More stimulus

Charting quarter to quarter changes in GDP vs Federal spending, and hand waving cause and effect.

The blue line is percent change in Congressional spending, the red line changes in GDP. Yes the two seem highly correlated, initially, with the rise in Congressional spending at the 40th quarter. Watch GDP in the next release as Congressional spending reasonably steady at the elevated rate. If GDP holds, Dean Baker doesn't cause more unemployment, if GDP starts to trend down a bit, then Dean Baker is causing unemployment. Note: There is a lag between Congressional spending and GDP.

Menzie reads 200 pages so we don't have to

Stimulus multipliers according to probability based equilibrium models and the like

Multipliers compare overall GDP increases and legislature spending increase, with varying amounts of low interest rates from the Central Banker. These stimulus multipliers look very similar to what I get using empirical results comparing stimulus to GDP via the Ceridian. Read Menzies take.

My take:

When legislatures suddenly spend large amounts at the bottom of a downturn they are likely to use up constrained resources, just as Keynes said.

Once the economy figures out the game, then it compensates and the multiplier drops from 1.0 down as agents manage to stop or modify the sudden spending splurge.

Why do legislatures do this in a downturn? Dunno, I would have preferred we use less of the constrained resources or else wait to see what government can do to remove constraints.

My updated stimulus calculation.

I now have 1.0! Good for the stimulates. I looked really close to the Ceredian and government spending, and I decided to go with 2009 Q1, the start, and count all of the surprising amount of government spending. Rate per rate change with the Ceridian, I get about 1.0.

Federal spending jumped by 5% in GDP, and the Ceridian just a little more. I am using the Ceredian list with the smaller window average, and probably have one more extra reading then the published chart. But I am figuring the federal spending splurge and the Ceridian jump have similar shapes they are related.

Why is state revenue continuing to decline?

Tax Foundation has the latest numbers on budget shortfalls in the Hoovers.

For one thing the stimulus multiplier is below one, closer to 1/2. Hence, the economy overall is about 2% below baseline as the stimulus passes through soaking up slack resources. The resulting slack in GDP subtracts from state revenue.

The problem is especially severe because local planning is especially effected by stimulus plans as states mistakenly assume that federal grants will lower their costs. Wrong, the stimulus is likely crowding out state and local spending, adding to the overall costs more than value of the stimulus grants.

The Stimulus and the Ceridian Index. Updated

Top chart, the Ceridian Index, bottom chart, government spending

I am following up on my recent post suggesting we look at the Ceridian index to monitor the Stimulus effect. I compare the chart of federal spending, borrowed from Scott Grannis and the Ceridian index is an economic indicator based on transportation activity, namely trucking.

Lets compare the movement in government spending, as a percent of the GDP assuming Congress spend 1/5 of the economy, with the movement in the Ceridian Index. The Ceridian chart will read off the index values as the cursor tracks the chart, but readers need to click through to use the index.

I have the Ceridian Index rising3% with the 6% (GDP) rise in government spending and dropping to flat after the 1.2% decline in government spending, with a two month lag. I compute the stimulus had an effect, each rise in federal spending (in units of GDP) yielded 1/2 the rise in total units of GDP. But these numbers are strongly changed by the choices of starting points. Depending on where I start and end, I can get multipliers from about .5 to .8, I still do not see anything greater than 1.0

What was the effect of the stimulus on the private sector? Less private sector activity; more trucks were used to haul government goods around and less trucks used to haul private goods around.

Can you see the stimulus in the Ceridian Index?

Take a peak. There should be some wiggle identifiable with the deployment of the stimulus.

Let us rephrase a question put forward by Zero Hedge

Tyler asks why this happens:
As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low
He goes into the monetization of debt by the Fed.

My question is: If government stimulative spending has a multiplier, then why are economic yields going down as we spend more?

I stole this chart from Carpe Diem for the answer.

This is not a stimulus multiplier

Says John Peterson:

The level of annual contributions from employees and employers is now around $110 billion; benefit payments to retirees is $175 billion. More than 19 million workers and 8 million retirees belong to the public systems. And the number of retirees is growing five times faster than the number of working members, according to the U.S. Census Bureau.

Somebody has t explain how a stimulus multiplier works when the main benefit is unsustainable government employment.

An old Stimulus gone wrong

Kansas City Wants to Close Half Its Public Schools

Kansas City was held up as a national example of bold thinking when it tried to integrate its schools by making them better than the suburban districts where many kids were moving. The result was one school with an Olympic-sized swimming pool and another with recording studios.

Now it's on the brink of bankruptcy and considering another bold move: closing nearly half its schools to stay afloat.

Governments predict the future badly.

Measuring GDP in a constrained environment

Comparing Real GDP to Oil Imports

Under the assumption that oil, or energy, is the dominant constraint in the economy, we would expect the oil yield curve to best represent the average yield curve of the economy. So, I am looking for correlations between oil imports and GDP. Note the Real GDP in the lower chart, from 1992 to today. Compare it with the oil import chart. They both have the inverted hockey stick. In typical asymmetry, oil declines faster than it rose.

What is causality here? Real GDP will be decomposed mostly by the top few constraints in the economy. that is there is only so much regression coefficient to be distributed. Most of that correlation coefficient is oil imports when oil is excessively constraining.

I think a look at the last portion of the oil import chart will show a small correlation between oil imports and the American Recovery Act. There was a typical, temporary excess of oil inventory after the crash. Congress managed to use it up.