Moody’s Investor Services, a non-partisan economic analysis and ratings firm, made a study of the various forms of financial stimulus being proposed for the nation’s failing economy. Here are some of their results:

  • Food Stamps: $1.00 in food stamps produces $1.73 of stimulative spending.
  • Infrastructure: $1.00 of infrastructure spending produces $1.59 of stimulative spending.
  • General Tax Cuts: $1.00 of general tax cuts produces $1.08 of stimulative spending.
  • Corporate Tax Cuts: $1.00 of corporate tax cuts produces $.30 of stimulative spending.

In case you were interested.

19 Responses to 421

  1. If food stamps give the biggest bang for the buck. I can’t help but think something is wrong with using stimulus spending as a measure. Though infrastructure is welcome if the money MUST be spent.

    Why do we want to spend more money anyway? Isn’t the problem too much spending and debt that piled up and, now that home prices have fallen, everyone is broke?

  2. @DaRogue: Back to math class with you!

    @tomaO2: Follows the logic that if you give a dollar to a man who needs food, he’ll spend it on food. But if you give a dollar to a man who needs nothing, he’ll keep it.

    The problem wasn’t really debt, it was BAD debt, that banks had used all kinds of gimmicks to hide, and therefore other banks stopped lending them money. Banking finance is like a juggling act, and the juggler got a case of nerves and froze up. Balls fell everywhere.

    This could have been stopped immediately if the governments of the world had forced the banks to continue lending to each other, and then established a separate institution to house the bad debt… along with enforced regulation about lending money to people who can’t pay it off. But of course we had a chimpanzee in the Whitehouse at the time who was still listening to the guys telling him that business would fix everything if we just GAVE them money. 60% of the first $350 billion is now sitting in bank reserves, doing nothing. Bank lending HAS increased slightly but obviously not enough to keep the rest of the economy from continuing to slide off of the table. All those balls are still on the floor, and the spending is designed to get them back into the juggler’s hands.

  3. Because there is not enough money in the economy to pay off our debt AND buy those pesky luxuries like food. Because of the cheap interest rates set by the Federal Reserve for the last decade or so the economy is like a heroin addict for cheap borrowing. What everyone is trying to do is make the recovery more like methadone treatment than going cold turkey. Both suck but you’re far less likely to die from the shock to your system with methadone.

  4. Hmm, interesting figures.

    Assuming that they are accurate, I would like to point out something. I don’t know about the US, but over here in the UK, the finance package for the banks was to stop them collapsing. The thing about them providing more credit was merely because the guvverment has to ask for something in return for the big wads of cash that they are giving out.

    If you look at it like that, if the cash is to stop a bank from collapsing, how much damage would a major bank going bankrupt cause?

    All those loans that they physically CAN’T give, all those companies whose acounts have gone frozen and cannot trade, all those people with personal accounts who cannot access the money. These are all linked to the existence of a bank.

    I don’t like the way that banks are run, and I don’t like the philosophy that they are run with, but until I rule the world, I know that the average bank does have advantages over stuffing it in a mattress, such as being able to issue cheques, debit or credit cards, and transfer money accross the globe.

    Will big wads of cash given to financial institutions stimulate the economy? Probably not.
    Will big wads of cash given to financial institutions stave off economic collapse? Hopefully.

  5. @Alan: And there is the crux of the problem, Alan. We are spending money to prop up a system most people would radically disapprove of if they really knew anything about it, simply because it’s the only system we have. It was created ad hoc and it runs that way.

    You also rightfully point out that the result of the major banks going down the tubes would be incredible hardship and privation worldwide. Everything else would go down with them.

    I am fairly sure that the credit extended across the industry was the POINT of the bank bailouts in the U.K., and not something the government asked for in order to give the appearance of having done something. The model for that is here. (Except they screwed up the looking good part too.)

  6. Something probably not included in those figures is program overhead. Food Stamp programs are expensive to run; targeted tax cuts are expensive to implement. The visible loss of government income from tax cuts (general or targeted) is not an operating expense, being the “for $1.00 spent” portion of those figures. This suggests combining an accelleration of infrastructure improments with general tax cuts would most effective.

    I thought (hoped ?) Da Rogue was being sarcastic.

  7. I couldn’t say for sure Gary, since I wasn’t given the opportunity to ask questions. However, Moody’s is a well respected organization, and releasing a cost vs. benefit report without considering the actual expenses would be… meaningless. I’m not defending the data exactly, I’m not really in a position to know for certain. But I can’t think of any reason not to include overhead costs in the costs, or even to assume that it wasn’t there.

    • Everyone knows all elves are Hermaphroditic, who only express male or female secondary traits externally.

  8. From my viewpoint, the crux of the problem is that for years people have been buying things they can’t afford. This is not only individual families buying a three bedroom, two car garage house on credit, but also banks buying up stock and assets hedged on next years profits. It was just a matter of time before somewhere along the line things broke down, and someone said “okay, enough credit, now pay up.”
    And once one part of the system broke down, the rest is falling like domonios.

    Persoanlly, I’m inclined to say let the big busniess fail. They screwed up, they can’t stay solvent, they go the way of the dodo. That’s how capitalism works. We’re supposed to be a capitalist society, so let’s act like it. Yes, many many companies will fail. Yes, thousands will be out of work. Yes, production of thousands of products will stop as their manufacturers halt. And you know what? That’s okay.

    Companies go out of busniess. Fine. We got along okay before they were here, we’ll survive after they’re gone. If whatever they were doing is truely vital, some other company will step in to fill the void. Part of the beauty of basic capitalism, if there’s a job to be done, someone will find a way to make it profitable. Trouble is when the company get too big, the heads focus on lineing their pockets rather then keeping the company actaully profitable.

    People will be out of a job. So be it. New jobs will come along. It may take time, but it’ll happen. Yes, being unemployeed sucks, more motovation to make those new jobs. It won’t be easy, but I bet a 800 billion addition to the food stamp program would make sure to keep anyone from starving; and then some. This is freaking America. If you’re jobless, homeless, on the street, with nothing to your name but the clothes on your back, you’re still a hundred times better off then most of the people in the world.

    Production of hundreds of products will grind to a halt. Good. 99% of those products aren’t something we need anyway. The big three car companies are going under? Look down. The vast majority of you have a set of perfectly working legs. Use them. Cars are a LUXURY. Time some people came to understand what that really means.

    • I agree with your sentiment, but people don’t want to live through another depression.

      The most civilized society is three square meals away from anarchy.

  9. @ecchikitty I think I agree with you.

    I am often amazed when I think about the malls. They are full of stores that are full of crap that no one needs. Sure, there are a few things one might need (underwear, lawnmower from Sears, or some tools). But, 99% of everything in a mall is set up so you can spend your extra money. We use countless resources to build buildings that are for nothing more than buying crap. It boggles my mind.

  10. @Paul: I always read Vaarsuvius as a guy, but I think it really doesn’t matter. I spat my beer when Rich showed us “Other Parent” though.

    @EcchiKitty: Unfortunately it won’t be “thousands” of folks unemployed and “hundreds” of products out of production if the banks are allowed to fail. It’ll be everything, and everyone. Bye bye paper money, hello bartering for chickens. The amount of human suffering and privation that could result from a total financial systems failure is nearly unimaginable, and I for one am not so attached to the principle of “capitalism” that I wouldn’t sell it down the river in a white hot second to keep all of that misery and pain from happening. Capitalism is just an idea, and if it isn’t working, we can use a different one for awhile. We can always come back to it when things settle down again.

  11. Actually the Great Depression started only a few months after Herbert Hoover (a Republican) took up the office of the Presidency. Joshua W. Alexander (a Democrat) was his predecessor, and Franklin D. Roosevelt (also a Democrat) succeeded Hoover. A few months isn’t enough time for a President’s policies to shape economic growth so technically Alexander’s policies had more of an impact in bringing about Black Tuesday than Hoover’s.
    Also, Rich don’t thrive in depression because the poor and middle-class tend to be unable to purchase their products, hence less money for them, hence more lay-offs to keep the company afloat, hence less poor and middle-class able to buy their products. It’s quite the vicious cycle.

  12. Plus, Da Rogue, the rich had to pay 90% in income taxes. Youch!

    Are you sure that if you give a man a dollar he’ll keep it?

    I thought that if you give a man a dollar, he’ll go down to the bank and open an account with it in order to qualify for a no-documentation loan where he will buy a house for no money down and then take take another loan to buy himself that fancy new hi definition TV he always wanted while the bank then packages the loan to someone else and calls it a sophisticated investment and that get’s passed around, growing ever larger in theoretical value until the man gets his first loan payment bill that he cannot pay for so he goes bankrupt, which causes a chain reaction and everyone loses everything if the government doesn’t bail them out.

    I think that’s how it REALLY works. 😛

    Kidding aside, I follow the logic and it tells me that we are talking about mass welfare. There is nothing productive with high unemployment rates. Although, at this point, I think it’s inevitable that we are going to hit really high levels of that anyway. Still, the idea of stimulus for people to eat fish is far worse then making sure they can catch them instead. Which, I’d assume, infrastructure would manage as well. I like option number 2 best. Besides we all need to fix up the sewers and whatnot. Tax breaks really don’t work anyway as long as the government keeps spending untold trillions of dollars bailing everyone, who is rich, out.

    Also, I’m inclined to think that letting banks fail is the only thing that will SAVE the dollar. Will ruin the economy of course but if they print the money to buy out an estimated one QUADRILLION dollars in over the counter derivatives that will lead us to hyperinflation of the Zimbabwe variety. Let the market price the value of all the bad loans (which is approximately zero) and when that is gone we can look through the pain and rebuild.

    The government screwed up. I think it’s best we all acknowledged that fact and realized there are NO good, painless answers anymore. Pain and suffering for all. Whee!

  13. Responding to Da Rogue February 11, 2009 at 11:21 pm
    “What do you mean back to math class? If government spending is lessened, then we are saving more. We don’t want to increase government spending, that will end up very badly. President Obama’s plan was tried once and it failed miserably.”

    The first amount listed is the one dollar spent by the government. The second amount is the money going into the economy by spending the dollar. The more money going into the economy and the less it costs the government the better. What he means by go back to math class is that by the government spending one dollar giving a corporate tax break only $.30 get put back into the economy. All the other things put more money back into the economy. In fact by the looks of things, all the others listed put more back than the government originally spent. Putting more money into the economy is better than less. Basic math shows that $1.08 is more than $1.30. Therefore Corporate Tax Breaks are the WORST thing the government could do.