As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.
According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.
This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.
Of course, if the real goal is to promote government at the expense of civil society and to create a one-party state in which business success is based on political favoritism, then the stimulus is working exactly as intended.
Yup. But it’s a misnomer to call it “stimulus.”
[Update mid afternoon]
The “reality-based community” has a collision with reality:
Cohn reports how former CBO director and current OMB chief Peter Orszag pressured careerists to assume sizable savings due to proposed reforms. The problem is the bean counters did not believe the alleged savings were justified according to the available evidence…it is interesting that the reality-based Obama crowd, which promised to roll back the “Republican War on Science” is now arguing against what Cohn calls “a super-strict reading of the evidence.”
Well, there’s science, and then there’s, you know, “scientific socialism.” Or maybe they’re just waging a war on math.
[Update late afternoon]
Wishful thinking, not a plan:
Congress is working on a health-care bill to expand coverage mainly by subsidizing insurance for tens of millions of households. This new entitlement is likely to cost $150 billion per year initially and grow, on a per capita basis, at a rate that is about 2 percentage points above GDP growth each year going forward. In other words, the cost of this new program will rise just as rapidly as Medicare and Medicaid spending has for decades now.
Orszag and others are saying, don’t worry, health-information technology, comparative-effectiveness research, more attention to prevention and wellness, and some very modest provider payment reforms in Medicare will make all of this governmental spending — on Medicare, Medicaid, and the new subsidy program — grow much more slowly in the future than it has in the past.
But this is an assertion — not a fact. Where’s the evidence to back it up?
“Wishful thinking” is a pretty good summary of Democrat policies in general, both domestic and foreign.