Monetary stimulus (QE, Low interest rates) is not fiscal stimulus (spending). Maybe we need to do a lot less buying assets, and a bit more spending on people and jobs. The parent is recommending the latter (spending), not the former.
> Yet, about half of our $700 Billion USD stimulus went to tax cuts.
Right - tax cuts are not Keynesian stimulus spending by any sensible definition. Trying to stimulate a recessionary economy with tax cuts is like pushing on a piece of string.
QE is definitely not the opposite of austerity. Fiscal stimulus is.
QE means that the central bank buy up bonds. The hope is that this lowers interest rates on bonds, making it less attractive for banks to hoard bonds instead of lending money to companies wanting to invest.
tldr: Stimulus package will spark the inflation. QE did not spark the infrlation, but the stimulus(wich will 95% will be spend on goods/services) will. (well, ofc the money going back to economy boost inflation more than money not spent yet. but thats not the point)
> If anything, Obama hasn't been doing enough spending on projects that will be putting people to work in the next 1-2 years.
The CBO says that growth would restart by the end of the year without the stimulus. If that's true, why do we need additional spending afterwards?
Note that Keynes said counter-cyclical spending while Obama's spending establishes a higher baseline. (The only significant savings is for Iraq after Bush said that we'd be out.)
Spending is the appropriate response when faced with a demand driven recession. This is a supply driven recession and reducing govt demand may not be a bad idea.
Actually the website is fine. I mean that the OP was double counting money injected in the economy by adding up legislative actions and executive actions with federal reserve actions. If you consider bonds money, then QE isn't injecting new money because that removes bonds. If you don't consider bonds money, then the stimulus spending isn't injecting new money, because that was funded through bonds.
But my point is that the possibility of fiscal stimulus is not critical for a functioning economy, and in many cases simply does not work. I disagree with the monetarist principle that economic growth is stimulated by money injections—it's just people getting up and going to work in the morning, and inventing new things and discovering new processes. All this money mechanics stuff is distracting fluff.
"Basic economics predicts that stimulus via infrastructure spending is the best way to accelerate growth in the job market -- which is exactly what we didn't do."
Which is why I carefully qualified my statement with bastardized Keynesianism. I don't mean that as a pure insult; I don't particularly believe it's the best economic model, but I don't have much evidence either way w.r.t. the current situation, because it isn't what our government is actually using. It's what it claims to be using as cover, but take Keyne's theories and feed it the actions of our government, and the anemic recovery and ballooning debt is pretty much what it predicts too.
Proper government spending may be the best way out of a recession (I'm very skeptical about it, but it may be true), but even Keynesian theories would seem to say that no spending would better than spending that has a less-than-unity "multiplier". I am much, much less willing that most people to simply assume without actual evidence that spending must have a over-unity multiplier, and I don't see much evidence that our current spending does.
"I have no idea where you got the idea that this recession was treated with an all-out spending spree"
Reading what Keynesianism says and comparing it what money is actually being spent. The so-called "stimulus" has virtually no relationship to what the theories call for (it isn't quite zero, but spending that actually conformed to Keyne's theories were in the high single-digit percents of ARRA last I knew), and there doesn't seem to be any other really compelling philosophy behind ARRA, so barring some other coherent explanation of how the actions of the government are supposed to be helpful, I'll characterize it as an all-out spending spree. It isn't that big of a leap. You just have to look at what is actually being done, and not what is being said.
First of all, the entire stimulus was $4.5 trillion, and most of it was allocated to handouts. A lot of the handouts were necessary, like expanded unemployment, but others were complete wastes of money, e.g. giving checks to families making 6 figures or forgiving loans for billion dollar "small businesses."
Second of all, QE isn't money given to the banks. When we have a deficit, the government sells bonds to banks. "Naturally" this would drive up interest rates for businesses because unlike the government, they can't issue an infinite number of IOUs and have to compete for a limited amount of liquidity. If interest rates rise too much, businesses will be forced to shut down, especially when people spend less money during a pandemic. Quantitative easing is a tool that allows the Fed to lower interest rates purchasing by these bonds back from the banks. The more debt the government issues, the more debt the Federal Reserve needs to purchase in order to lower interest rates. Basically, the root of the problem is that Congress is incapable of balancing a budget.
You’re missing the parent’s point: in a counterfactual scenario, if as much money was handed directly in stimulus checks as was used to pump assets, the actual inflation would be even worse, because velocity of stimulus money is much higher than velocity of asset.
The GP is saying that the future generations have not to pay back and that the stimulus is necessary now and it will not be inflationary. It's not saying that it's not possible to spend too much and create undesired inflation.
But note that, in the same way it's possible to spend too much, it's possible to spend too little. For some reason there are people who think that is impossible.
You see, you can't pay rent or buy groceries with bank reserves but they sure do make it easier for banks to lend money. Someone has to borrow money before it can be spent.
I would also like to mention that the fiscal stimulus by the Biden administration had the intended/usual effect. You know, the thing that QE couldn't create: inflation. If there is an effective tool then the defective tool that distorts the economy can be thrown away.
> isn’t triggering the desired effect of a stimulus package
That's why Congress people were careful not to call it a stimulus.
The payment was to pay people to stay home safely without (hopefully) losing their livelihood. It wasn't about stimulating demand for the economy.
Yes, there are worries about deflation if consumers don't spend like they did before (although consumer spending in the USA has been out of control for too long).
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