The Stimulus. Your Thoughts Going Forward.
OK. So the stimulus will soon pass. Debate at this point is pretty much ceremonial as different politicians will position themselves for a variety of good and bad reasons on the yea or nay side of these bills from the House from Senate. That's politics.
But I'd like to see what people actually think of the stimulus:
Agree or disagree and why?
What do think it will accomplish and why?
What do you hope it will accomplish and why?
Me, I oppose the stimulus. I don't oppose because of the price tag. O don't oppose it simply because of the debt it will incur. I don't oppose it for political reasons. And I certainly don't oppose it for what its supporters think it will do.
I oppose this stimulus because I don't believe in the very hazy and shoddy thinking that goes into it. I do not think it will work as advertised. Actually, I KNOW it won't work as advertised.
If I THOUGHT the thinking behind it was sound and could work as advertised, I would support it. But neither is the case.
In order of the theory of the Keynesian multiplier and "pump priming" to work well in reality, it would require a level knowledge and coordination that simply doesn't exist in the hands of so few people.
So, in short, reason #1 is a knowledge and coordination problem. (See Hayek's Nobel Prize...this is why he got it.) BTW, Krugman's Nobel was for advances in Trade Theory. Not this stimulus business.
And yes, this IS a real problem. No pro-stimulus Keynesian economist will seriously argue this point. What they will do is dismiss it as being to complex to worry about. What they will do is ignore it because the foundations of their conceptualization of the economy force them to think in terms of raw generic spending and output. From there, some somewhat useful...but overly relied upon...ideas like "aggregate demand" and "the paradox of thrift" come into economic vernacular. They serve a purpose but they are inadequate as foundations for policy action.
The reasons for this can be found in my next reason which is more complex and NOT an area that appears on radar of Keynesian Macro:
The other serious problem I have concerns capital theory and its place in nature of trade cycles. Output has fallen and production has fallen because there are serious misallocations of capital that have accumulated over the past few years and we now have capital allocated in very poor structures which the market is now reacting to. The Keynesian will say that output has fallen because people aren't spending enough which is hurting aggregate demand and enabling the harmful paradox of thrift. The idea here is that everyone's spending is someone else's income. Again, that may seem true but it misses the larger point of what is happening in a system of exchange.
To me, that Keynesian explanation is like saying that the man who tripped and hurt himself got hurt because he hit the ground. Or that the man who died of a heart attack died because his heart stopped. Well, yes. That's true, Captain Obvious. But the man who tripped got hurt because HE TRIPPED AND FELL IN THE FIRST PLACE. And the heart stopped for any number of reasons. Keynesian thinking doesn't concern itself with what CAUSED what they dwell on. They simply dwell on the RESULT of that CAUSE and feel that this framework is sufficient and the best that we can work with. I disagree.
And the Keynesian would partly disagree with me and partly dismiss what I said as irrelevant because the insight is not helpful in their framework. See the problem?
Capital is not play dough. It cannot be simply or quickly reformed and reshaped into something useful and sustainable. If there is too much capital and labor misallocated in, say, construction, then we have a problem. And we also have a problem with all the related or subordinate capital that is structured around it in multiple layers.
Think of de-fragging your computer. When you hit "defrag", there are many blocks that start to get moved and replaced. That's what a recession is. Capital is like leggos, not play dough. the blocks must come apart and find better uses and put back together different according to dispersed information. And it's painful in the process.
What the stimulus does is ignore all of this. It simply feels that spending must be propped up and idle/underused resources put to use to start the multiplier effect to get output back to where it was. It never questions whether that is a good idea or why these resources are idle in the first place beyond the observation that spending is low. That is simplistic and simply insufficient as a foundation. It ignores heterogeneity of capital. IOW, capital and labor are NOT homogeneous.
When confronted with these complex concerns of massive capital misallocations intertwined is a myriad of mind-boggling ways and their effects on the economy, the pro-stimulus Keynesian simply cannot be bothered. Their models don't have the depth or capacity to wonder about or question such complex detail. It is dismissed.
Never mind why output down...it's a matter that output is down and must be propped up. The economy is effectively running a very high fever and fighting off a lot of "wrong" and all the Keynesian is equipped to really offer is heaps of ice to get the body temperature down. This doesn't solve the problem.
So the second reason is capital structure problem.
Now, yes, the stimulus can do some limited good....IF it can target truly idle and underused resources and put them to work. But that is hard to do. The stimulus will not simply target underused resources. It will wind up going to resources that are best connected to get the funds. It will not target small contractors armed with a P-up and a hammer who are out of work with laid off help. It will not zero in on builders who cannot make ends meet for lack of projects. It will not make sure that mortgage lenders and brokers who are laying off help will get the business for these loans. It will not real estate firms with tons of real estate available and no business to make sure they find buyers for them. That is nearly impossible to. What the stimulus will do is shower states and municipalities with money for projects and such jobs will wind up the pipe lines of firms that already working.
This is a Public Choice problem.
Now, others will say that these projects have a long term good and are will have positive externalities. And that may be true. But such reasons are no longer stimulus-related.
If $90 billion of the $825 billion actually finds its way into needed hands, I will be surprised.