Monsieur Deficit and Economic Stimulus

Maria Antoinette’s life with Louis XVI was marked with frivolousness and extravagance; it was also attributed as a factor bringing France to the throes of financial disaster. Fair or not, she became known as Madame Déficit and was publicly beheaded at age 38.

Life expectancy has grown since 1793, if only for lack of guillotine usage. No matter the economic condition of the nation, I doubt beheading will be reinstated. So, here’s to you, Mr. Obama – Happy 48th – and ten years longer than Mrs. Antoinette.

To celebrate, it may be sweet to reflect upon (or revel in) McCain’s concession: “the stimulus has had some effect.” Perhaps that’s the icing?

But as shortsighted and forgetful as Americans can sometimes be, sometimes the obvious needs to be stated: pumping trillions of dollars into the economy will affect it. Pumping trillions of dollars into *anything* will do *something*.

The ultimate question remains: what is the long term impact of these decisions? Let’s be real – contrary to what some politicians might imply – money does not grow on trees. And while printing new money does seem fun (“Look ma’ – a crisp dollar!”), it’s no fun when the negative effects are felt years down the road by the next generation.

Let’s consider the short term impact. Jobs will be created. People will spend. The Cash for Clunker system aptly exemplifies this (“Look ma’ – car dealerships are making great money again! We’re saved!”). But unless lasting, long-term changes are made, we’ll end up right where we started (“Ma, the Cash for Clunker system ran out of money! Ford needs help). No doubt, Ford needs help. Giving them money without addressing the problem leads to failure. C’mon folks – you don’t need to read tarot cards to figure this out.

In a more drastic, albeit tangible example, Oregon invested an additional $176 million into the state to create over three thousand new jobs. The catch: these jobs lasted a week. I’m not here to debate the finer points painted by the Obama administration. Whether the jobs “created or saved” last a week or a year is largely irrelevant. My point is this:

Present artificiality does not equate future reality; but future reality will reflect the consequences of short term stimulus.

Someone, somewhere down the road, will pay for the trillions we are spending today (“Ma, am *I* going to pay for this?”). Future generations will feel the reverberations: higher interest rates, inflation, less available tax revenue, and a declining American dollar.

But we can worry about those problems another day; today is a celebratory time, right? I’m waiting for the announcement, “qu’ils mangent de la brioche.”

3 thoughts on “Monsieur Deficit and Economic Stimulus

  1. Pingback: How To Win My Vote « ExDeserto

  2. Ben, American political debates tend to confuse things rather than clarify for me. But I happened to read this short article about job-creation stimulus the other day and am curious what you say about this retort.

    “A chart showing fluctuations of the G.D.P. over the past few years indicates a modest recovery beginning in the middle of 2009, just as the stimulus dispersals were kicking in; the recovery continuing at a decent clip for more than a year; and a severe tapering off toward the end of 2010, by which time most of the stimulus money had been spent. A visiting Martian looking at the chart might well conclude that but for the stimulus things would have been much worse, and that conclusion would be justified. Based on estimates from the nonpartisan Congressional Budget Office, by the end of 2010 the stimulus had created close to three million jobs, which is not far off the outcome that White House economists predicted in early 2009. The problem is that those economists, working with the figures available at the time, grossly underestimated the collapse in spending and hiring which the country was facing, and the scale of government action that would be needed to offset it. They rashly claimed that the stimulus would prevent the unemployment rate from rising above eight per cent—an error that the Republicans have been gleefully exploiting ever since.” –The New Yorker, Sept. 19, 2011

    The full article is here

  3. The 19th century British prime minister, Benjamin Disraeli wrote: “There are three kinds of lies: lies, damn lies, and statistics.” The New Yorker article is quite misleading in the premise that the stimulus benefited the economy.

    As a preliminary matter, and on a superficial level, the economy may very well have been worse but for the stimulus. This does not mean the stimulus was beneficial however. Bailing out the auto industry props up large businesses making wrong decisions stymies innovation. The idea that “we’re too big to fail” largely eviscerates the worry of making bad decisions. After all, if we didn’t have consequences for our actions, we’d probably engage in many other unwise actions. Better to fail and rise from the ashes than to live in a world knowing neither happiness nor pain.

    Second, the stimulus did create jobs. Many were federal projects that finished after a number of months or years. The stimulus did not have a solid, bolstering effect that the economy needed. To gain political capital, we can laud the jobs created – but it’s artificial. Remember those census jobs? We attribute those to the stimulus, but were they a net positive? Certainly not. We are in the same position now as before the jobs and in the same position as we were afterward. Except, we just devalued our money and have nothing but a few articles to show for this.

    Third, without letting the economy reach a trough and then rebuilding, the stimulus has artificially prevented us from reaching the trough. But instead of reaching the bottom and moving upward, we are struggling – and probably for much longer than we otherwise would have struggled to regain our footing.

    Again, pumping trillions of dollars into “anything” will do “something”; but the short term benefits do not always outweigh the long-term consequences.

Leave a Reply to Lijing Cancel reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s