Notes
--this supplements the existing stimulus bad work / privatization CP but does not
replace it. It includes a few cards from files previously turned out. The purpose of
the file was to turn the stimulus arguments into net benefits to these CPs and do
some supplemental work on the mechanisms.
--you will have to combine this file with the existing stimulus good/bad and
privatization CPs to use it effectively.
--the 1nc in this file for stimulus bad is (mostly) infrastructure spending-specific
cards. There are frequently better (generic) cards in Rishee’s file.
--inflation and the debt turn are very similar arguments (bond markets will stop
financing US debt in response to greater spending because of the expectation of
inflation). Most of the inflation work from Rishee’s earlier file is all extension work
for the debt turn.
--the congestion pricing and VMT CPs are probably not comprehensive enough to
read as stand alone strategies right now; but the evidence in these sections is
important because they refer to potential mechanisms that private entities could
turn to as financing mechanisms for infrastructure.
,Stimulus bad
,Infrastructure investment bad
, 1nc stimulus bad
1. Infrastructure spending multipliers will be negative – delay, lack of
targeting, and permanence of infrastructure spending
de Rugy and Mitchell, 11 – both are senior research fellows at the Mercatus
Center at George Mason University (Veronique and Matthew, “Would More
Infrastructure Spending Stimulate the Economy?” September,
http://mercatus.org/sites/default/files/publication/infrastructure_deRugy_WP_9-12-
11.pdf)//DH
Notwithstanding the confidence of stimulus advocates, there is no academic consensus regarding the size or even
the sign of the multiplier. As a recent International Monetary Fund (IMF) working paper puts it, “Economists have
offered an embarrassingly wide range of estimated multipliers.” 5 The largest recent estimate is by Northwestern
University economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo. They estimate that the
multiplier may be as large as 3.7, implying that $1.00 in government purchases stimulates another $2.7 in private
sector economic activity. 6 On the other end of the spectrum is an estimate by University of Chicago economists
Andrew Mountford and Harald Uhlig. They find that the multiplier may be as small as -2.88,
implying that $1.00 in government purchases displaces $3.88 in private sector
economic activity. 7
A wide range of estimates exists, in part, because there is a wide range of circumstances in which
stimulus might be applied. We now turn to the particular circumstances of the United States to see how
infrastructure stimulus might impact the current economic situation.
Stimulus with low interest rates and distortionary taxation: Some studies obtain larger multipliers than
others because they assume that stimulus will be applied when interest rates are at or near zero percent. 8
Theoretically, low interest rates make stimulus more potent because the government is able to employ idle
resources by borrowing funds at a low cost. At least for the time being, interest rates are indeed historically low,
so this may be a reasonable assumption. Unfortunately, if temporary stimulus spending turns into permanent
spending, then when interest rates eventually return to normal, the government will have to finance its spending
at a higher cost. This will make the actual multiplier significantly smaller than these studies suggest. What‘s more,
not all studies that incorporate this low interest-rate assumption obtain large estimated multipliers. For example,
studies that consider the tax that will need to be levied tomorrow to pay for today‘s spending, find much smaller
multipliers, even when interest rates are exceedingly low. 9
Stimulus in a highly indebted nation: An extensive study from the IMF shows that fiscal
multipliers in nations with debt levels in excess of 60 percent of GDP are zero or even
negative. 10 The current U.S. debt-to-GDP ratio is 70 percent and, according to the
Congressional Budget Office, it will be 90 percent within seven years and 100 percent within ten.
Stimulus under flexible exchange rates: The same IMF study also finds that a nation‘s exchange-rate regime
impacts the size of the multiplier. When a nation‘s exchange rate is fixed, the multiplier can be relatively large. 12
But when the country allows the market to dictate movements in the exchange rate—as the United States does—
the IMF economists found that the multiplier is much lower. This is because fiscal stimulus tends to cause
domestic interest rates to rise relative to foreign interest rates. And when this happens, foreigners increase their
demand for the domestic currency, causing it to appreciate. This, in turn, makes domestic goods more expensive
and foreign goods cheaper, decreasing net exports and lowering output.
Stimulus in a balance-sheet recession: The current recession has resulted in an unprecedented collapse in net
wealth. In other words, it is a deep ―balance sheet‖ recession. But with personal wealth diminished and private
credit impaired, some economists believe that stimulus is likely to be less effective than it would be in a different
type of recession. This is because consumers are likely to use their stimulus money to rebuild their nest eggs, i.e.,
to pay off debts and save, not to buy new products as Keynesian theoreticians want them to. 13 The same is likely
true for state and local governments who have used their ARRA dollars to reduce their budget gaps or reduce
their borrowing rather than to increase infrastructure spending or other government purchases.14
Diminishing marginal returns to stimulus: New research also suggests that there are diminishing marginal
returns to stimulus. 15 This makes new stimulus even less helpful than what has already been undertaken.
The Federal Government has already spent over $1 trillion in legislated stimulus. Beyond this,
unlegislated “automatic stabilizers” in the budget have helped to push the primary deficit well over $1 trillion. 16
The problems with infrastructure stimulus: There are unique problems with infrastructure stimulus that tend
to diminish its chances of success. Chief among these are long implementation delays. The Congressional Budget
Office reports that:
[F]or major infrastructure projects supported by the federal government, such as highway construction and
activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided
in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent. 17
--this supplements the existing stimulus bad work / privatization CP but does not
replace it. It includes a few cards from files previously turned out. The purpose of
the file was to turn the stimulus arguments into net benefits to these CPs and do
some supplemental work on the mechanisms.
--you will have to combine this file with the existing stimulus good/bad and
privatization CPs to use it effectively.
--the 1nc in this file for stimulus bad is (mostly) infrastructure spending-specific
cards. There are frequently better (generic) cards in Rishee’s file.
--inflation and the debt turn are very similar arguments (bond markets will stop
financing US debt in response to greater spending because of the expectation of
inflation). Most of the inflation work from Rishee’s earlier file is all extension work
for the debt turn.
--the congestion pricing and VMT CPs are probably not comprehensive enough to
read as stand alone strategies right now; but the evidence in these sections is
important because they refer to potential mechanisms that private entities could
turn to as financing mechanisms for infrastructure.
,Stimulus bad
,Infrastructure investment bad
, 1nc stimulus bad
1. Infrastructure spending multipliers will be negative – delay, lack of
targeting, and permanence of infrastructure spending
de Rugy and Mitchell, 11 – both are senior research fellows at the Mercatus
Center at George Mason University (Veronique and Matthew, “Would More
Infrastructure Spending Stimulate the Economy?” September,
http://mercatus.org/sites/default/files/publication/infrastructure_deRugy_WP_9-12-
11.pdf)//DH
Notwithstanding the confidence of stimulus advocates, there is no academic consensus regarding the size or even
the sign of the multiplier. As a recent International Monetary Fund (IMF) working paper puts it, “Economists have
offered an embarrassingly wide range of estimated multipliers.” 5 The largest recent estimate is by Northwestern
University economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo. They estimate that the
multiplier may be as large as 3.7, implying that $1.00 in government purchases stimulates another $2.7 in private
sector economic activity. 6 On the other end of the spectrum is an estimate by University of Chicago economists
Andrew Mountford and Harald Uhlig. They find that the multiplier may be as small as -2.88,
implying that $1.00 in government purchases displaces $3.88 in private sector
economic activity. 7
A wide range of estimates exists, in part, because there is a wide range of circumstances in which
stimulus might be applied. We now turn to the particular circumstances of the United States to see how
infrastructure stimulus might impact the current economic situation.
Stimulus with low interest rates and distortionary taxation: Some studies obtain larger multipliers than
others because they assume that stimulus will be applied when interest rates are at or near zero percent. 8
Theoretically, low interest rates make stimulus more potent because the government is able to employ idle
resources by borrowing funds at a low cost. At least for the time being, interest rates are indeed historically low,
so this may be a reasonable assumption. Unfortunately, if temporary stimulus spending turns into permanent
spending, then when interest rates eventually return to normal, the government will have to finance its spending
at a higher cost. This will make the actual multiplier significantly smaller than these studies suggest. What‘s more,
not all studies that incorporate this low interest-rate assumption obtain large estimated multipliers. For example,
studies that consider the tax that will need to be levied tomorrow to pay for today‘s spending, find much smaller
multipliers, even when interest rates are exceedingly low. 9
Stimulus in a highly indebted nation: An extensive study from the IMF shows that fiscal
multipliers in nations with debt levels in excess of 60 percent of GDP are zero or even
negative. 10 The current U.S. debt-to-GDP ratio is 70 percent and, according to the
Congressional Budget Office, it will be 90 percent within seven years and 100 percent within ten.
Stimulus under flexible exchange rates: The same IMF study also finds that a nation‘s exchange-rate regime
impacts the size of the multiplier. When a nation‘s exchange rate is fixed, the multiplier can be relatively large. 12
But when the country allows the market to dictate movements in the exchange rate—as the United States does—
the IMF economists found that the multiplier is much lower. This is because fiscal stimulus tends to cause
domestic interest rates to rise relative to foreign interest rates. And when this happens, foreigners increase their
demand for the domestic currency, causing it to appreciate. This, in turn, makes domestic goods more expensive
and foreign goods cheaper, decreasing net exports and lowering output.
Stimulus in a balance-sheet recession: The current recession has resulted in an unprecedented collapse in net
wealth. In other words, it is a deep ―balance sheet‖ recession. But with personal wealth diminished and private
credit impaired, some economists believe that stimulus is likely to be less effective than it would be in a different
type of recession. This is because consumers are likely to use their stimulus money to rebuild their nest eggs, i.e.,
to pay off debts and save, not to buy new products as Keynesian theoreticians want them to. 13 The same is likely
true for state and local governments who have used their ARRA dollars to reduce their budget gaps or reduce
their borrowing rather than to increase infrastructure spending or other government purchases.14
Diminishing marginal returns to stimulus: New research also suggests that there are diminishing marginal
returns to stimulus. 15 This makes new stimulus even less helpful than what has already been undertaken.
The Federal Government has already spent over $1 trillion in legislated stimulus. Beyond this,
unlegislated “automatic stabilizers” in the budget have helped to push the primary deficit well over $1 trillion. 16
The problems with infrastructure stimulus: There are unique problems with infrastructure stimulus that tend
to diminish its chances of success. Chief among these are long implementation delays. The Congressional Budget
Office reports that:
[F]or major infrastructure projects supported by the federal government, such as highway construction and
activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided
in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent. 17
