Has the Stimulus Bill Earned its Title?

As is often the case, Obama's "Stimulus Bill" received its title based off what it was designed to do; the big question, of course, is whether or not it deserves it. Economist Thomas Sowell writes very frequently of the perils inherent in accepting, as opposed to challenging, the validity of the titles of legislation, organizations, and the like. In his article "Stimulus or Sedative," Sowell puts Obama's optimistically named stimulus bill to the test, and ultimately concludes that the bill has indeed done more to harm the economy than help it. This seems to be the universal consensus for conservative economists in regard to this issue, along with most every piece of legislation designed to force the economy into recovery. (I'd bet nearly all of us familiar with Sowell's stances could have guessed his conclusion based off the title alone!)


Eric said...

As the article stated stimuluses (stimuli?) are meant to "prime the pump" and get people and businesses spending. Its possible that by simply starting a stimulus package the government is able to get peoples confidence in the economy going. People seem to think that just because the government is doing something its good for the economy.

Dr. Tufte said...

Logan is correct that Sowell is not exactly an Obama supporter.

Eric is also correct - at worst it doesn't hurt for the government to be doing something since it does encourage others to follow suit. There's some empirical evidence to support this.

Extensions on growth models like we're doing in class show that changes in fiscal policy do have effects, but that they are modest - perhaps about 10% of business cycle volatility can be explained by fiscal policy.

Spencer said...

The article notes that banks aren't willing to lend because they fear government programs that would allow people to not pay back loans among other things. The existence of such programs could certainly cause banks to limit lending and mean that the stimulus bill's intended effect wouldn't occur but it also seems to imply that a stimulus bill could actually be effective in the absence of regulation that discourages business activity. I agree that fiscal policy probably would still only have a limited effect but this article doesn't seem to give evidence why the stimulus money itself is a bad idea.

Matthew said...

This article brings up a couple of good insights. Yes the bill will help things in the short run, but in the long run it could turn into a bit of trouble. The possibility of decreasing GDP in the future. Now, I do not know if it will decrease it by the number it gives, but I do see the possibility of it decreasing. Here is the link to the article that I found. http://www.washingtontimes.com/news/2009/feb/04/cbo-obama-stimulus-harmful-over-long-haul/