[Azure]

Originally Posted by Mike F

If I got the jist of that, you're arguing that a different stimulus would have worked better, not that gov't shouldn't have stepped in and left it to the private sector to create jobs and pull itself out, which seemed to be your earlier stance.

More or less. But, I don't think it would have worked to just pour money into a stimulus program, even one created to just improve infrastructure and things like that. I think that like Germany and many other European countries, the US should have taken an approach that was focused around reducing spending in the coming years, managing the debt/deficit, while at the same time pouring a little money into different types of projects.

And certainly not $825 billion.

You appear to be saying that more spending should have been implemented immediately, and that likely was true and is true today. The original bill relied on the economy turning around in order to be paid for over time. The economy isn't turning, as too much was allocated to future spending, to make the turn stick, and not enough to make the turn happen in the first place.

Exactly. Even if the stimulus was clobbered together in short time, it still wasn't effective enough for those reasons. It wasn't fast enough, and it didn't provide enough short term help. In the end it seemed like the government had been given mandate to blow a trillion bucks on whatever they wanted, so they sat down and in a few weeks decided to fund literally everything under the sun. And what did it do to sustain the economy? Absolutely nothing. The economy and unemployment got worse. But had they taken maybe $100 billion, which is certainly manageable in the long-run, and invested it into projects that would instantly be started on, and projects that would create jobs, generate business, and improve things in the long-run, it would have been much more effective.

So what do you do today, in the face of that? Implement austerity and hope that things will turn on their own because private investors will open new plants now, despite no demand, because things won't be as bad in the future? Or, as Krugman advocates, do you fix what was wrong in the first place, and try to create the jobs and demand now?

I'm not even sure. Long-term goal should still be to manage the debt. Doing that will require economic growth, and I have no idea how one would go about getting businesses to start using their billions in cash. I think over-regulation and complicated tax codes have contributed to the problem, but not to the point where a company won't see the incentive to go out and generate growth.