Stimulus is basically like having a patient who needs a blood transfusion so your solution is to take a liter of blood out of his leg, spill 1/3 of it on the floor, and inject the rest back into his arm. This whole idea of improving the economy by making sure that saved money gets spent is absurd. Man I would get along so much better with socialists if they would just leave economics out of their arguments. If your position is that rich and middle class people's money should be given to the poor because that's only fair, then let that be your position. At least it would be an honest one.
This article claims that "every <food stamp> dollar in the U.S. generates $1.73 in real GDP increase" as if that were even knowable, let alone true.
In reality every dollar that the government taxes and spends elsewhere incurs an opportunity cost. Had the dollar not been taxed, the taxpayer would have done the following with it:
1) Spent the money on consumer goods and services, improving his standard of living and stimulating the economy.
2) Invested the money in himself or in others, creating new jobs and stimulating the economy.
3) Put the money in a bank, where it would be loaned with leverage to start and grow other businesses, lowering interest rates, creating new jobs, and stimulating the economy.
A simple math problem for the above:
Stimulus Value = Benefits - Opportunity Cost - Waste
In order to be positive, the value of the benefits of the stimulus has to exceed the opportunity cost + the waste. I already went into what the opportunity cost is. The waste is much easier to calculate, and it includes the following:
1) Every paid man-hour of a government official associated with disbursing/enforcing the stimulus.
Except for the fact that this cost already exists to a large extent. We aren't talking about more or less government, we're talking about increasing spending as opposed to reducing it. I very much doubt every (any?) person/department/building etc within the government is being used at full capacity. You could even argue that we've extracted value by heading toward full capacity.
2) The opportunity cost of each of these man-hours. If they were working in the private sector they would be doing other productive work instead of this.
Well we're talking about a recessionary environment, so it's a bit of a leap to assume they could even find work in the private sector. It's just as feasible that you'd be adding another body to the dole queue. You'd actually be reducing the demand for labour and putting downward pressure on wages at a time when inflation would be beneficial due to high debt levels. But as this is an extension of the first point which I say is a much smaller effect than one might imagine so I'd say my comments are as irrelevant as yours.
3) Every physical resource used by a government official associated with disbursing/enforcing the stimulus. This includes fuel, electricity, land, buildings, the use of roads, and the like.
Same again.
4) The opportunity cost of each of these uses. It's a little more complicated than the opportunity cost of a person's time. In this case the cost is the fact that more resources are needed by the economy, raising the cost of resources for all. Leasing office space costs more when there are fewer vacant spaces to lease. Petroleum costs more when more people are vying to use it. Governments use a huge amount of such resources.
Same again.
5) Rent-seeking. Whenever there is a stimulus, unless it is given out by random lottery, would-be recipients of the stimulus will actually spend a lot of money and time to position themselves to have a greater chance of receiving stimulus money, or to increase the amount that they get. All of these costs apply directly to the equation, as they wouldn't have been incurred but for the stimulus.
Can't argue with this one.
So basically the government's entire role in the stimulus is waste. I want to stress that it is waste only in terms of the formula I've laid out. Of course, if the benefits exceed the opportunity cost + waste, then the waste wasn't a waste at all. In other words, then the stimulus value would be positive and the government's role in the stimulus cannot be considered a net waste.
The reason I made this post is not to decry all stimulus spending, but to establish that the benefits need to be vast in order to exceed such heavy costs. I believe a good analogy is a NLHE cash game with a very high rake. An extremely good player might have a large edge on the field, but still lose because the rake is too damn high.
