$30 trillion in stimulus

Patterico noted this article by David Howden is Chair of the Department of Business and Economics, and professor of economics at St. Louis University, at its Madrid Campus, Academic Vice President of the Ludwig von Mises Institute of Canada, and winner of the Mises Institute’s Douglas E. French Prize:

Where’s the Austerity?

Global debt now exceeds $100 trillion, according to the Bank of International Settlements. Over the past five years, debt has increased by about $30 trillion. What’s more, governments have been the largest issuers.

Low interest rates have attracted governments to the appeal of using debt to fund public projects today. As the saying goes, there’s no such thing as a free lunch. At some point this debt is going to become due. At best all these governments have done is shifted expenditure forward by taking from future generations and giving to the present ones.

The magnitude of the indebtedness is what is striking. The $30 trillion of new debt issued over the past five years represents the full output of the American economy for two years. Even ignoring interest payments (which even at low interest rates are fairly hefty on $30 trillion of principal), this is a phenomenal obligation to have to pay back.

At least the IMF is not worried. After all, adjusting government budgets so as to ignore interest payments on these debts yields a positive analysis. By looking at just the primary deficit, the Group of Seven countries are actually running government budget surpluses!

Measures like the primary deficit are like playing golf and not counting the strokes until you’re on the green. Back in the real world, the total amount of expenditure a government makes matters – not just that portion not spent on debt repayment.

Over the last five years the press has been full of discussions of austerity. Allegedly, governments have scrimped and saved to get by. Now we find out that we are collectively $30 trillion more in the hole compared to where we were when the recession began? If this is austerity, I’d hate to see the alternative.

Patterico mocks things by adding a picture of the $100 trillion note from the Reserve Bank of Zimbabwe, though that seems only an exaggerated version of what our own Federal Reserve system has been doing through the last few years of quantitative easing.

But the obvious point, that Dr Howden failed to make, is that we ought to be absolutely humming with economic activity!

Remember how Barack Hussein Obama and Nobel laureate Paul Krugman and all of he Keynesians told us that the way out of our economic doldrums was to borrow and spend, spend, spend? The world has added $30 trillion in stimulus in the last five years — and the GDP for the entire world is only $85 trillion per year, so that’s the equivalent of a 7% stimulus, over the whole world, every year for those 5 years — so, if the Keynesians are correct, everything ought to be humming along, right?

Why aren’t there jobs for everybody? Why aren’t we all rich? After all, everything that the Keynesians have told us we should do, we have been doing! Why hasn’t it worked yet?

11 Comments

  1. If the rest of the world is anything like the United States then they spent their share of that 30 trillion the same way we did: our leftist rulers gave it to bundlers, special interests, union, bailouts for friends and their companies and cronyism such as Solyndra. For the millionth time Krugman, governments don’t create wealth all they do is collect other peoples wealth through taxes and print money. Business and labor create wealth. So had the world slashed 30 trillion value in onerous regulations we may just be chugging along by now. But then that wouldn’t line the pockets of your collectivist friends, now would it?

  2. Even if the argument is that this “stimulus” was poorly spent, the money should have had some impact if Keynesian theories are correct. Giving the money to “bundlers, special interests, union, bailouts for friends and their companies and cronyism such as Solyndra” still didn’t make the money just disappear: the recipients didn’t sew it into their mattresses, but passed it on, through spending and investment and even just plain savings, because it all went through banks and businesses and other hands. Solyndra blew the money, but it still got spent, still wound up contributing to the velocity of money, and yet the great, positive economic benefits that the Keynesians told us would occur didn’t occur.

  3. Mr. Editor, you are of course correct that the resultant economic benefits via the velocity of money heralded by the usually confused and often dead wrong Keynesians never materialized. But I think that it is partially true because the idea of velocity of money is partially false. I do not believe that money, torn from the hands of taxpayers who would have created real velocity by spending it as they saw fit then placed into the hands of the state which has zero vested interest in seeing that money is spent wisely shows velocity. Just throwing money at something (essentially just throwing it away ) does not sound like velocity to me. It just sounds stupid. Therein lies the problem with comrades Keynes, Krugman and Perry. Just spreading money all over is not velocity. Velocity, like anything in economics, must be measured by results. I am not qualified to determine the why’s of how certain spending results in velocity and other spending does not. The same with certain savings and investing. However, I am qualified enough to observe this to be true even though I don’t know why it’s true.

    I sort of believe that the fact is Keynesian policy fails to account for human behavior. The above comrades refuse to see that other people may not spend, save or invest the way those enlightened Keynesians think they should. Furthermore, even though people did not stuff that money in their mattresses’ in my view there is little difference between that and stuffing it in one’s Swiss bank account.

  4. Frankly Yorkshire, I’m stunned to see a drop in U-6 unemployment at all whether seasonally adjusted or not. I really believe these guys have raised the art of cooking the books to Machiavellian levels.

  5. Hoagie wrote:

    But I think that it is partially true because the idea of velocity of money is partially false. I do not believe that money, torn from the hands of taxpayers who would have created real velocity by spending it as they saw fit then placed into the hands of the state which has zero vested interest in seeing that money is spent wisely shows velocity.

    I’d argue that money spent by the state produces less velocity, not due to the action of where the money is spent, but when it is spent. Vendors and contractors and all of the other people who expect to be the recipients of government spending, regardless of purpose, almost always know about it months in advance. Their economic decisions wind up being influenced by the anticipation of the government money, while the slow bureaucratic authority and action (?) chain slows up actually moving that money. Most individuals and businesses move their money faster, because they aren’t tied up so thoroughly by bureaucracy.

    However, once the money does go into the private spending chain, it should return to normal velocity. Nevertheless, that lag existed, and can’t be made up.

  6. I’d argue that money spent by the state produces less velocity, not due to the action of where the money is spent, but when it is spent. Vendors and contractors and all of the other people who expect to be the recipients of government spending, regardless of purpose, almost always know about it months in advance.

    The “velocity” by the “state” is really measured by how many hands “touch” the money before it arrives at its destiny. $1.00 to the state will probably have 30% or more siphoned by the “handlers” (gummint employees) before it hits it’s target. Probably a Dollar reaching an EBT recipient costs us $1.50 or more. Whereas handing a panhanler a Dollar saved you 50 cents to spend somewhere else.

  7. A very good argument Mr. Editor. Perhaps that is what I am unconsciously observing in the velocity phenomenon. That slowing of the money as it makes its way through the economy. Even so, I am skeptical and have always been so about the theory of velocity. Money, like people, moves best when it moves freely. Unencumbered capital pulsing through the economy begins to take on a life of its own as moves from one entity’s hand to the next growing in force and purpose as it does so. And as you pointed out, once government steps in it slows down that dynamic sometimes to a standstill. Just as government demonstratively has done to “the poor” whom now seem almost paralyzed from action due to fear of “loosing” the money they receive from government, so goes the velocity of money pulled from those taxpayers and slowly fed into the economy in almost always all the wrong places. And make no mistake about it, money issued from the government or those like minded fools such as comrades Obama or Reid or whomever will mostly go where it shouldn’t and where it will deliver lethargic growth at best. By the way, when these people give money to their bundlers, cronies etc. it is no different than Willie Sutton robing a bank. Sure, Willie spent the money thereby supporting velocity, but the money would have been better spent by its owners than the thief.

  8. Just as government demonstratively has done to “the poor” whom now seem almost paralyzed from action due to fear of “losing” the money they receive from government, so goes the velocity of money pulled from those taxpayers and slowly fed into the economy in almost always all the wrong places

    Just call them slaves of the state.

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