Saturday, February 26, 2011

A Few Words on the Stimulus

This is an excerpt of a paper I have been working on about the controversy of the stimulus package in 2009. Feel free to comment and share your own opinion on the ideas presented in the excerpt:

The very idea of a stimulus plan was destined for failure. The theory behind Keynesian economics has been losing credibility. Many economists concur that the theory of large governmental spending as a means of increasing aggregate demand to be a myth. Economists now believe that there is a certain amount of money in the American economy and in order to inject money into the economy via government spending, money has to be taken out of the economy. This can occur in various ways. In 2009, the majority of the funds for the stimulus package came from domestic investors buying treasury bonds, which served to increase government debt. There are two important issues with this action. First, even if the economy did grow in the short term, the large amount debt would then need to be paid off in the form of increased taxes or the printing of more money, which causes inflation. Secondly, absorbing private funds for governmental spending takes away money that is available for the private sector to invest in projects which are demanded by the free market. Examples of this include short-term businesses such as road construction and infrastructure renovation. Another significant shortfall of the 2009 stimulus package involved the tax cuts to individuals which were specifically designed to boost demand. In the midst of a bad economy, wary consumers are not going to spend the money they receive as a result of tax cuts, but are rather inclined to save the money in case their situation worsens. During this time, network news reporters and economists remarked that savings went up for the average American. This is in direct opposition of what the creators of the stimulus package intended.


  1. hey, this is interesting, the idea that the economy is essential a closed system unless there is an actual increase in efficiency (technology) or actual physical new resources has always appealed to me. I think we think about money the wrong way in our society. It has no inherent value. I was wondering if you had any ideas for what might actually help this economic situation? what would be a better alternative to the stimulus?

  2. I think that wealth is created by technology and increased production as well. Essentially the availability of additional goods and service. Well money itself does not have value. Money is simply an accepted physical means of exchange. Money is valued by how much people are willing to exchange for it to a large degree. As far as a remedy to economic crisis, perhaps a severe reduction in corporate taxes would help businesses get back on their feet and be able to balance their budgets. That in mind a decrease in taxes means a decrease in government revenue and a deficit if the government does not cut its own spending. Regardless, the free market must be able to adjust based on the demand of consumers. As some industries become outdated new ones spring up. This is what we have seen over the change of time from record production, to cd production etc.