04-30-2008, 03:59 PM
It has been over 20 years since I took economics in college, so I will wing this from my distant memory. I think most people in this thread are confusing short term effects and long effects. Classical keynsian economic theory would say that to get out a recession the Gov has two options: increase spending or cut taxes. But that is specifically a short term effect. Calculating the impact of this short term stimulus on the long term is either impossible or exceedingly complex, and subject to dispute and controversy (in the long term "we are all dead" is the answer to the long term question).
How the spending on this stimulus affects the deficit or interest rates would also be considered to be a long term effect. In theory, the long term is not set, so stimulating the economy in the short term would change the long term positively, outweighing the tiny cost of any increase in the deficit.
I don't really understand how international currency rates impact all of this, but it is possible that a drop in the dollar or a shift in foreign investment out of the US could offset any short term or long term gain. This may be one of the "macro" effects that is making the US economy such a mess and is clearly driving up gas prices. Since currency is traded openly, and includes speculation about the future (the "long term"), it is possible that any gain from the stimulus has already been accounted for and taken back (instantly, so in the short term) by this market change.
How the spending on this stimulus affects the deficit or interest rates would also be considered to be a long term effect. In theory, the long term is not set, so stimulating the economy in the short term would change the long term positively, outweighing the tiny cost of any increase in the deficit.
I don't really understand how international currency rates impact all of this, but it is possible that a drop in the dollar or a shift in foreign investment out of the US could offset any short term or long term gain. This may be one of the "macro" effects that is making the US economy such a mess and is clearly driving up gas prices. Since currency is traded openly, and includes speculation about the future (the "long term"), it is possible that any gain from the stimulus has already been accounted for and taken back (instantly, so in the short term) by this market change.