Accelerators and Brakes

The idea is supposed to be to stimulate economic activity.  That is supposed to happen if a dollar of stimulus results in more than a dollar of increased economic activity.  The following graph from an article by economist James K. Galbraith indicates that some actions are stimulative and some are depressive:

The Big Picture has a post from Washington’s Blog that covers data from a number of other sources that gives similar results.

It turns out that some stimilus is actually stimulus anti-matter.  Some amounts to using an accelerator, some is close to coasting (no effect) and some is like stepping on a brake.

Do you think any of this information gets a lot of consideration in Congress?  Apparently not when many spend their time fighting over what income tax rates should be carried forward.  With so many feet flooring the brake, pressure on the accelerator is likely to be overcome.

10 replies on “Accelerators and Brakes”

  1. It’s not difficult to see which kinds of spending actually stimulate: money that is spent locally by poor people will be respent by the merchants who sell them stuff which will be respent by their suppliers, etc. This is ‘velocity’, where the same dollar being spent multiple times in rapid succession increases the Q in MV=PQ. It’s not as if all this is not well understood theoretically and borne out by experience. It’s that economic and fiscal policy has become dysfunctionally politicized as the various interests lobby for their causes without regard to that old hallmark of democracy nostalgically remembered as “the common good”.

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