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Willisms

« Trivia Tidbit of the Day: Part 819 -- Tax Cuts Not To Blame For Deficits. | WILLisms.com | Trivia Tidbit of the Day: Part 821 -- Income Mobility Alive & Well. »

Trivia Tidbit of the Day: Part 820 -- America's Fiddling Failure.

Stimulus Not Working-

There is a classic animated short from 1934 about a fiddle-playing, spendthrift grasshopper and some hard-working ants. While the ants work hard and save up for the winter, the grasshopper goes around all summer playing his fiddle and singing about how the world owes him a living.

This depression-era animated fable is absolutely applicable today, as we try to spend our way out of a problem that was caused by too much unaccountable, free-wheeling spending and not enough fiscal discipline in the first place.

So, is the stimulus working?

Not so much:

multiplier+comp.gif
... a one percent increase in government purchases (as a share of GDP) increases GDP by a maximum of 0.7 percent and then fades out rapidly. This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount.

In other words, the stimulus may indeed "stimulate" in the very short term, but it ends up harming the economy even more after the stimulus goes away.

Indeed, the Calculated Risk blog has a great graphic showing what a failure the first-time home buyer stimulus payments have been at actually righting the housing ship:

DistressingGapMay2010.gif

Meanwhile, as the United States fiddles, other G-20 nations are nearly unanimously launching austerity campaigns to limit their spending and reduce their public debt levels.

Come on, America. Don't be the grasshopper:

Be the ants.

-------------------------------------

Previous Trivia Tidbit: Tax Cuts Not To Blame For Deficits.

Posted by Will Franklin · 24 June 2010 09:58 AM

Comments

Yaaaaay! This is so beautiful!

Posted by: ZsaZsa at June 25, 2010 05:44 AM