So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That's the whole point. No, seriously. (Laughter.) That's the point.
So, President Obama believes that government spending is stimulus. If he really does believe this then we are all in trouble. Now, government spending could be stimulative however 1) it depends on where and when it is spent and 2)government spending is NOT the only way to be stimulative.
In fact, the federal government could do something right now that is far more stimulative and it will cost nothing. The federal government could repeal FASB rule of marked to market.
Mark-to-market is an accounting methodology of assigning a value to a position held
in a financial instrument based on the current market price for the instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would currently fetch in the open market.
This rule forces banks and other financial institutions to put a current market value on all assets including Mortgage Backed Securities. Because banks often use these MBO's as part of their capital requirement, banks are then forced to come up with other assets to meet their capital requirements because these MBO's are deteriorating. Because banks need to scramble just to meet their capital requirements, they don't lend. If marked to market were removed, banks would immediately have more capital to lend. That would be significantly more stimulative than spending $900 billion in money that is borrowed.
Now, government spending can be stimulating. After all, if money is spent to build a road, someone has to build it. Those persons need to be paid. Yet, while that may be stimulating, the government also needs to get that money somehow. Either they can 1) raise taxes, 2) print the money or 3) borrow the money. The first would in and of itself be contractionary. The second and third would be inflationary which would raise interest rates. That will make credit less affordable. That would be contractionary. As such, it is rather unclear if government spending is or is not stimulating.
Tax cuts is another way to stimulate the economy. Allowing the folks to keep more of their money allows them to spend, invest, and save more of their money. Despite what some claim, any of those is ultimately stimulating. Even savings is ultimately stimulating (unless it winds up in someone's mattress) because it winds up in some financial institution and thus greases the wheels of our financial system. The trick with tax cuts is that it needs to be combined with spending cuts. That's because the revenue lost must be accounted for. If not, it must be borrowed or printed. As such, we would have a repeat of raised interest rates of government borrowing.
Monetary policy can also be stimulating. Lowering rates for banks to borrow gives banks access to more capital. That can translate to more lending on the part of banks. While this can be effective, the Feds have cut rates as low as they will go.
So, what we have is several different options. Furthermore, there are plenty of options that can be just as effective and a lot less costly. As such, the President's assertion is nothing more than a trojan horse.