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« Between Kirzner and Radner | Main | Bob Higgs on the Employment Data »


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Putting this together with Horwitz on Higgs gives us the obvious conclusion that if there were no stimulus there would probably have been severe job losses in the construction industry that did not happen. That is, unless, one wants to argue (as I think some here might) that the stimulus actually aggravated the non-construction industry, private sector job losses.

The problem with stimulus expenditure is really that returns on government investment are almost always far lower than private investment, so even if there is some stimulus effect, much of it gets wasted in malinvestment and we end up worse off.

"I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says 'See, government spending doesn’t work'."

The above is a prediction Paul Krugman made in a NY Times article one year ago (January 6, 2009). http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/

The problem with stimulus bill was not that government spending doesn't work, but that they haven't spent enough. Also, spending on infrastructure is good because it leaves something of lasting value to the economy, in contrast to Wall St. profits. Government spending also gives a lot more "bang for the buck" than do tax cuts, because in a recession, people tend to save what they can. We can't either rely on private sector investment in a recession, for obvious reasons.

The government spending billions or trillions and driving up the deficit is not a wonderful thing, but the American economy is stuck between a rock and a hard place, and in this situation, we need more stimulus spending, not less.

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