Stop Bashing the Obama Administration's Stimulus Spending Policies

I've done a bit of studies in Econ, and I need to discuss this with some people, because i am very confused that many people do not understand what the Obama Administration is trying to do, when it is clear to me from my textbook that they are doing what is technically right.

So where does the misunderstanding lie in?

Let me try to break down what I understand the Obama Administration is TRYING to do:

The Economic Problem

In a recession, AE, Aggregate Expenditure, or AD, Aggregate Demand, is low. People are not spending, so the economy is not growing, and the jobs are being reduced to lower costs of production to keep companies afloat and to maintain profits.

Obama's Administrations introduces spending stimulus, and immediately people leap to condemn it because it will sink the country further into debt.

This is true on some levels, but Obama's Admin IS doing the right thing.

Obama's Solution

Firstly, government spending DOES NOT equal consumer debt.

AD = C + I + G + (X-M)

If any one of the above: consumption, investment, government spending or net exports increase, overall AD will increase. And since employment is a derived demand, the increase in AD will lead to less unemployment since companies will want to hire more to match the increase in demand.

For example, the government can inject funds into public works - construction of roads for example. Or it can inject funds into research companies, or universities, or state departments such as police or fire departments. These research firms, universities and state departments/construction firms will hire more, to match the increase in government demand.

But because the economy is in A MAJOR recession due to large fall in Investments (because all the banks crashed, leading to a loss in loanable funds for firms), an IMMENSE increase in C, G and (X-M) is needed to offset this fall in investments.

Consumption (C):

Consumers are more likely to save than to spend: If the government lowered taxes, consumers would have been more likely to save the increase post-tax disposable income than to spend due to the current economic situation (they would want to save for a rainy day) - so AD would not have increased very much.

Hence, raising taxes was not too bad a way to go, and this is why...

Government (G):

Raising taxes was a fine idea because now the government has more revenue to use for the increase in G.

Since the economy is in such a poor state, an increase in G would create that increase in AD, which is needed.

The multiplier effect, stating that one man's spending is another man's income, because he would spend on goods and services, which would in turn lead to higher PRODUCTION (or Aggregate Supply) which would in turn lead to more demand for labor, would kick in in about 7 months' time and you'll see some major recovery happening, because USA's multiplier is VERY high.

USA's multiplier is high because there are no compulsory saving schemes unlike in Singapore, and because USA has a closed economy - we eat what we grow, and we make our own luxury goods, Ipods, etc - there is no need for us to import other countries' stuffs, we only need to export them for our own increase in AD.

Exports (X-M):

What increased spending does is also result in the printing of more money, which as you guys have been complaining about, lowers the value of US currency. However, in Economics, that is a good thing, as currency depreciation leads to increased export competitiveness - China can now afford more of OUR exports (Ipods, for e.g., again) because now our currency is not as high as previous years.

Net exports increase - since we already import less, and we now export MORE - our AD will rise EVEN higher. Due to the Marshall-Lerner condition, which states that all goods will have a price-elastic demand in the long-run, even luxury products like Ipods, Imacs and CDs/DVDs will see a more than proportionate rise in demand overseas - making our AD rise EVEN higher.

Things the Obama Admin needs to note:

Also don't forget that usually an increase in G complements a decrease in T, so I think the best measure for Obama after the spending starts to work is to LOWER taxes, so people will spend after they see good prospects for the future.

Also, I hope the administration does NOT turn to banks to finance their federal deficit - which would lead to the crowding-out effect, further lowering investments since less investors get access to loanable funds.

Things YOU need to note:

Thus increased spending DOES not equal consumer deficit - it equals federal deficit which implies that in the future, corporate taxes might rise to finance it back, or the US govt will need to turn to the International Monetary Fund (IMF) for loans in order to further finance any future public works.

Although the USA will be weaker in terms of assets because now intense depreciation of assets has occurred (since foreigners now own a lot more of US currency), we can be relieved that there is no demand-side inflation to make consumers like YOU and I worry about the prices of goods - they would stay relatively stable.

The Obama Administration is doing the RIGHT THING.

That's what I thought - but which I don't think many people here get... and if you don't agree, PLEASE TELL ME!

I'm not trying to elevate myself or whatever, though I get the feeling that's what this post might sound like, but all I'm trying to figure out is why everyone is bashing Obama for his spending policies when to me, it's clear that he's doing the right thing economically...

I'm confused, really. Was I taught the wrong thing?

It's not the wrong thing like so many of you mistakenly think.

Discussion please!


[edit on 7-7-2009 by KarlG]

Yes, but maybe you should note all the other bills and policies Obama is backing. Is it possible Obama is fueling both end at the same time? Oh no's!

Hm.. insecure borders, giving aliens jobs, taxes taxes taxes which leads to less consumer spending, potholed bailouts.

Oh I forgot though, to support your argument, Obama sure has invigorated the revenue of the sporting good stores! Oh wait, but hes trying to stop that too. Too bad :/

[edit on 7-7-2009 by Scarcer]

reply to post by KarlG


Sounds like you have more of a bearing on how the economy works than most of us around here, especially me. Let me ask you something, as it seems you know a thing or two about all this.

Government spending:

Government spending isn't necessarily spending it's wealth, or investing true capital into the markets. This is why the Federal Reserve Chairman Bernanke worked so close with President Bush and President Obama hand in hand. What the FED did was draw up a lending contract, of which through the past two bailouts that will total 4.2 trillion dollars when all is said and done.

That's 4.2 trillion dollars we do not have and that "we" borrowed at interest. Correct?

In my very basic understanding of things, this would mean with more physical dollars in the system and many digits added to all sorts of accounts electronically, this will eventually drive the buying power of the dollar down while simultaneously increasing inflation in all goods and services. Correct?

Bush/Obama also saved these banks that were lending at 37 times the amount of physical wealth they had present. By proxy rewarding them for their faulty, fraudulent, and predatory lending.

There's no way to truly spend/borrow your way out of a recession, but we must produce our way out of a recession. Correct?

Perhaps his stimulus packages should focus more on the bottom of the pyramid as opposed to the top.

For instance, and this is fairly simplistic for demonstrative purposes, he and his administration should have issued a fair and untaxed sum to each taxpaying citizen. Let's say $500k, with the following stipulations...
1. Mortgages must be paid off first.
2. Must purchase a US built vehicle within the next year.
3. Must make every effort to pay off credit card balances.
4. Etc., etc.

Would that have not kick started the economy much quicker and cheaper than the current process?

Just my thoughts...

You can't continue a spending spree and expect the situation to get better. What You fools seem to not understand is during the first great depression the country wasn't in as much debt as we are in today. You have no idea what the interest payments on todays debt really is. Let me ask You a question what happens when the interest payments equal the amount of tax revenue taken in. Well let me tell You since You seem to be of the liberal persuasion. All of the social programs that You so hold dear will quit and taxes will go through the roof. You also failed to mention that we have a debt based currency meaning no matter how much money He prints out it can't be injected into the economy unless someone takes on the debt to release the money into the economy. The real problem with the economy right now is the debt that We all hold. As long as happy consumers are willing to take out debt to fuel their consumption then everything works out fine. The minute the so called consumers have enough debt and they have to work just to service the debt then the money supply dries up because no one is taking out loans anymore. I mean seriously look around car sales are down and people are not taking on new debt what in the hell does that tell You? So unless the banks are willing to either create a new debt based currency or give us a commodity based currency nothing will work.

I will stop bashing when it starts to actually work. This will never happen of course because by definition, you cannot spend your way out of a recession.

Here is a great article to help you understand:
Why Isn't The Stimulus Stimulating?

Here are some highlights:

The national unemployment rate has risen to 9.4% from 7.2% in December and 5.5% in May 2008. The number of employed workers has fallen to 132 million from 135 million in December and 137.5 million in May 2008.

First of all, 60% of the stimulus package was never going to have much of a stimulative effect. These were programs like extending unemployment benefits and tax credits with no incentive effects that may have been justified on the merits, but don't really do anything to increase growth or reduce unemployment.

By the end of fiscal year 2011, more than a quarter of the stimulative spending will still remain unspent.

Now that last sentance says a lot. If the purpose of the Obama stimulus package was to stimulate the economy then why by the end of 2011 more than a quarter of it will remain unspent? Not very stimulating if you ask me. For the same reason as stated above, why would they even be considering another stimulus package when the current one will be mostly unspent by 2011?

Bottom line: Obama is a socialist/marxist and has no idea what he is doing. Perhpas he does know what he is doing if his intent is to destroy America.

reply to post by KarlG


Well Karl you jump right in the fooking deep end with this one my man
I appreciate the effort, but you will catch my drift once this thread is visited by "THEM" :lo:

Basically its all political leveraging here, formulas and logic take a back seat to wit and opportunistic pouncing.

Nice work on the OP work wise, you brave person you

reply to post by DeadFlagBlues


Answering in reverse order 'cos I roll that way:

1) Obama HAD to bail out the banks, because if they crashed, Investments would SINK. It would sink so low, and people would have all this saved money on hand that would depreciate with the economy, and the AD would crash as a combined result. I think the bailing out is necessary.

2) Correct - The buying power of the US dollar would depreciate. That means less goods and services can be purchased with one US dollar - resulting in two things.

2.1 Less imports - which is good, which means we don't lower our own AD by spending our currency on foreign products and helping foreign countries increase THEIR revenue.

2.2 Less domestic consumption - which means prices of domestic goods and services WILL increase, thus creating supply-side inflation, because AS will reduce in the next economic quarter.

So the government needs to COUNTER this fall in domestic consumption and AS, by MAKING UP for the fall in domestic consumption by increasing government spending - thus, hopefully, keeping AD constant, maybe even INCREASING it, and thus making sure the AS doesn't fall instead and cause prices to rise.

reply to post by jkm1864


You mention 'debt'.

With every situation of 'debt' there are two parties: The debtor and the creditor. The person who borrowed, and the person who lent.

The US government borrowed, but WHO lent?

If the govt borrowed virtually, i.e. They incurred a deficit which would need to be paid off LATER with increased taxes, technically the US govt would not have anyone to answer to but themselves.

Unless they borrowed from the IMF, to finance a sudden unplanned huge emergency spending for example (knock on wood) rescue efforts for Katrina Part 2, in which case taxes etc. would not give them ample revenue because taxes work in the Long Run only, the debt technically will NOT reduce the power of the US government because NO external monetary party is involved.

It will only reduce the power of US ASSETS, which is directly linked to the state of the US economy. Good economy - high asset value, and vice versa.

Sure, after the economy DOES recover, a certain point will arrive when the US government stops lowering taxes and gradually starts increasing them.

But if Obama keeps to his word, and as an optimist I HOPE he will, he will tax the rich MORE so than he will tax the poor.

A progressive tax structure that makes use of tax brackets, i.e. the rich gets a higher amt taxed through the use of a table showing different income ranges, will result in the proportion of disposable income to income given to the govt being more or less equal between the middle class, low class and the upper class.

Which is good for us middle-class people (more equality), but bad news for you rich punks. Unless you're a rich punk, in which case you have nothing to worry about in this recession.


[edit on 7-7-2009 by KarlG]

Originally posted by WhatTheory
I will stop bashing when it starts to actually work. This will never happen of course because by definition, you cannot spend your way out of a recession.

Here is a great article to help you understand:
Why Isn't The Stimulus Stimulating?

Here are some highlights:

The national unemployment rate has risen to 9.4% from 7.2% in December and 5.5% in May 2008. The number of employed workers has fallen to 132 million from 135 million in December and 137.5 million in May 2008.

First of all, 60% of the stimulus package was never going to have much of a stimulative effect. These were programs like extending unemployment benefits and tax credits with no incentive effects that may have been justified on the merits, but don't really do anything to increase growth or reduce unemployment.

By the end of fiscal year 2011, more than a quarter of the stimulative spending will still remain unspent.

Now that last sentance says a lot. If the purpose of the Obama stimulus package was to stimulate the economy then why by the end of 2011 more than a quarter of it will remain unspent? Not very stimulating if you ask me. For the same reason as stated above, why would they even be considering another stimulus package when the current one will be mostly unspent by 2011?

Bottom line: Obama is a socialist/marxist and has no idea what he is doing. Perhpas he does know what he is doing if his intent is to destroy America.

Interesting because my theory is that the NEOCONS purposely destroyed the Economy so that the government could be substantially weakened with private interests swooping to gain further control.

Originally posted by mental modulator
Interesting because my theory is that the NEOCONS purposely destroyed the Economy so that the government could be substantially weakened with private interests swooping to gain further control.

How is that possible exactly especially since the Democrats have held the purse strings since 2006?

I think you intentionally don't want to hear the truth because you will come one step closer to the conservative side.

At least read the damn article I listed in my previous post.

By the way op, I did skim through your post one last time.

In your equation I believe your forgetting about imports.

Isn't it true we import far more than we export?

Importing is when we purchase another countries labor. So if we are spending out money outside of our country, then there is less money circulating locally?

On a smaller scale, if a town (a) is self sufficient in materials and the stores are present to supply the goods, but the next town over (b) will sell the same goods for a lower price, thus causing the citizens from (a) to spend their money in (b), they are injecting their money into town (b), which leads town (a) to eventually become poor.

If you do not circulate the wealth locally, then you are draining your area of its wealth.

Sorry if my explainations are sloppy.

Originally posted by WhatTheory

Originally posted by mental modulator
Interesting because my theory is that the NEOCONS purposely destroyed the Economy so that the government could be substantially weakened with private interests swooping to gain further control.

How is that possible exactly especially since the Democrats have held the purse strings since 2006?

I think you intentionally don't want to hear the truth because you will come one step closer to the conservative side.

At least read the damn article I listed in my previous post.

It possible because the hyper inflation of the housing market began well before 2006,
I know because I worked it... I am a wiz at a very long revisiting of the GLB act of 1999
which has yet to be conquered here...

I will read the article latter provided it was not written by Ayn Rands or any incarnations of said ghost...

night all!

No, because irregardless of the OPs Textbook reason, I like to laugh at obama's futile attempt at fixing the economy.
Go neocons your right thinking ways, rule the world.
So just to re-iterate NO.

reply to post by KarlG


Haha, I'm with whatever way anybody figures they need to roll.

If these banks loaned out 37 times their actual worth, what exactly are we bailing out with real money that we will have to pay at interest, if not just the banks "ghost" money that never even materialized beyond a concept?

Originally posted by Scarcer
By the way op, I did skim through your post one last time.

In your equation I believe your forgetting about imports.

Isn't it true we import far more than we export?

Importing is when we purchase another countries labor. So if we are spending out money outside of our country, then there is less money circulating locally?

On a smaller scale, if a town (a) is self sufficient in materials and the stores are present to supply the goods, but the next town over (b) will sell the same goods for a lower price, thus causing the citizens from (a) to spend their money in (b), they are injecting their money into town (b), which leads town (a) to eventually become poor.

If you do not circulate the wealth locally, then you are draining your area of its wealth.

Sorry if my explainations are sloppy.

Very true.

1) I'm so sorry if my post is too long - I really wanted people to like, read it, and really know what they're saying... I'm sorry if its length made you skim.

2) I forgot about imports - that is VERY true. if we are using foreign labor, a lot of our money goes toward paying them which goes toward their bank accounts which aren't in our country.

Scarcer - you are absolutely right in saying Obama's made a mistake in paying ILLEGAL ALIENS, that's not only legally wrong, but it reduces AD.

But then, Obama shouldn't deny any LEGAL ALIENS pay, after all, we live in a global community and everyone's work in USA really contributes to USA's growth in the long run. Also, I believe foreign labor is not as proportionate as it is to citizen labor - it only constitutes a small percentage. As well, imports are usually spoken with regard to direct goods and services - we import very little of those. Most of our stuff is "Made in USA", not "Made in Taiwan" or "Made in China" (rarely, at least).

Exports still outweight imports on the overall, because of all the Apple and Windows and TIME magazine and books and entertainment that is going out on a daily basis. Amazon.com, Apple, Hollywood should ALL be thanked.

And then, i'm currently living in Singapore for the next few months, studying - I would like to think that the American govt would not ban foreigners from working there legally, just as the Singapore govt did not ban me. Singapore has a HUGE number of Americans working here: I'm being taught by three currently. We all count as exports, don't we?

P.S. I don't like to use the word "aliens", strangely - I feel as though I should be in a star system far away from here... I mean, we're all humans, right?

[edit on 7-7-2009 by KarlG]

reply to post by Badfuture


The OP is giving us the first indepth reasoning behind what we're seeing and hearing on the news. There's no disrespect here and I'm actually stoked to hear the logic behind what is happening right now, REGARDLESS if I agree with it or not.



Just seeing the word "irregardless" makes me want to cut myself.

Originally posted by billybobh3
Perhaps his stimulus packages should focus more on the bottom of the pyramid as opposed to the top.

For instance, and this is fairly simplistic for demonstrative purposes, he and his administration should have issued a fair and untaxed sum to each taxpaying citizen. Let's say $500k, with the following stipulations...
1. Mortgages must be paid off first.
2. Must purchase a US built vehicle within the next year.
3. Must make every effort to pay off credit card balances.
4. Etc., etc.

Would that have not kick started the economy much quicker and cheaper than the current process?

Just my thoughts...

All true. They ARE good starters, and they would have worked fine in kickstarting economic growth in USA.

But like all politicians, the Obama Administration jumped right past the "small-fish" and went straight for the shark. Instead of doing these small things which would have given the economy a small boost (but note: this $500k boost would have fizzled out soon because it's not big enough to have an impact in such a trillion-dollar-worth huge economy as ours) they tried to go straight for the major-league spending - resulting in misplaced funds and bailout money: More on that later.

Take note, I am not saying EVERYTHING Obama is doing is right - I'm just saying his spending stimulus needs more credit than it currently is getting.

See my response to Scarcer above if you think I'm an "Obamabot" (I was labelled that on another post when I tried to argue for his policies).

[edit on 7-7-2009 by KarlG]

reply to post by jkm1864

Originally posted by jkm1864
Well let me tell You since You seem to be of the liberal persuasion.

I totally agree with 90% of what you said, but let's not forget that Bush was looking deeply in the eyes of every American, with concern, intent, and told us that if we didn't pass Mr. Bernanke's comprehensive four page plan, that we were going to fold like a picnic table. I hate to consider the kind of balls out social policies we're abou to embark on with the media control and the left leaning congress at the helm, but it was "conservatives" and "liberals" who kicked this thing off hand in hand.

Yep. Obama is doing great things, just as Bush did last September.

What book on economics did the OP read? I know that there are different theories put out in economic books. It's not like the authors said, here is a theory and we must abide by it. They just put out theories from economists from the past. Sometimes they can't even back up these theories with results. It's a text book. It's an explanation of how other people thought of things. And it never works again and again. Too many variables, that these people can choose to ignore or include. What economy spent its way out of debt. And in doing so, spent way more than even the average citizen could count to? I think of FDR and the USA. But, it took a world war to get out of that hole FDR dug deeper. Tax and spend, while less people are earning money from which to draw taxes from, never works.It's common sense. And it is proven, time and time again. And when you get to the root of economics, it's all about common sense and human nature. Unbounded government spending, without accountability is always a disaster.

Look. Think of it as you are a family. You have a certain amount of money to spend. When you overspend, you incur interest rates, and these rates then destroy you opporunity to spend more on actual things. Your family suffers from less goods, you can no longer spend as much as you want and then others feel the pinch because you can no longer support them. Jesus. Why is this so hard to understand? A little debt can be good and sustained, and people prosper. But big debt? Oh, hell, no. Then the only people who prosper are the ones pushing the paper. You, your family and the people you used to pay money to for services and actions, lose.

I say, let some old grandma who lived through the Great Depression give a shot at the economy. Well, ,maybe not. The old grandmas who knew how to survive are long dead now. But their grandchildren are here and they can give some great advice that they learned from their old grannies.