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August 23, 2010

Alan Blinder and Mark Zandi Say Stimulus Saved the World: Wrong!

Keynesians Mark Zandi and Alan Binder recently released a study stating that the stimulus passed by the Obama Administration in March 2009 was responsible for saving 8.5 million jobs, 11.5% of GDP, and avoiding a deflationary death spiral.

While I do not want to call into question those statistics or position, I want to state that the real reason I oppose this position is because we have not even come close to seeing the end game yet.

The big point is that we don't know to what ends the stimulus will take us.  The business cycle (recession, recovery, growth) is still very abnormal and we are now running $1.8 trillion in annual deficits.  Essentially, we have taken a large short-term problem and substituted it for a massive long-term problem that is added on top of the fiscal nightmares awaiting us in Social Security and in health care.

If this "stimulus" sets off a massive dependence on future government intervention, even when the economy hiccups, is it worth it?

If the stimulus sets off a series of fiscal disasters that lead to a larger depression that destroy our currency and our credit rating, is it worth it?

You can read the full study here.


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