More Stimulus Despair

I’ll be frank: the discussion of fiscal stimulus this past year and a half has filled me with despair over the state of the economics profession. If you believe stimulus is a bad idea, fine; but surely the least one could have expected is that opponents would listen, even a bit, to what proponents were saying. In particular, the case for stimulus has always been highly conditional. Fiscal stimulus is what you do only if two conditions are satisfied: high unemployment, so that the proximate risk is deflation, not inflation; and monetary policy constrained by the zero lower bound.

That doesn’t sound like a hard point to grasp. Yet again and again, critics point to examples of increased government spending under conditions nothing like that, and claim that these examples somehow prove something.

Here’s the latest, from Tyler Cowen:

http://krugman.blogs.nytimes.com/2010/07/18/more-stimulus-despair/

I take it to mean the least amount of interest the fed can charge for 'lending' to major investment houses, so that they can take that money and invest in risky ventures and charge us upwards of 6% on loans. If so, why doesn't the government try paying the investment houses to borrow money? Actually give them $1.1 million when they ask for $1 million. That should be incentive for the banks to loan to Main Street shouldn't it? They will be able to loan us money at 0%, and we will put off paying the bill for another generation or two.

In general I agree with Kruggy. But I also see that we find billions to maintain a huge military and kill people on the other side of the world. There appears to be plenty of money somewhere. But the people who have it, and the way they are spending it, shows disdain and lack of concern for the state of the economy on Main Street USA.

micro-economic models.

The result is dumping money in at the macro level has no predictable affect at the micro level that many observers believe will help fuel recovery.

IMO economic stimulus is just a suppository that didn't work.

If eco-stim is a suppository, then trickle-down (seeding the wealthiest in order to shower the rest with the falling petals), is akin to viagra.
Historically, it has been proven that properly placed economic stimulus (bottom-up) does indeed work. The key is "properly placed".
It is becoming clearly arguable that there are no acceptible theories in economics anymore. I beleive that globalization has changed the game. The new reality will demand a new set of theories to explain the interrelation of monetary supply, demand, and in/deflation. Still, properly placed economic stimulus in the form of government sponsored job creation (as opposed to government sponsored money destruction - read: wars, unproductive spending, etc.) will in turn lead to increased demand, increased monetary supply, and a sustainable hedge against deflation. Not being a economist nor a fortune-teller, I can only offer this opinion as a hypothesis.
A significant part of the latest US government attempt at eco-stim was trickle-down in a new dress.

and I reach different conclusions.

It's one thing to fit a curve to a set of points to describe what happened from a historical perspective when events coincided and a different problem altogether to conclude that those same points if controlled will produce predictable results.

I remain unconvinced that the $700 billion economic stimulus we just went through was any where close to as effective as has been claimed.

fixes IMO hoping recovery will occur. As someone else basically postulated, we are in a whole new ball game now with globalization.

We are bandaging a failed economic system that well might not work in the 21st century for the majority of the citizens.

That said, IMO there are many that do not care if it works for the majority of the citizens as long as they are doing well.

With the huge discrepancies in the global salary base it's a pretty strange balancing act to expect job/income distributions to be high for most of the US under the current model.

lower labor costs.

At the same time we see production moving from states with the lowest domestic labor costs to Mexico with even lower labor costs.

Any attempt to use protective trade tariffs will invite retaliation and with our $800+ billion trade deficit we have no room to maneuver.

Globalization is here whether we like it or not and our Dept. of Commerce aided by the Dept. of State and legions of economic advisers from Nobel laureates down to those with lowly BS/Economics don't have a clue how to create a national economic policy any more than our government knows how to create a national energy policy.

We are lead by idiots and the followers are not sheep but donkeys, the dumbest, most versatile beast of burden domesticated by mankind.