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How Exactly Does Obama's Fiscal Stimulus Work?

Hopefully, there is someone on this forum who will explain the ''miracle of the fiscal stimulus multpilier''.

According to the stimulus advocates, the Govt spends $1 and, using the Obama team's numbers, you will get $1.5 in output. The multiplier is thus $1.5. Thus, not only will society get the initial $1 back, it will get 50 cents in addition.

I can see how that can work in the long term: roads, power plants, bridges,e.t.c can boost growth by lessening the infrastructural constraints on business activity. However, it takes a while to complete such projects and by the time they are built, America will be out of the recession. Unless you belong to the Roubini school of thought who think this recession will last a considerable lenght of time.

So does anybody know how spending $1 today will bring about $1.5 in output within the next few months?

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43 answers

This Negro guy is surely arguing with himself. I wash my hand kpatakpata. They say anybody wey argue with crase man na crase man himself.

Doyin, abeg spit knowledge make we hear something worthwhile.

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Mehn. . . a keynesian argument and I have been absent.

Okay now. . .let us see.

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Sell the wide screen tv to David, he is intimidated by your numbers and theories.

I don't care how you dice it Ibime, common wisdom is against your tell tale. Go back to your responses and reviw them against my responses on this topic. Consistently, everyone that have common sense have said the human element is a greater factor in the success or failure of the stimulus than say application of a theoretical solution. Which part of that do you not understand?

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A million people in France are rioting that they did not get their own Keynesian 'bailout'. At least they know the difference between a Keynesian stimulus and a bank bailout, unlike Negro.

A Keynesian stimulus is the closest thing to a 'bailout of the poor'. Shebi Negro always loves fighting for the poor and oppressed. In his confusion, he mistakes a Keynesian stimulus for a bank bailout.

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@topic,

Quoting Warren Buffet from 4 Play's post above: "We do know over time the American machine works wonderfully and it will work wonderfully again."

So what is that American machine? I dare say it is the free market system devoid of unneccesary govt intervention and control.  A system where enterpreneuship is nutured and rewarded, where govt does not subsidise innefficiency and manipulate the basic laws of supply and demand.  These recently have not been the case and that is why we are in this mess.  And to think the same govt intervention that created the problem is the solution is to me, the height of absurdity.

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Kalestky should have followed his own advice when he predicted, mid '08, that the US housing market was turning around or that the brouhaha over the economy was overdone.  He was so notorious for his false predictions that he became a laughing stock. His response to his failed forecasts was hilarious: attacks on Hank Paulson verging on the unhinged.

It's a good thing he has seen the limitations of the models economists use in making predictions. We are in uncharted territory. His article chimes with what Warren Buffet said here:

SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

WB: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

http://www.calculatedriskblog.com/2009/01/pbs-interview-with-warren-buffett.html

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lmao! Oh my God!! David, if you don't know what to say please stop sticking foot down your throat. Listen to this statement. . .

Do you see anything wrong with it?

It's not about ignorance, you sheep. Hahaha. . .oh, Oritshe me be o! I am not an economist either. Keynesian theory is all over the web and the blogs. You don't need to be an economist to discuss it but you need to understand fundamentals of economy and statistics. This is not issue of ignorance. . . I just refuse to allow a self-claimed economist to pass smoke across my eyes and sell me a box full of bricks as a wide screen television.

But you don't understand anything like that. . . you are intimidated by Ibime's nonsense. You let him use numbers to scare you. Go siddon somewhere boy!!

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you dont really say anything. u're just piggy backing on others to claim that as your point. Ibime has been asking you to clearly state your points and u've been dodging since. I'm not an economist so you wont catch me posting here but i wont couch my ignorance in flowery words either.

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Tayo,

END OF STORY! I'm done with it!! But I promise to give him the link when his news pundits come around to common sense and admit what you and I see in their rhetorical analysis of Keynesian theory. They act like if you don't support Keynesian then you don't understand it. What is complex about Keynesian theory? The analogy is that of a car. Everyone loves to own it but you can get behind the steering and drive responsibly or you can do otherwise and crash it into a tree, either way you are still a car owner; it just depends on whether its still drivable or is out in the junkyard.

Our economic problem is not understanding Keynesian theory but rather understanding human behavior that will be responsible to implement the spending and making sure that the methods go ahead of the allocations. Simple!

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@topic,

I am not an Economist and far be it from me to pose as one. I have always declared that my political stance and leanings are primarily conservative because conservatism is basically the use of common sense. Except the issue we are talking about borders on the spiritual, science and/or technology, I believe common sense will solve it. So what is the common sense approach to solving the problem at hand? I believe this is the key question that needs an answer.  Our approach shouldn't be based on philosophies and ideologies, but on pragmatism and reality.

I mentioned before that I believe the market will always take care of itself if left alone, and I still stand by that.  So to answer Ibime's query to Negro regarding a global approach to this crisis, my response is that the government should leave the markets alone.  Why? It is just common sense.  It appears Obama just realised this to be true as he said at a press conference yesterday that the crisis will and can only be solved by the people.  Just days ago, he declared govt as the solution.  But does he have the courage to follow through his conviction with action? I doubt it.  There's just too much "pork" in the bill and too many interested parties seeking to lay their hands on that money, not to stimulate the economy, but to further an agenda.

I believe it was Ibime who talked about govt buying bad assets with the hope it brings a return in the future! If such assets have potential for such, investors and enterprenuers will go for them big time.  Isn't that what investors do?  Buy cheap now while selling at a higher price in the near future! That the govt has to buy the assets reveal one of two things. Either the assets have not yet reached their bottom in the opinion of investors, or investors are not willing to take a risk knowing that the govt's actions suggests unfair competition and an undue interference by the govt.  Enterprenueship does not thrive in a situation where the govt picks winners and losers.

And let's not forget one thing.  Govts make decisions to gain political capital.  So I do agree with you guys that there will be a multiplier to that govt spending. The question however is if the multiplier will be experienced finanacially by the tax payers who will pay for the spending or by the politicians who stand to gain through succumbing to special interests!

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I put it the way Ibime's mind comprehend it. Using a different wording will give him room to attack the question instead of answering. If he use disinvest, you use same word for him, otherwise he looses comprehension.

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Could you be less cryptic and clearly state your questions?

Disinvestment from what? Risks for gainful returns in what?

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4Play,

I am not sure your opening was directly on the economic theory but it progressed to become that. When I respond to topics I am known to do this - @topic -. Meaning my response is directly relevant to the opening. I believe my first response was to your opening which I take as a question of the policy and not of the economics.

Regardless, the issues are tied together - the credit crunch, the bank failures, the bailout and the stimulus spending. In one discussion sometime ago Ibime declared that he does not bother with political propaganda. I ended the discussion at that point. I don't understand how anyone could be in a political forum and not encounter propaganda! That's like discussing in economic forum and having distaste for the theory of open market or the laws of demand and supply. Propaganda is the bedrock of politics, that's where the power is derived. So for him to discuss economic theory in political forum and dismiss propaganda is beyond shock!

I am willing to tie all the dots together for him. I am awaiting his response to my question on disinvestment.

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Good! What is causing disinvestment? Why are people not willing to prospect or take risks for gainful returns?

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More bla bla bla. . . . what do the CEO's of Merrill and Lehman have to do with Keynesian theory? Do they need Keynesian theory for anything? Keynesian stimulus is the preserve of Government, not financial institutions.

Please, we are waiting to hear your preferred approach to this crisis, not some long narrative about you being a realist. This argument is not about you.

All ya talk about regulations is something we discussed last year. That is before the fact. What approach would you take after the fact to reverse disinvestment, both in the financial markets and in the high street?

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I'm a realist! Theories do not put food on my table; show me the action! It is not the theory that failed us, the banks did not go into problem because the theories were no longer applicable or were redundant and it was not because the laws and regulations were obsolete. Human beings, through their actions and or inactions failed us. The solution does not lie in re-inventing the wheel and proposing more theories but in rooting out the attributes of the problem and reinstating sanity and trust in the system.

This is what you fail to acknowledge. You think you know Keynesian theory better than the CEO of Lehman or Merril or Bear Stearns?

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He has no point.

It is completely off-topic and completely irrelevant to our discussion.

When the bottom dropped out of the sub-prime market in July 2007, it was the Sovereign Wealth funds that propped up the market for a time-period. Money poured in from Norway to as far afield as Japan. They only started drawing down their funds in mid-2008 when it became apparent that this was no blip, but a full-scale crisis; with many hidden losses yet to be revealed.

Mentioning Iran and Venezuela when discussing the economic crisis is completely off-topic. Not surprising, thats just the way Negro's brain works - in off-topic tangents!

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Debo,

You are right and I will be the first to admit, trust me; I waste words to explain points but thats my style. I have blogged online for many years and I used to be very short but then people will demand clarification and I had to go back and redo the opinion. That apart, points are points and any well reasoning person should be able to navigate through a stack of words and take what they need and dump what they dont.

Ibime is stubbornly excusing bad judgement on wall street. He will excuse the same if this had happened in Nigeria. It's because of mindsets such as his that we complacently continue to cheer our corrupt leaders as champions of our cause.

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So what is the best fit? Paulson's bailout which you opposed?

You cannot wriggle out of this by saying that you do not think this is the best fit. You will oppose any Govt intervention despite not knowing your ABC's or XYZ's.

The truth is, you have opposed ALL forms of Govt intervention in this crisis.

The height of your ignorance is that you do not see ANY need for Govt intervention. You stated as much during the Paulson debate. Your preferred option is to let the free-market have its way.

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No one of us is born with Keynesian theory, we learn about it. I have read it and I understand it but I still do not believe it is the best fit en blanche for the problem at hand.

I will let news pundits answer that for you, since they serve as your bearing for truth. Here is a quote from an opinion article on Keynes.

Didn't I conclude along that line in my response to 4Play. Do you still believe I'm a deviant ? Ibime, the more you look the less you understand.

For more, here is the link.

http://nrd.nationalreview.com/article/?q=YzVhZmI5MDAxMDEyZGIzMWVlZTUzZWU1ZDY2ZjExNTQ=

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@ Negro

What is all this stuff about free-thinking? The tendency to think along radical tangents does not equate to free-thinking. You are just a deviant, not a free-thinker.

Opposing all forms of Govt intervention does not make you a free thinker. It makes you 'one of the majority' who's views are informed by their lazy grasp of macro-economics.

Rational thinkers do not argue the need for Govt intervention. There has never been an economic crisis without Govt intervention. Even when the economy is going smoothly, Govt intervenes through various measures such as interest-rate changes and tax-cuts. We argue more about "what type of Govt intervention is needed"? Sayian or Keynesian? 'Bad bank approach' or 'Nationalisation' ? etc

It took me a few minutes to make sense of your post because it is totally off-topic.

I think you misunderstand the point of a Keynesian stimulus.

It goes like this:

Govt spends $352 billion on projects.

Every single penny is spent on American-made goods and services. Therefore the Keynesian multiplier always starts at 1.

From that, we calculate how much of the initial outlay is 're-spent' within the economy.

The initial $352 billion is spent on raw materials, wages etc.

The recipients of these wages then spend it on other stuff, stimulating other areas of the economy. As they spend it on other stuff, the recipients also pass it on and so on and so forth. This is what the multipliers are about. When the economy is sufficiently stimulated, GDP grows.

The question is how much of the initial $352 billion is spent within the economy after the initial outlay. Obama's team say half of that will be respent. It may well have a 1.5 multiplier, but this depends on Americans propensity to consume and the percentage of this consumption spent on American-made goods and services. That is a mathematical debate not suited to a public forum. All we are saying is that it is not an immediate solution as the full amount cannot be spent immediately.

We are not scrutinising the details of the stimulus package as we have not seen it and it has not been passed. Again, this is not about the 'profitability' of the projects and how much return on investments govt receives. This is the initial mistake I made when 4Play first raised the topic. This is a debate on how to stimulate spending, nothing else. Until people start spending money again, the economy will remain stagnant.

That is why 4Play said that a possible drawback with tax-cuts as a solution is that people may prefer to save rather than spend. I also believe they probably wouldn't spend those tax-savings on American-made goods and services. Rather, they will spend a large percentage on foreign goods and services without knowing it, as America is a net-importer. If this happens, American tax-cuts will be passed on to foreign producers and will defeat the purpose of the stimulus. This is why I favour a Keynesian approach to a Sayian approach because it is the only way to prevent leakage in the new Globalised world we live in.

My preferred solution to this crisis is a 'bad bank' approach coupled with a Keynesian stimulus.

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Ibime,

It's worthy of mention to refer you to this news link and debunk your free-for-all theory on economics. Here is a passage in the article, compare it my response which you dismissed as nonsense. Hopefully, now you will believe the news pundit and give him the merit you denied the free thinker.

"Most of the rest of this project spending will go to such things as renewable energy funding ($8 billion) or mass transit ($6 billion) that have a low or negative return on investment".

The passage is the fifth paragraph and sits next to the illustrated chart "Political Stimulation". While you are there, study that chart. In our discussion on bailout I said the government could subsidize social programs sufficiently to a point where it defeats the desire to be gainfully employed and just sit at home and earn unemployment insurance, Scoial Security Income, medicaid, food stamp. . .etc. This chart supports my projection back in September/October when we discussed these things. As I have always admonished, free thinking has its place and news articles has its place, don't let Western values dictate to you that news articles is the sole source for knowledge.

http://online.wsj.com/article/SB123310466514522309.html

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Govt intervention in the past did not help but unless the banks can save themselves without Govt aid, this is not the time to rail against Govt intervention.The banks cannot privatise the profits and nationalise the losses without bringing about greater Govt intervention.

Govt spending, unless it comes from printing money, has to be paid for by higher taxes either today or in the future. The Obama argument is that the infrastructural spending will lead to higher GDP growth, viz, it will pay for itself. That is where the multipliers come in.

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I have tremendous respect for Roubini because he's one of the few to predict this crisis. He too supports a stimulus spending package. I believe his only quarrel with the Obama package is whether its big enough.

Enacting tax cuts is always faster than major spending measures. I believe the key drawback with taxcuts is that there is little guarantee the tax savings will be spent, thus, rendering the tax cuts useless.

Even tax rebates aimed at the poorest, as was tried in '01 and '08 , have proven to be of limited value as most of the savings were saved.

I don't think they have injected enough capital into banks, so I won't say the banks have nearly enough to lend.

The key problem with the ''bad bank'' approach is asset valuation,i.e the assets that will bought by the ''bad bank''. Unless the Govt nationalises these banks and has unlimited access to their books, which they should strongly consider,you can't trust the banks' disclosure of their balance sheet.

The rescue measures have been haphazard so far. Geithner needs to settle on a comprehensive and consistent approach that will encourage private investors to participate in the recapitalisation of these banks.

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Methinks Obama knows he is in it for the long haul, hence the drawn-out nature of the spending.

Saw Roubini on Bloomberg talking about an Asian-style recession. May not be right, but we are certainly in it for the long haul.

Even a Saysian approach of tax-cuts for producers will take months to go through the system, and comes with no guarantees at all. The problem in the West is that real wages have been going down for a few decades, and only cheap credit has kept consumption at an appropriate level for the economy to progress, so it is vital to stimulate main street. Obama's approach is not with disregard to Paulson's bailout. Supply has been stimulated, it is now time to stimulate demand. A 'bad bank' approach is still in the offing for Obama, as well as other measures, so this is not a unidirectional Keynesian approach

There is no instant fix unless you dash everybody money and force them to spend. The Keynesian approach at least leaves you with capital goods when the crisis is over.

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2009: 29.0

2010: 115.8

2011: 105.5

2012: 53.6

2013: 26.5

2014: 13.0

2015: 6.9

2016: 3.0

2017: 1.6

2018: 0.9

2019:0.4

Total: $356.0 billion

See what I was saying about the slowness of the appropriation process. That's the projected time frame for the spending, got the summary from Greg Mankiw's blog.

http://gregmankiw.blogspot.com/2009/01/cbo-on-fiscal-policy-lags.html

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@topic,

You guys need to start speaking english. All these keynesia, Queenisia, Malaysia and Quintisia economic jargons does not make sense. I ones learned that unitl a concept can be explained and understood by a six year old, it probably isn't well thought through yet.

My take on the whole mess the world is in is this. The market, just by definition cannot fail. The market reacts to situations and circumstances to bring about a balance. All these govt intervention screwed up the market in the first place and it is still screwing it up today. Until the market is allowed to adjust by itself and attain a sustainable balance, we will not only be on this problem for long, but we will be laying the foundation for the future wahala.

On another point however, can anyone explain to me how Obama plans to maintain the infrastructures he is planning to build? Currently, our highways are maintained through the revenue from gas taxes. He is advocating less use of gasoline and increased use of mass transit. If the use of gasoline declines, so will the revenue from taxing it. meanwhile, the infrastructures that need maintenance will increase and mass transits are always subsidized from gasoline taxes. How will these infrastructures be sustained? Where will the money come from? Are we not setting up a future bailout of not just our financial industries but our entire infrastructure in the near future? More questions than answers I tell yah.

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I responded fully to the question when I isaid its all miracle and nobody knows. I don't know how they will attain that objective. The question was not about the theory of stimulus multipliers but rather about the "policy" being pushed by Obama administration. But you were confused so your coaching of what its about is not viable.

You act as if outside of Google and CNN and links and sources, original ideas espoused from indivdual minds have no merit. Until you change that view and in fact begin to practice it yourself, you are a sheep.

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Look at this . . . .you launched a full-page diatribe about Merill Lynch and Lehman bros and you are here grinning teeth like you know what you are talking about. . . . after that, you started talking about Carbon footprints and God knows what else. . . .your befuddled brain cannot stay on a single topic. Do you think this is a bailout debate which you opposed and which 4Play supports as evidenced by his support for the "bad bank" approach. You have no clue what we are talking about here. I had no clue because I live in Britain and was not abreast of the debate in Yankee. That does not mean I do not know the theory. I do not have to know the intricate details of everything being discussed in minor-stream media in Yankee. It is not my country. As for you, you are completely clueless about economic issues, full stop.

Where in your post did you address anything to do with spending multipliers?

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Look at this talking about Shepherds and Sheep, yet you fell into the same trap, even after having it explained to you that this is about "Spending Multipliers" not about a "return on investment".

I may have miscomprehended the original question because of the way it was asked, but you just proved that you are a downright spastic.

BTW, even if the fiscal stimulus package is worth $400bn and $600bn is spent throughout the economy over the next 5 quarters, it may not be enough to get us out of the recession. Besides, the only way Obama can achieve 1.5 multiplier on all of the $400bn over the next 5 quarters is if the $400bn is spent immediately. By 4Play's assertion, infrastructure projects take a long time to complete so the $400bn cannot be spent immediately, it must be spent over a long period, hence the 1.5 multiplier looks bogus if applied to the full sum. It could well hold for any monies spent immediately, however, 4Play is trying to say that the $400bn does not provide an immediate solution to the problem as you can only spend the money over a long period of time.

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My friend sharrap dia!. . . . is it today that I have been discussing Keynesian economics on Nairaland?. . . that I do not know about the debate on 'Obama's multipliers' says nothing about my knowledge of Keynesian economics. . . . your original post was very unclear to those not in the loop. . . you came in talking about Obama's fiscal stimulus and how much society gets back and bla bla bla. . . . since Obama's stimulus contains both keynesian and non-keynesian elements, I talked about Sweden etc thinking that you were referring to returns on government spending (both Keynesian and non-Keynesian elements of the fiscal package). . . . how was I to know that you were referring to Keynesian multipliers if I am not abreast of the debate in Yankee?. . . .it was only about 3 posts in that I deciphered that you were talking about Keynesian multipliers, a topic I have not covered since 2nd year Macro-Econs. . . . . I just thought you were having your usual rant against Keynesian economics as you love to do. . .

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My friend sharrap dia. . . how many people are aware of this debate here in Britain. . . or even in Yankee sef?. . . .of course, I had to certify that the initial info was correct before jumping into the debate. . . just like you, I did not believe that Obama could achieve 1.5 multiplier in the short-term, that is why I questioned the validity of the initial info. . . . if I thought those figures were correct, I wouldn't question them. . . . so like you said it really is "the miracle of the fiscal stimulus multiplier". . . . I believe this recession is going to last long and five quarters is too short a period.

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Look at this long discredited charlatan. I purposely waited for you to go out on a limb before addressing the issue. ''Obama's multipliers'' are a well known matter.

You are waiting for CNN to raise it in its ''Breaking News''.

Did the Obama team claim that their spending is about the long term or did you manufacture it in your head, like the Ijaw warriors who swim with one hand and fire AK47 with the other?

You have to have intelligence for it to be insulted. This is a thread exclusively about Keynesian spending and you are spewing utter bollocks about everything from CDOs to the Swedish banking rescue model.

You're a blithering . Anybody who knows the issue and is not reeking of sciolism like you would know that this is about Keynesian spending.

If you don't know about a topic, don't try to come here and impress me. You are offering your opinion and you don't know your head from your a*se. Imagine, you're telling me how to phrase the thread so that your bovine brain can grasp it, ode.

Look at this charlatan yapping. The Keynesian precept here is about priming demand and it starts with the assumption that the multiplier is at least, or more than, 1.0. If you have learnt anything today, please learn this or shut the hell up.

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Simple question - please provide the answer!

You came on here spewing rubbish, irked at the fact that Obama's fiscal plans come with a proviso of 150% returns.

Oya, where is the link that says that the 1.5 multiplier holds for the short term?

Did Obama or any of his economic team make such an assertion or are these assertions that you manufactured in your head?

If it is in the public domain, surely CNN and the like would report on it, and we would be able to get a link from you. Methinks it is not in the public domain, only in your head.

My friend sharrap dia! I did not mention the banks as part of Keynesian policy. Dont insult my intelligence.

The second question should have been the original title of your thread instead of harping on about some 1.5 multiplier bullshit. Your original question should have been "Are Keynesian policies the solution to the present crisis?" Like I said, the Keynesian element of Obama's fiscal package are simply to keep employment up, create artificial demand, as well as long term benefits to the economy through the creation of capital goods. You cannot talk about Keynesian multiplier in the short term without considering the Long Run Keynesian multiplier and the effect of the increase in capital goods. Any attempt to hash out a figure of 150% in the short-term is evidence of your own stupidity. Besides, we do not know if this 1.5 figure of yours is just a fable that you created. At least, until we get a credible url confirming your initial yarns.

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An easy way of rebutting this charlatanism is to ask where on this thread anyone says Obama has stated the above. Or presumably, I can as well ask for a single link of the Obama team saying their stimulus plan is in regards the long term and not the short term.

If you think the current debates about the multiplier in Keynesian spending is about supporting the banks or the auto-industry, that means you haven't got a clue what the subject is. It's like coming to a thread about the effects of communism to talk about the effects of Islamism.

What the hell is the banking rescue measures got to do with Obama's planned Keynesian spending?

No sh*t! The topic is about Keynesian spending alone and you are yapping about everything including CDOs. What in Zeus' name does CDO have to do with the topic?

That's all I'm interested in. How does the Keynesian spending increase demand?

Asking for weblinks of whether Keynesians think such spending has a multiplier of more than 1.0 is a bit like asking for weblinks to show monetarists believe in the quantity theory of money.

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Guy, all this rambling is not helpful.

Can you provide a link where Obama says his stimulus package will make 150% returns in the short-term?

I do not know the actual contents of the stimulus package until it is passed, but I believe some of it will be geared toward the banks1, whilst other money will be allocated to the auto-industry, infrastructure, medicine2, etc. On top of that we will be seeing middle-income tax cuts and no repeal of the Bush tax cuts3.

I believe the keynesian elements of (2.) is what you have a problem with as (1.) and (3.) do address the immediate crisis.

Hence, Obama is tackling the immediate problem whilst simultaneously protecting jobs and creating artificial demand through (2.).

All this talk of 150% returns in the short-term can only be substantiated if you provide us with credible http://.

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Please do me a favour, google ''what is the multiplier''.

What you are talking here has nothing to do with this thread. I'm in favor of Govt spending to sanitise the banking sector. I would prefer capital injections and the ''bad bank approach'' in that regard, but that is not the issue here.

The question is how Obama's stimulus package, the programme of public works justified by some economists as having a multiplier of 1.5, is going to work. 2 separate issues entirely.

Another example of mutilating the point of the original advocates. Keynesian theories on priming up aggregate demand, is exactly that, priming up aggregate demand. The idea is that as the economy contracts, private spending falls, public spending is increased to replace private spending. That, in a nutshell, is what the stimulus package is meant to acheive in the short term.

Does it have longer term benefits? Of course, but that is not the debate here.

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Firstly, your point has little resemblance with that of stimulus advocates. Their point is that the economy is contracting because of a fall in aggregate demand. The stimulus package is meant to replace lost private demand with public demand. In effect, it's meant to deal with the current situation.

If your house is on fire, your primary concern while the fire is raging is not who to take out a future home insurance policy with(long term) but what you can do now to quench the fire(short term).

Effectively, you are admitting that the major plank of the new administration's policy has little or nothing to offer for the current problem.

This is a distinction without a difference. If a President promises that the investments he is making is justified because the investments will lead to job creation, how will any normal understanding of English entail that the purported new jobs are anything other than a recouping of the investment?

Besides, its a red herring. Obama has in speech after speech defended his spending plans as a panacea for today's problems. That is the whole point of the stimulus in the first place.

The stimulus package yet to pass is already in effect? Retroactively or what?

What is the point of a Keynesian stimulus which is not a stimulus but a long term investment programme?

Effectively, we both agree that the stimulus, at best, is beneficial in the long term and as such, is no panacea for today's problem. The key difference is that you claim the stimulus supporters also say this, which is like claiming that Christians worship Buddha. All the arguments by the Obama's team, the likes of Paul Krugman, Joseph Stiglitz, e.t.c that the stimulus is justified on the basis of its exapnsionary impact today is tossed aside for a bizzare claim that the stimulus is about the long term. They all claim that the multiplier is 1.5. 1.5 today, not in the long term. It seems you don't have any understanding of the what the debate is about in the first place.

Why would he want to limit the fallout in the short term if he doesn't have a time frame for his plans like you asserted in your penultimate post?

You have now touched the crux of the debate after perambulating endlessly.

Can such a huge spending package have net beneficial effects in the long term? Yes. I made that point in the very first post.

Does it have net beneficial effects such as limiting fallouts in the short term? No evidence of that here.

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Guy, just think of it as a collaterised debt obligation.

Government buys the economy's bad assests, giving it a chance to recover.

The economy subsequently recovers in the medium term, paying Government back slowly and periodically over the longer term.

Hence, the time-frame for economic recovery and the time-frame for Government to recoup it's investment are two different entities.

Now, as to the Keynesian elements of the stimulus package such as infrastructure spending and computerised healthcare, these are even longer term strategies design to re-orientate the economy AND provide jobs for those who have been displaced in the short-term.

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Creating jobs and recouping investment fully are two different things with two different timescales.

Again time-frame for the economic plans and time-frame for recouping investments are two different things. The Swedish economy has been going well for the last decade, but they only just recouped their investment.

It is already in effect. Without it, there would be a total systematic collapse by now. Simply, the Government will not 'recoup' their investment in the short term. I don't know why this hard to understand. We do not judge the economy by the budgetary deficit, we judge it by GDP.

The market will not move in a positive direction for a year at least, even by the most optimistic estimate. Some such as myself believe it will take upwards of 3 years.

He can either let the whole system collapse, with catastrophic short-term consequences which could lead to anarchy and even social unrest or he can limit the fallout by spending big in the short-term. Either way, his objective has always been to have strong fiscal governance and to produce budget-surpluses like we had in the Clinton years. Unfortunately, he is going to have to put that off until he takes care of this mess.

No, my point is exactly the same as theirs. The fiscal stimulus is intended to rejuvenate the economy in the medium term, and the Government will make back its investment in the long term. For example, you cannot hope to have quick returns on infrastructure projects, nor on the 'bad banks' which are created to take away toxic assets from the banks.

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Sorry, I missed this part. You cannot defend something you don't understand. Let me summarise it for you.

America is suffering a major contraction of its economy. Most economists' solution to this contraction is a major Keynesian spending package. The question this thread is trying to get to the root of is how such spending deals with the present problem.

The people who support it, you being the exception, defend it mainly on the basis of what it's going to do in the short term.

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What? He says he will create or save, 2.5 million to 3 million jobs over the next 2 years. That is putting a time period on when the stimulus will start having effect.

Besides, how can a defense of Obama be that he has no time frame for his economic plans? That is not a defence of Obama but a denigration.

If a major part of your recovery programme won't start coming into effect until a couple of years' time, what happens to the economy in the preceding time? The likely outcome will be that in 2 years' time, the economic outlook will be much worse.

Obama's plan has been sold by him, and the supporters of the plan, as the answer to today's problem. In a decade or two, the US's social security liabilities will be more acute so a borrowing and spending spree today is not going to solve the US's economic problems in the long term.

You are advancing a point that the stimulus advocates don't even share - that the fiscal stimulus is about the long term, not the short term. That is a bizarre argument.

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This is the most hastily thought-out post I have ever seen from Mr Lawyer.

Firstly, Obama never put a date on when he expects to recoup the cash.

Secondly, even if this recession lasts only a couple of years, you cannot expect to recoup investment as soon as the recession is over.

I do.

Again, an ill-posed question. Nobody is talking about months here, we are talking about years and maybe a decade or two.

Sweden just announced recently that they have made a profit from the "bad banks" they set up in 1992. So, any bailout or fiscal package will not see full returns for at least 10-15 years.

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