Friday, July 10, 2009

Why Economists oppose more stimulus

Paul Krugman wonders whyEconomists oppose more stimulus?. He, of course, puts it down to them being evil Conservatives
And here’s the thing: it’s NOT because they think a solid recovery is on the way...

So they’re not saying that everything’s OK, no stimulus needed. They’re saying that they don’t like stimulus. And why should you be surprised? These are business economists; they’re generally conservative.
I think they oppose the stimulus because it does not "stimulate". When the "stimulus" was first touted, it was rejected because it was too slow, and the money was targeted towards political interests, not households, and therefore would not help the economy. Here we are months later, and the stimulus has come too slowly, and has gone to political interests, not households, and how not helped the economy. Unemployment is nearing 10%, and continuing to rise. If the Obama tries to get another stimulus, it again will be too slow, and send money to political interests, not households. Critics were right the first time, and they are still right.

I would support the current "stimulus" being scrapped and replaced with a payroll tax holiday, to be kept in place until inflation begins to tick up. Arguments about stimulus being wasted because the money will be saved is nonsense -- part of saving is paying down debt, and isn't bad debt what's crippling the financial sector? Instead of simply giving money to households, who can then use it to pay down debt, the Government is giving money to banks, and asking them to write off debt. This benefits banks but hurts households and the private economy. "Who? Whom?" indeed.

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