The government intentionally wastes $1 trillion. Is this a good idea or a bad idea? Put that way, I don't think that many people would say it's a good idea. Yet dress up the intentional waste with the hocus-pocus word "stimulus" and you can get endless seemingly intelligent people to claim it is the only reason that our economy has not gone to zero.
Thus on Monday we had Chairman of the Council of Economic Advisers Jason Furman issuing this whopper on the White House blog:
[T]he Recovery Act had a substantial positive impact on the economy, helped to avert a second Great Depression, and made targeted investments that will pay dividends long after the Act has fully phased out.
It's been Furman's job to say a lot of ridiculous stuff lately. Of course Furman's proposition that only the stimulus "avert[ed] a second Great Depression" is completely un-falsifiable. But can we compare the current five-years-and-still-not-back-to-pre-recession-employment-levels to times like 1946-47 when the government cut spending by over 50% and the economy went into the greatest boom of all time? With that kind of spectacular counter-example, how can anyone possibly claim that the "stimulus" was good for the economy, versus a major cause of its endless sluggishness?
Needless to say, the parroters of the administration's talking points promptly took up the cause. Here's Ruth Marcus in the Washington Post yesterday:
The treatment helped. The patient is recovering. . . . That, in a nutshell, is the story of the $800 billion stimulus package President Obama signed five years ago, the centerpiece of a code-blue effort to defibrillate the cratering economy. Rarely in the annals of U.S. public policy has there been a greater disconnect between the real-world effect of legislation and its political-world perception. Substantively, the stimulus was a success.
Well OK Ruth, if you are so confident that government "stimulus" spending is what makes the economy go, how do you explain Venezuela? That is the place where the government has tried to buy a growing real economy by vast deficit spending. They admit in official statistics to a deficit of 8.5% of GDP in 2012, although I suspect that it was a multiple of that given independent reports of a surge in government spending of 67% in 2012. By the end of 2013 Moody's was saying that Venezuela's public sector deficit was running at 15% of GDP. Now that's some real "stimulus"! How's it going? From the Huffington Post on Tuesday:
At 56%, inflation in 2013 is the highest in the region, and many of the most basic items like milk, sugar, and toilet paper are extremely difficult to find.
Oh, and Toyota shut down all automobile production last week, while Ford's output has fallen 75% in the fourth quarter of 2013 compared to the first three quarters. The official GDP, calculated at the official exchange rate of about 6.2, is around $300 billion, but at the black market exchange rate of about 50 the GDP looks more like $40 billion, smaller than it was when Chavez first took over in the late 90s. Oops.
Lots more examples of the Venezuelan economy going into crisis from CNBC (in November 2013) -- a source not exactly known as a champion of free market economics. For instance:
As things stand, the country is running out of tools to prevent an extensive economic crisis. International currency reserves are at an eight-year low, falling 26 percent between the end of 2012 and mid-September, to $22 billion . . . . In addition, China—Venezuela's main financier—has become stingier after "earlier loans to promote oil production failed to produce results," Fuentes said. Meanwhile, Venezuelan bond yields are spiking. Yields on the country's 20-year benchmark bond have leaped more than 100 basis points this month, to 13.23 percent Monday from 12.15 percent at the end of October, according to Thomson Reuters.
Oh, and there is endless rioting in the streets. The place is completely coming apart. Is this really where the U.S. should be heading?
[ORIGINALLY posted February 20, 2014; updated February 21, 2014.]