Germany Was Right About Stimulus

Barack Obama said we needed to pass the stimulus package or things could worsen. He said we could go into a tailspin, a spiral from which we might not recover. The very fear tactics he criticized Bush for were front and center. Obama said that if we did not pass the stimulus that unemployment would be over 9% but if we did pass it unemployment would be around 8%. He got it passed and unemployment is now at 9.4%. My liberal friends dismiss this and say that these are just estimates and predictions. If this is the case and he was this wrong, why should we pay attention to any of his other predictions?

Obama tried to get Angela Merkel of Germany to pass a huge stimulus and she said NO. The Keynesian economists were not happy. Merkel took the same approach that I wanted us to take, and that was not to spend the money.

Looks like she was correct. According to the AP (via Forbes) The unemployment rate in Germany is dropping and jobs are being created or or filled (or are they being saved).

The number of jobless dropped 127,000 in May to 3.458 million for a 0.4 percentage point decline in the unemployment rate to 8.2 percent, the Nuremberg-based agency said. Forbes

The article does indicate that some of these are seasonal jobs and that there might not be a lasting recovery. The important thing to take away is that Germany did not spend huge sums of money for a stimulus and the country did not go into a tailspin and into a spiral from which it might not recover.

In other words, they are seeing some improvement that might not be sustained but that is better than ours and they did not spend a trillion dollars. As I said, the economy moves in cycles and there will be recessions. Our biggest mistake is to intervene and manipulate the economy because it eventually adds up. All the interventions of the past exploded in 2008 (along with Democratic housing market antics). If we let the economy move in its normal cycles things will get better faster.

The US will lag behind Germany in recovery because we made the same mistakes that FDR did during the Great Depression.

What makes anyone think that government can fix the problem it created? If spending were the solution we would not have a problem because government has been on a spending spree for years.

Unemployment will be in the double digits along with inflation right after we suffer the deflationary cycle. All the stimulus in the world will not help.

Big Dog

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33 Responses to “Germany Was Right About Stimulus”

  1. Adam says:

    I think your argument is very short sighted and misleading. To compare the crisis in Germany to the US crisis is unfair in many ways.

    This article by CSMonitor sums up Germany’s situation a little:

    Germany has not so far experienced the raw end of the crisis; Merkel hopes it stays that way. Germany has a slight recession, no real estate bubble, and fewer losses on the stock market. Unemployment is not alarming. Some officials brightly predict a 3 to 4 percent growth rate by July.

    • Darrel says:

      Also, Germany, and Europe in general, calculate their unemployment numbers a little differently (read: more honestly) than we do, so their numbers can’t be compared with ours straight across. I’ve read that, in general, adjust them down about a point.

      D.

    • Blake says:

      This is due to the fact that Barney Frank and Chris Dodd didn’t lower the German standards for getting a mortgage- we were screwed by them and other Dems. All Germany did was by the bundled securities we sold them that were worthless, so it was easier to begin to bounce back.

  2. victoria says:

    This is from an article at CNNMoney:

    To get a more comprehensive snapshot of the labor picture you need to focus on the less well-known U-6 data set known as “alternative measures of labor utilization.” The U-6 includes folks counted in U-3 plus “ all marginally attached workers” as well as people who aren’t working full-time but wish they were (i.e., the underemployed.) Marginally employed covers “persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.” When you add up U-3 and all the underutilized workers the official U-6 rate for May 2009 is 16.4%. That’s an official BLS-generated stat that no one really wants to talk about: One out of every six members of the civilian labor force is either out of work or not fully employed. (And that doesn’t even account for the rising ranks of workers coping with furloughs.)

    Adam and Dar stay in your little dream worlds if you want to.

    • Adam says:

      victoria:

      The question is whether or not Germany is in a similar enough boat that their conditions and results can be compared to the US. I’ve yet to see evidence that that is true. Germany is an export economy, the US is an import economy, the downturn hasn’t hurt Germany as bad, etc.

      Your article is talking about US unemployment, is it not? Who said US unemployment wasn’t bad already even at 9.2% and what dream world are you talking about?

      • Blake says:

        Considering Hussein said that WITH the stimulus, jobless rates “might” get near 8%- and now, they are at 9.4%, might you think that what he is “doing” is not working?

        • Adam says:

          “8%- and now, they are at 9.4% …”

          You’re like a sad, broken little record with your talking point, Blake. What is that? Three times you’ve used it in the last 24 hours? Four times? You may win some kind of right wing echo chamber medal of valor.

          Job growth will continue to be poor for some time even if the stimulus is successful. That’s the honest truth. To cite bad employment figures this early to try and prove the stimulus is not working just makes you out to be a fool. Employment is still a lagging indicator and is the very worst thing you can use to declare Obama’s stimulus a failure.

          Despite that though, as I said yesterday, it is too early to see if the stimulus is working or not for sure either way. Early signs are good that the economy is rebounding but what if any role the fiscal stimulus has played, as well as what role monetary policy changes have played, cannot be fully measured just yet. This goes for both positive and negative assessments in my opinion.

          I’m not sure if you’ve noticed how they calculate GDP growth but they estimate it and revise it each quarter until it gets more and more accurate and finally we have an actual number.

          Obama’s team can only go with what the best economists on his team and at the CBO and other places are telling them. It’s not a direct blow to Obama that they got the job figures wrong since Q4 2008 and Q1 2009 GDP growths were both revised severely downward to -6% and -5.7% respectively. This is why job growth in reality differed from the 8% that Obama’s team had predicted in the Romer-Bernstein report and what Obama had repeated in his own speeches.

          But what you’re acting like what you are accusing Obama of is a secret needing to get out so the public knows Obama is some kind of failure. It’s hardly that at all. You may remember that even liberal economists like Paul Krugman were immediately calling for yet another round of fiscal stimulus after the big one passed, saying the growth Obama was promising wasn’t even going to match the level decline after taking into account revised GDP numbers. Krugman January 7, 2009:

          The new CBO budget and economic outlook is out. Above is its forecast for the GDP gap — the hole stimulus has to fill. I’d guess that the CBO estimate, which has unemployment averaging 8.3 percent in 2009 and 9 percent in 2010, is actually too optimistic (see 3, below), but even so it puts the Obama plan in perspective: a 3% of GDP plan, with a significant share going to ineffective tax cuts, to fill an 8% or more gap.

          Obama’s team took a wait and see approach much like Merkel in Germany. It’s worked to Merkel’s advantage so far. It looks like it will work for Obama as well.

        • Darrel says:

          BigD was kind enough to email a reference for these 8-9% claims. While it didn’t quote Obama actually saying anything, it did include Obama’s transition report’s estimated projections.

          Here are the qualifiers, which were, of course, included:

          “1 Forecasts of the unemployment rate without the recovery plan vary substantially. Some private forecasters anticipate unemployment rates as high as 11% in the absence of action.”

          And in the conclusion:

          “This study has sought to investigate the likely job creation effects of the American Recovery and Reinvestment Plan currently under consideration. As emphasized at many points in the analysis, there is substantial uncertainty around all of our estimates. Nevertheless, we believe they can provide useful guidance as we go forward.”

          Also:

          “These estimates, like the aggregate ones, are subject to substantial margins of error. One additional source of uncertainty concerns the impact of the state fiscal relief.”

          http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

          DAR
          At this point one is tempted to add:

          Duh!

          D.

        • Blake says:

          Adam, you think I am lying ABOUT THE 8%- 9.4%- look at this link- your leader’s words. Is he lying? Maybe, but I want to hear you say it.
          http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

        • Adam says:

          Maybe you should show where I said you were lying about the 8%. Or maybe you can try reading what I have to say for a change.

        • Adam says:

          Nevermind, let me just show you the quote so we don’t have to argue about this anymore. I plainly said above:

          It’s not a direct blow to Obama that they got the job figures wrong since Q4 2008 and Q1 2009 GDP growths were both revised severely downward to -6% and -5.7% respectively. This is why job growth in reality differed from the 8% that Obama’s team had predicted in the Romer-Bernstein report and what Obama had repeated in his own speeches.

          I never accused you of lying and I don’t need your sources in order to prove he said it. I already said he said it. Read what I wrote for a change.

        • Darrel says:

          BLK: “Adam, you think I am lying ABOUT THE 8%- 9.4%- look at this link- your leader’s words. Is he lying?”>>

          DAR
          Oh for pity sake. That report was written by two people, neither one of which was Obama. So you won’t any of our “leader’s words” in that report.

          Part the reason you swim in a sea of inaccurate information is that you don’t pay attention to the accuracy of your comments.

          D.

  3. Aluceo says:

    HOW THE STIMULUS PLAN HAS BEEN WORKING ALREADY AND WHY IT IS BOUND TO GATHER PACE

    The stimulus plan in of itself has halted the dramatic plunge in business and consumer confidence with the very likely threat of an economic depression earlier in the year, and businesses and consumers taking a less weary and more upbeat attitude to the future. Maybe more than anything else this will be the most significant impact of the stimulus package in the long-run enabling a spectacular recovery from the real possibility of depression before its passage. Businesses and consumers have become more and more confident that spending from the stimulus in the upcoming months will provide a solid environment for economic activity thus encouraging investment, reducing the pace of job losses and encouraging consumer spending. In other words, the stimulus package has avoided “a cycle of economic downturn to depression” and is now about to engender “a cycle of economic upturn to recovery”.

    The stimulus package cash handouts and other social initiatives have played no minor part in lessening the burdens on individuals of the economic downturn and the consequent increase in the number of people unemployed thus palliating the effects with regards to mortgage, health coverage and consumer spending.

    The stimulus package has halted the lost of jobs in the areas of education and other state level services and enabled States to avoid budget bankruptcy (caused by the fall in revenues due to the economic downturn) with the result of avoiding indirect job losses in the private sector as well.

    The stimulus package is bound to lead the way for new jobs creation to be followed suit by direct private sector investments with the consequence of increasing spending in the economy and accelerating economic recovery. It should be noted that jobs created by the stimulus will have a multiplier effect in the creation of jobs by private enterprises.

    Perhaps more fundamental for long-term economic recovery, given the areas of investment of the stimulus package (infrastructure, energy and green jobs, education. etc.), it is the type of government investment required for renewing long-term economic growth. As was the case with FDR’s New Deal in the 1930s and Eisenhower building of interstate highways and investment in the sciences in the 1950s, the stimulus package is bound to restructure the foundation of the US economy within which private enterprise will thrive.

    The fundamental element in the criticisms levied against the stimulus package that it will increase the US deficit is the total disregard by most critics of what would have happened without the stimulus with respect to avoiding the real threat of a depression, raising business and consumer confidence and restructuring the economy. Thus providing a good foundation for real growth in the long-run (boostered by the Stimulus and led by private enterprise) with economic growth by itself and healthcare reform allowing for deficit reduction in the long-run.

    While the Stimulus Package has often come under this one-sided criticism of increasing the US deficit, such an argument can only be credible to the extent that it elicits how the results mentioned above which have been obtained (and are to be obtained) by the Stimulus Package could have been attained otherwise. Most critics of the stimulus package seem to think that this economy which was at the very brink of collapse simply avoided a depression by some miracle and that by the same token recovery is bound to occur by magic. To the extent that their arguments fail to answer these fundamental facts about avoiding a depression and beginning a recovery, to that extent, such arguments can hardly be considered credible.

    Actually, the initial impact of the stimulus for private enterprise and consumer confidence has been “anticipatory” in that it arrested a situation where the trend of business and consumer confidence was heading the economy to a depression. That is why the statistics point to the fact that business and consumer confidence stop plunging after the stimulus plan was passed and the stock market has been “going north” since then. It is the anticipation of the impact of the stimulus plan that has stabilized business and consumer confidence, heading off the real prospect of a depression. In other words, the stimulus package first impact was to act as the brakes for an economy that was heading to a depression disaster.

    http://www.rususa.com/money/finance.asp See link above for the effect of the stimulus plan on the stock market immediately after its passage in mid-February 2009: the NASDAQ, Dow Jones and S & P 500 have made a dramatic U-turn upward since March 2009.

    The reason for the high job losses is very simple. Those jobs were going to be lost anyway as business and consumer confidence entered a vicious cycle to depression following the failure of the financial system – these job losses arose out of lack of confidence in the financial system. Actually, the stimulus role at the onset more than any immediate spending in the economy itself has been to provide assurance to consumers and businesses that government will spend in the economy thereby upholding consumer and business confidence and avoiding the real prospect of a depression. So the stimulus first role has been “anticipatory” in forestalling a depression.

    Believe it or not, it is not out of the question that without the stimulus plan we might have been talking now about the loss of not 1.6 million jobs but 5 or 6 million jobs at the trend at which consumer and business confidence went on falling before its passage. See link on the rise of consumer confidence since the stimulus plan was passed in mid-February 2009.
    http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm

    Actually, the word “stimulus” here can be misleading in that it underemphasizes the effect of the stimulus in arresting a grave and downward spiral of the economy and rather draw focus mainly on creation of jobs which is the second and yet to fully come dimension of its impact.

    Let’s imagine that the stimulus plan was to be suspended now. What will happen is that the anticipation consumers and business had about its boosting effect on the economy will die out, and this of itself will create uncertainty and may well lead to a new downward spiral. The Stimulus has a double effect with respect to recovery and job creation. Perhaps the lesser acknowledged effect is the confidence created in the economy for private enterprise and consumer consumption. In fact, this indirect effect will be the strongest push for economic recovery and job creation. Then there is the direct effect of the Stimulus Package spending and its multiplier effect given the areas of expenditure (education, infrastructure, green jobs, etc.)

    While critics are pointing to the fact that unemployment is already at 9.4 percent compared to the prediction of 8.8 percent for 2010 made by the Administration, many forget that Economics like Meteorology or Earthquake Prediction for that matter is “no Physics or Maths”. What ultimately matters is the bigger picture and trends. Going by the job loss figures for March, April and May (652000, 504000 and 345000 respectively) the argument made by the administration definitely holds. In fact, the Fed, the Treasury as well as other institutions involved in the prediction of economic data tend to revise their figures quite often. What matters is the trend and bigger picture.

    The Stimulus is rather like a project but in this instance a massive and complex national project. A project can be broken down in two broad categories: design and execution. At the design stage (the first few months of the Stimulus), everything is being organised and put in place administratively with relatively little being carried out. The upcoming months will be the period when the massive spending and investments will be executed at an exponential rate. In fact, 1 billion dollar is already being allocated each day for Stimulus projects.

    In layman’s terms, the Stimulus is needed for the simple reason that with the failure of the financial system, businesses and consumers were less willing (uncertainty) and less able (banks failures and failure to provide credit) to produce and spend in the economy implying that companies sold less goods and services than usual and so the companies had to lay out workers who in turn bought less and so the cycle goes (and this might just as well have led to a depression).

    What the stimulus is meant to do, and is doing, is to incite and give businesses and consumers the confidence to keep on producing and spending respectively for the upcoming spending in the economy it is to generate exponentially. Initially by giving tax breaks, benefits, spending to maintain teaching and social services jobs and then spending on stimulus projects contracts given to companies which are then encouraged not to lay off workers. All these with the consequent multiplier effect in the economy.

    Companies and consumers effectively bought to this idea once the Stimulus bill was enacted and kept on producing and consuming respectively in anticipation that upcoming Stimulus spending will maintain a stable economic environment from which recovery is possible. Hence the reason why the stock market and consumer and business confidence started rising. This effort was accompanied by the bank bailout and efforts to provide credit to consumers and companies.

    It is effectively because the Stimulus Package is real, a commitment of 789 billion dollars by the US government for real economic projects, that consumers and businesses bought to the scheme and started acting in a positive manner in anticipation of its positive impact in the upcoming months (the Stimulus Package direct impact should enter in full force by the fourth quarter). In fact, many economists have even argued that the amount provided for the Stimulus should have been much more higher.

    As a final note, I’ll argue that irrespective of party creed, it will seem to me that the criticism levied against the Stimulus is much more of a “political vogue” (and has nothing to do with “realistic” economics) naïvely taken up by the media which tend to operate on the basis of “two sides to any story” (not a criticism though). The milestone which any such critical arguments has to overcome is to answer the question: how could a depression be avoided and a recovery started following the failure of the financial system?

    • Blake says:

      Since only 44 billion of the “stimulus” has been spent, your argument is null and void- the same things could have been accomplished by doing nothing- indeed it could be argued that doing nothing would have been better than the poor showing we have had so far.

      • Adam says:

        I guess then that you’ll need to show what numbers indicate such a “pood showing” since that’s what you keep saying. What should be better that isn’t? Unemployment isn’t a reliable indicator since it lags so much but that seems to be the only one you have.

        • Blake says:

          There have been no jobs “created”- that’s bull, plain and simple. He figures as long as we feel the pain, we will do whatever he wants, so he will prolong the pain.

        • Adam says:

          Again, unemployment is a lagging indicator:

          A lagging indicator is a measure that only changes after the economy has changed. It is of little use in looking ahead.

          You cannot use employment figures to determine whether or not the stimulus is working or whether it is having a “poor showing” and that is a simple fact.

          So again I ask, what other figures are you looking at to determine this “poor showing”?

        • Blake says:

          only 44 billion spent, and no jobs created? I don’t know what you were taught, but I was taught that that is a sign of poor progress- what can you spin it into?

        • Adam says:

          Alright, I can’t repeat myself over and over. Your sheer ignorance about economic indicators reveals your foolishness for all to see.

  4. Blake says:

    The stimulus package is not a real thing, nor is it backed by real money, just Hussein’s words, and they are, at best, lies.

      • Blake says:

        You do not understand english? The stimulus is not a real thing because it is backed up by— nothing- no money, no t- bills, just Hussein’s airy words, and talk, when it comes to him is really cheap. When the chinese become leery of investing in our economy, it is really time to slow down- or do you want Hussein to end up selling Yellowstone Park in the world’s largest yard sale?

        • Adam says:

          Oh, I understand English, I just don’t comprehend your blather. Not a real thing? Just airy words? Come on now, what does that even mean?

        • Blake says:

          I could talk real slow, but you still refuse to understand plain english.

        • Adam says:

          I have posted actual sourced facts and information in this thread and stated my arguments as best I can.

          But because Blake is uneducated on even the most basic of economic principles, he has become cornered behind the idiocy of his talking points and reduced to simply blathering on like a fool for all to read. Pathetic and sad, really.

          It’s not worth much further argument at this point given the condition Blake is in.

        • Darrel says:

          If Blake was a little smarter, he would cry “uncle” at this point. What a show.

        • Blake says:

          Here’s a truth- you cannot borrow your way out of debt- Hussein should take that under advisement.
          The basic equation for economic activity- GDP= money times velocity of money. That’s simple.
          You have to keep money moving or the economy shrinks even as the supply of money grows- this is what has been happening in the last 18 months the supply of money grows, but the velocity has slowed. This is where deflation comes in.
          We have had a record decline of wealth, but the payrolls have seen the largest drop since 1948, and that’s not good.
          \Really, the only thing that could change the economy would be some game- changing technological event or product.
          Personally, I think we’re screwed for the next ten years if we do not get off of this path now.

  5. Big Dog says:

    Well Adam, I have read what you posted and it is nice you believe it. I have shown other opinions and have referred you to history but you think you know what you are talking about.

    You have little idea. There has not been a real recession in your lifetime. Carter gave us a good one.

    Here is something for you to read.

    • Adam says:

      Wrong. This is a real recession, whether you believe it or not, so there has been one in my lifetime. You are absolutely wrong in your comparison of the US to Germany to say the actions Germany has taken mean the US should have done nothing. If you have any facts to prove these two are equal enough to make that comparison than let’s have it. Otherwise your insistence that I have little idea what I’m talking about is pretty meaningless.

  6. Big Dog says:

    I believe I stated some time ago that employment was a lagging indicator. However, Obama used it to say what would and would not happen if the stimulus was not passed so we can use the fact that his assertions were wrong to show that he had no idea what he was talking about.

    • Adam says:

      I’m sure you have said it was lagging. Now if only Blake could say it too and understand it.

      Of course Obama himself has said look to job growth to see the success or failure of the stimulus, but he didn’t mean look just weeks after money started to be spent. That’s ridiculous on it’s face and it’s a bush league argument if I’ve ever seen one.

      And for the record this is not me saying the stimulus is indeed working. This is me calling BS on anyone saying it isn’t working yet based on continuing poor job numbers.

      • Blake says:

        If the stimulus is not working. then it isn’t working as indicated by continuing poor job numbers- you keep trying to have it both ways. If the stimulus had been about creating jobs, we would have created jobs, thus better numbers, no matter what you say about “lag”- by now the jobs if there were indeed any created by the “stimulus” would have caught up. It has been six months, and that is enough of an indicator time- wise to say one way or another.

  7. Big Dog says:

    So if they had qualifiers in the transition report then why did they not use them when they spoke? How many people are going to read that report? How many heard him say the 8 and 9 percent? He used the most rosy scenario to make his case, he is a politician so that can be expected but since he did not publicly discuss the qualifiers when he addressed the public then one has to only go by what he said. He can’t tell everyone that he knew it could be worse because he did not tell them then.

    We can only go by what he said.

    Duh.