Stimulus Didn't Work for America : It won't Work for Greece

Government intervention didn't work in the 1930's and it doesn't work today - after spending 864 Billion to get the economy back on track, and after 5 years and three more stimulus packages, the economy is still in the dumpster. Why do taking heads proclaim the economy is improving? They know better, right?

With the permanent unemployed growing by the day and those that are taking disability and food stamps and welfare and just about every other subsistence available, how can the smartest people in the room believe we are doing better? Who's doing better?

I wonder what the experts would say if the 85 Billion that the fed spends each month with money they print or borrow decided to stop printing or borrowing? What do you think would happen to the stock market? dah! Catastrophic events would occur in the market. Still the expert stand tall saying we are on the right path for success. How exactly will more debt be a good thing if we have no way to pay it back? No jobs, no pay checks, no taxes to pay! How does a thing like that work?

Who are these people?

Stimulus Is Not the Solution to Greece's Economic Woes
Source: Matthew Melchiorre, "Praying for Growth at the GDP Altar," Competitive Enterprise Institute, August
August 22, 2013

Economists often confuse economic indicators with actual economic performance. In myriad news articles, white papers and academic studies, they advocate for ways to boost gross domestic product (GDP). Although GDP may be the best of limited measures in assessing total economic output, it is only a proxy, and proxies are imperfect. Therefore, when economists treat GDP as the be-all end-all metric to evaluate economic performance, they often propose ways to improve GDP figures, rather than the actual economy, says Matthew Melchiorre, the 2012-2013 Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

Recently, several economists at the Levy Institute at Bard College made this blunder in a new report recommending a "Marshall Plan"-type fiscal stimulus for Greece's moribund economy.

• The report compares the recovery times (the time it takes for GDP and the unemployment rate to return to pre-crisis levels) of Greece today and the United States following the Great Depression.
• The authors argue that fiscal stimulus in the 1930s accounted for the United States' faster recovery, relative to Greece today. Therefore, they argue, Greece should be implementing fiscal stimulus, not austerity.

But America in the 1930s and Greece today are not comparable.

• An increase in government spending cannot account for an effect on private investment over four times its size.
• Fiscal multipliers represent the dollar-for-dollar effect on the economy from one dollar of government spending.
• Keynesian arguments for fiscal stimulus rely on a positive multiplier effect greater than 1.00, which means that every dollar of government spending yields more than a dollar in economic activity.

Most New Deal programs had a multiplier effect on the private sector that was either small or sometimes even negative; it is between 0.5 and 1.5. In other words, each dollar of government spending led to an increase in private spending of $1.50 at the high end and sometimes even a decrease, depending on the program.

Pumping money into the Greek economy may boost GDP and even spur hiring for a short time, but it will not lead to self-sustaining growth driven by private investment over the long run. Only fundamentally reforming the Greek economy can accomplish that.