Myth #2: Massive U.S. fiscal stimulus has not worked. Part of this statement actually is true; U.S. stimulus hasn’t really worked this cycle, partly because it hasn’t really been tried yet. Without fully going into the Paul Krugman end of the pool, there is a strong case to be made that the muchballyhooed $787 billion Obama stimulus package was far less than met the headlines. Measured on contribution to GDP, U.S. public sector spending and investment has barely added to growth in the past year, in stark contrast to Canada (Chart 2, more on Canada later) and even in contrast to past cycles (Chart 3). The so-called “massive” stimulus has actually added less directly to growth than during a typical year over the past three decades, and is a far cry from the true heavy-duty stimulus of the mid-1980s which backstopped that very strong recovery phase.I side with Paul Krugman: the US did not stimulate enough and needs to stimulate more. The US Federal Reserve has a dual mandate of inflation control and jobs. They have ignored their mandate to encourage full employment. Instead, they are a tool of the ultra-rich who are more concerned about clipping coupons on their bonds (i.e. keeping inflation low) than the condition of the working class in America.
Whatever stimulus Washington has been pumping into the economy has been almost entirely offset by deepening cutbacks at the state and local level. This has become particularly evident in the recent jobs data, where an accelerating decline in non-census public sector employment has been one of the major reasons the labour market has begun cooling again. Just as the private sector has finally stopped shedding jobs on a year-over-year basis, the public sector has slashed 243,000 jobs in the past year outside of census workers (Chart 4). The bulk of these cuts have been at the local level, with teachers and other government workers axed in particular. This is why the $26 billion aid package for cash-strapped states, signed this week by the President, is so important. The cutbacks at the local level are in stark contrast to the Canadian situation, where provincial stimulus has instead amplified Ottawa’s actions.
Saturday, August 14, 2010
Canadian Viewpoint: The Myth of a US Stimulus
The following is taken from a Bank of Montreal economic report. It exposes the lie that the US stimulus package was "massive" and threatens the economy with big deficits: