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I was reading Can Anyone Really Create Jobs? from the New York Times. In the article, it is argued that, though more spending on the part of consumers is needed to improve the economy, a $400 billion jobs package may not be able to trigger spending patterns that existed before the economic crisis.

With no new theories, Democrats dusted off the big idea from the Great Depression, John Maynard Keynes’s view that government can create jobs by spending a lot of money. The stimulus, however, has to be borrowed, and it has to be really, truly huge — probably something like $1.5 or $2 trillion — to fill the gap between where the economy is and where it would be if everyone was spending at pre-recession levels. The goal is to goad consumers into spending again. And President Obama’s jettisoned $400 billion jobs package, hard-core Keynesians argue, is nowhere near what it would take to persuade them.

Can a government stimulus cause a sustained improvement in the economy when that stimulus money will have to be borrowed?

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    Theoretically paying off debt might make them spend more in the future. But if they don't spend NOW, the economy doesn't grow NOW. The theory says that if we can grow the economy NOW that in itself will cause more people to spend and the economy will continue to recover. – DJClayworth Nov 8 '11 at 16:31
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    @DJClayworth - Experience says most people in the US would either spend it practically before they got the check, or use it to pay off debt just to put it back on the credit card. But I still contend that if everyone saved it or paid off debt that it would actually help the economy... there is no way to prove this since it is virtually impossible to test though I would be surprised to see greater than 10% use the money for saving or paying off debt and have not spent it within 4 months. – Chad Nov 8 '11 at 18:35
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    Perhaps the question needs to be posed a little more carefully. The classic example of the government paying some people to dig holes and other people to fill them creates jobs, but not in a sense which generates more wealth--i.e the economy does not grow in a meaningful way and it won't help things to get better. – dmckee Nov 8 '11 at 19:01
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    I'm voting to close because the question is too vague - you can parse "create jobs" any way you want (e.g. @dmckee 's hole diggers fits the bill in some parsings, as does Solyndra), and without specifying desirable/acceptable long term effects you can't answer. – user5341 Nov 8 '11 at 22:07
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    @DJClayworth The Australian Government gave every taxpayer earning less than $80K a one-time $950 cash bonus in 2008-9 during the GFC. This move has been widely lauded by economists and is cited as one of the measures that helped Australia weather the GFC so successfully, because people spent their bonus. – jozzas Nov 9 '11 at 4:05
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The truth is that this is a complicated question, and one on which economists disagree. A Google search will find learned papers in support of both sides. No amount of debate by a few guys on a Q&A site is going to produce a definitive answer.

Sources saying Yes:

Sources saying No:

Sources saying Don't Know:

That last NY Times link is worth reading, as it goes some of the way towards explaining why this simplistic question is not helpful, and not even the one we should be asking.

There are also available many highly technical economics papers seeking to answer this very question, but I am not competent to recommend any.

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    It's the best answer you are going to get on this site. Serious, if we don't know what the answer is, the right answer is "we don't know". Of course someone will write "definitely yes" or "definitely no" and both of those answers will be wrong. – DJClayworth Nov 8 '11 at 16:39
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    +1 because I particularly like the part about "No amount of debate by a few guys on a Q&A site is going to produce a definitive answer." – Randolf Richardson Nov 8 '11 at 18:07
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    If there is no clear evidence going either way, then a good portrayal of the evidence for each side is the best answer possible. However, currently, all the information is on other sites. Please bring that information here, either by summarizing the facts or by quoting relevant passages. – Borror0 Nov 9 '11 at 3:57
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    +-0 I would be much happier if this was citing published papers or economists rather than journalists. – Kit Sunde Nov 9 '11 at 10:09
  • @KitSunde - I agree referencing multiple (unreferenced) original works of opinion to support a claim of truth seems like cheating. – Chad Nov 9 '11 at 20:53
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This question is known as the great debate in economics, and it started back in the early 20th century between two leading economists, John Maynard Keynes and Friedrich Hayek. The debate was over how best to spur a sluggish economy. Keynes proposed that the government could directly spur a stalled economy through direct investment and stimulus while Hayek countered that such moves might provide a temporary boost, but were not healthy, had unexpected consequences, and simply delayed the day of reckoning.

For more background on the Keynes-Hayek debate (albeit with a bit of bias toward Hayek), read Cochran and Glahe's, The Hayek-Keynes Debate – Lessons for Current Business Cycle Research. For a more human-interest look at the lives of these two men and how their theories shaped modern economics, see Wapshott's Keynes-Hayek: The Clash That Defined Modern Economics.

Unfortunately, when discussing world-wide macro-economics the system is so large, interconnected, and complex that it is impossible to come up with a definitive answer to these types of questions, which is why this Keynes-Hayek debate rages on. There's not a simple positive or negative test that can be applied. For insight on this complexity and the hopelessness of making conclusive statements from such uncertainty, refer to Nassim Taleb's book, The Black Swan.

So to answer your question, "Can a government end a recession through job creation?" the honest answer is, "It depends who you ask."

  • References please... – Sklivvz Nov 10 '11 at 13:15
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    I added some references, but honestly, this question is like asking, "Who would win in a race, Superman or The Flash?" – Scott Mitchell Nov 10 '11 at 17:43
  • Obviously Speedy Gonzolas would be the actual winner of such a race. Duh. – dmckee Nov 10 '11 at 20:05
  • @dmckee - Speedy Gonzolas isn't real, so he can't win the race. Excellent answer - +1. – user5341 Dec 25 '11 at 20:50
  • The Black Swan isn't peer-reviewed research. It is not even an attempt at empirical research and doesn't address the literature well. Not a very reliable source for determining the appropriate level of "hopelessness" that we should have at our ability to make conclusive statements. – Jase Dec 2 '12 at 14:27

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