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What's stimulus, anyway? A simple user's guide

From Monday's Globe and Mail

Separating the stimulus from the spin ...Read the full article

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  1. Moe Unting from Yorba Linda, CA, United States writes: Aside from repairing schools in first-nations communities and green stuff, what other homegrown is the government to invest in that is going get people spending? How about a tar-sands project, made in Canada, strategic resource. Maybe the government should purchase Nortel. Why not invest in a few more NHL franchises in Hamilton and Winnepeg, maybe Halifax? Why not grease the wheels and get a Thyssen light armoured vehicle built in Nova Scotia?
  2. Randal Oulton from Toronto, Canada writes: >> Better to channel money into things we do right here. Infrastructure (from public transit to green energy to repairing schools in first nations communities) scores very high on this count.

    And where do those people who got the money for doing the work spend their money? Walmart. Chinese made goods.

    You can't get away from it. We're an interconnected world not. Beggar thy neighbour approaches, besides being as immoral as they always were, now have the added disadvantage that they just won't work.
  3. Robert Hallsworth from Newmarket, Canada writes: Contrary to most of the previous contributors to the comments section, I found Mr. Stanford's 'advice' very helpful. All sectors of our economy have self-interests and I do not see how Mr. Stanford's views are 'socialist'. That kind of rhetoric is unhelpful and in itself reveals a naked self interest. I also do not see how his views are in any way unfairly protective of his economic sector interest or of the interests of union members in gereral.

    Most informed economic commentary embraces these general ideas of 'stimulus'. We are right to be on guard against the spin of Mr. Flaherty and Mr. Harper. Their political lineage and method is soundly grounded in mis-educating, if not misleading, the public. Remember, among other things, these are the men who proclaimed a coalition 'undemocratic'.

    Mr. Stanford shines some light on the shady corners where Flaherty and Harper may try to lead us. There's no harm in that.
  4. Ted Andrews from Canada writes:
    Stanford is NOT a 'socialist' he is a 'social democrat' who believes (wrongly) that capitalism can be managed for the benefit of workers.
    Investors / capitalists (business people) are not sitting around thinking of ways to employ workers.
    Labour is usually the largest expense in most businesses and therefore pressure to reduce this expense is always the most evident.
    When companies merge or encounter financial problems one of the first measures they take is layoffs.
  5. John Anderson from Nanaimo, Canada writes: I thought all the redneck, let's-build-nuclear-reactors-to-extract-oil-from-the-tarsands conservatives didn't read The Globe.

    Apparently they have nothing better to do than to create ad hominem arguments and offer nothing substantive, like Jim Stanford has done.

    We need more writers - and I don't care if they are union leaders - to expose the hoary assumptions which undergird Harper's first slash-and-cut and then okay-we'll-spend-or-give-taxbreaks-to-those-best-able-to-weather-a-financial-crisis.

    I thought with the collapse of the Savings and Loan industry, the rise and fall Enron and related criminal corporations, and now the collapse of Wall Street with the socialization of the means of production (that's a Marxist term), that conservatives would be questioning the essence of capitalism. We've been screwed by the very system we told to believe in.

    I'm going back to reading Naomi Klein. There isn't a conservative commentator YET who has mounted a valid critique against her book, 'The Shock Doctrine: The Rise of Disaster Capitalism'. She's got it right, and evidence for her thesis is alive and well.
  6. Alistair McLaughlin from Canada writes: I'm sure this column has already been cross-posted (or at least linked) at
  7. Dwight McFee from Toronto, Canada writes: Mr. Lucas and a few other contributors seem to be quite exercised by Mr. Stanford's warning's of how the word 'stimulus' will be redefined. Mr. Lucas substitutes theory for practice. Just as the stock-market speculation's do what they're intended to do, which is to reward the promoters and fleece the marks, Mr. Lucas and his ilk want the government to do what they think it's 'suppose' to do, which is to enrich the creditors and plunder the debtor's. That is the rigged reality of 'Free Market Macro' Economics 101 or Delusion's of The Higher Barbarian Culture as performed by the inmates of The Shulick/Rotman Faculties of Bidness. Mr. Stanford is an economist of sensible, pragmatic, reality based observation. Even Brooks and Freidman from THE N. Y. TIMES have come to a conversion that the old unctious economics that Mr. Lucas advocates has been a disaster. In Mr. Lucas' world, labour view points should be subservient to the higher barbarian culture. Mr. Stanford provides a public service for Canadians who can only hope that Mr. Stanford's words are heeded before Mr. Harper privatizes and sells off all the assets of the PEOPLE so Mr. Lucas can live his mythical economic life pretending to cut corporate coupons while playing golf at his favouite water enhanced golf course in the southern western states.
  8. west slope from Canada writes: ---

    Standord is such a shallow partisan hack. He and 'Trust me, I'm an economist' Stephen Harper deserve each other.

    Jim, Here's a suggested outline for a major rewrite:

    First questions: Is government policy effective? And if so, what kind?

    First answers: Somewhat. Monetary policy.

    Second questions: If fiscal policy is used to counter-act recessions, what is the most effective/least damaging kind?

    Second answers: Discretionary capital expenditure programs are more effective than tax cuts. Care should be taken to avoid setting up structural deficits such as unsustainable increases in program spending.

    Jim, For your homework assignment, read what the Keynesian Romers have written on the subject.

  9. thomson gary from Canada writes: This is pretty tame, second year macroeconomics. The posters that are going ballistic must have taken polisci, 'cause they don't know the difference between that and economics.
  10. thomson gary from Canada writes: West Slope and Lucas: Boys, you are wrong. Take a refresher course.
  11. I'm Michael Ignatieff and You're Not from Canada writes: Stop the corporate welfare bums. How could the CAW, supporters of the NDP, call for corporate welfare?
    Tommy Douglas must be spinning in his grave.
  12. Daniel Roy from Toronto, Canada writes: Some very good arguments against those stimulus packages, from Nobel-prize winner Greg Becker:
  13. Philosopher King from Ivory Tower, Canada writes: Daniel Roy from Toronto, Canada writes: '...Some very good arguments against those stimulus packages, from Nobel-prize winner Greg Becker:'

    And some very good arguments for it as well within the same blog. The author's support Keynes view of appropriate stimulus spending.
  14. Daniel Roy from Toronto, Canada writes: Philosopher King, where do you see the arguments for? The arguments against (or at least to be considered) are:
    - low productivity of public projects
    - skills needed for these projects from professions having good employment rates, therefore creating a need for more new entries into these highly-skilled professions, whch could be a challenge (i.e. not that easy to train this carpenter to become an accountant)
    - projects not beneficial in the long term (why fix Detroit's downtown if there are no jobs to be found in the area?)
  15. C K from Vancouver, Canada writes: thomson gary, I'm a micro-economist... so naturally I am of the view that the macro crowd are doing voodoo economics.
  16. Steve French from Windsor, Canada writes: Welcome to Pravda: All propaganda all the time.
    Banksters are running a huge extortion racket shaking down the taxpayer, and government is helping them to do it.
    Everything else is just smoke and bullshit.
    Note that the British are gearing up for yet another financial bail-out for the bloodsuckers.
    I hope my grandchildren enjoy the perpetual debt and crushing taxes.
  17. Mike M from Canada writes: John Anderson from Nanaimo, Canada writes: Alistair McLaughlin, an apologist for capitalism's failure, has announced to the world that a closed mind is a safe mind. 'Don't confuse me with evidence - my mind's made up!

    You don't read Klein because you have too much to lose - like your ideological commitments.

    I've read it and it's horrendous. I assume you've followed your own advice, meaning that you've read Friedman's writings and understand where she misrepresents his view.
  18. John Anderson from Nanaimo, Canada writes: If Mike M can direct me to a single critique of Klein's thesis, I'd like to see it so I can revise my views, if warranted.

    It's Milton Friedman's misrepresentation of Adam Smith's ideas which led to the collapse of Wall Street, now being socialized with public dollars. (So if that's not communism or socialism, what is?)

    Smith would roll in his grave if he could see the complete bastardization of his capitalist ideals via sub-prime loans, the Enron et al rip-offs and the $500B taxpayer bailout of the S&Ls. The only reason why Canada is not in the same situation is because we're not so easily fooled by those who want to privatize, deregulate and open free markets. Thank god for the NDP, Liberals and Green Party who are not so gullible.
  19. thomson gary from Canada writes: How do you get three economists to come up with one forecast? Kill two of them.
  20. Mike M from Canada writes: John Anderson from Nanaimo, Canada writes: If Mike M can direct me to a single critique of Klein's thesis, I'd like to see it so I can revise my views, if warranted.

    It's Milton Friedman's misrepresentation of Adam Smith's ideas which led to the collapse of Wall Street, now being socialized with public dollars. (So if that's not communism or socialism, what is?)

    Smith would roll in his grave if he could see the complete bastardization of his capitalist ideals via sub-prime loans, the Enron et al rip-offs and the $500B taxpayer bailout of the S&Ls. The only reason why Canada is not in the same situation is because we're not so easily fooled by those who want to privatize, deregulate and open free markets. Thank god for the NDP, Liberals and Green Party who are not so gullible.

    I agree that bailouts of wall street are not capitalism (I'm not sure if communism or socialism are appropriate terms, but they're not capitalism).

    As far as a critique ... again, I ask you, did you read Friedman's own papers (not critiques against Klein, but his own paper's on what he stood for - some are readily available in just about any bookstore - Capitalism and Freedom is the one most start with).

    You should be able to develop your own opinion from his papers on whether or not she accurately reflected his ideas. I haven't read any critiques myself because I didn't find the need to. I read her work myself, found that it didn't seem to be based in fact (and even worse, followed her own description of what shock doctrine is with that first chapter which was completely unnecessary for the premise of the book) and did not continue too much further in hearing other people dispute the book's contents, other than discussing it with my colleagues.
  21. Mike M from Canada writes: Ok, so I found someone who seems to go back and forth with Klein. It's been too long since I've read the book (about 6 months ago), for me to say whether or not he accurately reflects Klein's opinions, but Johan Norberg has written a few critiques of her work.

    A simple google search of Johan Norberg Naomi Klein will reveal enough examples.

    At the end of the day, this still won't be a replacement for actually reading Friedman's work. As you stated (but slightly re-worded) - You don't read Freidman because you have too much to lose - like your ideological commitments.
  22. Mike M from Canada writes: Daniel Roy from Toronto, Canada writes: Some very good arguments against those stimulus packages, from Nobel-prize winner Greg Becker:

    By the way, it is Gary Becker.

    For those who read Klein's book, you should recognize the name as he was a student of Friedman's.
  23. Moe Unting from Yorba Linda, CA, United States writes: i liked kleins first book, it was like punk rock economics; shes a good writer but the shock doctrine jumped the shark, very badly argued and hyperbolic to the point of hysteria. Her vitriol for Milton Freidman goes beyond the point of mental health, obsessed and vindictive.

    Johan Norberg has decisvely exposed the absurdity of Kleins' arguments, a thankless task for a ponderous work that has generated little reaction.
  24. Steve I'm Not an Alberta Redneck from Calgary, Canada writes: An excellent piece. It touches briefly, but clearly on every criminal self-serving policy that the right wing imbecile scum have been promoting for 40 years. Such policies have led us to the economic abyss.

    Tax breaks for the wealthy are only good policy if tied DIRECTLY to REAL investment. Otherwise, there will be no need to actually invest. What these types really want is a continuation of the speculative frenzy of recent decades where real estate prices escalated far faster than worker's income, stock prices bore no relationship to the future prospects of companies and art that sold for a few thousands, mere decades ago, is now going for tens of millions. All this is only possible through policies that transfer wealth to the already wealthy through unearned tax breaks far in excess of what the productive sectors of society received.

    What such a policy results in is many dollars chasing dwindling investment opportunities. Since average people do not benefit from these breaks, and actually pay for them in other ways, there is less consumption and therefore no need to make real investments. Speculation is the result, with the wealthy always being on the ground floor in the next bubble and the poorest members of society being the primary victims when the bubble bursts.

    Real investment built this country and modern society in general and we must have policies that encourage it again. Lazy third generation heirs have done nothing to build the country for the past 40 years. Instead they have become parasites, sucking the blood out of the productive with their speculation.
  25. Mike M from Canada writes: John Anderson - any response? Have you read any of Friedman's writings? Did you read Norberg's critique?

    It's very interesting that you so enthusiastically asked for things to check up on, but haven't demonstrated a follow-through.
  26. Angus Elliott from Cambridge, Canada writes: We need to remember that stimulus must be financed.

    $50BB spent today means several $BB in interest cost FOREVER.

    Are we accepting a few points of GST increase in perpetuity? Are we accepting an income tax surcharge in perpetuity? Are we eliminating an entitlement program?

    If we aren't going to hear about the downstream cost of the stimulus - let's go a little slower.

    NB: Obama is talking a $1.2TT deficit $1TT stimulus plus the $0.7TT TARP. That's $2.9TT. At 6% (long run) that a $174BB annuity. How the HECK is that getting funded?

    If interest rates ever go to 18% that's a $522BB annuity. To put that in perspective - that would require something like a 35% increase in income taxes across the board.
  27. CR VAN KRALINGEN from PORT COLBORNE, Canada writes: If you want real stimulus our politicians need to stop watching CNN for thier respun answers. They need to really start 'thinking' outside of the box. I have an idea for you;.. We have a lot of money tied up in RRSP's. ( Deferred income funds ) Lets create a program that allows the first $50,000.00 of deferred income to be pulled and used for specific purchases and debt reduction targeting those items that would maximise stimulus to our economy. If the money is used with specific conditions and meets the stmulus requirements then it would be taxed at a fixed rate that is not tied to any income generated from other sources. This would be treated as a separated issue. Lets pick a rate of say 5% Think about the benefits. This would effectively reduce the paper loss experienced by all that were invested in the markets. Under this plan the money pulled and available to spend would be nearly the actual dollar amount that you would have had if the markets did not crash and you were being taxed as per the current rates in effect. This is a win win situation. Lets put some conditions on where the money is to be used. 1./ debt reduction ie. motgage, credit card;... money spent here would go back into the banks giving them some needed cash to work with. 2./ major renovations or new home 'construction'; spent here would go directly in to creating job stimulus 3./ 5% tax rate;....this would put some cash back into the government coffers to be distributed to those folks in the lower income brackets for use in spending in the same qualifying categories. ( not Wal-mart) The money needs to target specific areas to get the punch we need. You have all made some very valid and sound points. Creating access to our 'deferred income funds' ( RRSP's ) with the application of your points of thought would really get us going in the right direction So let's get on with it.
  28. No Coalition from Canada writes: It's all communism if you ask me. What's the point of calling it a free market, if everyone who f%@#s up gets molly-coddled. No pain over a mistake = no lesson learned.
  29. Doug - from Canada writes: This is the first JIM STANFORD piece that wasn't totally one sided. I really thought before I opened it that his plan was to give everyone a NEW CAR. Though does he write for free so the G&M can use him so much.

    Corporate tax cut - not quite right. When a company decides to invest long term they take the taxes they have to pay into account. The ones that are profitable can , with the profits, reinvest, pay out to shareholders or pay down debt. If taxes are lower they are more likely to reinvest. But that is likely not certain.

    If you really want companies to spend the allow for accelerated depreciation so they can write off the capital sooner .
  30. Roslyn fed up Canadian from Montreal, Canada writes: Stanford follows one track....Canadians need to pay the high prices of automobiles made in Canada. The reason being that the illiterate auto workers make $150,000 a year and he feels that is fine. Physicians are barely making this kind of money. Auto workers are low-class workers and anyting over $20.00 per hour is more than enough. However, not too worry, the foreign cars are arriving at our shores at decent prices and owning a GM, Ford or Chrysler car will soon be a thing of the past. From personal experience, Ford made the biggest piece of garbage around. My one experience is that after a couple of months with my new Taurus, the entire chassis collapsed. Ford said it was my fault! However after I paid big bugs for repairs, the dealer called and said all Taurus of this year were being recalled for improper assembly so I received my monies back. Buy a Ford card.....not if you value your sanity.
  31. Marian Ruccius from Gatineau, Canada writes: N. Ontarian writes that the companies that CAW workers work for are the least competitive in the world -- that may be true, but it is a hard cold fact that the Canadian autoplants run with CAW workers have the HIGHEST productivity of any in the world -- Canadian workers are just getting side-swiped by U.S. inefficiencies. Peter Lucas clearly doesn't understand the principle of effective demand, which trumps all the strictly secondary considerations he raises about projected profits. I recommend Paul Dalzielís and Marc Lavoieís excellent labour market exposition of Keynesís principle of effective demand in the Fall 2003 edition of the Journal of Economic Education. Just as an aside, since I am scarcely qualified to add to the invariably brilliant work of Mr. Stanford, it is important to note that the current recession offers a vital opportunity for both the private and public sectors to upgrade and modernize their stocks of fixed capital, because as Clarence Barber, the great Canadian economist and key member of the MacDonald Commission, pointed out: investing in fixed capital in recession means that inflation will be lower once the recovery begins in a few years time (as such investments, if made in the upturn or towards the top of the business cycle would have inflationary effects). Incidentally, this provides another reason why Lucas is wrong: the threat to investors of higher prospective inflation is far greater than any highly uncertain projections of future profits. Nix, therefore, on the Government's tax cut proposals. Finally, since tens of thousands of Atlantic Canadians (especialy Newfs) are returning home from Alberta, now that the oil patch is going through its inevitable bust phase, what we need is an eastern megaproject -- Danny Williams' suggestion of a tunel (perhaps only to bring Labrador's hydropower to the rock) would both create jobs and greatly increase the long-term competitiveness of Newfoundland's industries.

    I have put for an idea for a stimulus package;....I am interested in your thoughts.
  33. Pierre-Yves P from Canada writes:
    This paper is based on three fallacies:

    1. That jobs create wealth: wrong; productivity increases create wealth. If I get my inputs at WalMart for cheaper, I increase my productivity, I increase my wealth.

    2. That money allocated to savings somehow 'disappears' in a time-warp and is not reinjected in the economy: wrong: savings guarantee credit, without which no spending is possible, and fund investments, which in turn feed spending.

    Stanford is actually contradicting himself by first saying investment has no impact on economic prosperity, then attacking Flaherty's proposals for not inciting businesses to invest.

    3. That individual well-being and collective well-being are divergent objectives: wrong; only a totalitarian could think that way.

    Alltogether, a very confused mind.
  34. Peter Lucas from langley, Canada writes: Pierre-Yves, Great post!

    Dwight McFee, your assertions are false and your reasoning non-existent. Misquoting and attributing inane thoughts don't make good arguments. I wrote that long term income tax cuts are empirically effective. McFee, you don't address that. BTW, I'm too busy as a capitalist to golf.
  35. Carlo Marantz from Ottawa, Canada writes: Contrary to Pierre-Yves P, to believe that “individual well-being and collective well-being are divergent objectives&8221; is not totalitarian. Indeed, this statement is based on what many of the physical and social sciences have shown over and over again. The properties of systems cannot be reduced to those of the individuals. That is a system (i.e., collectivity) is not merely an aggregate of individuals. Collectivities have their own properties. Consequently, there are things that may contribute to an individual&8217;s well-being that would be disastrous for the well-being of a larger collectivity of which that individual is part. For example, the greed and corruption that characterized the self-defined well-being of individuals have helped drive us into this economic crisis. Your individual well-being is not a prescription for our collective well-being. That is not a totalitarian belief but a recognition of what science reveals.
  36. Peter The Not Quite Great from Canada writes: This is the best thing I have read from Jim Stanford. he gave a simple explanation of what economist mean when they talk about stimulus. A useful exercise that strips away much of the spin that surrounds the term currently.

    I don't usually agree with him but he's right about this one.

    Of course, any stimulus package can fail if people don't spend the money that's pumped in. And while infrastructure projects are great stimulus in theory they often end up being started after the recession is over and don't provide stimulus when it's most needed. Considering the incredible talent all levels of government in Canada have for needless squabbling I expect the infrastructure part of the stimulus to come too late, as usual
  37. Yvonne Wackernagel from Woodville, Canada writes: The critics here are the unintelligent. I found the article quite interesting and 'telling'.

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