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Stimulus Plan Explained

2009-02-16 · John · watch on YouTube · Economics · news analysis

John explains that a deep recession can become a self-reinforcing spiral and argues, following Keynes, that cutting taxes and raising government spending is the right response; he calls the $787 billion stimulus bill an honest attempt to restart the economy.

What is said

00:00:00 — Greeting; John wears his 1994 Alabama Academic Decathlon bronze medal as economic credentials

  • ★ John wears his bronze medal from the 1994 Alabama State Academic Decathlon, joking it shows he was once ranked a third-best high-school economist. (playful) — 00:00:00
  • ★★ The description says CEO compensation and corporate jets are not even slightly relevant to the health of the American economy. — 00:00:00

00:00:20 — How recessions work, when they become vicious cycles, and Keynesian economics as the response

  • ★★ John says that for decades the prevailing belief has been that financial markets left alone correct themselves: growth and recessions alternate, but the curve goes upward. — 00:00:20
  • ★★ John says recessions aren't inherently evil or fatal but natural corrections after periods of what Alan Greenspan called irrational exuberance. — 00:00:20
  • ★★★ John explains that sometimes a burst bubble is so big that the recession becomes a vicious cycle: fear cuts spending, which cuts production and jobs, which cuts spending further, up to a Great Depression. — 00:00:49
  • ★ John says the US is obviously not in a Great Depression, offering joking proofs: he doesn't walk uphill to school both ways or steal tomatoes to survive as the brothers' grandparent and Pawpaw did. (playful) — 00:01:19
  • ★★★ John says people who would let the unregulated free market reset itself in a recession that bad are, respectfully, crazy: there are things to do other than nothing. — 00:01:19
  • ★★ John calls Keynes probably the most important 20th-century economist, who explained that a massive stimulus, such as World War II, could have ended the Great Depression. (hedged) — 00:01:19
  • ★★ John says Keynes has been somewhat out of favour for the last 30 years, and points to where putting him out of favour got us. — 00:01:53
  • ★★★ John explains Keynes's prescription: in a spiral, government lowers taxes and raises spending to create activity the private sector can't; when things rebound, it raises taxes and cuts spending. — 00:01:53
  • ★★ John says a big problem with Keynesian economics is that few politicians favour raising taxes and cutting spending, so they use it as a blanket excuse to spend and cut taxes. — 00:02:22
  • ★★ John calls the gigantic US national debt extremely unfortunate, since the country kept spending more than it took in during 30 years of strong growth. — 00:02:22
  • ★★★ John argues that to avoid the spiral, now is the time to cut taxes and raise spending, which is exactly what the stimulus bill the president signs tomorrow is designed to do. — 00:02:22 · Barack Obama

00:02:52 — The $787 billion stimulus bill broken into three parts, and John's assessment

  • ★★★ John divides the $787 billion stimulus bill into three parts: $212 billion in tax breaks, $267 billion for social services such as food stamps and unemployment benefits, and $300 billion in new government spending. — 00:02:52
  • ★★ John says the tax breaks come as a little money each week rather than lump-sum checks, because people given lump sums don't spend them and consumer spending needs resetting. — 00:02:52
  • ★ John says the new spending covers everything from roads and bridges to making all US health records electronic. — 00:03:21
  • ★★ John reports that anti-Keynesian economists say no amount of spending will work, while Keynesian economists almost universally say this is not nearly enough spending. — 00:03:21
  • ★★ John says the stimulus may or may not work, and he thinks the US is in for a 'crap storm' no matter what. (hedged) — 00:03:21
  • ★★★ John judges the stimulus, in the 'professional opinion' of a former 11th-grade economist, neither stupid nor pork-barrel politics but an honest attempt to restart the economy. — 00:03:21

Humor (significant)

  • John's economic credential: a 1994 Academic Decathlon bronze, making him the third-best economist... — 00:00:20 > «among high school students with grade point averages of under 3.0 in the state of Alabama.»
  • John cites Greenspan's phrase 'irrational exuberance' for pre-recession booms. — 00:00:20 > «which is my favorite kind of exuberance.»
  • John anticipates commenters saying he doesn't know what he's talking about and holds up his medal. — 00:00:49 > «how do you explain this guy?»
  • John gives his verdict on the stimulus, recalling his Academic Decathlon medal. — 00:03:21 > «in the professional opinion of this former 11th grade economist»

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