FAQ: Can fiscal stimulus save us?
Q: Can all this fiscal stimulus save the US economy?
A: No. It can’t.
A: Because the fundamental problem is not lack of money to shore up demand, but lack of goods to pay for real demand –- that is, lack of the sort of goods that are being demanded -- and no amount of “stimulus” can fix that. All it can do is make the production of those goods more difficult.
Read Can Fiscal Stimulus Revive the US Economy? for the details. As Frank Shostak points out there, “not only does the increase in government outlays not raise overall output by a positive multiple; but, on the contrary, this leads to the weakening in the process of wealth generation in general.”
This is the case not just for the US, but for anyone who tries the same “stimulus” shenanigans. Can someone please explain all this to Little Billy English, the Pink Tory Pump-Primer.
UPDATE: Further on Shostak's point quoted above, Economist Robert Barro (highly rated by the likes of Richard Salsman) points out that the idea of a positive mutiplier from government spending (i.e., the result predicted by the simple Keynesian macroeconomic model) "implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system."
In other words, any notion of a positive multiple is mistaken. As Barro argues,
"A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP -- consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one."
Read Barro's argument over at Paul Walker's Anti Dismal: Government Spending is No Free Lunch.