I have blogged on the Economic Stimulus before, but it still needs more clarification. First, the name needs to be changed to make it more understandable. The whole concept is a "theory" and not ever proven by "double blind" testing. There have been a lot of "theories" in the past that have been proven wrong. It was not all that long ago that most of the world thought that the Sun revolved around the Earth. Remember that the Catholic church arrested Galileo when he said that the Earth was not the center of the universe and that the Earth revolved around the Sun. Galileo was right and the Church and most of the world were wrong. The point is that for most people and most calculations assuming that the Sun revolved around the Sun did not affect the validity of most calculations or decisions. It was the same for those who thought that the Earth was "flat". Most people could go thru life thinking the Earth was "flat" and it would not have made any differences, but they were flat wrong. When Newton discovered the universal laws of motion, he was able to explain all the positions and movements of the planets and those laws still work the same way today. The point is that theories can look correct and produce the correct answers, but be totally wrong. Above are just a few.
How about a new name for "Economic Stimulus"? Let's call it a cash advance and see how that makes us think differently. Another small point is that for a theory to be correct, it has to work in the macro and micro domain. That is, if it works for the whole nation, it has to also work down to the individual. Any correct theory has to work at both extremes. Now how does the "cash advance" theory stack up?
We have this guy who has been working at a job as part of the economy and is layed off. Let's say that he is a carpenter so the state gives him a "cash advance" to stimulate him until he gets another job. Now think this thru. He is out of a job and not working, but he has income from the state. How does this stimulate him to go out and find another job? See the problem? Now if this is a cash advance to help feed his family until he gets a new job and is in a position to pay the money back, we can understand that. The pay back is a critical point. Now if the guy lost his job as a carpenter and the demand for carpenters has gone down due to the lack of need for new homes, we have a very different problem. Did giving the guy money to feed his family while he is out of work help to create the demand for more homes? I don't think so. We all know that we don't make shoes in the USA anymore, so how did economic stimulation help those shoemakers who were out of work?
Now take the farmer who had bad weather and lost his crop. If nothing is done, the weather next year will be different and he could make a good normal crop. In this case, the state gives the farmer a cash advance to feed his family and he pays it back next year when he has a good harvest. Logical? Did the cash advance make the weather get better the next year? The weather got better and only Obama would claim that his "stimulus" changed the weather. See?
I think you can see that we have had various "business cycles" since the beginning of time and this whole business of Stimulation has no affect on the basic "business cycle", it only works as some kind of cash advance to get people thru a tight spot so that they can pay the money back in the future. If nothing were done, as had been the case for hundreds of years, the individual and their families would have had to tighten their belts to get thur until the next business upturn. I think you are starting to see how this all works and what name it is given has had a big impact on what people think.
Notice that in my blog, there is no free lunch. The cash advance has to be paid back out of future earnings. If you know that you will have to pay the money back, are you going to throw it around like Obama has? I don't think so. What is our problem now? Now we seem to be concerned that we might never be able to pay back China for all the money that we dumped in the form of cash advances so that people would not have to tighten their belts. Interesting!!! Have you ever heard Obama say that the times are tough and that we will all have to "tighten our belts"? No!! He is going to make all this painless, but in the end painless for who?
