Wednesday, August 25, 2010

Multiplying by Zero

After the appalling home sales numbers released recently, Bloomberg is piling on with more bad news.
Stocks dropped for fifth day and U.S. index futures declined amid concern Europe’s debt burden is worsening while the American recovery falters. The yen weakened after Japan said it will curb appreciation, and Treasuries rose...The decline in U.S. futures indicated the S&P 500 will extend yesterday’s 1.5 percent tumble to a seven-week low. Orders for U.S. durable goods increased less than forecast in July, a sign that one of the few remaining bright spots in the economy is cooling.
The stimuli are all wearing off and they have accomplished nothing. All they did was devour future demand. The cash-for-clunkers did not generate any new demand for cars at all, it simply caused people who were going to buy cars anyway to buy them earlier. A brief bump in sales was followed by a slowdown. Dittos for the temporary tax credit to buy new homes.

Way back when the stimuli were being debated, I never heard a coherent conclusion to this statement: "After we invest in America with the stimulus, our investment will be paid back with higher profits because American companies will finally be able to ..." With Eisenhower's freeway system, the statement could be completed with "ship goods across country with greater speed and less cost." With the Democrats' Stimuloid Porkgasm™ all you heard was mumbled references to economic models and financial multipliers. This was a smoke screen hiding ignorance.

Financial multipliers are modeling shorthand for an aggregate completion of the sentence above. That is, the multiplier for the Interstate Highway system built by Eisenhower was a summation of the increase in economic activity for everything from chicken farmers who could now ship hens farther and faster to truckers who would get paid to do so. There was a real world event occurring behind every component of the multiplier.

We've finally discovered the Keynesian multiplier for the Democrats' orgy of spending.

What were the real world events supposedly behind the Stimuloid's multiplier? People spending more money on electricity because they were now getting it from less efficient solar power plants? There were no believable real world pay backs ever listed for the Stimuloid. If you can't clearly describe the payback to an investment then it's not an investment at all, it's just spending.

Every binge comes to an end eventually. Let's hope this one drags the profligate charlatans who created the Stimuloid Porkgasm™ down with it.


Jeff Burton said...

This administration's fiscal policy is coming into focus as a straight up payoff for the Democrat's core constituencies. I think they just hoped the economy would get better magically. There was never any explicit connection (aside from rhetoric) between "stimulus" and economic recovery.

K T Cat said...

I agree. Political payoffs grow as the government's size and reach grows, and this one's growing like crabgrass.