Thursday, 11 June 2009

Ditto Part 2

What Raphael said:

But has the “stimulus” had anything to do with economic recovery? While the government makes a bold statement that it has, less than a month ago the Financial Post ran a story that showed only 5% of the stimulus money had even been released into the economy yet. Even with the most up-to-date statistics, there is no chance that recent stimulus spending could have any effect on economic indicators talked about in the Prime Minister’s speech. So the economy seems to have stabilized, and even turned around, all without the massive spending that has been so urged by the members of the opposition government.


So if economic indicators are positive, consumer confidence is growing, and unemployment is leveling off, why do we still need to spend billions of stimulus bucks? The answer is found at the tail end of a National Post editorial. Politicians of all stripes want credit for fixing the economy, and win praise from voters with local infrastructure programs that have nothing to do with economic recovery.

Yay for the appearance of action!

One thing I want to add to this. If the economy does start to recover slowly, government revenue will also rise. That would be the time to invest in our infrastructure. Instead, that increase in revenue will have to go to paying interest on debt accumulated for stimulus that didn't happen in time.

We've put ourselves into an ass backwards cycle. We increase spending when we don't have money, and reduce it when the resultant deficit gets out of control.

I expect whoever is PM will promise that its different this time. I won't be holding my breath.


ADHR said...

Raphael's facts are wrong, I'm afraid. (Which would mean they're not facts.) The long-term economic projections are still not good. To say there's been any improvement or levelling-off is just not true.

Stimulus spending may still not be wise. But the economy is not going to correct itself without some serious upheaval.

Catelli said...

I've a heard few quotes from economists saying things have levelled off. They also say the recovery will be long and slow.

I'm still bothered that some of the fundamentals (to me) are still unresolved. At the micro-economic level, high consumer debt. At the macro-economic the premise that rapid growth is the only objective of an economy. And yes, the two are tightly related.

In my mind, that means we should be more miserly with public funds. There's more yet to come and we're throwing at all away early willy nilly.

Prudence. That's what we're lacking. We need to separate what needs to be done with public money from the idea that it can stimulate the economy.

I really don't think even the billions our governments are spending have much impact. The global economy is so huge, we're throwing snowballs at a forest fire and calling it effective. So whether the economy is slowing, accelerating or rebounding, the effect government spending has is minimal. But at a potentially high cost to future productivity.

As a single project, the Bombardier subway cars for Toronto is a necessary item. It doesn't bother me, that money needs to be spent. But I just can't accept that anyone can identify we need to pour X billion dollars into unspecified projects to identify at a later date. I see it as a vastly inefficient process.