Friday, June 9, 2017

Why Stimulus Didn't Work and Never Will Again

The theory behind Stimulus spending is simple: Dump money into the economy and we all get richer, spend more money, and the ball keeps rolling… hopefully. The people, who are the economy, feel better about their prospects and start spending more money which increases money velocity and promotes a healthy economy. Ta-da! Successful Stimulus spending achieved. 

That's the very basic theory, in theory. Money velocity is the speed at which money flows between people (the economy). If a dollar moves quickly, it can seem like to there is more money than there really is in the economy. Some economists say this is good, others call it illusory. I say if everyone is paying their bills on time and have enough left over to live rather than just survive, it doesn't matter how fast the money is ricocheting around the economy (from and to people).

Picture a pinball flying back and forth between two 100-point bumpers, that's like money velocity during stimulus spending season. We're all racking up points! Until the ball drops between the flippers. Zero points for that.

In modern America, our economy is like a pinball deck where there are fewer and fewer bumpers and a lot more flippers with spaces in between. When we fire off extra balls (Stimulus) they hit a few bumpers then roll between the flippers and off to China. Zero points for that and that is why Stimulus spending didn't work and will never work again.

Class dismissed. 

For the honors students...

So, why did both Republicans and Democrats push for stimulus packages?

It gave them a lot (over a trillion dollars) of your children's money to give to their backers. Quid pro quo!