Why you have been wrong about fiscal and monetary stimulus your whole life

Topic: the difference between kick-starting an engine and pushing a vehicle by manpower


Do you know how an old lawn mower with a gas engine worked? Or a water scooter? Or a dirt bike with a kick start?

They all have to use some kind of external force, be it a hand crank, a pull on a string, or an electrical start engine, to get the actual gas engine from stand still to running at a certain threshold rpm (revolutions per minute).

Once the gas engine is turning at the right speed, the controlled and timed gas explosions can move pistons in just the right way to rotate a shaft round its axis, which makes whatever we want spinning spin, e.g., the driving wheels of a car. Talking of cars and threshold rpm; isn’t it weird that the number of people fitting in a car is just right for pushing a car with a dead battery in a speed that just about reaches that magical limit where the ICE engine can take over?

So, what do start engines and kick starts have to do with stimulus? It’s quite straightforward: if you have to keep kicking, or pushing then it’s not stimulus; then it’s just temporary life support. Maybe you’re out of gas, or the engine is broken. In any case, you won’t get the motor running, it’ll just be you working up a sweat spending more energy than you get out of the effort.

That’s exactly how it is with economies and economics. If you can’t remove the stimulus, such as ultra-low interest rates and fiscal deficits without getting a significant slowdown, then what you did was never stimulus — it was just the equivalent of pushing a dead car a few hundred meters extra.

A stimulus the way Keynes talked about it, was a temporary effort that removed whatever was artificially blocking the real economic potential. Printing a trillion dollars a year while running a trillion dollar budget deficit, accompanied by zero interest rates year after year after year… does not qualify as stimulus. That’s using the defribillator on a corpse, with high enough voltage to make the body jerk around like president Trump’s assessments of what constitutes respectively good and bad monetary and fiscal stimulus depending on who’s pulling the strings. Hint: anything the Donald does is good policy. Anybody else doing the same thing: stoopid.

OK, maybe you had this right all along. I think you did, I just about exclusively have thoughtful readers.

Unfortunately this will never be read by the ones who really need it — the slimy arms of the vampire squid: the Kurodas, Ingveses, Draghis, Bernankes, Yellens and Powells of the world. Well, we’ll see about Powell… Who knows, he could be a Volcker in disguise.


Summary

Words matter. Definitions matter. Be careful not to let others cloud your thoughts by using misleading vocabulary.

Economic stimulus was always supposed to just be a quick, helping hand for a healthy person that slipped on a banana peel; not permanent crutches for somebody run over by a truck. What’s going on in the economy now is not stimulus, it’s a shock doctrine text book power game.

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3 Comments

  1. If you are implying that the deficiency of aggregate demand is systemic rather than circumstantial, I agree. But this is nothing new; the US government has been pushing that car uphill since 1933.

    • Yes, more or less, unfortunately. But more and more so over time (which is part of the process of pushing rather than kick-starting).

      Then again, the Marshall plan, new deal vs 4T printing 4T deficit, hard to call a winner.

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