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Thread: CBO: Stimulus hurts economy in the long run

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    CBO: Stimulus hurts economy in the long run

    and in the short run... but hey, movement in the right direction, and (politically) a welcome realization of reality by the CBO.

    The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy....

    CBO said it has concluded there is less of an indirect multiplier effect of federal spending. Those changes caused it to drop its estimates for total employment sustained by the spending in 2011 from between 1.2 million and 3.7 million down to between 600,000 and 3.6 million.


    As for the long-term situation, CBO said its basic assumption is that each dollar of additional federal debt crowds out about a third of a dollar’s worth of private domestic capital. CBO does not calculate crowding out in the short term, which is why the Recovery Act boosts the economy in the near term.

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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by cpwill View Post
    and in the short run... but hey, movement in the right direction, and (politically) a welcome realization of reality by the CBO.
    WOW!!!! The Moony Times speaks.


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    Re: CBO: Stimulus hurts economy in the long run

    I may be wrong.

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    Re: CBO: Stimulus hurts economy in the long run

    But...but...but...massive government spending create economic improvement!
    Quote Originally Posted by Top Cat View Post
    At least Bill saved his transgressions for grown women. Not suggesting what he did was OK. But he didn't chase 14 year olds.

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    Re: CBO: Stimulus hurts economy in the long run

    ARRA’s Long-Run Effects
    In contrast to its positive near-term macroeconomic
    effects, ARRA will reduce output slightly in the long run,
    CBO estimates—by between zero and 0.2 percent after
    2016. But CBO expects that the legislation will have no
    long-term effects on employment because the U.S. economy
    will have a high rate of use of its labor resources in
    the long run.13
    ARRA’s long-run impact on the economy stems primarily
    from the resulting increase in government debt.14 To the
    extent that people hold their wealth in government securities
    rather than in a form that can be used to finance
    private investment, the increased debt tends to reduce the
    stock of productive private capital. In the long run, each
    dollar of additional debt crowds out about a third of a
    dollar’s worth of private domestic capital, CBO estimates.
    (The remainder of the rise in debt is offset by increases in
    private saving and inflows of foreign capital.) Because of
    uncertainty about the degree of crowding out, however,
    CBO’s range of estimates of ARRA’s long-run effects
    reflects the possibility that the extent of crowding out
    could be more or less than one-third of the added debt.
    Over the long term, the output of the economy depends
    on the stock of productive capital, the supply of labor,
    and productivity. The less productive capital there is as
    a result of lower private investment, the smaller will be
    the nation’s output over the long run.
    The effect of the crowding-out of some private investment
    under ARRA will be offset somewhat by other
    factors. Some of ARRA’s provisions, including its funding
    for roads and highways, may add to the economy’s potential
    output in much the same way that private capital
    investment does. Others, including its funding of education,
    may raise long-term productivity by enhancing
    people’s skills. Still other provisions create incentives for
    increased private investment. According to CBO’s estimates,
    the provisions that potentially add to long-term
    output account for between one-fifth and one-quarter of
    ARRA’s budgetary cost.
    ARRA’s long-run effect on output also depends on
    whether it permanently changed people’s saving or their
    ability or willingness to work. For example, to the extent
    that ARRA reduced long-term unemployment during the
    2009–2011 period, it might improve participation in
    the labor force, employment, and productivity in later
    years. However, CBO’s estimates of the long-term effects
    of ARRA do not incorporate any effects of that sort.

    For a discussion of the long-run effects of other debt-financed
    policies for boosting output and employment, see statement of
    Douglas W. Elmendorf, Director, Congressional Budget Office,
    before the Senate Committee on the Budget, Policies for Increasing
    Economic Growth and Employment in 2012 and 2013 (November
    15, 2011).

    found here

    Congressional Budget Office - Policies for Increasing Economic Growth and Employment in 2012 and 2013

    POLICIES FOR INCREASING ECONOMIC GROWTH AND EMPLOYMENT IN 2012 AND 2013
    NOVEMBER 15, 2011
    Testimony before the Committee on the Budget, United States Senate


    THE ECONOMIC OUTLOOK
    CBO expects that, in 2012 under current law,

    The unemployment rate will remain close to 9 percent and
    GDP growth will be about 2˝ percent, with the level of GDP remaining well below its potential.
    FISCAL POLICY OPTIONS FOR INCREASING ECONOMIC GROWTH AND EMPLOYMENT IN 2012 AND 2013
    One criterion for evaluating fiscal policy options is the impact on the economy per dollar of budgetary cost. Based on that measure of cost-effectiveness:

    Higher-impact policies

    Reduce the incremental cost to businesses of adding employees or
    Are targeted toward people who would be most likely to spend additional income.

    Lower-impact policies

    Primarily affect businesses’ cash flow but have little impact on their incentives to hire or invest.
    Reductions in taxes and increases in government spending would produce short-term economic benefits—but without offsetting actions to reverse the accumulation of government debt, future output and future incomes would tend to be lower than they otherwise would have been
    I may be wrong.

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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by pbrauer View Post
    WOW!!!! The Moony Times speaks.
    astonishment. you are left with only ad sourcinem.

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    Re: CBO: Stimulus hurts economy in the long run

    Ya....those idiots at the Tea Party will surely be red in the face when they find out more government spending was detrimental to the economy!


    What?


    They predicted that?


    Ooops...my bad.
    You, my brothers and sisters, were called to be free. But do not use your freedom to indulge the flesh; rather, serve one another humbly in love.For the entire law is fulfilled in keeping this one command: “Love your neighbor as yourself.”

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    Re: CBO: Stimulus hurts economy in the long run

    It didn't do squat for the short term either. Let's not stop there either. TARP did major long term damage in many ways also.

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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by cpwill View Post
    and in the short run... but hey, movement in the right direction, and (politically) a welcome realization of reality by the CBO.
    This short sighted quote completely ignores what the alternative was, which was much worse than the negatives from the stimulus program. The alternative was a meltdown of the US economy.

    Printing large sums of money is always bad in the long run. There is no disputing that. Anyone who thinks different is a fool.

    In 2008-2009, the question is "what was the alternative", what was your "other plan".

    Here we have Greenspan's view at the time:
    "There's been a very significant improvement in the financial system and it's been the financial system where the problems have been," he said.
    When I asked him about the possibility of a collapse, Greenspan responded, “Collapse now, I think, is off the table.
    When he last appeared on “This Week” in September 2008, the economy was in the midst of the financial crisis which Greenspan then called a "once-in-a-century type event."
    This morning, he told me that the U.S. economy had gotten past the crisis.
    "We were teetering for awhile,” he said, “but I do think that the TARP program, for example, was very helpful in shoring up the capitals, that stock of banks and the like. And not an insignificant event is the $3.5 trillion increase in the stock market value of American corporations.
    Now, he says business inventories are so depleted that he anticipates a sharp turnaround in growth.
    "It strikes me that we may very well have 2.5 percent in the current quarter," he said.
    That would be significant because it would be near the level necessary to ease huge job losses.
    “The unemployment rate is going to continue to rise," Greenspan told me, "but more slowly than it’s been.”
    Greenspan: ‘We’ve already seen the bottom’ - ABC News

    The economy could have COLLAPSED, like, that's REALLY BAD! But, the economy DID NOT COLLAPSE! TARP and the stimulus did that for us.

    In August, 2009, what had caused the 3.5 billion increase in the value of US corporations that Mr. Greenspan spoke of? It was the stimulus, it was passed in Feb. 09 by the dems, and in March 09 the stock market started back up. The stimulus did that, with TARP having laid the foundation with the security there would not be any large scale bank failures.

    So, I agree with the CBO there will be some long term negative results from the stimulus, however if that is the cost of PREVENTING ECONOMIC COLLAPSE of the US economy, it is a good trade-off, and your assertion that the stimulus was a bad thing is incorrect, because it lacks context and perspective.

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    Re: CBO: Stimulus hurts economy in the long run

    So their estimate is now that the stimulus created between 600,000 and 3.6 million jobs? That's a pretty good range.

    And of course stimulus hurts in the long run if you never pay pay it back. Is that supposed to be a revelation?

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