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Originally Posted by sgtclub
(Post 456940)
This pretty well sums up my thoughts - From FT:
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Really??? This is demonstrable drivel.
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driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac
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Nice slight of hand to maintain plausible deniability, but reduced lending standards were the result of securitization and the irrational belief that housing prices never went down. Despite the clearly intended implication that they were the result of "congressional pressures."
Moreover, actual "congressional pressures" were minuscule. Tiny amounts of less than fully prime lending via the GSEs were overwhelmed by massive floods of private label mortgages.
But that's fine, don't let facts get in the way of the government is always the problem story.
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However, the subsequent $800bn American stimulus package was largely a waste of money that sharply enlarged the fiscal hole now facing our economy.
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Sharply enlarged?? Again, 40% of that is tax cuts. So roughly $500 billion in one-time spending. Or something like 3% of year's GDP (spread over two years) is "sharply enlarged?" That's absurd. It's a rounding error, especially compared to our actual fiscal challenges in health care.
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President Barack Obama’s administration has consistently overestimated the benefits of stimulus, by using an unrealistically high spending multiplier. According to this Keynesian logic, government expenditure is more than a free lunch. This idea, if correct, would be more brilliant than the creation of triple A paper out of garbage. In any event, the elimination of the temporary spending is now contractionary and, more importantly, the resulting expansion of public debt eventually requires higher taxes, retarding growth.
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No, they under estimated how bad the economy was, not the effect of the spending. And they underestimated how much damage state government were going to do.
Moreover, if not doing it is contractionary, you are conceding that doing it is stimulative. So in one paragraph you have contradicted yourself.
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However, since government spending is warranted only if it passes the usual hurdles of social rates of return, the fiscal deficit should have concentrated on tax reductions, especially those that emphasised falls in marginal tax rates, which encourage investment and growth.
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Yeah, because trickle down supply side increases in available loanable funds are going to work when rates are already zero.
Or, in English, giving people more money to put in the bank doesn't help when there is already tons of money in the bank to be borrowed at cheap rates if anyone wanted to borrow it.
Or, "social rates of return" when demand is inadequate are any rate of return.
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Reductions in the long-term path of entitlement outlays have to be put on the table, with increases in ages of eligibility a part of any solution.
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Which Obama put on the table, and Boehner and Cantor ran screaming from the room.
The rest of it amounts to a fairy tale belief that lower taxes fix everything.
