Stimulus Spending

Mr. Trout, hailing from the bastion of freedom and rationality that is the UQ Liberal Club, made the comment here that:

“With regards to my point on the depression, I have found the following quote from then Treasury Secretary, Andrew Mellon, made in 1930. His suggestion as a means to deal with the great depression was for the Fed to: “Liquidate labor, liquidate stocks, liquidate real estate… values will be adjusted, and enterprising people will pick up the wreck from less-competent people.” In other words, leave it to the market. As can be seen, this failed miserably, with improvement only really occurring around 1933 when government action was taken.”

This was later clarified with:

“I agree, spending did not lead to a remarkable recovery. It did, however, lead to a short term recovery.

As the free market was impugned with a quote, allow me to respond also with a quote. This time from Henry Morgentha – FDR’s very own Treasury Secretary from 1934-1945:

“We have tried spending money.  We are spending more than we have ever spent before and it does not work. . . . I say, after eight years of this administration, we have just as much unemployment as when we started . . . and an enormous debt to boot.”

— FDR Treasury Secretary Henry Morgenthau on May 9, 1939

On another note, people who support either Rudd’s or Obama’s stimulus packages would be a lot more convincing if they could cite a single example in the history of the world where a government increased spending and this led to increased jobs, income and wealth on any sustainable basis.

A good introduction on Keynsian stimulatory policy (and why it doesn’t work) here:

Update: On reflection, my snide remarks about UQLC were completly uncalled for in this forum. I should not fall into the trap of stereotyping an individual on the basis of a collective, nor using this to make cheap political shots. Mr. Trout’s comments so far – whilst wrong – certainly are well thought out and deserving of more. Sorry.

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9 Responses to “Stimulus Spending”

  1. JaketheMuss Says:

    Umm why does Trout get a blog post and I don’t?

    That’s it buddy, the gloves are off.

  2. JaketheMuss Says:

    And why the hell is my blog not listed on your blog roll?

  3. JaketheMuss Says:

    On closer inspection I see that you have put it up.

    Unfortunately my blog is NOT “pimin’ for freedom”.

    I shall spam and spam some more until this is rectified.

  4. Natalie Says:

    Sounds like “Pining for Freedom”! Quite fitting really, considering freedom seems to be non-existent these days.

  5. JaketheMuss Says:

    I certainly do a lot of that Nat.

  6. Tim Says:

    Jake, your blog title was not only a breach of grammar, but an attack on humanity itself for far too long.
    Whilst rectified now, you deserve to suffer somewhat.

  7. JaketheMuss Says:

    Your blogs content is an attack on humanity itself, and I assure you we are all suffering.

    😉

  8. Trout Says:

    ‘…people who support either Rudd’s or Obama’s stimulus packages would be a lot more convincing if they could cite a single example in the history of the world where a government increased spending and this led to increased jobs, income and wealth on any sustainable basis.’

    I don’t support Rudd or Obama’s stimulus package. I know very little about the US economy, but to spend so much when they already hold an unsustainable level of debt is irresponsible. With regards to Rudd, I’d much rather see the spending go entirely on infrastructure then pure consumption. My argument was always for stimulus in general, not that which was specifically proposed by the Labor government.

    Also, your question above is worded poorly. I have never said that increased government spending can lead to a ‘sustainable’ improvement in the economy. I don’t think there is a single example where increased government spending has resulted in sustainable growth in GDP per capita or employment. I have only argued that it leads to a temporary expansionary effect, which can be used to help shallow any impending recession. The government can not prop-up the economy on any sustainable basis over the medium/long term (as can be seen with the above quote you provided from Henry Morgenthau).

    I also think I was a bit hasty in dismissing tax cuts as a reasonable means of expansionary fiscal policy. Quite a few articles I’ve read recently have convincingly refuted the argument that tax cuts operate with a long and variable lag. I’m sure I’m preaching to the converted here though so I’ll leave it at that.

    As a side note, I’d be very surpised if my veiws on the fiscal stimulus were actually supported by other members of the UQLC.

  9. Lord Stanley Says:

    What a stupidly simplistic and misleading video!
    An analysis of Keynesianism is not complete without properly examining saving and investment behaviour in economies, and the role of confidence in stimulating economic growth. Furthermore, the global nature of government bond markets provides an additional source of ‘pump-priming’ that does not rely on domestic capital.
    To portray the Hoover Administration as an example of Keynesian ‘failure’ is negligent – Keynes was a proponent of free trade and criticised the Smoot-Hawley tariff act, and nowhere will you find Keynes advocating higher tax rates as a solution for economic downturns (even if accompanied by higher government spending or deficit spending).

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