Deficit spending to hire government employees does nothing but take money from the most productive (future) employees to put in the pocket of the least productive employees. The demand multiplier is significantly < 1.0, meaning each dollar spent provides less than a dollar of stimulus.
There are a lot of studies that establish why even deficit spending to finance tax cuts is not going to work for the US anymore, because consumers are spending the money to grow the Chinese economy, not ours.
Estimates of aggregate demand multiplier for the current stimulus range from 0.30 to 0.60. That means we've borrowed a $1.00, which will be repaid as around $1.15 when all is said and done, and have received at most 1/2 of that back (and more likely even the low estimate is high.)
The only deficit spending that can actually yield aggregate demand over 1.0 appears to be spending on R&D. Unfortunately, the government has proved it can't figure out where to put that money (and never has been able to, except when it went to the Defense Dept, which isn't going to happen under Kenyan/Keynesian "economics.")
A very very good book to read is this one:
Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong.
0bama's "economic" advisers had been telling him he would get demand multipliers of 2.0 - 2.5, based on their "analysis" of past deficit spending. Of course that's a crock. If politicians could get economic improvement by spending money they didn't have, no politician would ever lose his job, and all of us would be speaking Russian.
Hell yeah. If we could spend our way into economic prosperity, we’d all be rich by now.
Excellent post. Especially these 2 points:
“Deficit spending to hire government employees does nothing but take money from the most productive (future) employees to put in the pocket of the least productive employees. The demand multiplier is significantly < 1.0, meaning each dollar spent provides less than a dollar of stimulus.
There are a lot of studies that establish why even deficit spending to finance tax cuts is not going to work for the US anymore, because consumers are spending the money to grow the Chinese economy, not ours.”
Cash for Asian clunkers.
Do you not see the fallacy in those two sentences? Here, let some simple past owner of 3 small companies explain it to you:
First point: Wrong, while spending "can" increase demand there is no guarantee, depending on your product/service/marketing and size/sector of the enterprise. So many small company owners would dispute your claim. So many fail almost every day. Why has not all the unemployment insurance recipients not made the economy better according to Nancy Pelosi? After all, it pumped billions into the unemployed and what did they do? Why is our economy not better?
Second point: "Where the money should be spent once you decide to borrow it". Small business owners (dry-cleaners, print shops, small restaurants et al at your local strip mall) rarely borrow money other than from their families and friends and mostly use their own capital for their start-ups.
Your premise is flawed and contradicting. Sorry, but once again, I've owned and operated a large film warehouse; a print shop; and a niteclub. None of those companies borrowed money from any institutional lender, and all were built on the capital from private and private investors for the niteclub.
In the case of the print shop, I helped build a divising wall between the customer service area and the productions area, painted the walls, attached the floorboards, bought and set up the printing equipment, bought and assembled the shelves for the paper, and much more. It was an empty space before I and my relatives made it a business. I won't bother with the warehouse or niteclub - too much to include.
Maybe I misunderstand your point, but my point is clear as day. Other than the warehouse that I took over and made profitable, I built my other companies from ground up! I retired at 47 due to 11 years hard work in Aviation Navy and hard work after I got out. Bambi can kiss my ever-loving ass when he says, "you didn't do it".