You may be referring to a comment by Demosthenes below which has a very different point:

“Repeat this after me: the federal government doesn’t create any capital, it only acquires such funds from private sources through various means (taxes, fees, tariffs, etc).”

His point is that government does not create capital. Private enterprise creates capital, some portion of which the government takes and spends. The government may spend this capital it has acquired well or it may spend it badly, but government certainly did not create it in the first place.

To your point mentioning Teflon, Velcro, railroads and other things, I don’t get it. As a byproduct of defense spending or space exploration, certain advances have happened. However, the government had little or nothing to do with the commercial success of those advances. The government did not build the railroads, private companies did. Ford made the assembly line work. Dow Chemical made Teflon a brand and so on.

Now, as for the comments regarding Government spending having never created wealth… Lets think of a few words: Teflon, Velcro, Ballistics, Assembly Line, Railroad, Automobile, Highway System, Internet, University System, LCD, LED, Cathode Ray Tube, Cathode, Diode, Transistor, Silicon Chip, Nanotechnology, RADAR, CAT Scan, PET Scan, MRI Scan, and countless other profitable technologies…..

Are you sure you want to stand by that comment that Government spending doesn’t create any wealth? I would argue that providing for mutual defense and infrastructure is one of the only ways wealth is created.

I agree with this and I wonder how much of an impact this has had on overall economic activity.

I’d rather leave it to Bernanke to stimulate the economy by keeping rates low and making money available. I want congress and Obama to balance the budget and deal with unfunded entitlements. This will be easier with lower interest rates. If they won’t control spending, Bernanke (and the lack of bond buyers) will eventually raise our rates, making the fiscal crisis even worse. Before Washington increases spending, it needs to prove that we can pay for the promises that have already been made.

Since Washington seems willing to bankrupt the country in the long term, I have become more conservative in my spending. The more they try to ‘fix’ or ’stimulate’ the economy, the more I worry. I’m concerned about the next bubble that will burst - the federal budget. That’s when I see more probability of a Depression. I would be more stimulated to spend if they would put us on a sustainable course.

Polls show that many others are concerned about these fiscal issues. This economic crisis has a large confidence component. Washington is damaging our confidence in our country’s future.

How quickly it has been forgotten (swept under the carpet?) that G. W. Bush and Congress also passed a stimulus in early 2008.

The federal government spending “stimulus money” is nothing more than diverting capital that was already available to the economy into something that the administration deems “stimulative”, such as road signs labeling a project as ’sponsored by the 2009 stimulus bill’ (to the tune of ~$6 million) and other such fruitless pursuits. \

With respect to unemployment being worse than expected, I (as a non-economist) can put the US at virtual full employment in a matter of weeks….it’s quite simple really (in a twisted Keynesian sort of way). I propose that the US government ban mechanized digging equipment such as bulldozers. backhoes, etc and require all holes to be dug by American citizens. Icing on the cake: the minimum wage for those hole digging jobs could be set at $75 per hour! We’d create a nation of middle class within 12 months…

With all the earth needing to be moved in order to implement the government’s vaunted infrastructure stimulus, we’d be at 0% unemployment in no time at all. Now, those companies who rely on manufacturing and/or selling mechanized digging equipment might go out of business as an unintended consequence of this economic policy to maximize employment, but then in the Keynesian world, those unemployed workers could just go to work digging/filling said holes and all is made whole, correct?

A far better stimulative course might be to have a federal tax holiday for a few months (you know, give the American people the full amount of money that they normally earn so they can spend or save as they wish). One of the major reasons American households aren’t spending is because they are still grossly indebted and have generally poor balance sheet health (too much debt, too little cash or equity). Giving individuals their full pre-tax paycheck over a period of time will have one of two outcomes: 1) households will save the excess salary and replenish cash balances/reduce debt [aka saving] of 2) allow households to have extra funds for various expenditures [aka spending]. Either way, it gives American the chance to crawl back from the abyss that we’re staring at right now.

Also, just for kicks, let’s do the same for businesses while we’re at it….imagine, corporations that didn’t have to pay taxes for 6-12 months might actually decide to not fire workers, or perhaps hire some back because they have the excess cash balance to invest in a growing product line.

Bottom line: forget government directed stimulus…give the American economic voters (aka consumers) their ballots (aka dollars) back and let the resiliency of the system (as well as the creative destruction) work its magic.

I do have a fundamental disagreement with the idea that an effective, timely and targeted stimulus program can or will be enacted. Congress has no clue as to what effective action would be and, unfortunately, President Obama is leaving the details of any stimulus up to Congress.

Further, the first stimulus had counterproductive elements, most notably the Buy American provisions.

In addition, the administration and Congress have made it very clear they plan to raise taxes and that is counterproductive during an economic downturn.

We’ll never know for sure what the unemployment rate would have been in the second quarter without the stimulus but it averaged 8.1% in the first quarter and 9.3% in the second (yes, the most recent unemployment report was for June and that is part of the second quarter). Thus unemployment was already rising 1.2% a quarter even before the stimulus was forecast to have any effect, not the 0.6% or 0.7% a quarter forecast by Romer and Bernstein. (And actually the baseline forecast really came from the CBO if you want to spread blame.) The only large forecasting body that forecasted the correct rate of first quarter unemployment was the OECD and their forecast of a 9.0% average rate of unemployment in the second quarter was to my knowledge more pessimistic than anyone’s and it still fell short.

The stimulus that passed was not the one that was initially proposed. It had substantial amounts of state transfers removed (that would have prevented some of this summer’s substantial and counterproductive state level budget cuts) in exchange for the AMT patch and other nonstimulative nonsense. It will likely have less of an impact than the the one that was analysed by Romer and Bernstein. However even if the existing stimulus functioned as Romer and Bernstein’s forecast of the proposed stimulus for all we know unemployment might have averaged 9.6% in the second quarter instead of the 9.3% that it did.

Krugman and Bartlett’s quibble over the effects of the stimulus is really a small one. Bartlett was in favor of the stimulus. But their quarrel over the need for a second stimulus is a large one. Bartlett is right that a fiscal stimulus will take time to have an effect. (Romer and Bernstein forecasted that the maximum effect of the proposed stimulus to be in late 2010 for example.) But I think he is wrong that this will at all matter.

Remember, I would not be in favor of a stimulus were it not for one singular fact: we are definitely in a Hicksian liquidity trap. This is the one occasion (with highly mobile capital and flexible exchange rates) that a fiscal stimulus is effective or necessary. And the fact that the employment situation has taken this truly alarming trajectory only implies it will get much much worse before it ever approaches full employment again. Thus, unfortunately, there is all the time in the world.

When I try to describe the effects of the stimulus to noneconomists I sometimes resort to a gardening metaphor. Imagine you have a hole in your backyard. A stimulus is akin to buying some soil and filling in the hole. The hole in our case has turned out to be much larger than anyone initially forecast. Instead of the ten pound bag we should have sprung for the 50 pound bag. But it’s not to late to out and get more soil. The hole will still be here when we get back from the hardware store.