With the passage of a $26 billion state aid package last Tuesday, Congress has now approved over $1 trillion in spending and tax measures to stimulate the economy , according to economists Alan S. Blinder of Princeton University and Mark Zandi of Moody’s Analytics.

The Washington Post breaks down the spending:

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click for larger graphic

Graphic courtesy of Washington Post

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Source:
President Obama signs $26 billion jobs bill to aid state payrolls
Lori Montgomery and Nick Anderson
Washington Post August 11, 2010  
http://www.washingtonpost.com/wp-dyn/content/article/2010/08/10/AR2010081004201.html

Category: Economy, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

32 Responses to “Spending + Tax Stimulus = $1 Trillion Dollars”

  1. radioman says:

    It’s like the federal government is addicted to deficit spending, foreign creditors are buying bonds to keep feeding the addiction, and Congress can’t stop itself. In fact, now it’s spreading the addiction to the states with “stimulus” funds.

  2. NoKidding says:

    At some point during the next 18 months that entire graphic will be a freckle on the bottom right corner of the updated version.

  3. IS_LM says:

    And yet the 20 year US bond is down 26 basis points in the last two weeks and down 90 bps since the peak in late March. Equities are for suckers.

  4. IS_LM says:

    BTW, Jim Hamilton refers us to an excellent primer on the term structure of interest rates, complete with a movie. For those with short-term memory loss, watching the shattering of the term structure starting in Sept. 2008 should be a useful restorative. Folks, we really were on the brink.

  5. Rich in NJ says:

    What is the best (and most unbiased) estimate of where the economy (GDP, unemployment rate, etc.) would be in the absence of any stimulus?

  6. Pure-Water says:

    Rich in NJ: It would obviously all be in the toilet, but that’s how you get a sustainable economic recovery by letting the system cleanse itself of all the malinvestment and excessive debt. It would probably have been 2 or 3 years of a depression (just a guess) and then the economy would start growing again, without needing the crutch of government spending. That’s how the US used to deal with depressions before the Fed and FDR came along. The longer we wait to truly clean out all the malinvestment the worse/longer it’s going to be.

  7. IS_LM says:

    What is the best (and most unbiased) estimate of where the economy (GDP, unemployment rate, etc.) would be in the absence of any stimulus?

    The author of this blog isn’t very fond of counterfactual simulation. Nonetheless, here is a good, if very dense, place to start. (WARNING: Big PDF.) Macroeconomics is currently awash in research on the size of so-called fiscal multipliers, a topic that received little or no attention until recently. The issue is whether short-term stimulus has a multiplier greater than one (in the short-term). Much of the research shows that it does if it takes the form of transfers (rather than tax cuts) and especially if interest rates are near zero (as there is no crowding out of private investment).

  8. IS_LM

    To the contrary, I am a big fan of the counterfactual simulation when used correctly.

    Indeed, the better part of the Chrysler chapter of Bailout Nation is a giant counterfactual “what if?”

    Read this from 2008:

    Perhaps, It’s Time to Play Offense

  9. Petey Wheatstraw says:

    I’d like to see the chart in the context of the entire Federal budget, and that in the context of Federal debt.

    I agree with NoKidding. To quote the Allman Bros: Ain’t but one way out baby, Lord I just can’t go out that door.

    http://www.youtube.com/watch?v=dIY8CoMILgU

    We will go out that door.

    Should be retitled: Bernanke’s Blues.

  10. Event_horizon says:

    ahhh… ain’t Keynesianism grand? Of course, when the economy (ever) becomes rosy again, Congress can certainly be depended upon to reign in this spending…. oh wait, nevermind.

  11. willid3 says:

    Pure_water

    sure we could have let it do what you suggest. its not like we haven’t done it before. the last few times that it happened weren’t pretty. there was that handy dandy depression in 1873. that lasted for over 20 years. is that what you really wanted to do? and the last depression we had in 1930s. the main reason that the rules got changed was because the people had no patience for a 20 year debacle. picky they were. wanted to get out if long before then. and they did too. or they were going to fix it permanently. by either eliminating capitalism. or democracy. or both. care to guess if the current populace has a greater patience than they did? I am thinking they are lot less patient. I think they would be open revolt in 12 months are less. couldn’t you?
    seems the theory of financial cleansing has very little to do with fixing the economy. more with politics than any thing else

  12. wally says:

    If a trillion dollars won’t do the job, maybe it’s time to think it through. Maybe there’s a problem that ought to be addressed. Ya think?

  13. IS_LM says:

    It would obviously all be in the toilet, but that’s how you get a sustainable economic recovery by letting the system cleanse itself of all the malinvestment and excessive debt. It would probably have been 2 or 3 years of a depression (just a guess) and then the economy would start growing again, without needing the crutch of government spending. That’s how the US used to deal with depressions before the Fed and FDR came along. The longer we wait to truly clean out all the malinvestment the worse/longer it’s going to be.

    Financial bubbles occurred long before the Fed and FDR started to corrupt our precious bodily fluids, and the fallout from bursting bubbles led to dislocations of much longer than two or three years. (Funny how you never hear an Austrian use the word “malinvestment” when asset prices are rising.)

    For those interested in a simple exposition of financial bubbles, you can read Hyman Minsky’s Financial Instability Hypothesis, which captures all of the salient features of the South Seas bubble of the early 1700′s, the stock market bubble of the late 1920′s, the dot com bubble of the late 1990′s, and real estate bubble of the late 2000′s. (Hint: It’s a combination of behavioral finance and leverage.)

  14. Pure-Water says:

    willid 3: I’m referring to the US, the panic of 1873 didn’t last anywhere close to 20 years in the US. It was your standard 2 or 3 year depression.

    IS_LM: yes there may have been asset bubbles but nothing like the late 1920s, late 1990s or the most recent version.

  15. DeDude says:

    And it worked. We went from a nose dive of worse than negative 6% to a positive number on the GDP. And 6% of a 14 trillion GDP is 0.84 trillion (of return in just a single year). That baby has payed for itself in less than 15 months. Only problem is the private sector got most of the benefits from reversing the fall but the public took all the expense – but that is easy to fix with a few tax-increases. Considering how much of this was wasted on things that were not very effective as stimulus it is more than a miracle how effective this has been. We looked at plugging a hole in aggregate demand of 2 trillion with a 0.8 trillion stimulus package and we stopped the free fall – amazing.

  16. willid3 says:

    pure-water your right it was 20 years (which is what i had been told). but it wasn’t 2 -3 years either

    In the United States, economists typically refer to the Long Depression as the Depression of 1873–79, which followed the Panic of 1873. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression’s 43 months of contraction.

  17. willid3 says:

    Pure water you right it wasn’t 20 years. it 65 months

  18. DeDude says:

    “It would probably have been 2 or 3 years of a depression (just a guess) and then the economy would start growing again”

    Where on earth did you get that from? The last depression lasted almost a decade and only got resolved with a huge government stimulus program called world war 2. In a downward spiral growth doesn’t magically start all by itself and all the lost productivity of a lost decade is lost forever (that labor of 20 million unemployed sets of hands being idle for a decade is forever lost)

  19. DeDude says:

    willyd3; the issue is actually not the length of time until the GDP stops falling. The issue is how long does it take before the GDP (per citizen) has recovered to its previous peak. Yes the tumbling down the hill took 65 months but how long before they were back up to where they started. That is probably where the people you talked with got their decades. You have to calculate the total lost GDP with or without intervention to make the call on whether we can afford to do or can afford not to do a stimulus.

  20. call me ahab says:

    The issue is how long does it take before the GDP (per citizen) has recovered to its previous peak. Yes the tumbling down the hill took 65 months but how long before they were back up to where they started.

    so . . .you are single-handedly redefining what a contraction is?

    your’e always good for a laugh dedude

  21. DeDude says:

    ahab@5:37

    “so . . .you are single-handedly redefining what a contraction is”

    No I am defining what the issue is related to judging the effects of using stimulus to end a downturn vs. not intervening. You have to look at the total loss of GDP under the two scenarios.

    “your’e always good for a laugh dedude”

    Unfortunately you are only good for simple minded demagoguery and hissy fits – but you still so young, you can learn ;-)

  22. DeDude says:

    So you have 16% (U3) unemployment and 1/3 of the workforce underemployed (U6). Consumers scared to death, even if they are employed, and saving every penny they earn (or paying back loans). Deflation making everybody even more prone to wait investing or spending because “it will probably be cheaper next month”.

    Then suddenly from this situation by pure magic “the economy would start growing again”???? Exactly how, why, and with whose increased consumption/investment, would that happen???

    I am all for letting regular recessions happen to clean out the crud, but severe recessions and depressions have to be stunted with interventions.

  23. DeDude says:

    So stimulus bills passed to save a 14 trillion dollar economy was in:

    2008: 0.17 trillion
    2009: 0.79 trillion
    2010: 0.14 trillion

    Look like a good trend to me.

  24. Pure-Water says:

    DeDude, Simply amazing, I don’t agree with a single thing you’ve written.

    1)I got 2 or 3 years, because that’s about twice as long as the avg depression lasted before the Fed. Make sense?
    2)GDP isn’t income, it’s activity, hence the stimulus wasn’t “paid for” as you erroneously claim. If you want to look for payback, compare metrics like unemployment, tax revenue. How’s that working out for you?
    3)You can have economic growth with deflation, check the 19th century when the US went from an agrarian society to the greatest economic power the world had ever seen…and prices went down 50% over the course of that century.
    4)The great depression didn’t end because of World War II. I mean how stupid is that? That’s just a bunch of propaganda they taught you in high school and you’re still buying it. Sure, lets go kill a bunch of people, spend countless amounts of money on unproductive things like bombs and tanks, have a bunch of our young men killed and that will solve our economic problems. If that were the case, then we should have a booming economy right now. What got us out of the great depression was 1)we were the only major economy that didn’t have its infrastructure destroyed and 2)pent up demand because of rationing during the war.

  25. DeDude says:

    Pure-Water;

    1) No not at all. As far as I know we are not “before the fed” we are “after the fed” so the only depression you can compare to is the great depression (with its two downturns).

    2) Sure lets do unemployment. 8 million extra unemployed people times an annual productivity of $100K per person is 800 billion dollars. So it is all earned back in a single year.

    3) I have no doubt of that happening in an old agrarian society where prices fall due to productivity increases. The question is can it happen in an economy with a total (public + private + corporate) debt of 380% of its GDP.

    4) So we agree that it was the war that got us out of the great depression, we just don’t agree on exactly when that war got us out (early vs. late 40’ties).

  26. Pure-Water says:

    Dedue:
    1)If you actually read the original post, the theoretical question was posed, “what would the economy be like if there was no stimulus?” That question presumed no stimulus and no fed intervention. I answered that the economy would be awful for 2 or 3 years. Does it make sense now?
    2)Your math skills are, amm, questionable. Let me get this straight…we spent trillions of dollars and the unemployment rate went up and never stopped growing. So it was money well spent. Ok, good, got it. You realize we have to pay interest on that money forever or until we default on it or inflate it away, right? Might want to factor that in.
    3)It’s not the deflation that causes the economic contraction, it’s the economic contraction that causes the deflation. Deflation gives the middle-class a break, because things get a little bit cheaper and the gov’t can’t tax their increased standard of living. Moreover, I don’t believe that demand is going to go down in a meaningful way because a products will cost 1 or 2% less a year from now. Think about it, what have you bought recently that you wouldn’t have bought had you known that it’s price was going to go down a trivial amount a year from now. Your groceries? Worn out shoes? Tires for your car?
    4)No it wasn’t the war.

  27. S Brennan says:

    I think the stimulus money was about as poorly spent as it could possibly be, paying men to dig holes and then fill them in would have been preferable, but those above who advocate doing nothing and riding through a recession/depression to “cleanse” the body politic…let me add a little history. Sometimes those cleansing can run a little long…and a little bloody.

    I’m sure the guys that sacked Troy [Mycenae's greatest trading partner] didn’t know they and their offspring would wait almost a thousand years before classical Greece rose far enough to match Mycenae…talk about patient investors. History teaches us that recessions and depressions aren’t the only thing on offer when a government fails to act for “the general welfare” of it’s citizens.

  28. S Brennan says:

    Uhm no DD, the numbers say you are wrong on:

    “4) So we agree that it was the war that got us out of the great depression, we just don’t agree on exactly when that war got us out (early vs. late 40’ties).”

    Unemployment fell by ⅔ in Roosevelt’s first term (from 25% to 9%, 1933–1937) and then stalled when FDR listen to conservatives in 1936. In 1938 conservatives won because FDR foolishly listen to siren call onto the rocks of poorly timed fiscal conservatism.

    http://en.wikipedia.org/wiki/File:US_GDP_10-60.jpg

  29. Joe Friday says:

    Indeed.

    FDR’s New Deal worked like a charm.

    By 1936, long before war or even rumors of war, the GDP had risen to +13% and the Unemployment Rate had fallen to 9%, from -13% GDP and a 25% Unemployment Rate in 1932:

    http://edgeofthewest.files.wordpress.com/2008/11/newdealeconomy1.jpg?w=480

  30. something tells me that We’re not paying, enough, attention to (at least) two things..

    1. Andy Grove’s points ‘about the Economy’, excerpted here: “… More importantly, the U.S. had not yet forgotten that scaling was crucial to its economic future.

    How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea. Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

    I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry…”
    http://www.businessweek.com/magazine/content/10_28/b4186048358596_page_3.htm

    “…However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs—we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.

    The story comes to mind of an engineer who was to be executed by guillotine. The guillotine was stuck, and custom required that if the blade didn’t drop, the condemned man was set free. Before this could happen, the engineer pointed with excitement to a rusty pulley, and told the executioner to apply some oil there. Off went his head….”
    http://www.businessweek.com/magazine/content/10_28/b4186048358596_page_4.htm
    ~~
    and, 2. “Blinder” is well, and aptly, Named.
    ~~

    as an aside Grove, more rhetorically, lays out the observation..”Fickle Finance is, forever, severing the Thinking Head of Economics.”

    http://www.thefreedictionary.com/rhetorically not def. #2..

  31. DeDude says:

    ahab;

    What progress, a few weeks ago you shunned me like a troll, now you are yootubin me!

    What can be next a bear hug?
    Going to the white house to have beer with the President?
    Conversation with facts and interpretations and all that “post high school” stuff?

    I am proud of you man, sniff