Posted by: Bill | February 4, 2009

Zero for Eight

I am not an economist, just a taxpayer. Despite my interest in the subject, I have only what I’ve picked up through osmosis and one Macro class back in 1993. This means that I often read articles and blog posts more than once if there is a large dose of economics inside. Most of my feelings on the stimulus come from the taxpayer side.

Here are two posts by Megan McCardle (one short and one longer) that summarize some of the arguments well. I don’t read the first as a call for taxcuts as some of the commenters do.

I will concentrate on the shorter one, especially this paragraph:

Given that, it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren’t tax cuts or transfer payments.  Let’s recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)–the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.

Note that the Japanese example she cites included at least eight separate stimuli. Eight! They were zero for eight at the end of the decade (searching for other options in the WordPress software to emphasize text). I agree 100% that the burden of proof belongs with the people that want to spend near one trillion dollars.

Proponents say that that’s because there wasn’t enough stimulus, which is possibly true, but not really satisfying, because first, how do we know this package is enough, and second, that leaves us with a belief in the virtues of stimulus that is essentially non-falsifiable.  We might as well move macroeconomic policy to the Office of Faith-Based Initiatives.

According to a recent Rasmussen poll, a plurality of our country now agrees with me. All of my whining aside, I fully believe that a stimulus will be passed. One of the reasons the Japanese did this EIGHT times was because it’s political suicide not to be seen as doing something.

Speaking, once again, without knowing what I’m talking about, I would rather do nothing. I hear lots of voices saying that the United States has been living on credit for decades, not saving enough, etc etc. This correction was needed. I consider myself somewhat of a saver, but also fully admit that this experience has altered my financial thinking and in the future may push me toward saving even more (need to stay away from the Wine Store just steps from my office). Here is the No Cynics Allowed economic plan:

  1. Find a way to recapitalize the banks – Several options have been floated for this and all of them involve giant scary numbers and plans I don’t fully comprehend. What I do know is that the people coming up with these plans have no idea how things will actually turn out. I would rather incur giant amounts of debt to Japan and China by dealing with the banking issues first.
  2. Ditch the stimulus and look for holes in our social safety net to catch the millions that are losing jobs. Extend benefits as needed, retrain and relocate where possible.
  3. Accept that economic growth over the next few years will be sluggish as we figure out what happened and pick up the pieces.
  4. Take a hard look at spending (private and public sector). I think there is a better chance that I will replace Daschle as the HHS nominee than of this actually happening though.

There you have it. No need to thank me.

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