Wednesday, 11 February 2009

Local & offshore stimulunacy [update 6]

Do I really need to write any more on so-called stimulus packages, or the fiction of the so-called multiplier effect, just because John Boy and Billy Bob invoke these statist delusions again today?

UPDATE 1: 61 traitors voted to pass America’s stimulunacy package.  Jeff Perren has a list of just some of the pork for which American taxpayers are going to have their pockets picked, absurdities which almost make our local package look sensible, and the Wall Street Journal steps up to the plate with this cogent dismissal of error at the heart of the stimulunacy and the multiplier delusion.

    So there it is: Mr. Obama [and the local layabouts are] now endorsing a sort of reductionist Keynesianism that argues that any government spending is an economic stimulus. This is so manifestly false that we doubt Mr. Obama [or the local layabouts] really believes it. He has to know that it matters what the government spends the money on, as well as how it is financed. A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP.
    But that same dollar can't be conjured out of thin air. The government has to take that dollar away from someone else -- either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.

 UPDATE 2: Wanna get your head around the scale of the problem created by all this stimulunacy? Simple.  Just watch Glenn Beck Making Fed Data Fun & Scary.

UPDATE 3: Paul Walker says:

    Given that the government has just announced that it will waste $500 million of taxpayers money on our very own stimulus package, it may have helped if John Key had read the recent Wall Street Journal article by Gary S. Becker, the 1992 Nobel economics laureate, a professor of economics at the University of Chicago and senior fellow at the Hoover Institution, and Kevin M. Murphy, a MacArthur Fellow, an economics professor at the University of Chicago and a senior fellow at the Hoover Institution, before making such an announcement.
    Becker and Murphy make the obvious, to everyone but the government, point that There's No Stimulus Free Lunch: It's hard to spend wise and spend fast
    [Their] four points apply as much to New Zealand as they do to the US, so I would like to hear the government's reply to them. It is incumbent on both supporters, and opponents, of any stimulus package to evaluate each of [their] four factors. Has the government really done this? If so, what are their conclusions? If not, why not?

UPDATE 4 [revised]: Charles Anderson has done some sums for Obama’s package. At US$825 billion and an estimated 3.7 million jobs “saved” (an estimate without backup, by the way), “The cost per job created or saved in Obama's plan,” he says, “can be calculated to be US$222,973”!

The exclamation mark is my own. 

Feel free to send me your own calculations showing us how much NZ taxpayers will be paying per “job” to attempt to keep the economy inflated. You may use in your calculations either the NZ$500 million boasted about in John Boy’s and Billy Bob’s announcement early this morning, or the NZ$11 billion boasted about in parliament earlier this morning, or the NZ$35 billion Bill English told the House this afternoon is going to have to be borrowed over the next five years just to avoid cutting spending (the sort of thing Roger Douglas called “mortgaging our children for the next round of spending increases,” and Dick Armey more colourfully called “fiscal child abuse.”  You could divide these by some arithmetical sum based on the “the 170,000 people predicted by Treasury to be unemployed over the next 3 years,” the 105,000 people presently drawing the dole, or the roughly 300,000 NZers on all forms of welfare (apart from WFF).

UPDATE 5: Newstalk ZB’s Barry Soper reckons that when asked about the number of jobs he expect this package to “create,” John Boy nodded his head at a figure of about 2000.

UPDATE 6:  Here’s a question for eager young economists:  How about you explain in one easy paragraph the relationship between the Broken Window Fallacy and the jobs created and the money spent through “stimulus” packages like this.  And then send that explanation to all those so-called economists talking it up who clearly don’t have a clue what you’d be talking about.

UPDATE 7: Be thankful for small mercies, says Liberty Scott. “Be grateful the package is rather small, [which means] its damage will be relatively small.”


  1. Check also Taylor's comments, here. Taylor's the guy behind the Taylor rule -- a macro guideline about how reserves banks ought to set interest rates. So that part, you'd not like too much. But his diagnosis of the causes of current mess sound pretty familiar: interest rates were too damned low in the mid 2000s.

    "Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom."

  2. PC, I'm going to suggest the broken window fallacy does not apply here.

    The essence of the fallacy is that benefits of broken windows are apparent only because observers can ignore the production foregone by diverting the glazier's time and effort towards putting things back to just the way they were.

    If English were proposing to dig holes and re-fill them, then the broken windows fallacy applies. But he is instead proposing something that has at least some chance of being productive, and to the extent he is right I think the broken windows fallacy is the wrong logic.

    I would instead attack English on his 2000 jobs. How many of those 2000 are currently in work already? What proportion will genuinely be brought into the workforce? That's the number of jobs created. Otherwise you're just shifting deck chairs, as it were.


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