A simple analysis of the proposed stimulus can reveal what its impact could be on the economy. We plot the percent change in GDP as a function of year for the three components. They are Discretionary, Direct and Revenue. This means new stuff, stuff there but more and tax relief. To do this correctly we must add two factors. First nothing happens instantly. Discretionary takes time to get out there, we assume three years with a burst, a peak and a drag. Then we use GDP multiplier of 1.1 to 1.3 for Discretionary and 1.2-1.4 for tax. This shows that the GDP from Q4 2008 may pop up 2% in 2009 and at best 4% in 2010 and then down to 2% and then flop. It is assumed that we have no more great endogenous drops in GDP, other than say 4% in 2009 so that the up 4% and down 4% means we stay even. However, if the money does not get out there and if the multiplier does not work, and if the economy keeps falling then this will make no difference other than getting further in debt.
We will continue watching this. I cannot see why others seem not to look at this impact. For us engineers this is a simple RC circuit follower by a gain adjusted amplifier. However there is some feedback in there which may go unstable yet!
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