Good morning, Hank. it's Sunday February 15th. Today I'm going to talk about the economic stimulus package but before we get to that, you may be wondering, John, why are you wearing a gigantic bronze medal from the 1994 Alabama state academic decathlon tournament?

Well, I'll tell you, Hank, it is to remind you that while I am not technically an economist, in 1994 I was declared the third best economist among high school students with grade point averages of under 3.0 in the state of Alabama.

Ok so for the last several decades, the prevailing belief has been that financial markets, when left alone, can correct themselves. So you'll have some growth and then you'll have a little recession and then some growth and then some recession and then some growth, but on the whole, the curve will go upward. And it's important to say that recessions aren't inherently evil like recessions aren't fatal diseases, they're just natural corrections that follow periods of what Allan Greenspan once famously called irrational exuberance, which is my favorite kind of exuberance.

Hank I know that already, all of the flame-fingered commenters are preparing to write about how I'm either a communist or a tyrant and I don't know what I'm talking about, but if that's the case, how do you explain this guy? (points to medal)

The prevailing belief among economists has been to let the economy reset itself at a lower number and then begin to grow again. But then occasionally, the bubble that bursts is so big that the recession that follows becomes a vicious cycle. Basically people and institutions spend less because they're scared, which causes people and institutions to produce less which causes jobs to get cut which causes people and institutions to spend less because they're scared and have less money and so on and so forth until you have, the great depression.

Now Hank obviously we're not in a great depression, I know because I don't have to walk barefoot to school, uphill both ways 12 miles in the snow, and because I don't have to steal tomatoes to survive like nanny and papa did.

So when a recession is that bad, what do you do? do you let the unregulated free market reset itself to a lower number and then you rocket back to the top? some people say yes, but Hank, respectfully, those people are crazy. There are a bunch of things that you can do, other than nothing. The thing we're going to try is some Keynesian economics.

John Maynard Keynes was probably the most important economist of the 20th century and he explained, that if during the great depression, we had had a sort of massive stimulus bill, like say World War II, we could have come out of the great depression.Now, Keynes has been a little out of favor in the last 30 years, but, look where putting him out of favor got us! Now, Keynes believed that when you got into one of these spirals, the government needed to go in, lower taxes, and raise spending to create economic activity where the private sector couldn't. Then when things rebound, you raise taxes back up and cut government spending.

Now Hank, I don't know if you know a lot of politicians, but in my experience, very few of them are in favor of both raising taxes and cutting spending, which is one of the big problems in Keynesian economics. Politicians take it as a sort of blanket excuse to go and spend money and cut taxes and it is extremely unfortunate that we have this gigantic national debt because during all of the last 30 years when the economy was basically growing at a great clip, we were still somehow spending more than we got. But all of that aside, if we want to avoid that spiral of misery, now is the time when we have to cut taxes and raise spending, which is precisely what the economic stimulus bill the president will sign tomorrow, is designed to do.

Ok, so broadly speaking we can divide the $787 billion stimulus bill into three sections.

First, $212 billion in tax breaks. Now instead of giving out lump sum checks like we did in the past, the strategy here is to give people a little bit of money each week, because what we've learned is that when you give people a lump sum check, they don't spend it. and we need to reset consumer spending.

Secondly, $267 billion for social services like food stamps and unemployment benefits.

and lastly, $300 billion in new government spending. which includes everything from like, improving roads and bridges to making all health records in America electronic.
Now, anti-Keynesian economists are saying it doesn't matter what you do, no matter how much you spend it's not going to work.
And Keynesian economists almost universally agree that this is not nearly enough spending.

Now Hank, the stimulus may or may not work. I happen to think that we're in for a crap storm no matter what. But in the professional opinion of this former 11th grade economist, it's not stupid, and it's not pork barrel politics, it's an honest attempt to restart the economy.
Hank, thanks for being awesome. congratulations on having written the greatest song in the history of music about angler fish, and I'll see you on Tuesday.