Wednesday, September 22, 2010

Poor Returns, And It's Not Even November

On his lively new blog about politics and economic policy, "Slightly Right Of Center," my St. John's brother Rich Straton does the math on the Obama administration's stimulus spending and comes out more than slightly south of zero:
When the stimulus bill was passed, the economy was $14,050 B and it has grown to $14,575 B over a year and a half, a difference of $525 B. Now in the same period of time the Federal Government has spent $512 B of the $787 B in the stimulus bill. So, what can we conclude? The stimulus caused the economy to expand by $13 B beyond the stimulus itself? At 3%, that only covers the first year’s interest on the money borrowed for the stimulus.

Let’s keep [Obama ex-economics guru] Christina Romer’s [predicted] 1.6% expansion in mind. We should have grown by $225B more than the stimulus. But not all of our growth can be attributed to the stimulus. Let’s assume that half of the $525B is the product of our individual private labor and companies. Also, we must give some credit to Ben Bernecke and the Federal Reserve’s expansionary money supply policies. Then we are getting about a 50% return on the dollar from the stimulus.

Annualized we are growing at something like 2% per year when we should be getting 5-6% in the initial phase coming out of a recession. We shouldn’t be threatened with slipping back into a second recession. In Keynesian terms, the multiplier effect of the stimulus is between .5 and 1 when it should be between 2 and 3.

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