Rational expectations are so damned......rational

As Kevin Williamson points out:  spending by government is a tax that must be paid by someone. Either taxpayers today, taxpayers tomorrow or bondholders tomorrow.  There are no free lunches.  Rational choice theory (pioneered by my U of C Prof and Nobel Laureate Gary Becker) says that markets collectively recognize this and modify their behavior to fit the new expected level of of future state takings.  Therefore, the notion that one can 'stimulate' (aka 'fool') markets into behaving like 'happy days are here again' by shifting money from wealth producing sectors in the future to wealth destroying ones today is clearly false.  Indeed, by reducing overall market expectations for wealth creation, you actually do the opposite which drives the GDP multiplier for stimulus spending below 1, making it net depressive.  Which of course is what has happened.  And of course something that pretty much any literate economist could have predicted.  After all the Germans knew it.  And of course so did pre-Obama Christine Romer - exploring the true macroeconomic effects of fiscal policy was how she built her reputation.  It's amazing how stupid joining a Presidential administration can make one.  As Sinclair Lewis said:   "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

Jennifer Rubin at Wapo:

German policymakers do think the United States is misguided as a matter of economic reasoning. "We think they're wrong," says one top official. "We think you don't get the multiplier they say." The multiplier is the measure of how much economic activity results from emergency government spending. Discussions of the multiplier were at the center of the debates over the Obama stimulus plan. Christina Romer and the president's other economic advisers argued that the multiplier would be around 1.6--the government would create $1.60 worth of economic activity for every dollar it spent. At those rates, who can afford not to stimulate? "Our research says the multiplier is more like .60," says the German official. If he is correct, then a stimulus plan can actually deaden an economy rather than stimulate it. If he is correct, you might have been as well off to have taken the stimulus money and thrown it away.