Posts Tagged ‘Stimulus’

Why Stimulus Fails to Achieve What Its Proponents Promise, As Explained by Two Nobel Prize Winners’ Economic Theories

May 14, 15

Firstly, because not all people are stupid, short-sighted suckers.

Milton Friedman, winner of the 1976 Nobel Memorial Prize in Economic Sciences, proposed the Permanent Income Hypothesis that basically says: People won’t spend more just because they get a one-off, one-time boost (e.g. Stimulus), but only if they foresee a long-term increment (e.g. permanent tax cuts).

Secondly, because not all people are stupid, short-sighted suckers (wow, is that a trend or something?).

Thomas Sargent, one of the two winners of the 2011 Nobel Memorial Prize in Economic Sciences, proposed the Rational Expectations Theory that basically says: Don’t expect people to react to your attempted (economic) manipulation like robots with no free will or personalities. Especially if you are trying the same old tricks yet again! Fool me once…

Hence, when politicians and their pet economists (or is it the other way around?) assume they can just open the fiscal spigot and the teeming masses will fall in line with perfect obedience to their hubristic theories, it doesn’t turn out the way they expected. Stimulus does not automatically equate to an improved economy.

And reality bears the above out, to the massive detriment of Americans for 7 years running.


%d bloggers like this: