More economic hogwash

Featured in the Wall Street Journal was a daring editorial blurb written by Sir Harold Evans, in which he confidently states that the stimulus package and Tarp were not only beneficial to the economy, but have been demonstrated to be beneficial. And in doing so, Evans reveals a myopic and blind trust in the authorities that got us into the mess so that we needed Tarp and Stimulus in the first place:

The Congressional Budget Office report of November 2010 and careful econometric assessments by two independent economists, Pof. Alan Blinder and Mark Zander, chief economist at Moody's.

You trust Moody's? Are you F----- kidding? If Moody's rated what was obviously crappy triple B bonds into riskless triple A one's, what makes you think that they can reliably examine the effects of a policy on the economy, which is almost infinitely more complex that than a single bond. But of course, not only should one not place any credibility on what Moody's has to say, but should place an active bet against, every time. Just ask Steve Eisman.

Both nonpartisan reports identify the positive effects of the american Recovery Act and TARP: "Without the government response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8.5 million Jobs and we would now be experiencing deflation."

In here we find epistemological arrogance on a grand scale. GDP lower by 11.5%? Despite the elegant equations and appeal to numbers, much of economics does not, and intrinsically cannot, predict what would have happened, let alone the future, with any degree of accuracy.

Although I wouldn't necessarily disagree with the gist of the message. GDP probably would be down had not the government taken action. Considering that Government spending is added to the sum total of GDP, this is not surprising. If the Government borrowed a trillion dollars and wastefully spent it, that would add one trillion dollars to the GDP. The problem, however, is that spending is not inherently beneficial to the economy, and at times can be antithetical to it. As regular readers of this blog will surely point out, stimulus packages serve to redirect money into areas where they otherwise wouldn't be directed, mostly because nobody has need of it. So we overbuilt our real estate, do we need to hire more construction workers and build more houses? The American Recovery Act is both artificial and deceptive in its effects. It is this that makes the issue so convoluted.

Moreover, TARP and ARA-induced economic recovery is not necessarily indicative of long term growth; debts have to repaid, and people will eventually have to take their training wheels off, because they will fall once they break.

Sir Evans' diatribe on the matter is not evidence that the various government interventions were beneficial to the American economy, it merely serves to demonstrate that you should be very careful where you place your blind, unwitty trust.