New Study Shows Zero Impact For $800 billion Stimulus

From The American Thinker:

December 10, 2010


New study shows zero impact of $800 billion stimulus

Rick Moran

There have been other studies hinting at the same thing, but this one by John Cogan and John Taylor of the Hoover Institution appears to be pretty solid.





In September 2009, we reported on this page empirical research showing that the temporary tax rebates and transfer payments in the Bush and Obama administration's stimulus programs were ineffective. Here we consider new data on the impact of increases in government purchases, which were heralded as a major stimulating factor in the Obama package.

The key tenet of Keynesian economics is that government purchases of goods and services stimulate additional economic activity beyond the amount of the purchase itself. The impact on GDP of the stimulus depends both on the dollar volume of additional government purchases and on the size of the government purchases multiplier, i.e., the effect of a change in government purchases on real GDP.



Although the policy debate has mainly focused on the multiplier's size, data covering the first year and three quarters of the 2009 American Recovery and Reinvestment Act (ARRA) show that, despite the large size of the program, the dollar volume of additional government purchases that it has generated has been negligible.



"Negligible" as in perhaps a 3% difference. One thing that the stim bill accomplished was bringing down state indebtedness - about $130 billion less was borrowed. That's not to say that the states didn't spend that money. They just didn't need to borrow against tomorrow to do it.



This won't stop liberal economists like Paul Krugman from ranting about more and more stimulus. But it least it gives the opposition a little ammunition to stop the madness before we are forced into insolvency.











Posted at 12:10 AM