Friday, October 30, 2009

Stimulating

John Cassidy of the New Yorker has a post detailing the role of the Stimulus Package in yesterday's numbers revealing 3.5% annualized GDP growth in the 3rd quarter:
The three most striking figures in the G.D.P. report were that consumer spending on durable goods, such as cars and refrigerators, rose at an annualized rate of 22.3 per cent; residential investment (spending on housing) rose at an annualized rate of 23.4 per cent; and exports of goods made in the United States rose at an annualized rate of 21.4 per cent. All of these things can be traced directly to official efforts to stimulate the economy

[emphasis added]. You can read the GDP report here.

4 comments:

Colin said...

Cassidy cites three items:

1. Cash for clunkers. This was a horrendous program that literally destroyed wealth -- junking perfectly good cars -- at a tremendous cost. This was detailed by Edmunds:

http://money.cnn.com/2009/10/28/autos/clunkers_analysis/index.htm

What's more, car sales have now greatly fallen off:

http://money.cnn.com/2009/10/01/news/companies/autosales/index.htm

As a taxpayer I am insulted that my money was taken to promote such waste.

2. Housing stimulus. I have no idea why artificially low-rate loans is considered a good idea. Didn't we just go through a housing bust which illustrated the folly of government subsidization of this sector? I guess it is too much to ask for the government to learn the lessons of failed past policies.

Furthermore, as a renter, why should I help promote a price floor for housing? I would prefer greater affordability. But I guess buying the votes of home owners, who are a majority of voters, is wise policy for politicians, if not the economy.

3. A cheap dollar. No country has ever devalued its way into prosperity. It's never happened. In addition, as a consumer a weak dollar means I have to pay more for imports.

Cash for clunkers is one of the most ill-conceived government programs ever, and attempting to re-inflate the housing bubble is dumb policy in the extreme. It would be nice if Washington could stop meddling in the economy through its various schemes and let the economy -- that is to say, all the people that operate within it -- figure out how to best allocate resources to promote recovery.

Oh, and it's worth noting that a weak dollar and support for the housing sectors were policies embraced by the Bush Administration. Change?

Jason said...

"Are there no prisons?"

"Plenty of prisons," said the gentleman, laying down the pen again.

"And the Union workhouses." demanded Scrooge. "Are they still in operation?"
- A Christmas Carol by Charles Dickens

Colin, in the world you'd seek, while the market sorted things out we'd enter a new Dickensian nightmare.

Colin said...

Jason, what evidence do you base such statements on? In fact, the countries that promote greater economic freedom have greater incomes and prosperity for its citizens. Go ahead and take a look:

http://www.heritage.org/Index/

More fundamentally, if more government resulted in better outcomes for its citizens, why does reality reveal the opposite?

Why is public housing invariably a locus of social disorder? Why has welfare been cited for promoting the breakdown of the family? Why does private education achieve better results than public education? Why are social security and Medicare fiscal nightmares?

On the other hand, when public policy goes in the direction favored by advocates of limited government, we tend to find superior outcomes. Deregulation of the airline industry resulted in plunging fares that has made this mode of travel available to almost everyone. Deregulation of the trucking sector reduced costs and made goods less expensive. Rolling back welfare has been almost universally praised for improving the plight of its recipients. Free trade agreements such as the WTO and NAFTA have reduced the cost of goods for all Americans.

In fact, rather than producing a Dickensian nightmare, the policies I advocate are proven to raise the prosperity of all Americans. It is the dead hand of government that gives us economic stagnation and misery, not the free market which I embrace.

Lastly, returning to my initial point, it has been noted that Cash for Clunkers has resulted in fewer cheap cars being available for the poor to purchase:

http://readingeagle.com/article.aspx?id=162023

Good intentions and actual outcomes are very different things.

Colin said...

Ugh, sorry to pile on, but the housing program is also bad for the poor -- who tend to be renters -- as it makes housing artificially more expensive.

So that's 2 out of the 3 items discussed in the article Ben linked to that are bad for the poor. And yet it is libertarians that are the enemy of the less fortunate? I think not.