Future stimulus package

A few days ago, the Chinese government unveiled a stimulus package amounting to $586 billion. The reasoning behind it is that there are many projections for a global slowdown in production for the world largest economies. In doing so, the package will provide money for health care, infrastructure, and education.

Some info:
China stimulus package

Our current bailout plan has been restructured a bit, which is not on its own accord shocking, as they are virtually creating the theory as they go along. I am not talking about that though, what i am describing is the federal government putting together a spending package on top of the bailout.

So i ask fellow patrons of the politics forum: Should the US unveil their own monster stimulus package, somewhere along the lines of $500 billion to $1 trillion?

i think a stimulus is needed BUT:
- there might not be any money left for stimulus after the socialist bank rescue
- the first $170 billion stimulus earlier this year failed

governments should operate on a surplus in good times (and pay debt down) and, if necessary, operate on a deficit in bad times...that hasn't been happening for for the past 40 years or so and the accumulated debt plus the abnormally high deficits are limiting choices...sooner or later, americans are going to pay the full price...maybe it will hurt less if they stretch out the payments over 40 years at an attractive introductory interest rate (subject to increase to market rates)

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Originally Posted by maladroit

i think a stimulus is needed BUT:
- there might not be any money left for stimulus after the socialist bank rescue

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Of course there is:jointsmile:

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the first $170 billion stimulus earlier this year failed

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That is because: 1. It was much too small. 2. It was really a tax rebate. In that case, there was a rather low multiplier effect, due to the nature of the rebate (skips step 1), and high demand to pay off debt.

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governments should operate on a surplus in good times (and pay debt down) and, if necessary, operate on a deficit in bad times...that hasn't been happening for for the past 40 years or so and the accumulated debt plus the abnormally high deficits are limiting choices...sooner or later, americans are going to pay the full price...maybe it will hurt less if they stretch out the payments over 40 years at an attractive introductory interest rate (subject to increase to market rates)

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I do agree. Yet the budget went off balance after 911, along with the recession. Those are not exactly "good times" so to say.

A super stimulus (greater than or equal to $1 trillion) is needed to prolong the eventual demise of this Keynesian wet dream.

yer probably right about the previous stimulus package being too small, but that was only a small chunk of the total economic intervention in the months leading up to the $700 billion bailout/rescue/investment program if you consider all the federal reserve cash injections and bailouts that happened *before* the official bailout program was announced...it's quite the intervention, eh? it makes celebrity rehab look like a children's tea party!

I think some kind ot stimulus may be needed, but not sure about that size --- $500 billion to $1 trillion seems HUGE!

I am more concerned about what FORM the package might take. Personally, I dislike these cash-giveaway rebates where the government just mails out checks. That seems stupid. I guess the idea is that it provides a more immediate shot in the arm than other forms of spending. But as long as we are going to be borrowing the money, we should use it in a way that creates jobs here and in which we get an actual thing of value out of the deal, like infrastructure. Rather than just cutting checks to everyone, if we used an equivalent amount of money to build or fix roads, bridges, schools and hospitals, the money would still go into the economy, but it would be spent in a way that would definitely creat American jobs, and we would also get those roads, bridges, schools and hospitals. If we just mail out checks, that money is far more likely to just go to consumer goods that stand a very good chance of being made in other countries --- it is not guaranteed to create jobs here, and there is no great lasting benefit to this country. I'd rather get a new bridge than for everyone to get a new Wii.

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Originally Posted by dragonrider

I think some kind ot stimulus may be needed, but not sure about that size --- $500 billion to $1 trillion seems HUGE!

I am more concerned about what FORM the package might take. Personally, I dislike these cash-giveaway rebates where the government just mails out checks. That seems stupid. I guess the idea is that it provides a more immediate shot in the arm than other forms of spending. But as long as we are going to be borrowing the money, we should use it in a way that creates jobs here and in which we get an actual thing of value out of the deal, like infrastructure. Rather than just cutting checks to everyone, if we used an equivalent amount of money to build or fix roads, bridges, schools and hospitals, the money would still go into the economy, but it would be spent in a way that would definitely creat American jobs, and we would also get those roads, bridges, schools and hospitals. If we just mail out checks, that money is far more likely to just go to consumer goods that stand a very good chance of being made in other countries --- it is not guaranteed to create jobs here, and there is no great lasting benefit to this country. I'd rather get a new bridge than for everyone to get a new Wii.

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A few things to note: I am very pro market orientated, but a stimulus is gong to happen because all developed economies are conditioned to this type of response to a recessionary gap.

In theory, a stimulus package is to be used to shore up a recessionary gap when growth outlooks are dismal. In theory, government spending stimululs will produce a greater short run growth effect due to the leakages that arise having an income effect, When tax rebates were given a larger than normal portion was put towards savings (paying off debt), which is a leakage that created a tiny income effect. The money people did spend went partly to foreign made goods (a leakage that had no income effect).

Direct spending from the federal government woud instead go to agencies (leakage) who will appropriate funding needed for roads, bridges, upgrades, education, grants, health care, etc..., as funds are transfered to firms will partake on the productin of these programs, For example, if there was a $1 trillion stimulus, and 5% leakage, step one (fund appropriatin) would lead to an income effect of $950 billion. Firms would be flush with cash, and soon that money would trickle into further spending of labor, material purchase, R&D, etc (step 2)...,

From this point further, it is refered to the steps "to infinity", The important idea is not to undershoot when attempting to close a recessionary gap otherwise it will have less steps generating income, and still negative growth would occur. A $1 trillion stimulus package based on government spending would most likely lead to an inflationary gap, which can now be very easily corrected because interest rates are so low, and a large raise in rates will seem like nothig as they are currently just above zero.

Depending on the percentage of domestic goods Americans consume, a trillion dollar stimulus can have multiplier effect. For example, if the US consumed 50% US goods, a $1 trillion dollar stimulus of which i described, would lead to $2 trillion dollars in GDP growth.

Remember, in a market orientated world, this would not be necessary, as the corection would be short lived.

the total amount of federal, state, and local government spending is about $5 trillion per year...i wonder how much of the US GDP is sourced in all that spending

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Originally Posted by maladroit

the total amount of federal, state, and local government spending is about $5 trillion per year...i wonder how much of the US GDP is sourced in all that spending

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Government spending is not the same a stimulus spending. Reason be, a stimulus is not a perminant budget outlay, but rather a tool used to shift the AD curve to the right.

Ewwwwwwww.... leakage......

government spending is part of the formula for GDP


The formula for GDP is:

* GDP = C + I + G + (Ex - Im)

EconoTalk

Gross Domestic Product is the sum of all spending on goods and services in a nation's economy in a year. The formula for GDP is: GDP = C + I + G + (Ex - Im), where â??Câ?� equals spending by consumers, â??Iâ?� equals investment by businesses, â??Gâ?� equals government spending and â??(Ex - Im)â?� equals net exports, that is, the value of exports minus imports. Net exports may be negative.

Subsidies are transfer payments to assist industries that benefit the public, but might not survive or remain stable if operated for profit without subsidies. Farm products and rail transportation are subsidized in most modern economies.

The parts of the formula are simple:

* C = total spending by consumers
* I = total investment (spending on goods and services) by businesses
* G = total spending by government (federal, state, and local)
* (Ex - Im) = net exports (exports - imports)

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Originally Posted by maladroit

government spending is part of the formula for GDP


The formula for GDP is:

* GDP = C + I + G + (Ex - Im)

EconoTalk

Gross Domestic Product is the sum of all spending on goods and services in a nation's economy in a year. The formula for GDP is: GDP = C + I + G + (Ex - Im), where â??Câ?� equals spending by consumers, â??Iâ?� equals investment by businesses, â??Gâ?� equals government spending and â??(Ex - Im)â?� equals net exports, that is, the value of exports minus imports. Net exports may be negative.

Subsidies are transfer payments to assist industries that benefit the public, but might not survive or remain stable if operated for profit without subsidies. Farm products and rail transportation are subsidized in most modern economies.

The parts of the formula are simple:

* C = total spending by consumers
* I = total investment (spending on goods and services) by businesses
* G = total spending by government (federal, state, and local)
* (Ex - Im) = net exports (exports - imports)

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Very good! But the stimulus we are talking about takes place as an increase in federal government spending, that is not a perminant fixture of indescretionary spending. In simple terms, i am talking about government purchases. To answer your question though, in 2004, the the percentage of the economy that was based on government spending was about 32%.

WOW 32%...that's a big chunk of GDP to be coming from a government that is charging it's way towards bankruptcy...after this recession plays out, i hope there is going to be some serious belt tightening

as near as i can figger, canada's total federal/provincial/local government spending is about $500 billion, and the GDP is about $1.3 trillion...the usa has 10 times the population of canada so the proportion of total government spending to GDP is about the same even though you guys don't have to plow snow off all your highways for 9 months a year