Did Stimulus Avert 2nd Great Depression?

[30ashopper]

Officials from Bush and Obama administrations have contend the government?s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.

Now, two leading economists say,
?without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration?s fiscal stimulus program, the nation?s gross domestic product would be about 6.5 percent lower this year. In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.?

Not surprisingly, there are voices on the other side. A Stanford professor says Obama's stimulus has had ?very little impact and not much to show for it except a legacy of higher debt.?

I was going to write a big long response, but decided it wasn't worth it.

Some simple points -

1) Stimulus masks over core problems. It's temporary, it's like welfare for the economy.
2) Effective fiscal policy should solve the core problem or problems with the economy.

Did Stimulus Avert 2nd Great Depression?

Have we averted Great Depression II? Ask yourself -

1) Are the overleveraged banks that were too big to fail still overleveraged and still too big to fail?
2) Are consumers still over burdened with debt?
3) How did all the stimulus help deal with these two problems?
4) If debt was eliminated in #1 or #2, where did it go?

Woot Wooot, next stop, "double dip depression"! All aboard!

 

[ugabuga]

1) Are the overleveraged banks that were too big to fail still overleveraged and still too big to fail?
2) Are consumers still over burdened with debt?
3) How did all the stimulus help deal with these two problems?
4) If debt was eliminated in #1 or #2, where did it go?

1) Yes, but hopefully, the Financial Reform Act did something to address this.

2) Yes, but...
The Stimulus put money into the hands of consumers via funding gov't projects And by cutting taxes (1/3 of the stimulus was tax cuts, proposed largely by Repubs).

3) When gov't spent $ to hire folks to (e.g.)do road/bridge repairs & other projects it puts $ in their pockets. The tax cuts kept $ in their pockets. The extra $, in principle, can help people pay down debt and/or keep from sliding deeper into debt.

4) Personal Dept was transferred to The Deficit (& there seems to be a lack of consensus as to whether the Deficit really matters; many economists think that the gov't Should run a deficit during economic downturns)

 

[sarawind]

Edgy Grammy you do my heart good. The President sold his $862 Billion economic stimulus by promising it would keep unemployment down, never to get above 8%. Where is it now? 9.5% and rising and the President says this will last several years. A net of 2.2 million jobs have been lost since President Obama signed his stimulus bill.

Late on Friday, last week,a report was released on the budget.
The report, ?Mid-Season Budget Review? states the deficit at 1.47 TRILLION which
is 10 % of our economy - the largest deficit in our history.

The Secretary of the Treasury said, on TV, that raising taxes by $3 TRILLION is needed
and would have no effect on economic growth.

How can he say that with a straight face after the report showed the Stimulus was a
failure is amazing. For objective thinkers the failure of this stimulus is not easy to
sweep under the rug. Unless you are Vice President Joe BiteMe. He claims the
stimulus is ?an absolute success.?

Despite this claim massive government spending did not stimulate job creation. The
President does not have a Scrooge McDuck cave of money to pass out to the American
people. The money the government spends comes from the economy.

With increased government spending, business owners are crowded out of resources
they would have invested in their enterprises. Private investment has fallen by 19%.
This stimulus has not been the ?be all to end all?. The depression looms if government
does not stop this wild and crazy spending. And we haven?t even mentioned Obamacare, financial regulations, coming tax hikes and the increasingly unpopular EPA carbon regulations.

 

[30ashopper]

1) Yes, but hopefully, the Financial Reform Act did something to address this.

I does nothing to address the problem. About the only thing we've done to address this is purchase, through the FED, about 1.4 trillion in mortgage backed securities from these banks.

2) Yes, but...
The Stimulus put money into the hands of consumers via funding gov't projects And by cutting taxes (1/3 of the stimulus was tax cuts, proposed largely by Repubs).

3) When gov't spent $ to hire folks to (e.g.)do road/bridge repairs & other projects it puts $ in their pockets. The tax cuts kept $ in their pockets. The extra $, in principle, can help people pay down debt and/or keep from sliding deeper into debt.

4) Personal Dept was transferred to The Deficit (& there seems to be a lack of consensus as to whether the Deficit really matters; many economists think that the gov't Should run a deficit during economic downturns)

This is where it gets murky. Yes, tax cuts do help solve this problem! Stimulus spending also helps, although it's less efficient than tax cuts. 300-400 billion in temporary spending is pretty much a wash as the debt we incur at the federal level crowds out normal government spending and the money borrowed and spent goes to offsets state level cuts. (It's a temporary fix with long term negative effects.)

Gains at the consumer level help a little, although consumer debt currently sits in the trillions. Writing down mortgage debt helps, but that hurts the too big to fail banks. Keeping people in homes they can't afford also hurts. Reforming credit markets help to insure consumers don't get into added trouble, but it also cuts down on what people can borrow and spend. We also added to consumer debt through programs like "cash for clunkers" and the home buyer tax credits.

When we add it all up, did we do more damage than good? Economists will write volumes on this subject alone.

Let's just summarize it this way - we had some pretty basic, very serious problems. What we did to solve them was a mixed mash of good and bad. One thing is for sure we didn't completely solve our core problems.

The great depression didn't play out over six months, it lasted eleven years. (With good times and bad mixed in.) IMHO, this downturn isn't over yet. I wouldn't get complacent.

 

[ugabuga]

Shopper,

Thx for trying to help me understand this.

I think economics of this sort is very/very complicated.

I envision "the economy" as a huge collection of boilers,pipes, knobs, valves, etc., w/ hundreds/thousands of gauges at various points. When you turn one knob here, it changes the readings on all the gauges throughout the system.

You say, "don't get complacent".

It certainly doesn't help that there seems to be no consensus even among professional economists on what to do.

 

[30ashopper]

Shopper,

Thx for trying to help me understand this.

I think economics of this sort is very/very complicated.

I envision "the economy" as a huge collection of boilers,pipes, knobs, valves, etc., w/ hundreds/thousands of gauges at various points. When you turn one knob here, it changes the readings on all the gauges throughout the system.

You say, "don't get complacent".

It certainly doesn't help that there seems to be no consensus even among professional economists on what to do.

Yep. I couldn't agree more.

 

[sarawind]

Shopper,



It certainly doesn't help that there seems to be no consensus even among professional economists on what to do.

Historically, lowering taxes stimulated the economy.

 

[Edgy Grammy]

in the good ole days the great generation could only dream of going to branson on the government's dime. back then everyone worked for a buck a day and the coloreds couldn't vote. it was a wonderful white bread world of repression, fear, and guilt on sunday. of course the stimulus didn't work because there were no freebies for the blue hairs.

Opinion from a blue hair, who doesnt expect free freebies but does accept the "freebies" that she earned over a lifetime of working. (ages16-72).
Glad I didn't live in "bobby's neighborhood", if I remember correctly the Blacks got the vote before Women did...I grew up in a small community that took pride in family, friends and our country. The schools and churches were the heart of the community. If a family was in need, everyone jumped in and helped, didn't matter what brand of "bread" you were. I don't remember any repression or fear or quilt on any day including Sundays...we trusted our leaders, we believed the news that came into our homes over the radios, it was a honor to serve our country, we pulled together in times of war. As a community we didn't expect "goodies" from the government, yes I know it was a simple time-----but it was a wonderful time.
Today's way of doing things is really shameful...too many are only out for themselves...starting at the political top and working its way all the way down...money isn't the fix for everything. Taking our great grand kids into debt is not the answer...

 

[LuciferSam]

Sure, and in a few years when we are out of the woods, we can all look back objectively and say, 'yes.' Nah.

It's one that people will be able to look back on and say either yes or no whatever the case may be.

 

[AlphaCrab]

Yes.