Posted by: graemebird | April 9, 2009

The Effect Of The Stimulus Package.

As we have seen the application of the stimulus package was followed by an increase in unemployment. Expect more of the same. Some of the increase in unemployment was CAUSED by the fiscal stimulus. The net effect of the stimulus package is to INCREASE unemployment, if we are disaggregating from all the noise that is going on independent of the effect of the stimulus.

Here is a summary of the effects of the fiscal side of this anti-economics.

1. A reduction in employment. Since it shifts resources from spending WITHIN business, to consumer and government spending. But it is business-to-business spending from which wages are paid.

2. An increase in before-tax profits. Because consumer-spending and government-spending represent revenues to business that have no corresponding cost-of-goods sold.

3. An increase in consumer prices and the prices of those things that government are to spend extra money on.

4. An increase in nominal GDP. Since business-to-business spending doesn’t get registered in GDP.

5. Damage to our long-term prospects.

6. A delaying of our recovery from recession.

This is the idiocy in policy you get when you have economists who don’t understand economics and when you send mad leftists like Nick Gruen and Andrew Leigh to Canberra.


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