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Stimilus Bill
Shortly after class, an economics student approaches his economics professor and says, “I don’t understand this stimulus bill. Can you explain it to me?” The professor replied, “I don’t have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I’ll be glad to explain it to you.” The student agreed.
That weekend the student showed up at the professor’s house. The professor stated that the weekend project involved his backyard pool. They both went out back to the pool, and the professor handed the student a bucket.
Demonstrating with his own bucket, the professor said, “First, go over to the deep end, and fill your bucket with as much water as you can.” The student did as he was instructed. The professor then continued, “Follow me over to the shallow end, and then dump all the water from your bucket into it.” The student was naturally confused, but did as he was told.
The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool. The confused student asked, “Excuse me, but why are we doing this?” The professor matter-of-factly stated that he was trying to make the shallow end much deeper.
The student didn’t think the economics professor was serious, but figured that he would find out the real story soon enough however, after the 6th trip between the shallow end and the deep end, the student started to become worried that his economics professor had gone mad.
The student finally replied, “All we’re doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you’ll really have accomplished is the destruction of what could have been truly productive action!”
The professor put down his bucket and replied with a smile, “Congratulations! You now understand the stimulus bill.”
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This makes an assumption that is notably THE OPPOSITE from the typical Republican/Conservative/Reagonite perspective. That is, it assumes that whatever flows to the ‘shallow side of the economic pool’ flows right back to the ‘rich side of the economic pool’.
This is comic, given that the whole concept of supply-side economics was that if we give the rich the big breaks, they will invest more, which will grow the economy and help everyone. Think of this not as an economic pool, but say, as an economic sandbox. Supply side theory says let the rich build a bigger sand pile, and the trickle down will give EVERYONE more sand (yeah, a stupid analogy — as stupid as the swimming pool, come to think of it…).
Advance this to the mortgage crisis at the foundation of the current economic mess. We’ve thrown buckets of money into the rich side of the pool, which sure hasn’t helped. BUT, what if that money was thrown into the poor side: shore up the mortgages at the lowest level, which takes the toxicity out of the ‘toxic assets’, banks shored up, problem solved. At least one of them….
ps — just for the record, I came of age and studied economics during the Reagan era. I voted for him, twice. And today I’m darn near the level at which Obama thinks its OK to have me pay more taxes. So, I’m not some lefty liberal. But supply side has had 30 years to prove itself, and it is time to rethink the whole thing.
Come on, John! I learned about this in high school economics, when I really fell in love with the stuff. There is something called the “Government Spending Money Multiplier” which equals 1/(1-MPC). MPC=Marginal propensity to consume, which is a percentage of how much people spend their income on average. MPC has been above (and sometimes WELL above) 70% for a while now. If you plug the numbers in, the Government Spending Multiplier=1/(1-(.7))=3.33. This means that for every dollar that is QUICKLY spent by the government will have more than 3 times the nominal amount spent–and that is talking as if MPC is extra low for this time period. My professor said right now it is probably about 80%.
This was developed by Professor Keynes, who also developed key terms that we still use today such as the term “Gross National Product.” Agree with him or not, he made major advancements in economics which are still recognized today. Economics–especially Macroeconomics–as we know it today started with him.
Think of it this way: Adam Smith was Galileo; Keynes was Newton. One identified some broad ideas that started the science in the long run, the other got down and dirty and had MAJOR contributions.
In short, I agree with the above comment. The story is outlandish–the stimulus has an EXTREMELY sound economic basis and no economics teacher or professor with any understanding of macroeconomics would agree with the pool analogy in a million years.
“Government Spending Money Multiplier” which equals 1/(1-MPC)
Of course – It is also much too simplistic. If Keynes was Newton, you could say I’m still waiting for the general relativity of economics. To stretch that metaphor to the limit, it Newton had been 100% correct, all planets would be in different places in space right now.
The stimulus bill may very well be correct, but its success depends on more than MPC. Much more. And in the mean time it’s fine to make fun of it, especially when it also makes fun about trickle down, government spending, etc.
There is very little “trickle down” in anything that the democratic congress has done. What you may not have grasped was that Keynesian Economics is WHOLLY OPPOSED to Friedman/Reagan/Trickledown/whatever-you-want-to-call-it economics. Friedman was not far off from being a “Classical Economist.” Classical Economics was begun by Adam Smith. Keynes was breaking the Classical tradition to create his own Keynesian tradition of economics. The entire world ran on Keynesian economics until the Thatcher era in Britain, then the Regan era in the US. The whole world switched back to Classical economics starting in the late 70′s and ending with the second proof of the failure of Classical economics–September 2008.
The stimulus had basically no trickle-down qualities in it. Neither did the bailout. The tax cuts in 2001 and 2003 were wholly trickle-down, but–I repeat–nothing the democratic congress has done has been trickle-down/classical/etc.
By invoking the name of Keynes, I am trying to show my disdain for the Neo-Classical/Neo-Conservative freaks and their voodoo economics.
I’m not quite sure where your attack on the stimulus is pointed, or whether you in essence actually disagree with me. So…yeah…
I’m not quite sure where your attack on the stimulus is pointed
My “attack”, if it is worth that word, isn’t really based on any economic argument, I guess. That’s mostly because it is so lacking in transparency, stated goals, etc, that I really cannot make an economic argument for or against it.
or whether you in essence actually disagree with me.
Probably not – well, it would take an evening in a bar to hammer out the differences, I guess
Get your ass over here, then