Does Stimulus Spending Work?

Does Stimulus Spending Work?


Following the bursting of the housing bubble
both the Bush and Obama administrations attempted to jump-start the economy with stimulus spending.
Stimulus spending is often accompanied by the phrase “the government must create jobs.”
The theory is that every dollar the government spends is income for someone who, when he
spends that income, provides income for another person. This is the Keynesian multiplier effect. Critics argue that the multiplier effect overlooks
the fact that the money the government spends doesn’t fall from the sky. Every dollar the
government spends it must obtain, either through taxing, or borrowing, or printing money. And
where the government does these things, jobs are destroyed. In the end, the government
doesn’t create jobs at all, but, rather, moves jobs as it spends in one place and taxes somewhere
else. People who claim that government spending creates jobs are only seeing half of the picture.
Can this be true? Let’s look at the history of stimulus spending
in the United States over the past half century. We’ll measure growth in federal spending
along the horizontal axis and economic growth on the vertical axis. The blue dot is our
economy at a point in time. The further to the right we go, the more stimulus spending
we’re experiencing. The further to the left we go, the less growth in federal spending
is occurring. Along the vertical axis we measure economic growth. The further up the graph
we go, the more economic growth we’re experiencing. The further down the graph we go, the less
economic growth we’re experiencing. We’ll place one dot for each quarter since the 1950s.
If stimulus spending worked, we would expect to see a pattern of dots that moved up and
to the right. When the government spends more money, we should see more economic growth.
When the government spends less money, the economy should slow down. Now let’s look at
the actual data for the U.S. economy. From 1955 to the present, government spending
has risen in some quarters, fallen in others, and remained unchanged in others still. But
what is clear is that there is no apparent positive relationship between government spending
and economic growth. For example, in 1968 federal spending rose an average of more than
11 percent per quarter. One year later, economic growth averaged less than 1 percent per quarter.
But in 1993, federal spending contracted an average of more than 2 percent a quarter.
Yet one year later the economy grew at the same 1 percent per quarter. Of course there
might have been something else going on in 1967 and 1993 other than federal spending
that influenced economic growth, and that is why we look at all the quarters from 1955
to the present. Unless there was something atypical going on in every single quarter,
we must conclude that there is no evidence here that increased federal spending results
in economic growth. What does this mean? It means that the only thing stimulus spending
does is to make the budget deficit worse. But it isn’t necessary to look at all this
data; we need only look back over the past three years. Between the Federal- Reserve
and the federal government we have injected the equivalent of two Canadian economies into
the U.S. economy, and yet our unemployment remains stubbornly fixed at 9 percent. One
thing that has changed is that our government is now $4.6 trillion further in debt than
it was before the stimulus efforts.

100 Comments on "Does Stimulus Spending Work?"


  1. banks are run by people and millions of people work at them money going directlly to people? which people?

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  2. The belief that government should not be distrusted exploded during Nixon's water gate scandal. You know that exactly same group of people is trying to persuade people to have a smaller government since Reagen? Government is our tool. Just do not use hammer on your own toe.

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  3. Then could you kindly explain why FDR's, Carter's, and Obama's application of stimulus either failed outright(Carter)and taken so long to get back to meaningful growth (FDR, Obama) and Reagan's (and I believe Wilson's as well) minimalist approach worked faster? Or if this works so well, How did Greece, Portugal, Ireland, and the Spanish banking sector need to be bailed out.They were following the Keynesian model The logic of this video isn't flawed. The history of Keynesianism is misrepresented.

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  4. That is not necessarily true. The Keynesian model is applied to growth and maintenance of growth. This idea that it is only for minimization of damage is cover for the fact that you cannot prove that government spending stimulates the economy. By saying it is for minimizing damage you are essentially protected in your argument as no one can prove that things would have been worse if we had not implemented these stimulus policies.

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  5. Even if that was the case, the money would have to be ripped from the hands of other people in order to accomplish this.

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  6. I have not studied FDR or Carter, but as for Reagan you may equally attribute the end of stagflation and return to growth to proper monetarist policies initiated by Volcker, and it would serve well to remember that there were no real value cuts made by Reagan.

    Again according to Keynes, as stimulus should be used during a recession, so should taxation be used when the economy is booming. This is what the PIIGS did not due.

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  7. Furthermore, there is more to PIIGS than economics. Excessive government bureacracy and regulation, widespread tax-avoidance and the EMU are to blame. Additionally, remember that these countries suffer recession precisely because of austerity, with even the IMF accepting the negative implications of cutting too much, too fast.

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  8. Yes it is true, it is basic economics. What is not necessarily true is that is was properly executed (should the money have gone to bail out banks?), or that it was the most effective method given the circumstances (should deficit spending be used at a time of a near 100% debt-to-gdp ratio?), but the fiscal multiplier effect is a reality.

    And no, Keynesian economics is not a model of growth, but more of a model of business cycles.

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  9. Again, not true. You are essentially contradicting the arguments made in this video. Spending is not a bringer of prosperity nor a stabilizer. I only moves money around. How could Keynesian economics not apply to growth as well? If it is meant to reduce the impact of a downturn, why could it not increase the effects of an upturn?

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  10. If you want a real term growth model, check out the neoclassical Solow-Swan, Schumpeterian growth etc, Keynesian economics is not about long-term growth, but rather how to deal with business cycles/recessions.

    And yes, it is still true that stimulus has effects on the economy greater than the input value (provided a fiscal multiplier > 1). It is basic economics and not something to deny. Whether it should have been applied is a different topic of which I have offered none of my opinions.

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  11. The logic in this video is flawed, but that is not to say that deficit spending cannot be a wrong approach, only that the argument in this video is no good. To deny the reality of government spending having an effect on the economy is asinine, but to criticise government spending is a perfectly valid opinion.

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  12. If it's going directly to the people why not just not take it from the people in the first place? When you give people money from the government they're actually spending money to get less money due to the costs of administering such a stimulus. Lower taxes make for better stimulus than "stimulus spending", the only difference is it's less satisfying than getting a shiny check from the gov't. Less satisfying means lower approval ratings, means less job security for congress.

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  13. Yes, indeed there is an effect on the economy from government spending; but is a good effect? I would say no. This video does not say there is no effect, it is saying there is a bad effect.

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  14. These models only confirm Keynesian theories. These theories are contested by other schools of economics. To say that there is an increased output when the government spends is based upon the Keynesian model and therefore is not a universal "basic" concept of economics. The only basic economic principles that exist today lie in the works of the 18th century and 19th century classical and Austrian economists (with the exception of a few modern works).

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  15. tax the rich and give to the poor, you know, the people who spend 100% of their money instead of parking it in a bank.

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  16. 1) taxing the top 1%, even to the point where they're making less than people in lower income brackets wouldn't make up a fraction of what's spent on welfare. Same for the top 5% and top 10%. The money just isn't there. Furthermore, the wealthier segments of the population don't just hide money under their mattresses, they invest it, providing the capital lower income earners will need to develop new products and services, to start new businesses.(continued)

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  17. 2) While income inequality is certainly a pressing issue for many families, welfare programs have a tremendously poor record of solving that problem. Welfare promotes dependency on the state. Quite frankly, I don't believe in handouts for able-bodied individuals. If you are capable of earning your keep in some way, then do so. The absolute most I could consider justified would be job-training programs for those unable to afford them.

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  18. 3) If you are working for a decent wage and still unable to maintain savings it's not society's fault. As a society we've grown into a tendency to live beyond our means. Cheap credit has got us all thinking we can buy whatever we want, heck, I've fallen for that trap myself. If you can't make ends meet, cut costs or negotiate a raise. Grow a spine and do some self-advocacy, or you'll just end up with the same problems again.

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  19. 4) The poor in north america are better off than they've ever been. Most own refrigerators, televisions, stovetops, etc. Furthermore, they have access to a wide range of charity services such as food-banks, shelters, employment assistance, etc. These things do far more to improve their lives than gov't checks. In fact, the general trend is that private charity is more efficient and effective than gov't. And it works without coercion. If you wan't to help the disadvantaged, donate to a charity.

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  20. 5) Income mobility is a thing that exists. If you have drive and talent you really can go from rags to riches. Solve a problem, make something people want, etc. poverty is not a life sentence, it can be overcome. And again with the welfare, it does not make it any easier. Why work hard when you can just sit and collect those checks?

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  21. "Yes, indeed there is an effect on the economy from government spending"

    Ok, good, finally you accept that without having to quarrel about the normatives. The argument presented in this video is however, as previously explained, still flawed.

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  22. No, these models do not "confirm" Keynesian theories, they are models independent from Keynes to explain the nature and cause of real growth while Keynesian economics, as stated, is a theory of business cycles.

    I'm sorry, but your ideological bias and a lack of knowledge of even the most basic in economics (as showcased by claiming only the validity of "classical" economists and Austrians) make any debate with you to be without merit.

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  23. No, where did I say it didn't have an effect on the economy, just check my previous statements. I am arguing that it does not expand an economy but only distorts it.

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  24. I do not think I follow your logic. When the economy is raging there will be lots of companies to choose from which will compete te give the best at a lower cost. In an economic crisis, fewer companies will be available, and the ones that are left are likely to overprice to make up for losses caused by the recession and lack of competitors who would offer a better price.

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  25. In bad times nobody has any money to spend… except government, who can print as much money as it wants. What about the drop in supply? Foiling companies will cause a shortage of everything. If what you said was true, USA would have experienced a noticeable price drop in non-vital goods in the 2008 crisis, but no such thing happened.

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  26. My thoughts exactly, the comparison should have been between one economy that uses stimulus packages during low growth and one that doesn't (do realize that there are no good control really) not between individual data points within a Keynesian economy. You can still make a critique of Keynesian economics – but he doesn't do it justice.

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  27. Printing money isnt creating stimulus either. It keeps prices higher. Its same as taxation, on holders of money, and people paid in static amounts of it.

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  28. Stimulus bought China merchandise. I guess China is doing better now since the stimulus check we got.

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  29. Great work, with time I hope to succeed you in production quality. Keep up the good work and the quippy, compelling commentary.

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  30. Govt does not build roads. Govt takes money from the private sector, taxing productive enterprises, and people working in those produtive enterprises, and builds roads with the cash taken. Farms, and farmers are part of the productive group that pays not just for roads, but everything govt "does".

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  31. We can look to the depression of 1921, where govt cut taxing, and spending 50% to styop the depression. Or, we can look to today`s german economy, that rejects stimulus. Many examples

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  32. Housing collapsed in value, investments. The boom was in those areas. CCertainly, your comment is avoiding the obvious.

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  33. I'm not disputing that there are examples, just that he didn't do a good comparison. We have to look at very similar economies that differ in stimulus policy.

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  34. We can logic. With govt spending, or stimulus, is simple enough, to know govt must go GET money, to SPEND. People always think about the spending, never analyze the effects of taking the money. One offsets the other, either at once, now, or in the long run.

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  35. 1000`s and 1000`s of independent US corporations were foremd, building roads and turnpikes in the US, in the 1700`s, and 1800`s. Railroads too. The things you refer to, must be paid for. Govt can collect from people, or a corporation can. If there is demand, and need. Today, libraries are mainly providing internet. People choose to not pay. Let others but their service.

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  36. Also the ideas behind stimulus spending ignore the fact that in times in which confidence in the market is lower people are more likely to save their money so that stimulus will not be spent.

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  37. As much as I intuitively dislike the idea of debt etc., isn't that where the "money from the sky" comes from? You borrow to stimulate, putting yourself into debt that you know that you'll be able to repay later when things are better (and others trust you to, which is why they lent to you). Of course I can't really argue with the data, but on a conceptual level it'd be nice for it to check out there.

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  38. "Unemployment remains stubbornly high at 9%"

    Such a short-sighted comment, probably used as an anti-Obama message. US unemployment is currently 7.6%. Clearly the stimulus took a while to filter through from the government, to banks, to businesses, to order books, to more employees.

    Conversely, the UK used no stimulus packages, it's just been cutting spending. Unemployment rose to 8% in 2009. It's still 8% now.

    Prima facie it looks like the US stimulus was the better idea.

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  39. It's 7.9% in the U.K. Besides the fact that there are differences in the two nations, which generally makes the US have a lower unemployment rate (flexibility of labour market), there are more measures of economic well being than employment. And, to say that the UK didn't have stimulus packages is plain wrong, even if it was smaller than that in the US.

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  40. Depends on where the stimulus goes. If the stimulus goes to things like start-up subsidies, arts grants, public service grants, and food stamps then it will be spent because these are all projects that generally require money for a specific purpose. However, when stimulus is offered to those that don't need money for a specified purpose, then one can expect a significant portion of the stimulus to go to savings.

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  41. If Stimulus spending doesn't work, why has America and Europe (Austrian ) experiencing a decade-long recession, whilst Australia and China ( Keynesian) is the richest and fastest growing countries in the world.

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  42. America and Europe aren't Austrian. They are both primarily Keynesian. The point is, Keynesian spending is not inherently good and can be bad.

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  43. Yeah sure I'm not at all flagging for stimulus spending. JUST saying that if you are pointing to empirical data and yelling "EVIDENCE!", you can't compare growth in federal spending and economic growth 1 year later. For example stim spending is usually employed during recessions, to soften falls in growth. I would have preferred that he used a comparison between similar economies with different stimulus policy.

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  44. Go back to basics. If govt spends during recessions, to "stimulate" they must go take money away from someone, one way or another. Taking money away from someone, isnt stimulative in the areas they would have deployed the money. Its negative. So, the effect of your stimulus is negated.

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  45. How can you claim trhe US is "Austrian", when we have run back to back deficits of over a Trilllion, several years in a row? Fucking idiot.

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  46. Govt doesnt have money, that it doesnt first take from people first. When govt takes money, regardless of the way, it causes negative effects in the areas the money would have been used, if govt had left them alone. When govt spends, maybe its positive, but the negative has been left out of your thinking. I steal $100 from you, spend on strippers, and claim I stimulated the economy? But now you cant go spend it. What stimulus? This is SO fucking OBVIOUS.

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  47. Far better to SAVE during good times, to spend. Oh….wait, during the boom before the crash, we were rich, buying RV`s, Homes, cars, refinancing our asses off, and didnt save.

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  48. Essentially, you're arguing that the building of roads is an unproductive activity. I'm assuming you're Amish.

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  49. Saving can be good for a society or bad for a society, depending on the situation.

    Savings are used to fund investments for new business ventures or reduced costs on current revenue streams by way of new technology and equipment.

    However, high savings means low consumption. If people are not spending money, then businesses are not generating the revenues necessary to provide the necessary return on investments to the savers.

    So, the level of saving should be determined by the situation.

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  50. Nonsense. Increasing productivity is the ONLY way living standards increase. Increasing productivity is fueled by savings and investment. You may note, that the Chinese economy saves 50% of GDP, and therefore grows at very high perents of GDP, relative to the US, fueling the increases in living standards. Our own low savings rate, low even for us, guarantees our falling behind, as we will never keep up, in advancements, that enable higher productivity labor.

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  51. When savers give money to banks, banks promise specific rates for the savings product.

    The bank meets that rate by earning money.

    The bank earns money by lending to others who agree to returning the principal with interest.

    The borrowers pay the banks out of money they have earned.

    In order to earn money, the borrowers need to generate revenues.

    If there are insufficient revenues, possibly due to excessive saving, then there will be loan defaults. And loan defaults mean banks can't pay.

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  52. Same with stocks.

    A company decides that a project will generate revenues/reduce costs.

    They pitch an IPO and raise capital through stock sales.

    In order to generate a return for the investors, the company needs to generate profits at least at the required rate of return.

    In order to generate profits, there need to be revenues, even if you cut costs.

    If revenues are too small, due to excessive savings, then investors will lose money on their investment.

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  53. Both stock investments and savings accounts require consumption to make saving worthwhile for the savers.

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  54. In fact, developing nations with extremely high national savings rates have huge increases in GDP compared to nations like the US. Japan`s savings rates today are not nearly as high as they once were. Neither is growth. US savings rates far smaller today than in 1980. Our savings rate about 12% of GDP, China`s 53%. This enables faster GDP growth for them, by increasing investment, and moving into higher value production. Reducing the huge gap, with us. By saving.

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  55. Pretty sure that I said saving/consumption rates should be determined by the situation. Developing nations need high savings rates for infrastructure and technology investments.

    China's growth was driven by investment. Its high savings rate was incredibly necessary. But now they have all this infrastructure that isn't really doing anything. They have ghost towns and ghost ports and ghost malls. If they don't shift to a consumption economy their system is going to collapse.

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  56. And who exactly, is going to determine the "proper" amount of savings? Certainly with a Central bank pushing for a consumption society, by deliberately and continually making interest rates lower than market, this encourages consumption, as paying loans back is easy, and discourages savings, as low rates are depressing. Shifting from taxes on consumption (tariff), and going to taxes on productivie activities (income taxes) shifts to consumption as well. Feds push consuming, discourage saving.

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  57. There are lots of markets that have different interest rates.

    There is the loaning of money between banks so that banks can maintain their reserve requirements.

    There is the corporate bond market.

    There is bank to individual borrowers.

    There are payday lenders.

    Which one of these markets are you looking at to come to the conclusion that the fed is undercutting interest rates?

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  58. Income taxes are neutral.

    Income taxes ecourage leaving money in assets because gains in value are not taxed until the assets are sold. So if you have the income you need, you are better off, at least from a tax perspective, not disposing your interest in an asset.

    Investments are tax deductible in the form of depreciation, Section 179, and amortization. So the tax code may not necessarily favor "saving" when you are just putting that money in a savings acct., but it does encourage investing.

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  59. I would argue for a government that interacts with various markets.

    And before you get all, "the government can't do anything right," I feel the need to point out that YOU were the one that held China up as a strong growing economy and I am the one that presented a critique of it.

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  60. Interest rates are the price, of money. Increasing the supply of money lowers it`s price. The Fed Funds rate affects other rates. Are you saying that the Fed actions do not affect mortgage rates, and corp bond rates? Because, although corp bond rates are higher than Fed funds, or Treasuries, they have fallen along with the Fed funds, all the way down, since the 1980`s. Since the Fed creates money, it lowers rates. If they didnt create money, then the market will set them.

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  61. You should mention that the term positive is used in its statistics definition, meaning that when you value correlate in the same direction they are positive and when they correlate inversely they're negative.

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  62. This does not prove that stimulus spending does not work. In 1993 "In 1993, President
    Clinton and Vice President Gore launched their economic strategy: (1) establishing fiscal discipline, eliminating the budget deficit, keeping interest rates low, and spurring private-sector investment; (2) investing in people through education, training, science, and research; and (3) opening foreign markets so American workers can compete abroad. "

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  63. When he has the growth in spending, wouldn't it be more effective if he had the amount of spending? perhaps as a fraction of GDP? the growth could be negative one year, but it may have gone down from a really high amount, and the reverse could be true for a large increase from a small amount. Am i missing something?

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  64. It's the same argument for the private sector spending. If Person A spends in the economy and gives his money to Person B it is counted in the GDP economy as growth. The only difference is that Person A gets what he wants compared to gov't saying here is what everyone gets. Now, Gov't takes essentially Person's A money and gives it to Person B.  But, the main point still stays, which is gov't spending is the same as free market spending; money is still pushed from person A to person B. 

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  65. Stimulus Spending does not destroy jobs. Thats a big statement LL made with little explain. Yes Stimulus Spending can destroy jobs if it mean increase taxes or government going into the red. but alone it doesn't.

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  66. money is a coward. the majority of it goes to the safest place to multiply. these places are different in a "bull" or "bear" market, and there is a long history of investment strategy to back that up. if these guys could take other peoples money and just throw it at the economy to get it really rolling, and make themselves rich these bastards would have done it a long time ago. there would be a long history of successful stimulus growth and gdp expansion. there is a history of stimulus though, google "lost decade"

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  67. That's a misrepresentation of Keynesianism.
    It argues that stimulus should be used in times of economic stagnation thereby making use of the resources sitting idle in the recession.
    Think about it. The reason stimulus spending doesn't work under normal circumstances is because, seeing as the economy is working well at full capacity, there are no spare resources for the government to put back into use. The government can't very well magic up new resources to be used to increase growth!
    By the same token when the economy stops functioning properly it's not like a whole load of resources have disappeared, it's not like all the pigs in south america have died! What government spending does is spin the wheels of the economy when they stick, not accelerate them when they're already spinning!

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  68. I think the challenge with this argument appears to be that he's chosen two of his favorite variables, and: 1) made broad assertions about where they lead, and 2) done so with such extreme confidence. These are two interesting variables, but most systems are much too complex to oversimplify in this way, particularly an entire economy, and then to compound that oversimplification with such confidence.

    That doesn't mean that you throw your hands in the air and say, "Well, there are too many variables, so we can never draw any conclusions about anything."  But it does mean that we should be far less dogmatic and confident about assertions based on a few of our favorite variables. 

    We're wired for confidence though.  And presenting this confidently, and in very simple terms, is "certainly" going to convince a lot of us who are thinking about this for the first time. 

    I wish he would also make a presentation showing that: systems can experience extremely rapid or intense change, faster than they are able to cope with, and when this happens it can be extremely damaging.  We have a history of creating problems larger than the system within which they were created can cope, and it's helpful to have a buffer to soften the impact.  It happens in chemistry, it happens in our bodies, it happens in nature, and it happens in social systems.  It's why we have anti-toxins for venom, and insurance for natural disasters.  It helps to have a buffer to soften the impact of these intense events on the system.  We can argue about what these buffers should be, but history has show that generally a bunch of individuals or corporations were not going to collectively get together to rapidly address massive impact of the last financial crisis.  It helps to have a buffer larger than the system within which it was created, and I'm happy to have that be the private sector, but they typically don't have the size, ability or inclination to coordinate the kind of buffer needed, relative to the scale of the problems created.  Yes, given enough time, most individual bodies can rid themselves of various toxins slowly, but they tend to sustain quite a bit of damage in the mean time from an extreme shock.  In many cases I think it's preferable to propose solutions that soften large shocks to a system.

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  69. Notice how they showed the graph? They basically had to teach us how a graph works… I think this is a way to reach the radical right's base… Uneducated.

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  70. It's quite misleading to use a year's later economic growth compared to government spending, as it depends on the type of government spending being used. Most government spending will kick in as early as a few months, thus providing the economic benefits instantly rather than a year later. Except instead to receive the outcome they wanted Prof. Anthony Davies chooses the statistics he wanted instead of looking at it objectively. Moreover the statistics completely ignore other factors such as the crucial monetary policy, consumer spending, investment and so on in an economy. Stimulus spending can also be beneficial in the long-term  (once again not reflected in the statistics) and works as a mechanism of investment where private businesses can't provide (e.g. education, roads, parks and other public goods).  Furthermore stimulus spending may increase the deficit but deficits aren't inherently bad, excessive government debt to GDP is bad. And as economist Steve Keen explains if you do run a consistent small deficit, then government debt to GDP actually levels out. Why? Because governments create money through public sector investment like stimulus spending increasing GDP. (see his econometric modelling here Should Governments Run Surpluses?)  Even if deficits were bad budgets can be easily offset by counter-cyclical fiscal policies which would mean that the government ran surpluses in the boom times. So all in all this is a misleading video which avoids numerous external factors affecting budget deficits.

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  71. Stimulus spending is like private spending while both are regurgitated wages which only works if you want to make a minority rich and the majority poor. It is capitalism at the root of its own failures to thrive. This is another zombie capitalist utopian who still believes that society can be reduced to an economy and he honestly cannot tell one from the other.

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  72. Wait a second.. Am I looking at the same graph this dude is? Because, aside from the anecdotal 2 cases he was pointing out, the graph shows an extremely apparent TREND that increased spending concludes increased economic growth.

    He should also have a graph for 2 years and contrast that to 1 year. Because it seems like there is a strong possibility that you wont see a large increase to production when judging from 1 year (namely the recess takes more than 1 year to happen, reversing that and bringing the economy back up isn't immediate) 

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  73. The massive gov't spending during World War 2 caused the US economy to come out of the Great Depression.

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  74. I can't help myself but say that the video this person make comes from a perspective of Neo-Classical. (Pretty much opposite of Keynesian. No government intervention. Market and price mechanisms knows the best). Although i'm not saying he is wrong. In my opinion a combination of Keneysian and Neo-Classical is the best way to manage an economy.

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  75. Shouldn't there be a negative correlation between GDP growth and deficit spending? Imagine, for example, unemployment insurance payouts increased during an economic downturn. Or (wildly speculating), imagine a world  in which tax revenues tended to fall during a recession. If stimulus had no effect, wouldn't those two factor create an inverse relationship between deficits and GDP growth? Doesn't the fact of a zero correlation lend weight to the idea that deficit spending does stimulate a contracting economy?

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  76. @Hithereman Hello
    In case you don't know, the US econ has gone into a recession/depression in every 5-8 years. This is a economic cycle. Even in the 1800s, 1900s, or gold standard, the econ has fallen into a recession or worse. You can't stop it. Since the last big recession occurred in 2008, it will happen again in 2015/2016 b/c it's human nature that consumers will start to stop spending at some point, resulting in a recession.

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  77. Wow, the graph is so misleading. The video essentially confuses the causal relationship between government spending and growth. It is not government spending that creates prosperity (i.e. high growth.) It is prolonged economic downturn (i.e. low growth) that triggers high government spending to rescue the economy.

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  78. I am a moderate Classical Liberal, but this simply illustrates a shocking ignorance of what Keynesian economic actually means. Firstly, stimulus spending is not defined as an increase in government expenditure, but an increase in the deficit. There is copious empirical evidence for fiscal multipliers when the correct data is looked at. Secondly, there are more sophisticated arguments against fiscal stimulus (e.g. Ricardian equivalence, although it is not well corroborated empirically), but to say that borrowing undermines employment in an output gap is extremely misguided- the whole point in Keynesian economics is that stimulus is necessary when savings are lingering idly in the capital sphere and not feeding through into investments in the real economy.

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  79. Wouldn't this be expected if they thought it would work? They only stimulate the economy when they expect it to be going down. As a result, the economy stabilises, it's not supposed to have more growth. What's more interesting is to contrast the time before and after stimulus.

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  80. How sad… I hoped you to be an agenda-free fact oriented liberty channel…

    You purposefully (I must assume as you are smart enough…) ignored one simple pattern that underlies the data: Stimulus programs are issued when economy is on the downturn and not on the way up. So each datapoint has an underlying trend. 0% growth in a general recession is a big thing, just as 1% growth while saving money during a boom phase.

    Still… simulus spending is only a tool to attenuate the repercussions of economic amplitudes. But they only work if you save in boom phases what you borrowed during recessions! This is the problem that nobody currently does!

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  81. Isn't the set of points centered around (1%, 8%)? Yes, it doesn't tell us that there is a linear dependence between the two, but it tells us that slight growth in real federal spending is usually correlated with the economic growth 1yr later.

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  82. I was very disappointed in this video. I assume the speaker was attempting to discredit government spending’s (fiscal policy’s) ability to promote economic well-being. While I agree with the sentiment that fiscal policy is not ideal for smoothing out economic fluctuations, the evidence given was confusing and misleading. For one thing, the speaker was talking about the actions of the federal reserve (putting more money into the economy) and fiscal policy (policies related to taxation and government spending) as if they were related. Keynesian theory promotes fiscal policy (government spending and taxation) for smoothing out economic fluctuations. Monetarist believe monetary policy (aka the federal reserve changing the money supply) is the way to go.

    As far as I can tell, there are really only three options for dealing with economic fluctuations.
    1. Monetary policy
    2. Fiscal Policy
    3. Do nothing

    Since he is clearly criticizing fiscal policy and indirectly criticizing monetary policy, does that mean he is advocating we just weather the recessions and pray we don’t land in another depression? I don’t think anyone would support that.

    Personally, I believe we should stick to monetary policy, for several reasons. The most important reason is the federal reserve is separate from the rest of the government. They make their own goals about what they want the economy to look like. As such, they do not coordinate with congress. On the contrary, if the rest of the government decides to enact policies which would push the economy in a direction the fed did not want it to go, the fed would counter the effects of the policy to the best of its ability. If the fed disagrees with the legislature’s plans, it will undo whatever the legislature tries. If the fed agrees with the legislature’s plans, then we would be better off with the fed enacting policy on its own. The fed works much faster than congress. The lags alone in congress are enough to render its ability to affect the economy in a meaningful way useless. Once they decide they want to increase spending they must decide what projects to spend the money on. By the time they get their new spending bill passed, and the money has been spend, the economy will be in a completely different place.

    I could go on for a while. The point is, we shouldn’t be using fiscal policy when we have monetary policy to deal with economic fluctuations because it is far inferior. I wish the video would have touched in this more, instead of using statistics out of the context of the time period. The economy is complicated, and most government spending is not done to increase GDP. Of course there is not going to be a direct relationship between government spending and GDP growth. It is nearly impossible to determine whether or not fiscal spending had an effect on an economy because there is no alternative universe in which the spending did not happen that we can compare reality with.

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  83. Video was well done and makes the point nicely. I notice some people confused the first graph (representing what WOULD be expected if stimulus spending resulted in increased economic growth) with the graph containing ACTUAL DATA which shows a low level of correlation between economic growth and level of "G" [government spending].
    .

    Also nice to see he took quarterly readings to maximize plot points and an approximately 60 year span to eliminate other short term sources of economic growth such as the DOT COM bubble from the Clinton years.

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  84. Doing this study right needs to compare the actual spending (not the % change) and consider the state of the economy. If the government was spending a lot but still contract the spending it is still spending more than is they were spending little and expand spending. Also if the economy is contracting and government spending stop the contraction then the spending worked even if the overall grow is still small

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  85. It would be logical for government to borrow money and give it to poor in order to create demand in recession and pay off it debt in time of boom.

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