The Stimulus Illusion: Why Decades of Spending Didn’t Spur Growth | Rob Arnott
Excess ReturnsMay 31, 202500:55:41

The Stimulus Illusion: Why Decades of Spending Didn’t Spur Growth | Rob Arnott

In this episode of Excess Returns, we welcome back Research Affiliates founder Rob Arnott to explore his provocative research challenging mainstream economic assumptions. Rob walks us through why government stimulus often fails to deliver real growth, how decades of rising spending have shaped today’s economic environment, and what the implications are for debt, deficits, and future returns. We also dive into trade policy, tariffs, and where Rob sees the best opportunities in today’s markets using Research Affiliates’ capital markets expectations.

Full Paper:
https://www.researchaffiliates.com/publications/articles/1080-stimulus-does-not-stimulate

🎯 Topics Covered:

Why stimulus doesn't always stimulate economic growth

The hidden cost of high government spending

Lessons from Japan, Ireland, and the EU on fiscal policy

Why Keynes wouldn’t recognize today’s “Keynesianism”

The role of stimulus during crises like COVID and 2008

Tariffs as strategy vs. economic drag

Rob’s take on Trump, trade wars, and negotiating tactics

Crowding out: What debt does to private investment

Research Affiliates’ expected returns across major asset classes

Why large-cap U.S. stocks may be the most overvalued

The opportunity in value, small-cap, and international markets

⏱️ Timestamps:
00:00 – Why stimulus doesn’t stimulate
07:00 – Long-term government spending vs. growth
14:00 – Finding the fiscal “sweet spot”
18:00 – Government inefficiency and innovation
24:00 – Stimulus during crises: nuance and unintended effects
28:00 – The debt problem: 700% of tax revenues
32:00 – Ireland vs. UK: a fiscal transformation
35:00 – Why we need a richer dialogue on spending
37:00 – Are trade deficits bad?
40:00 – Trump's tariff tactics and Art of War
45:00 – The true cost of tariffs and the Laffer Curve
47:00 – Research Affiliates’ asset class return expectations
52:00 – Why value and small-cap are positioned to outperform
55:00 – Rob’s final thoughts and closing
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