Since I do not watch the main stream media, I do not know if this was reported. CBO director Doug Elmendorf testified before congress. In an answer to Alabama's Jeff Sessions he conceded that the $800 billion stimulus package would in the end lower GDP.
SESSIONS: And in the next 10 years, since you’re carrying that debt and paying interest on it and the stimulus value is long since gone, it would be a continual negative of some effect?
ELMENDORF: Yes, it would represent a drag on the level of GDP beyond that, if no other actions were taken.
Elmendorf stated that the stimulus should have had a positive short run effect but a negative long term effect. I guess I should said "I told you so." But its like taking candy from a baby. The money to finance the "stimulus" would have to come from somewhere. Since the US was already deeply in deficit, the money would either have to be created by the Fed or borrowed from the private sector. Basic economics tells us that if created by the Fed, it would end up being purely inflationary with no creating in real output. If borrowed, it would reduce monies available to the private sector and crowd out business investment. Either was it would be a drag on the economy. Those who invented other scenarios are using faith and voodoo to supercede Adam Smith and like usual have failed. However, although I used to work at CBO I always take their projections with more than a grain of salt. Economics like the weather is a crap shoot when projecting long term and ten years is an eternity.
Happy Birthday Frederic Bastiat
2 years ago