last 40 years or so. In the end, holding cash/debt and getting paid interest is a break-even proposition vs holding a diversified group of 'assets.' I mean cash, not as in the green paper, but as in debt instruments that earn interest.

That said, US Keynesian or any other wealth transfer policy is not -wealth destroying-, it is merely -wealth transferring-.