If you pray hard enough, water will run uphill. How hard? Hard enough to make water run uphill. ~ Robert Heinlein
There are a lot of people in my comments saying, apparently in all earnesty, "I really think the burden of proof is on the wackos who don't want the stimulus."
I am frankly flabbergasted. The proponents of the stimulus are proposing to spend nearly a trillion dollars. That's about $3,000 for every man, woman, and child in the United States. Do you have $3,000 lying around that could just be spent on any old thing without you really caring? You may call me crazy, but in the McArdle household, we view $3,000 as quite a tidy sum, the kind of money we want to make sure is wisely spent.
At least with the tax cuts, there's little risk that the money will, from the taxpayer's standpoint, be wasted. It may not create much in the way of stimulus, but it's essentially a neutral act--give them money now, take it later. Cash transfers, too, offer relatively few of those frictions; there's some deadweight loss, but whatever those on unemployment or welfare buy, they presumably valued more highly than alternative uses for the money. Government spending, on the other hand, comes with no guarantee that whatever it buys will be worth as much to the polity as the alternative uses for the money. Hell, badly done government projects can actively destroy value--go up to Buffalo and look at the empty, useless subway that killed Main Street, for example.
Given that, it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren't tax cuts or transfer payments. Let's recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)--the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.
Proponents say that that's because there wasn't enough stimulus, which is possibly true, but not really satisfying, because first, how do we know this package is enough, and second, that leaves us with a belief in the virtues of stimulus that is essentially non-falsifiable. We might as well move macroeconomic policy to the Office of Faith-Based Initiatives.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Oh boy, this is going to be fun. Megan, I agree with everything you say -- and you said it so well -- but logic and reasoning carry very little weight with those you're disagreeing with at the moment.
Again, this brings us back to the notion, taken seriously by the Obama admin, that there is a 1.5 positive multiplier for government spending.
Now, the idea such a multiplier can be extended ad inifinitum is obviously silly, so it must only be true for some range of spending. It's also true one could find a very large multiplier at low levels of government spending (going from, say, no federal government to a small one) because of the benefit of externals like national defense, regulation of interstate commerce, and a coherent foreign policy. So one could presumably draw a curve where the multiplier starts out large at low levels of gov't spending and progressively shrinks as government gets larger.
As hard as it is to believe, the stimulus argument is apparently that the spendthrift Bush years did not expand government quickly enough, so we are still on a portion of the curve where the multiplier is still greater than 1.
One could argue that unemployed people sitting idly on their hands represents a far greater loss to the economy than an inefficient allocation of government funds.
You are trying to draw the distinction between good, useful economic activity versus bad, not-as-useful economic activity, when the problem right now is that we are faced with economic activity vs. no economic activity. If there's a way to boost "useful" economic activity, then sure, I'm all for that. But if there isn't (and the indications seem to suggest that this is the case), then I'd happily settle for inefficient economic activity over no economic activity because building a useless bridge is still more useful to the economy than standing idly in a job fair line doing nothing.
Of course, I should add, if we were on the >1 portion of the curve, we probably wouldn't have seen attempts to fund the Bridge to Nowhere, something Krugman appears not have considered yesterday.
But that's not the way either employment numbers or GDP are calculated: bridge construction is part of GDP.
And there's the problem with using seized money to build things instead of a consensual transaction. The utility of a given bridge may or may not justify its expense, so you may actually be destroying wealth by building it. And gov't is much better at rewarding campaign contributors than evaluating cost/benefit.
Japan built several Bridges to Nowhere in the 1990s under the theory that building anything adds to GDP so it must be good.
There's a very, very weak point in this posting:
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At least with the tax cuts, there's little risk that the money will, from the taxpayer's standpoint, be wasted. It may not create much in the way of stimulus, but it's essentially a neutral act--give them money now, take it later.
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What's the basis for claiming that the government would get the money back?
What good are tax cuts when people are getting laid off left and right? When there's less income to be taxed, the actual marginal rates don't seem to be very important. Likewise taxes on businesses -- if they're in the red, I reckon their taxable income is pitiful. And the people that have jobs will just save their extra cash, which might recapitalize the banks somewhat, but won't stimulate anything.
Creating jobs, even ones that aren't particularly efficient, as least gets money circulating again.
I don't really have a dog in this fight. I come to this with a conventional education, that Hoover was the ditherer and that Roosevelt (even with flawed policies) proved that government sometimes has to be X of last resort.
Sometimes X is lender, sometimes X is employer.
I'd love to accept that these are not times of last resort. I'm always one to save money.
Just the same I think your article feels wrong, partly because it paints a false history. You act as if you've got conventional wisdom on your side.
Speaking as a centrist, it doesn't feel that way to me. It feels more like desperate pulling at the brakes.
What's the basis for claiming that the government would get the money back?
Taxes. The taxpayer's not going to burn it, right.
unemployed people sitting idly on their hands
Anyone sitting idly on their hands doesn't deserve anything, much less the seized money that someone else earned.
building a useless bridge is still more useful to the economy than standing idly in a job fair line doing nothing.
This is very cavalier of you. Why don't you send me $3000.00 and I'll do something useless with it. I promise not to attend any job fairs or sit around idly on my hands.
The "leadership" in Washington wants to spend a trillion dollars of taxpayers' money because they don't know what else to do and "doing something" seems like a better chance to stay in power. It has the added benefit of raising the budget baseline to insure future overspending. Better to suck-it-up and have it all out as quickly as possible. If you doubt this for a second, listen to any of the idiots we've elected try to explain this "economic stimulus" plan, they can't.
Economists can't coherently explain what has happened or what needs to happen to recover; those that claim that they can are deluded. There is no consensus. This argues against a large centralized plan, against large public works projects. What will work is to push enough money out there—through tax cuts and cash transfers—that another round of darwinian capitalism rewards the little plans that work and kills the little plans that suck.
odograph - the difference between "lender of last resort" and "employer of last resort" is the difference between capital markets and markets for good and services, and it's a huge one: the latter can be expected to find their own equilibrium without any outside involvement, and I don't think FDR did anything to disprove that.
What's the basis for claiming that the government would get the money back?
In 200+ years of existence, the federal government of the U.S. has yet to default on any of its debts. Thus, it is a reasonable assumption that whatever it borrows now, it will pay back later, which means that it will have to get the money somehow. That doesn't mean that it will get the money from the same people or by an explicit policy of raising taxes, but it will get the money somehow.
FWIW Floyd, my (California) high school textbooks told it the other way.
I kind of feel that if skeptics want to argue from position of authority they need a time machine. They let this rest as conventional wisdom for too long.
Anonymous Coward: "I'd happily settle for inefficient economic activity over no economic activity because building a useless bridge is still more useful to the economy than standing idly in a job fair line doing nothing."
This is not true. It maybe better from a workers point of view to build something useless, but that is a net loss to the over all economy. The workers will have a claim on the goods and services produced by the economy by virtue of being paid to produce something of no value to the economy. That is a net loss.
Creating jobs, even ones that aren't particularly efficient, as least gets money circulating again.
What money are you talking about? Every dime that goes into constructing classrooms in a deserted school district (Milwaukee) is money that's been taken from you, me, and the guy that would hire you to paint his house—if our nine grand hadn't gone through the washingtonian sewage system and turned into stale pork.
There's no way that 535 preening politicians know better than three-hundred million how to spend a trillion dollars of "stimulus". The power to "create" jobs is in everyone's hands, why delegate it to the people least familiar with the basics of getting through tough times.
Hoover was the ditherer
That's conventional fifth-grade U.S. history. But Hoover was a technocratic meddler who just lacked the megalomania to go as far as Roosevelt. Roosevelt got his ego into it and dragged the country into the quicksand.
Regarding the size of a fiscal stimulus, why not start with an estimate of how much the economy would contract without one and then aim for a stimulus of about that amount? E.g., a 5% contraction would call for a ~$700 billion stimulus. Next question would seem to be how to stimulate the economy quickly. Other than any shovel-ready infrastructure projects, the fastest-acting measures would be transfer payments (e.g., unemployment insurance) or tax cuts/credits (e.g., a payroll tax holiday).
Tax credits to offset closing costs on new home purchases or refinancings -- with some common sense conditions (e.g., maximum LTV ratios below, say, 90%; fixed rate mortgages only) -- could help stabilize the housing market, if the tax credits were credibly set to expire by the end of this year. I know the arguments about letting the market work, but markets tend to overshoot, on both the downside and the upside, and given how many securities are levered to home values, maybe it's better if we slow the descent a little on home prices.
Some other intangibles would help the economy as well. For one thing, the Obama administration could stop talking it down. It's bad, we shouldn't expect miracles from you; you've lowered the bar enough, we get it.
odograph - it's true that there's a lot of misinformation about the New Deal, and I got it in high school too (starting with the strange claim that Hoover was a laissez-faire president), though fortunately there's no statute of limitations on the truth.
"There's no way that 535 preening politicians know better than three-hundred million how to spend a trillion dollars of "stimulus". The power to "create" jobs is in everyone's hands, why delegate it to the people least familiar with the basics of getting through tough times."
This may be true, but the recent track record of tax cuts and consumer spending hasn't borne this out. These tax cuts and spendign binges did little to create jobs or raise GDP.
"There's no statute of limitation on truth"
Sure Floyd. That's why I consider myself a centrist on this, more leaning one way than holding some hard and fast position.
The real exception I took with the original piece is not that stimulus is known to be good or bad, but rather the position that stimulus folks are the "new kids" needing proof.
I think Megan is speaking from within a somewhat insular community, and that shows.
"What money are you talking about? Every dime that goes into constructing classrooms in a deserted school district (Milwaukee) is money that's been taken from you, me, and the guy that would hire you to paint his house..."
This argument is made frequently -- Art Laffer used a version of it recently -- but I don't get it. Yes, the additional government spending creates a liability that will have to eventually be paid via more taxes (or more borrowing), but in the present the government is not taking extra money from you, me, etc., to spend it on building classrooms: it's borrowing the extra money (at historically low rates). So the idea that additional government spending isn't stimulative because it's taking from you to give to another guy doesn't seem accurate: the government isn't tanking any more from you now to spend more now. It may take more from you later, and that may be a drag on the economy in the future, but not now.
Put another way, it's long been observed that people come to this stimulus discussion not with newly formed opinions and their own "math."
Instead people on the right and left arrive with idea-bundles. People who opposed government 3 years ago are against stimulus now. Surprise, surprise.
It is certainly no less worrying that spenders show up with their opposite bundle.
This bundling does not give authentic centrists much confidence in either side.
At least with the tax cuts, there's little risk that the money will, from the taxpayer's standpoint, be wasted.
After decades of high-bracket tax cuts, the bridges over the East River were falling to pieces, and wealthy people were buying organ transplants for their pets. But surely, from the taxpayer's point of view, that money had not been "wasted", because if there had really been a demand for well-repaired bridges, the taxpayers would have used their tax rebates to buy them.
The Curse of Thrift is a collective action problem. I'm not worried that I will waste my tax rebate. I'm worried that you will waste yours, or that we will both save ours, and that as a result we will all end up vastly poorer. If you want to be convincing here, you have to avoid saying these things that seem like ideologically motivated attempts to evade the nature of a problem which you certainly do understand, because you refer to it all the time.
Also, you have to take a look at the political speech-act nature of the argument you're engaging in. We have already spent the $700 billion we set aside to rescue the banking system. The evidence is in: it failed. (Ah, but it just wasn't engouh!...) Now we come to the roughly equivalent part of the government spending plan of which a part -- just a part -- flows to workers and consumers. And...wait! We can't do that! We need evidence that it's going to work before we try something so wild and crazy as that!
Finally, you are engaging in sleight of hand. You say you are not worried about the tax cut portion being "wasted". Okay, fine -- then you are not worried about $300 billion worth of the stimulus. You are only worried about the other $525 billion, which is not "nearly a trillion". Of that, much is for things like extended unemployment benefits. If you are worried about this, what alternative do you propose once people's checks start running out? When it comes right down to it, what you are really worried about is that a fairly small amount of spending -- "bridges" is your most frequent example -- will be wasted. Infrastructure now comprises about $12 billion of the bill, if I'm not mistaken. This is hardly a wild or radical sum; it's not much larger than what Pentagon contracting agencies in Iraq literally "wasted" in the first 2 years of the occupation there, in the sense of "have no idea where it went". You would do better to go through these projects on a case by case basis and argue that they are poor projects.
I think it is crystal clear that most of those arguing for massive government spending for "stimulus" would like the permanant transfer of a large percent of the nations wealth to the pubic sector as a matter of political philosophy. Stimulus is just an excuse.
Matt Steinglass,
Don't New York City and New York State bear some responsibility for the upkeep of bridges across the East River? It's not as if the city or state have had low tax burdens. Why didn't they spend more of their tax revenue during the fat years on infrastructure?
odograph - if your goal is to get more confidence in one side or the other, try reading a book on economics.
And Matt,
Some of us would argue not that the original bailout plan "just wasn't enough," but rather that it wasn't used for its intended purpose, which was to form a RTC-type entity to get the bad debt off the banks' balance sheets.
One of my colleagues, an Obama supporter, said the stimulus plan should be simple: set tax rates to punish savings. The logic: Americans are now saving too much. Those getting the cash influx from savings - banks, money market funds, etc. - are adverse to lending and, besides, few businesses are borrowing right now. No one is going to start a new housing development or expand her factory when consumer demand is slumping. So let's have a big surtax on savings and use government policy to make people spend.
Colleague did allow, however, that government would not dictate how you spend - if you wanted something frivolous like another tennis bracelet, that would be fine because it would keep some clerk on the job.
"I think it is crystal clear that most of those arguing for massive government spending for "stimulus" would like the permanant transfer of a large percent of the nations wealth to the pubic sector as a matter of political philosophy. Stimulus is just an excuse."
That may well be true. And I think it is crystal clear that most of those arguing against any "stimulus" that doesn't consist only of tax cuts would like the permanent lowering of high-bracket, corporate, and capital gains taxes as a matter of political philosophy. Stimulus is just an excuse.
It's not like the positions of fiscal liberals and fiscal conservatives aren't well-known. Of course both sides are applying their positions to this argument.
Come of Floyd, you know you are going to have to tell me which textbook to read, form which school, with which bundle of political-economic conceptions.
That, sadly, is where we are.
Megan's hatred of government direction of resources compels her to falsify the results of fiscal stimulus in the 1930s. As Krugman and others have pointed out, FDR's public spending resulted in a significant reduction in unemployment until he was persauded to raise taxes in the late 30s, which promptly resulted in another downturn.
Megan equates government spending with waste and private expenditure with efficiency, yet there are numerous examples of effective government programs and swinishly wasteful private expenditures. The public Internet, which transmits McArdle's asymmetrical information, is an example of spending she would consider wasteful, since the research and early development that enabled it were government-funded.
In almost every post, McArdle reinforces her position as a relentless enemy of public expenditure and a steadfast advocate of concentrated private wealth. This is the real asymmetry on display here: that of a plutocratic ideologue. She is Karl Rove with an MBA, yearning for a return to the glory years of the McKinley administration.
What Matt Steinglass said.
The level of intellectual dishonesty on display here is staggering.
Would that any who are now concerned that we will "waste" a few billion on infrastructure to be used by the masses had applied the same burden of proof to the "trickle-down" policies they have been advocating for 30 years and which, yes, brought us to where we are now.
For the sake of argument, let's suppose that all the infrastructure spending goes to useless bridges to nowhere - complete "waste" of money, right? Well, yes...but only if you discount the multiplier effect on the larger economy of the wages to persons who would otherwise remain unemployed, and only if you ignore other effects of a continuing high rate of unemployment (people losing life savings, retirement accounts, homes). Let's say that your neighbor Joe, instead of going to work on a "useless" infrastructure project, remains unemployed and loses his home in foreclosure. If you have other neighbors trying to sell homes, Joe's misfortune makes it less likely that they will succeed, because his house will probably sell for less if it sells; if it doesn't, it becomes a deterioriating eyesore that brings down the value of all properties on the block/street/neighborhood. So Joe's loss is yours, as well. Meanwhile, you're still going to be paying higher taxes in the future to pay off the debts incurred by Joe's long-term unemployment, your city's tax base has shrunk resulting in reduced services or higher taxes, a lot of the people Joe used to do business with will see lower revenues which will further shrink the tax base and their ability to participate in the economy, and so on and so forth.
A tax cut isn't going to do diddly for anyone who's unemployed, and unemployment is what's going to bring this whole bitch crashing to the ground if it isn't addressed, and quickly. The actual rate right now - not the funny numbers employed by the previous administration to consistently understate unemployment - is over 10%, which is about in line with what FDR's labor programs brought it down to (from a high of 25%). As for "proving" the value of infrastructure spending, I have no doubt that each and every one of you daily drives over bridges built by WPA, send your kids to schools constructed by WPA, attend concerts or other events in public auditoriums or other cultural centers constructed by WPA. If you live way out in the boonies and enjoy the benefits of affordable electricity, thank FDR. If you live in the desert Southwest and have access to water, thank FDR.
Does that "prove" that the currently proposed infrastructure spending is not at least partially a boondoggle? No. But it suggests at least that you are using a dishonest calculus in assigning value to different types of government spending. Take the previous example of rural electrification. 60 years later, I'm sure that many rural residents still haven't "repaid" the cost of running miles of electric lines out to their isolated outposts, so you could say that for everyone else, the money was "wasted" - if you believe it would be a good policy to encourage large parts of the country to remain uninhabited and unproductive.
Bottom line on all this is that to the man with a hammer, every problem looks like a nail. And that's your problem, Megan. You've got your hammer - tax cuts - and so to you, every problem looks like it can be solved with your hammer. I think the issue here is that you guys have been flailing away with that hammer for 30 years now, long ago bent the screw over (which never could have been hammered in anyway since it's a screw and not a nail), and have accomplished little more with your continued efforts at hammering other than to effectively destroy everything and everyone surrounding what you believe is a nail.
The term "burden of proof" in this context doesn't make sense -- there is no neutral fact finder. If you are using that term to mean, "Let's agree that my view is correct unless you are successful in persuading me otherwise," no, sorry, I don't agree.
The burden of proof will always be on whomever is not in power.
Jennifer - trickle-down policies caused the subprime lending bubble?
I am still waiting for any Keynesian to explain why borrowing $5 trillion and giving every citizen $16,000 won't give the stimulus they are looking for; and you don't even have to wait 2 years for the "stimulus" to take effect. I would spend mine immediately upon receipt and I am extremely frugal.
The market spent the tax cuts of the last seven years creating the credit crisis.
Since the '80s pundits including economists have critisized Americans' low savings rates. Now you want to discourage saving even further?
First, the banks got overleveraged. The money they lent came from sources other than depositors. When the loans they made or bought turned out to be worth less than the banks had believed, they became undercapitalized, and sharply curtailed lending. This ripples through the economy even as we speak.
Classically, a lender charges higher interest rates to risky borrowers. The Fed is sitting on interest rates, so the banks can't do that. The government is providing a nice, safe if not particularly profitable, haven for people's money.
The big banks aren't lending to each other, they won't lend to other businesses, either.
I think the proposed remedies may very well be backwards.
I suggest the federal government stop borrowing and jack up interest rates. If banks don't lend, they can't pay their bills. If the rates are high enough, (but not too high) they'll lend.
I also suggest that we stop taxing personal savings. The savings rate took a nosedive in the late '70s after the IRS required banks to report interest income. The interest rate after taxes on savings has been less than the inflation rate for the last 30 years. The best way to recapitalize banks is with deposits.
We should also eventually break up the giant banks and apply anti-trust rules more strictly in the futures. "If they're too big to fail they're too big."
Floyd - as in all else, supply and demand works on the investment markets as well. From 2001 - present, all areas of the economy were weak - other than housing. People sitting on money (those whose taxes have been cut, and cut, and cut again for the past 30 years, resulting in ever-more concentration of wealth in ever fewer hands) and looking for places to invest it were finding it hard to earn returns on manufacturing, retail, etc for the simple reason that a large percentage of consumers were maxed out on credit cards, wages were stagnant or falling...so the money flooded into mortgages on the theory that real estate is always a "safe" investment since it's a tangible asset and "always" increases in value (always, that is, if the default rates stay low). So there was a situation of a lot of money chasing a decreasing pool of qualified buyers, which had the expected effect - it forced down lending standards as the demand for borrowers exerted pressure to find more of them. And here we are.
1. If you give money to people through tax cuts, they will spend it. Buying things creates jobs because someone has to make that crap and sell it and ship it and market it. Tax cuts for businesses will also do the following: Large corporations will now have extra capital not given to them by banks (because they are over-leveraged and wary right now) and can use to to create new products that people will buy, and creating new jobs for people to sell, market, and ship the new product. So tax cuts do have positive ramifications.
2. The whole "infrastructure" arguments are really quite vague, conclusory, and betray a dearth of facts. Infrastructure people argue that "bridges are falling apart, roads are crap, the sky is falling!" without citing any statistics to support this. How many bridges? Which ones? Where? What exactly do you mean by infrastructure? it's these definitions that trip up the stimulus crowd.
A bridge in MN collapses, all of a sudden Amtrak needs to be saved? I call bs. If you want to show some broken down federal- projects-----supported by facts, not by anecdotal arguments, and not merely state projects you're calling federal projects---I'm game. But chicken littling this isn't going to work. I'd just as soon have a toll road on bridges/tunnels and have lower taxes comparatively--works better for everyone.
The politicians making the infrastructure arguments are merely pandering to the union bases of the Democratic party, who need some graft in the form of federal works projects---look at teh corrupt disaster thatw as the Big Dig in Boston as Exhibit A. And let's not forget Amtrak, the "we never run on time" people, because Biden is in their back pocket.
3. Just for you liberals:
Obama is not my president.
I hope he fails.
I am embarassed to be an American because of him.
Jennifer, getting mad at people for being good at selling you things you'll buy and demanding that they have their well-earned fruits taken away from them are exactly why no one subscribes to Marxism anymore.
but hey, Stalin rules!
Our only examples are Japan in the 1990's and the U.S. in the 1930's?? I'd disagree--FDR was an experimentalist, not a Keynesian. If you're going to call FDR's policies Keynesian, then you might as well call Hitler's policies Keynesian, which might well count as a success. See this: http://www.nationalreview.com/nrof_bartlett/bartlett200401190849.asp
Bill, considering that the 1930s were a time when many governments began to exert increasingly direct control over the populace, especially in the realm of economics...
Japan, England, Germany, Russia, Italy, the U.S.--the effects of the depression brought out the totalitarian nature of governments. With poor results all around.
Jennifer - that's very creative. It's my understanding, though, that those lending standards fell in part because of pressure from the federal government, as opposed to high demand.
Japan. Seriously. They spent over 100 trillion yen on stimulus, which is like 1/4th of GDP. We'd have to spend 3 trillion dollars (!) to match that proportionally, and since that supposedly wasn't enough, we'd have to spend even more for a stimulus to theoretically work. Now Japan has massive debt and lots of concrete where beaches and rivers and forests used to be, but an economy that can't exactly be called red-hot.
Basic Fact - fine, then you explain to all of us how a capitalist consumer economy can operate with any level of efficiency (in terms of overall GDP/wealth creation) when a few guys own everything and have all the money.
Have you ever played poker, Basic Fact? Then I'm sure you're familiar with what happens when one player wins all the chips and the other players have already borrowed everything they can to stay in the game and keep it going.
Ideology is not a useful substitute for reality. Beyond that, if you can explain why the overriding guiding economic principle in a democratic society which is supposed to equally protect the rights of all should be policies that actively encourage over-concentration of wealth into very few hands to the detriment of the overall economy and ALL of those participating in it, then I'm all ears.
"In 200+ years of existence, the federal government of the U.S. has yet to default on any of its debts." Not so.
http://faculty.chicagobooth.edu/randall.kroszner/research/repudiation4.pdf
"If you give money to people through tax cuts, they will spend it. Buying things creates jobs because someone has to make that crap and sell it and ship it and market it."
Bush tried tax cuts, where are the jobs created from it?
RG:
"Bush tried tax cuts, where are the jobs created from it?"
1. Bush also increased spending, which was a bad idea.
2. The economy was strong until the Democrats took over congress in 2007. That's when things went south.
Reality has a well-known right wing bias.
I think part of the divergence here, beyond ideology, is that the so-called stimulus will actually be a net plus to a large number of people, possibly even a majority, although it will likely be bad for the economy in aggregate. Why? Because of the vast divergence in current and future tax burdens.
In my two income household here in California, we will effectively owe $30k as a result of the stimulus and our current tax laws. But we are unusual in that. Since only a slight majority actually pay (on net) income taxes now, they won't really be on the hook for their $3k share. Instead, they can foist it off on the few paying most of the taxes (since the top 10% of Americans pay the majority of income taxes). We should not be surprised that so many people support a plan that will probably make them wealthier, for a time, at little cost to them. That seems like basic public choice theory.
Ironically, the Bush tax cuts' relatively large reductions in tax burdens for the lowest brackets may have exacerbated America's slide toward a redistributionist tyranny of the majority. And political science has known since Aristotle how governments that seize wealth from the minority to give to the majority inevitably turn out - badly.
"2. The economy was strong until the Democrats took over congress in 2007. That's when things went south."
Interesting. Guess all those subprime mortgages and bad decisions by banks and Wall Street were made post 2007.
Floyd - nice try, but the fact remains that Fannie/Freddie's default rate remains only half of what private lenders have experienced, Fannie and Freddie bought nothing rated less than A-, and that Fannie and Freddie represented - at the height of their participation in sub-prime lending in 2005-2006 - about 3% in the first year and 15% in the second year of all subprime lending activity, and that for the 6 years between 1999 (date on the article you linked) and 2005, they did so little subprime lending that it doesn't even register. Other than all of those things, you could blame it on Fannie and Freddie. The fact of it is, Fannie and Freddie got into subprime when they did as the result of lending targets - they were supposed to back x number of loans for low-income, minority, etc - and the orgy of subprime lending in the private sector - a lot of it targeted at those same groups - were crowding out Fannie and Freddie from meeting those lending targets. So when they had to back subprime to meet their mandates, they did - but then, never on loans rated at less than A-.
As for those private lenders, they weren't under any government mandate with regard to lending standards...and it was they who so overheated the market to the degree that Fannie and Freddie were getting crowded out, so it's particularly disingenious (and ill-informed) to try to turn that on its head. And those private lenders were all being funded by investors. But what the hell, they only made up 85%+ of the subprime market from 1999-2008, so certainly it couldn't be their fault.
Very strong post.
When income is redistributed from one person to another (which necessarily is the case for government spending) the burden of proof should be on the person proposing such redistribution.
See Anthony de Jasay on the presumption of liberty.
"fine, then you explain to all of us how a capitalist consumer economy can operate with any level of efficiency (in terms of overall GDP/wealth creation) when a few guys own everything and have all the money."
---Straw man. In the U.S., a "few guys" don't own everything, and they didn't take what they have by force either. You and I have money. If I want to earn more, I can start a company that sells something you want. If everyone gives me a little of their wealth in return for my product, bang, I become very wealthy and you become happy with my product.
Making crap up about rich people hording money in their hovels like Scrooge McDuck is a panic move by the left to attack the most productive members of society.
"Have you ever played poker, Basic Fact? Then I'm sure you're familiar with what happens when one player wins all the chips and the other players have already borrowed everything they can to stay in the game and keep it going."
---Poker is not economics. No one is betting another in our world except gamblers---who always lose. If I offer you a ham sandwich for ten of your chips, bang, I have 10 more chips. If I offer it all around, I get more chips back.
Comparing Bill Gates to Chris Moneymaker is a very poor analogy in economics, commie.
"Ideology is not a useful substitute for reality."
---Said the marxist making the ridiculous claim that 5 people have all the money and everyone else lives in the ghetto.
"Beyond that, if you can explain why the overriding guiding economic principle in a democratic society which is supposed to equally protect the rights of all"
---which it does
"should be policies that actively encourage over-concentration of wealth into very few hands to the detriment of the overall economy and ALL of those participating in it, then I'm all ears."
---Liberalism: a mental disease.
Back to the commune/university with you, hippie!
RG: "Interesting. Guess all those subprime mortgages and bad decisions by banks and Wall Street were made post 2007."
---No, obviously they were made by the Republican congress....oh wait, it was by private lenders and Barney Frank's Fannie Mae and Freddie Mac.
left wingers: losing economics arguments since Lenin.
Not my president.
BF, you pinpointed the economic turning point as the 2007 elections, you support your claim that is the event that caused the economic downturn.
Jennifer - according to this articl, your numbers are off - Fannie and Freddie owned 44% of the subprime market at their height in 2004, followed by 33% in 2005.
Basic Fact - wow, that's an awful lot of words to use in dodging answering a simple question.
In the U.S., a "few guys" don't own everything, and they didn't take what they have by force either. You and I have money. If I want to earn more, I can start a company that sells something you want. If everyone gives me a little of their wealth in return for my product, bang, I become very wealthy and you become happy with my product.
Well, actually, a relatively few guys own 70% of everything, while 4 times that many own 2/10ths of 1% of everything. Certainly if the goal is for money to flow through the economy, the guys who don't own anything have more motivation to spend. And in a vacuum, where government policy did not favor wealthy established interests over upstarts via tax giveaways, de facto monopolies, subsidies, and all manner of other hornswoggle, your business would certainly have a better chance at succeeding and you of becoming wealthy.
But like I said, reality trumps ideology. We don't live in that idealized world you posit, and crafting policy that pretends as if we do as a result does not lead to this frictionless rising of the cream to the top as per your example, but rather to big steaming messes that end up on everyone's shoes.
How right you are Megan! I see your grey matter is in tip top form today. You must have eaten pounds of fish last night.
Well, one problem is that when evidence is offered, you and your like minded members of the cult of libertarianism dismiss it, even when it comes from people you have to admit know a lot more about the economics then you do and as diverse as Martin Feldstein, Bruce Bartlett, Paul Krugman, Mark Thoma, Menzie Chen, Brad DeLong, Dean Baker, etc.. If you say that you prefer to rely on Greg Mankiw and others, fine, but at least admit that you choosing as a matter of ideology and not reason. You also, as Andrew Leonard points out on Salon, cite the English Major (Amity Shlaes) for your counterfactual arguments that the New Deal made "the Depression worst." Yep, in March of 1933 when unemployment was at 33% and the banking system was practically non-existent, the economy would have returned to 1929 level of 3% unemployment but for the New Deal within....well, when would had it Megan? Things were a lot worse in 1933 then 1921, the libertarian's favorite recessoin at the moment.
Finally, what destroyed downtown Buffalo was not the subway, but the fact that Buffalo's industry became uncompetitive, as transporation costs sank, with lower wage areas, first in the South, and then in the third world. Buffalo, like Detroit, is an obsolete place, at least for the moment, of industrial center and with its economy toast, all those stores that the old economy could support are toast as well (as shopping malls all across America are discovering)and that every downtown in America suffered during the period from 1950 to 2000 as more automobile friendly shopping and entertainment venues attracted the customers. I will give you this, Government zoning rules (favoring single family homes and separating residential from commericial and industrial areas) and tax subsidies (mortgage interest and real estate property taxes being deductible), made things worse. But of course those policies are the result of rent seeking by wealthy and politically powerful individuals and groups (usually called developers, real estate industry, and banks, plus all us happy campers who make enough to make it worthwhile to itemize deductions).
Finally, there is lots of waste in private industry and by the taxpayers. Look at all the empty houses in California's Inland Empire or Florida's gulf coast. Google "Dead Malls."
"the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade."
In the case of the FDR and the US this is completely, 100% NOT TRUE. I don't why this myth persists when when the number are pretty clear and anyone can check them. The first 4 years of FDR's presidency real GDP grew by annual rates of 11%, 9%, 13%, and 5%. No one, NO ONE has had a better 4 year run during peace time. By 1936 real GDP had recovered to the 1929 peak and it never went below the 1929 peak again. Unemployment remained high until the war but in 4 years FDR and the new deal had pulled the country out of the hole Hoover had dug.
There is a reason that the people who actually lived through the depression love FDR. Dont believe everything you read even in texts books. Do the math yourself!
It's not that private industry and individuals don't waste money. Many but not all of them do.
With more decision makers there is a chance that some of them will get it right. The rest of us can imitate those successful people once it becomes obvious who they are.
The government concentrates decision making into fewer individuals. Government tends to suppress competitors to it. If they make bad decisions we all suffer.
sherparick - here's Bruce Bartlett, one of the economists you cited, on the New Deal: "unfortunately, Franklin D. Roosevelt misunderstood the nature of the economy's problem and tried to fix prices to keep them from falling--thus preventing the very readjustment that would have brought about recovery." Bartlett also argues that tax cuts provide more stimulus than public-works projects. Sounds like a fellow "cult" member to me.
Floyd - I tried to respond to your comment with a link, but I'm being "moderated". I linked Bloomberg which is where the figures I cited came from, though in slightly misremembered form as you'll see if the comment is ever approved.
I wouldn't disagree with you that Freddie and Fannie's actions helped to feed the beast. But even the numbers you've linked show that they weren't the biggest players, nor was the meltdown "caused" by low income and minority lending. Freddie and Fannie's participation was limited to the safest classes of subprime - those rated at A-. They weren't backing liar loans, ARMs with rates rising to 20%, or any of the other ridiculous products being peddled by the private lenders, and it's reflected in the much lower default rates on the subprime loans that they did back.
This plan, as is, will not work. Do we need to invest in our infrastructure? Absolutely. It's long overdue. But infrastructure spending will not pull this economy of the recession. And the rest of the bullshit in that bill is just pissing away money.
Isn't the main test for any stimulus bill is job creation?
What incentives are there in this current plan that give concrete incentives for businesses to either be created or start hiring people? Name one, please. Notice how no one can state with any clarity or certainty how many jobs will be created by this spending spree. The focus is just on "doing something". Even if it means screwing things up even worse.
So let me see if I have this straight. The woman who with a straight face advocated on behalf of the Wall Street geniuses who just received their bonuses (sorry "deferred compensation) from the tax payer is now going to demand that stimulus funds which may benefit the non-elitist class have a high burden of proof to make their case.
In fact, get this everybody, she's FLABBERGASTED that we aren't doing so. LMAO
Man I'm glad your ilk isn't in charge anymore.
I would spend mine immediately upon receipt and I am extremely frugal.
I'd spend everything I had upon announcement of this scheme, and I'm extremely frugal.
Or maybe I'd just make a big move into gold, I don't know.
By most polls, 85% of Americans believe in the existence of an omnipotent and omniscient personal god who takes an ongoing interest in human affairs. There is no evidence for such a god but the believers insist that nonbelievers prove there is no god. They insist the default position is in favor of the existence of their imaginary friend. Why would you expect that the burden of proof would be appropriately placed in the case of a stimulus?
Lighthouse
The key is how you arrive at those numbers. I am under the impression that Shlaes (and presumably McCardle, Cowan, et al) simply make up a different way of measuring this statistic than the usual one. This is fine; the way we measure unemployment today isn't the same as the way it was measured just 10-15 years ago.
The problem is, authors like Shlaes don't make a particularly compelling argument as to why the statistic should be measured in another way. I guess the point is to mislead a reader into thinking that Shlaes and, say, the Bureau of Labor statistics are calculating the same statistic.
Re: the stimulus
McCardle (and Cowan) are arguing that "Anything could really happen if we enact this stimulus. We have no idea about the result. We should make arguments about it!" I am no expert on economics (so I'm not up on the literature), but I would be very surprised if this was so. To be more precise, this is like claiming that physicists hadn't really investigated the properties of objects in motion, or that mathematicians weren't so sure about the fundamental theorem of calculus.
What xyz said.
When you hear talk about "wasteful government pending" and " efficient private spending" , remember the GI Bill of Rights and contrast it with that idiot executive who spent $1.2M to decorate a SINGLE room.Lets hear the tax cut devotees try to justify THAT as an example of efficient private expenditure.
All those people who are objecting to infrastructure spending as too vague and inefficient are the ideological children of same folks who opposed the building of the interstate highway system. I can imagine people saying stuff like " Why build a highway to nowhere? Why should my tax dollars be spent on some road in Wyoming?" Hell, I'm sure that their ideological grandfathers were probably busy objecting to the rural electrification program. ( " Why should my tax dollars be confiscated from me so that some farmer in Montana can read at night?")
Frankly, I think that in light of the example of the Great Depression, the burden of proof should be on those who think that just doing nothing will magically pull us out of a deflationary spiral. It didn't then-why should it now?
Even conservative economists agree that FDR's stimulus spending ameliorated the GD-and that the massive fiscal stimulus of WW2 ended it. The people who dissent from this are generally credentialed right wing hacks ( many of whom apparently populate this board). I'll take stimulus supporter David Krugman ( Nobel Prize winner over his work on Depression economics" over any number of " libertarians" repeating that all government spending is automatically bad ( the military budget excepted , of course).
Rich,
You wrote:
If the government cuts taxes now, it will eventually be forced to raise them again to pay down the resulting debt. This is the sense in which the tax cut is "neutral."
In fact, if taxpayers are forward-looking they will save the entire value of the tax cut in anticipation of future tax increases. This is why there could be no demand stimulus from tax cuts.
Here's the question I want to see answered:
Given that we seem to be in some sort of deflationary spiral, at what level of money printing will the government actually harm the economy, as opposed to being essentially a neutral actor? If that number is north of a trillion dollars, then color me ambivalent to the actual projects engaged by the present stimulus. The only parts that worry me are:
(1) How many of them will establish entities that perpetuate forever while being less efficient than the same activities operating under the future, restored private sector (see also: TVA); and
(2) What is the worst-case inflation scenario if the economy recovers faster than the Fed's ability to draw that money back out of the system?
Uh, that should have been " un-credentialed right wing hacks". Oh well....
@ Floyd
According to the rest of that Dacvid Bartlett articlem youcited, Bartlett sasys :
The result was an economic setback that didn't really end until both monetary and fiscal policy became expansive with the onset of World War II. At that point, no one worried any more about budget deficits, and the Fed pegged interest rates to ensure that they stayed low, increasing the money supply as necessary to achieve this goal.
It was then and only then that the Great Depression truly ended. As a consequence, economists concluded that an expansive monetary and fiscal policy, which had been advocated by economist John Maynard Keynes throughout the 1930s, was the key to getting out of a depression.
Keynes was right, but many of his followers weren't.
The last line is important, because even conservative economists understand that KEYNES WAS RIGHT ABOUT THE GREAT DEPRESSION. I have to shout that because its an article of faith in the right wing that Keynes has been somehow proven wrong.
Bartlett goes on to say that some of his followers misapplied his ideas. Barlett's argument goes on to argue for more tax cuts now, but even he admits that last year's tax rebate didn't work.
Can we stop spreading this ridiculous idea that we're actually going to raise taxes at some point in the future in order to pay for this? We're going to inflate our way out. That's the whole purpose of spending here. Spending on anything, so long as we don't suffer from deflation.
Megan, you have forgotten that $100,000,000 in the stimulus is allocated to opening up Main St. in Buffalo to traffic once again... Almost literally digging a hole and filling it in again.
Good stuff.
David Krugman ( Nobel Prize winner over his work on Depression economics
Awesome. Clears up the rest of your "argument."
The Ewok in question got the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for "for his analysis of trade patterns and location of economic activity". And that was work he did long before he became a partisan NYT columnist.
He's a trade theoretician. Plus, everything he says has to be taken with a grain of salt these days.
Frankly, I think that in light of the example of the Great Depression, the burden of proof should be on those who think that just doing nothing will magically pull us out of a deflationary spiral. It didn't then-why should it now?
Yeah, those damned Laissez-Faire libertarians Hoover and FDR! Jeez, if only they'd thought of protectionism, make-work socialism, price-fixing, tax increases, and deficit spending—everything would have gone so well… like it's going to this time! Kumbahyah!
I come to this with a conventional education, that Hoover was the ditherer
Odograph, almost any situation can be made worse by far more actions than can make it better (“Doctor, I propose to bleed the terminal cancer patients”). Unless you are about to permanently lose the ability to do anything it is best to act on the principle “If you do not know what to do, do nothing”.
Let's recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)--the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.
It seems reasonable to suppose that the American economy was influenced by many things in WWII other than a sudden increase government spending. These things may well have had a greater effect than the spending splurge.
On the face of it, this would seem to be good evidence that “this kind of stimulus” does not work. In fact, looking at America in the 1930s and Japan in the 1990s, it would seem to be evidence that “this kind of stimulus” is harmful.
It seems to me that the current problem is just a bubble in reverse. The bubble went away without any aid from an enormously expensive government program to make it do so, so why should we not expect the same to be true of the current problem?
You can't just listen to Rush Limbaugh and get things done.
It seems to me that the current problem is just a bubble in reverse. The bubble went away without any aid from an enormously expensive government program to make it do so, so why should we not expect the same to be true of the current problem?
Oh, there's no doubt it would eventually "go away"; I guess the question is how long do you want to wait and how much wealth will be destroyed along the way? Not to mention that your question is premised on this rather dishonest appraisal of the situation:
Let's recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)--the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.
The economy is going to be "in the doldrums" for a minimum of another 2 - 3 years, stimulus or no. That in and of itself is going to give us a minimum half-decade of no or low growth. That's what happens in financial crises - they're bigger than a garden-variety recession and it takes longer to recover from them.
They certainly don't start to get better while the money circulating continues to shrink, which is where we are right now. The stimulus isn't about "fixing" the economy - that's going to take years and more than a little luck. The stimulus is about arresting the slide so we don't have as deep a hole to climb out of once more money starts circulating.
@stinky.
Heh, that's good, using some quibble about what Krugman may have won the Nobel Prize for, while ignoring the settled scholarly consensus -admitted by Bartlett, a conservative , Reaganite economist- that expansive monetary policy and fiscal stimulus did cure the GD.
What's interesting is that Ms. McArdle , who after all studied economics, DOES admit , grudgingly, that fiscal stimulus did help to end GD. Oh, she does try to qualify and dissimulate about this and point to red herrings ("Look! Japan!) . But she doesn't LIKE this conclusion, and so talks about burdens of proof and such like, as if simply doing nothing could work as well as fiscal stimulus, and its up to the stimulus guys to prove different.
I say that its up to the do- nothing or do-little crowd to prove that their policies will work better than an expansive fiscal stimulus. Good luck,and remember, just shouting " Roosevelt was wrong!" doesn't prove your case.
Ok, stonetools. You make a painfully misinformed argument, resort to an argument from authority to cover your ignorance, then demonstrate you're not even familiar with that authority. Sorry, my bad.
Good luck,and remember, just shouting " Roosevelt was wrong!" doesn't prove your case.
OK, but ALL CAPSING "Keynes was right" is acceptable? I'll try to keep up.
Ah, Jennifer, the cries of a leftist are most pitiably stupid cries on earth:
"Well, actually, a relatively few guys own 70% of everything, while 4 times that many own 2/10ths of 1% of everything."
---Here's an easy thing for you. prove that those people who have a lot of wealth (glad its not "all" of the wealth now, comrade) deserve to have it taken away. or those lazy lifelong welfare cases who deal drugs out of their homes deserve it more thanm the hard working, brow sweating capitalist.
Prove Bill Gates, Steve Jobs, Warren buffet, etc. don't deserve what they got. While you charge your ipod while using your PC to shop for auto insurance at Geico.
"And in a vacuum, where government policy did not favor wealthy"
---Government policy does not favor the wealthy. The graduated income tax rate directly contradicts your assertion. QED.
"established interests over upstarts via tax giveaways, de facto monopolies, subsidies, and all manner of other hornswoggle,"
---subsidies are what liberals want, dummy. I love the unproven "tax giveaways" that bring new businesses into areas (think car manufacturers in the south) are somehow helping established interests when they do exact opposite: help unproven companies begin in areas they don't exist in.
"But like I said, reality trumps ideology."
---not really. we have a socialist nutcase in the white house and his buddies running congress about to screw us all despite the fact that reality dictates back-the-f-off, Barry.
"We don't live in that idealized world you posit, and crafting policy that pretends as if we do as a result does not lead to this frictionless rising of the cream to the top as per your example,"
---yes, if only that drug dealer with 6 kids by 5 women had more welfare. then he'd rightfully start the business that would put Bill gates in the poor house.
"but rather to big steaming messes that end up on everyone's shoes."
---at last you describe your philosophy in accurate detail.
Obama and his ilk don't want a meritocracy, because liberals always lose when faced with merit tests. That's why you want wealth redistribution: you're too stupid to succeed on your own. It's nice when a sugar daddy known as the government pays for your stupidity, isn't it?
See ya round, sugar.
There is no proof possible. You can't prove the results of the experiment without running the experiment; all you can do is make a hypothesis and some percentage of the time your hypothesis will be wrong. So it is with all sciences, including economics.
And you can't "prove" that it will "work" without some meaningful measure of success? What is the measure of success? GDP growth? When, and how much? Sure, GDP grew under the New Deal--after hitting a really horrible, miserable bottom under Hoover, while unemployment remained in the 2-digits throughout the 1930s. Unemployment not being as bad as it otherwise would have been? Making things better than they otherwise would have been (especially employment, with its direct impact on the general welfare of the population) seems like a reasonable goal for stimulus, actually--but how do we know how bad it otherwise would have been? There is no way of knowing that.
(bad metaphor time)
The US economy has a bad case of salmonella from ingesting too much of the peanut butter paste of debt, and the bad stuff just needs to work its way through the system before the patient is recovered. In the meantime, the only things we can do will keep the patient comfortable and well-hydrated...
"Japan. Seriously. They spent over 100 trillion yen on stimulus, which is like 1/4th of GDP. We'd have to spend 3 trillion dollars (!) to match that proportionally, and since that supposedly wasn't enough, we'd have to spend even more for a stimulus to theoretically work."
Yes, they spent a lot of money, but over more than a decade. That's more like 1/40 of their GDP per year. That wasn't enough to escape the liquidity trap. By analogy, a Saturn V rocket produces the same impetus as me jumping up and down ten million times, but I can't get to the moon by jumping up and down no matter how much I do so.
Basic Fact, since ou threw his name out there, you may want to google "Warren Buffet tax challenge". You'll find a "brow sweating capitalist's" view on the current tax structure quite surprising.
Also, care to prove your insinuation that taxes simply go to welfare cases? I'd posit that they pay for infrastructure, military, police, interest on debt (rung up by conservatives and liberals alike), etc.
Well-said, Joy. And funny, too.
I just wish there were some in vitro economies for macro folks to experiment with, in vivo screwing-around is kind of hard on the patient.
I guess my question goes unanswered for about the 20th time.
I guess my question goes unanswered for about the 20th time.
Yes, but Amex has noted your apparent willingness to be profligate and lowered your available credit accordingly.
Quick questions:
If we keep shedding jobs like this, then how does a tax cut help the private sector? Do we retroactively apply tax rates to a point when those people had income?
If the banks aren't lending to established businesses, where does the money come from to start new businesses, and how does private industry get the money moving?
Why do tax cuts matter to corporations if they are running losses anyways? If they aren't going to pay taxes, how will the fact that they pay less in taxes benefit private industry?
"In fact, if taxpayers are forward-looking they will save the entire value of the tax cut in anticipation of future tax increases. This is why there could be no demand stimulus from tax cuts."
That is an incredibly stupid and ignorant statement. EVERYONE discounts the future relative to the present - that is one of the most well established facts in economics.
Why do tax cuts matter to corporations if they are running losses anyways?
Payroll taxes: paid by rich and poor, and business in the red and in the black. A cut might encourage hiring and also give people more money to spend.
Also, care to prove your insinuation that taxes simply go to welfare cases? I'd posit that they pay for infrastructure, military, police, interest on debt (rung up by conservatives and liberals alike), etc.
Depends on your definition of "welfare". An expansive, bipartisan definition would include stadium-financing deals for billionaires, ethanol subsidies, one-off land deals, no-bid contracts, and all the other niceties that rich folks get pushed into legislation by the politicians they buy.
The federal budget is basically: 25% defense, 25% medicare/medicaid + interest, 25% social security, and 25% "other". Transportation/infrastructure is like 60 billion dollars or something; welfare (i.e., programs for the less than rich; e.g., SSI, food stamps, ) is about 180-200 billion; welfare-welfare (or what Clinton replaced it with) is like 16-18 billion. Interest is 260 billion or so.
---Here's an easy thing for you. prove that those people who have a lot of wealth (glad its not "all" of the wealth now, comrade) deserve to have it taken away. or those lazy lifelong welfare cases who deal drugs out of their homes deserve it more thanm the hard working, brow sweating capitalist.
Sure, I'll explain it to you - just as soon as you get around to answering the initial question you've been dodging with these nonsensical posts ever since: explain why policies which encourage maldistribution of wealth to the detriment of both our economy and everyone in it should be the highest possible value for which we strive.
Not answering the question doesn't make it go away nor does it make it less central to the overall issue. You can have massive concentration of wealth or you can have an efficient capitalist consumer economy in terms of overall GDP and wealth creation. You cannot have both. If you want to debate that proposition, be prepared to show examples proving - or even suggesting - that it is untrue.
explain why policies which encourage maldistribution of wealth to the detriment of both our economy and everyone in it should be the highest possible value for which we strive.
Haha. You might as well just say "Explain to me why I'm right."
Seriously, this passes for informed discussion where you're from?
I notice that France has a stimulus proposal that will be spent entirely on infrastructure improvements. So at least the argument for them is valid. The bulk of our proposal will be spent, directly or indirectly, as payments to individuals. This is what the exigencies of the present moment demand, and it will “kick the can down the road,” but our economy also has structural deficiencies that must be faced. I point to the trade deficit as evidence, and reject the sort of naturalistic fallacy that indicators like that don’t matter in our contemporary economy. The best predictor of how people will behave in the future is how they have behaved in the past, and in the past government investment has been the crucible in which new businesses have formed. As the overlay economy, constructed from credit and consumption over the past thirty years, sublimates, rationalization of government investments and regulations will gain urgency. For example, I don’t agree with some who have advocated increasing spending on defense, as a stimulus. Give them the burden of proof. On the other hand, if payments to individuals are necessary to prevent homelessness and hunger in the present calamity, then I would hope we could overcome our past prejudices against this practice to provide the necessary assistance.
Y Ward
Yes, this is a reasonable question, but you ought to put it to the field.
In a way though, shouldn't the question be "Well, we are going to spend a bunch of money. We can either spend it on a bunch of stuff like bridges, infrastructure, etc., or just drop a mountain of cash on the population. Which would be more likely to result in the better outcome for the economy?" Most likely, a paper (or combination of papers) in the macroeconomic literature addresses this sort of question. I know I don't have firsthand knowledge of how such a calculation should, or would, be carried out, but unlike some, I am unwilling to assume that means that no one knows and everyone is just guessing.
Billswift
That depends somewhat on the discount rate, does it not? I guess what you are trying to say is that money today is worth more to you than money tomorrow. I think this assumes a positive rate of return, no matter how you carry out this calculation. For example, if my discount rate is -.1 % annually, I might think that $1000 in 1 year is worth more than $1000 now.
I suspect that there is some sort of stimulus effect that tax cuts generate, mainly because the notion that citizens are forward looking and rational don't seem to be consistent with my experience. But advocates of the stimulus over the tax cuts don't have to disprove this sort of statement. They have to argue that the stimulus is better overall. Again, this should be something that has already been researched.
" explain why policies which encourage maldistribution of wealth to the detriment of both our economy and everyone in it should be the highest possible value for which we strive."
---Glorious, I've discovered that discussing economics (or logic or ethics in general) with a liberal is like explaining arithmetic to a dog. Try all you want to enlighten, the dog's still gonna whine and try to chase it's damn tail.
Jennifer, you're a women's studies major. Here's the simple answer: I agree, our governmental policy of maldistributing wealth from those who earn it to liberals (like you) who don't is a bad idea. You should be turned out into the ghetto until you offer something useful to scoiety--and no, your thesis on how an SUV is anti-woman is not valuable in the least bit.
Except that's probably not the answer you wanted. Oh well. Back to the coven wit you!
Not to butt-in, Jennifer, but I agree that "explain[ing] why policies which encourage maldistribution of wealth to the detriment of both our economy and everyone in it should be the highest possible value for which we strive." However, I think our definitions of "maldistribution" are probably at odds. I don't think the government acts outside the system, it's embedded in the system; power is fungible, so giving more power/money to the already powerful (the government and its leaders) is the same as giving more money to rich people. Rich people and the folks they buy are in cahoots, to the detriment of everybody else. When you centralize power, you centralize wealth.
You can have massive concentration of power or you can have a fair democratic-republic government, you can't have both. The corporatists and the socialists are joined together, one wears a happy mommy mask and offers free lunches, the other wears a tough-guy daddy mask and promises future riches. They're two sides of the same sickness.
It was unconscionable to bail-out wall street last fall. It's unconscionable to bail-out Albany, Sacramento, et al, and the fools that bought into the buy-now-pay-later nonsense that wall-street and washington have sold for thirty years. People need to lose their homes, they need to go through bankruptcy, municipal governments need to fail, business must collapse, and the federal government needs to stop enabling them by selling our collective future to a crypto-fascist-socialist dictatorship that is itself teetering on the brink.
The worst-off, those that have benefitted least—we must ensure do not starve or descend further, but we're not going to ensure that by spending billions on the rich and powerful.
Jennifer:
"an efficient capitalist consumer economy in terms of overall GDP and wealth creation."
--Wow, the world is truly crazy when a Marxist argues that her system of stealing from those who work to give to the lazy is efficient capitalism.
Either that or the simpler conclusion: Jennifer is a moron.
Now that I think about, choice B works better.
Megan: "Given that, it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren't tax cuts or transfer payments."
'Highly theoretical models'? This is a Chicago B-School grad talking, who used brags about her nobel prize econ faculty?
" Let's recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)--the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade. "
Liar - FDR averaged (from memory) ~8%/year economic growth from 1933-1939, *before* WWII spending hit. Which has been pointed out repeatedly by historians (The Edge of the American West) and economists (e.g., Krugman).
I guess we know what good a Chicago degree is - neither you nor Becker nor any of the rest can stick to the facts. That also clues us in to how good the Chicago position it.
BF-
I'm curious, what does earn mean? Does that mean people run their companies into the ground and then get $18billion in bonuses?
If the private economy is so efficient, shouldn't those same men be on the street looking for jobs?
Seems to me that maldistribution applies more grossly to the upper crust than to the "liberals" you so like to rail against. Actually it would seem to me that the money so viciously stolen from you may be traceable directly to such efficient companies as KBR in Iraq ($12billion missing - just gone) and also to BoA, ML, Citi, etc. But I guess since it wasn't used to build anything, it wasn't wasted or maldistributed.
A credible alternative to the Pelosi/Waxman spend-'til-the-end program would: eliminate earmarks; simplify income taxes, eliminate the ceiling on payroll taxes, erase the difference between wages and capital gains rates; promise regulatory simplification and delegation to state/regional authority; and give state governments population-proportional shares of a relatively modest cash stimulus. If washington were serious about ensuring the welfare of the worst-off they would enforce border security and deport illegal aliens at the highest rate the Mexican government would accept (to tighten the labor market & reduce the burden on social services).
It's not going to happen. Congress will produce a honey-baked ham to carry them through to re-election and it will start all over again.
Bob Natas
Sorry, but individuals always have positive discount rates. The discount rate for an economy can supposedly be negative in some uncommon situations, but not for persons.
Megan, in her very own post on the burden of proof, admits that no such proof exists; asking for evidence is in this instance a cop-out.
Three data points, all of which are still in contention. If we're still arguing about the depression, how are proponents supposed to provide evidence for what's happening now? Propose World War III? You can't have economic proof for things that haven't happened yet. It's like saying I'll vote for Obama if you can prove to me that Obama will be successful... well, just let me whip out my Delorean time machine, and I'll show you right away.
It's also pretty absurd to object to the infrastucture spending but not objecting to the tax cuts. Tax cuts are not neutral. And the alternative is a massive deflationary spiral.
So should President Obama should just throw up his hands, tell us we're screwed, and ask us to vote for him in the midst of a massive deflationary lost-decade? Obama 2012: You're screwed, vote for me.
I don't know if the stimulus will work; I do know Obama can't do nothing while the economy plummets. The economic argument that as a nation we simply need to deleverage and it's going to be a painful process sounds pretty accurate to these ears, but that's economic and the stimulus is political.
Also, Buffalo is screwed cuz it's *Buffalo, NY*, not because of some government spending project.
Billswift
Why must a person's discount rate always be positive (assuming, of course, that there is a reasonable way to calculate a person's discount rate)? For example, if today I look at what the effective rate of return on my mutual fund, I expect it to be negative over the next couple of years. This is a discount rate of sorts. If someone were to offer me its current value exactly two years from, I would take the offer.
What do you mean by "discount rate for an economy"? I'm not sure this term is well defined.
If someone were to offer me its current value exactly two years from, I would take the offer.
So, sell it and put the cash in a bank.
Rob-
That's one I agree with, it, hopefully, would encourage hiring. But as in all of this, it's pure speculation. My personal opinion is that it can't hurt. Of course, my personal opinion is that we should throw the kitchen sink at it and hope to at least slow our descent, and let future economists get their Nobels by sorting out which aspect was most successful.
I'm not going to claim that any of it will work, and actually have my doubts that it will, but I'm not sure that anyone, including those arguing against it, want to see what the end result might be. Than again, maybe they do.
Haha. You might as well just say "Explain to me why I'm right."
Seriously, this passes for informed discussion where you're from?
In other words, you, like Baseless Facts, can't point to a capitalist, consumer economic system with a higher concentration of wealth in few hands that has ever outperformed one where wealth was more evenly distributed.
Jennifer, you're a women's studies major.
I wonder when the school of architecture where I earned my degree started offering a major in women's studies? But hey, since you can't answer a simple question with even ONE example, I guess that response works as well as any other you can pull out of your rear.
Some of you folks need to wake up to the fact that Ayn Rand was a frickin novelist, not an economist, and not a "philosopher" (though those in the habit of not thinking deeply like to categorize her as such). The woman wrote FICTION, not economic theory, not world history. Because really, it ain't that hard to figure out that if 40% of the population has no money, the economy isn't going to work as well as if they had even a little.
Rob,
That probably explains the lien on my left kidney.
"can't point to a capitalist, consumer economic system with a higher concentration of wealth in few hands that has ever outperformed one where wealth was more evenly distributed."
---This has to be the most generalized, unsubstantiated attempted at asserting a "fact" I've ever seen from a woman studies' major. And that says a lot.
sweetie, answering you is feeding the trolls. I'm against conservation of pests myself.
"I wonder when the school of architecture where I earned my degree started offering a major in women's studies?"
--when you started making up real degrees for the fake one you actually received.
"Marx wrote FICTION, not economic theory, not world history."
----FTFY
"But hey, since you can't answer a simple question with even ONE example, I guess that response works as well as any other you can pull out of your rear."
---
haha. I love how "not answering a question based on made up facts that are totally at odds with logic" is equated in the feminist mind with "avoiding the question."
Feminism. the stupidity that keeps on giving.
" it ain't that hard to figure out that if 40% of the population has no money, the economy isn't going to work as well as if they had even a little"
---lol. That's right. 40% of the U.S. is dirt poor, living in grass huts and chasing rats with spears for sustenance.
oh liberals. so stupid. so willing to enforce their idiocy on others--by force, if necessary.
"my personal opinion is that we should throw the kitchen sink at it and hope to at least slow our descent"
Ummm... at what point do people realize this has already been the policy for the last decade or more. Our government has not only been throwing the kitchen sink, we've been borrowing the kitchen sink and throwing that too.
We are in this problem because of using too much debt financing to produce growth.
Using more debt financing to produce growth will not solve the problem.
Unfortunately it is clear we will bumble through among a variety of different "solutions" for the next several years, most likely making things worse. Maybe we'll come out of it despite the constant mucking up by the politicians and their cronies.
I'm in favor and have been in favor for a long time of spending cuts across the board in everything, from defense, to foreign aid, etc. Cuts can be done smartly, and although it will be painful in some areas, is it too hard to grasp that when you've been living on BORROWED money for several decades, the solution is not to continue BORROWING money?
It's as if all these stimulus people think we haven't been borrowing to begin with and if we only borrow we can get out of the mess. We've been borrowing all along. Digging a bigger hole literally. How do we expect to get out this way?
I know McCain's solution would not have been any better than Obamas. Hillary no better either. I wonder what Romney's would have been.
After decades of high-bracket tax cuts, the bridges over the East River were falling to pieces, and wealthy people were buying organ transplants for their pets. But surely, from the taxpayer's point of view, that money had not been "wasted", because if there had really been a demand for well-repaired bridges, the taxpayers would have used their tax rebates to buy them.
The East River appears to have several functional bridges. If it has too few, one might ask what market failure prompted the shortage, and learn there is no market because the government decides when to build them.
Bridges are a relatively small part of the overall budget, so apparently the government had other priorities. Perhaps the funds were going towards subsidizing organ transplants for pets.
Jennifer--
The United States has "outperformed" every other country on this planet in history.
And by "no money," are you referring to the highest overall standard of living in human history?
Bob Natas,
I have put the question to the field- at DeLong's site, at Krugman's, at Cowen's, etc. Only one person ever took a shot at it, and his/her response basically came down to arguing that the government spending is better because it adds 100%to the GDP headline number by definition.
Here is my problem with the stimulus adherents (and Megan makes exactly the same point in the previous post on this topic, and more eloquently) the infrastructure additions/improvements should stand on their own merits as good, positive investments for the future, and not as stimulus, or shocks to the economy. If you believe a shock stimulus is needed (and I am firmly in the camp that thinks such economic reasoning is actually the source of the disease), then why not advocate direct transfers of cash so that you don't have to worry about the coordination problems of having politicians all over the country trying to decide who to pay off.
The irony is that these same people would be screaming bloody murder if it was a state-sponsored pet organ transplant system that was in danger of being cut. I can hear it now:
"That program employs highly skilled surgeons! Surely you don't want the puppies to suffer?"
It pains me that people can take an argument like "Do you see how poorly our government prioritizes its expenditures? Just look at the bridges on the East River!" and use it as a reason why we should all fork over even yet still more of our hard-earned cash.
Or at least, it pains me that they do it with no sense of irony.
Posted by Basic Fact | February 3, 2009 4:49 PM
A litany of insults does not a case make.
Speaking of trolls, your failure to even attempt to answer a basic, straitforward question says it all.
Are proponents of the stimulus also in favor of suspending Davis-Bacon prevailing wage laws, so more people could be employed/more projects funded for the same amount of money?
You know, the problem with a site like this is that people just argue their biases. There are right wingers who just KNOW that all government spending is bad ( except military spending of course) and that fiscal stimulus can NEVER work because Ayn Rand or some other non-economist said so. They explain that fiscal stimulus never helped in the Great Depression. Its been pointed out elsewhere on this thread that fiscal spending did help grow the economy during the GD. Its been pointed out that the scholarly consensus is that expansive fiscal and monetary policy helped ameliorate the GD and that the massive fiscal spending of WW2 ended it. Its been pointed out that most economists believe this, including liberals like Krugman and conservatives like Bruce Bartlett. Those same economists support a stimulus package, disagreeing only on the mix.
Despite all this, folks are still continuing to argue that fiscal stimulus don't work. They simply ignore liberal economists, conservative economists and even the CBO analysis. Nope, none of this are good enough, simply because they don't agree with the right wing canard that fiscal stimulus doesn't work.
IMO, its like arguing whether the world is round. The matter has been settled.Lets argue on the shape of the stimulus, rather than going round in repeating such homey "truths" as the federal government should be like a household , neither a lender nor a borrower be, government is the problem, etc. Such metaphors may make us feel good, but they aint the real world. In short, on economic issues, listen to the experts, please.
"A litany of insults does not a case make."
--sugar, nor does your litany of unicorn-based talking points.
"your failure to even attempt to answer a basic, straitforward question says it all."
----your failure to propose a question not couched in the assumptions based on marxist crazy talk having no basis in reality--such as that all rich people are servants of Mammon, the U.S government helps the rich and hurts then poor, and poor people deserve all the money rich people have---as well your I'm-high-on-paint-thinner idea idea that 40% of people in the richest country in the world have no money at all---
well, sugar, you get no response. Back to Das Kapital with you!
How do they get this 1.5 multiplier? I am not an economist, so help me out.
Is the reasoning something like this?:
Each person in a chain saves fraction 1-x of what they get, and spends x, then the total stimulative effect something like x + x^2 + x^3 + ... = x/(1-x)
For this to be = 1.5 is the same as saying that people will spend 60% of what they receive.
This seems a bit optimistic to me. It seems like there are a couple of factors at work here: short term (non-saved) money, and saved money that makes its way to banks and helps capital formation.
Has the Obama administration explained their reasoning on this?
stonetools,
I stopped about two sentences in. I could probably be described as right-winger, simply because I agree with a lot of the policies, supposedly espoused by Republican politicians, but will not vote for most Republicans and think most (would say all, but I don't know them all and guess there must be a good 1 or 2) of them are just as much of the problem as the Democrats.
And I would be fine with cutting defense spending. I'd be fine with cutting spending across the board.
I don't know why people think ANY budget should increase in a time like this.
To all of you citing the GDP stats from FDR; GDP is a lousy way to guage the health of the economy. GDP growth was over 4% for most of Carter's term too. Does that mean the economy was good? Did the economy improve from the Ford term? GDP measures activity, not productive activity.
Both sides of this debate have a paucity of facts at hand. The value of the multiplier for deficit financed tax cuts or deficit financed government spending cannot be known and cannot be derived from past experience. Conditions are not the same today as they were in past recessions or depressions. It seems rather obvious that different starting conditions would affect the multiplier. To my knowledge there is no time in the past when we've tried to stimulate an economy with debt at 350% of GDP with either tax cuts or government spending.
I don't believe there is any getting around the fact that we have to reduce our debt level. That being the case, I wouldn't favor tax cuts or government spending increases. I would favor a change in the mix of taxes. I would favor reducing taxes on capital (corporate taxes, captial gains, etc.) and income. We shouldn't be taxing the very things we desire. To offset the revenue loss, I would favor increasing taxes on consumption. We need to spend less and save more. I don't care how loudly the Keynesians shout, economic growth is not a result of consumption. Consumption is a result of growth. You have to have the growth first and that comes from investing capital wisely. And no I don't believe government will invest our scarce capital wisely.
I think the burden of proof is on those who believe that borrowing and spending more is the cure for having borrowed and spent too much. That includes those advocating tax cuts as well as those advocating spending.
Just to clarify my last paragraph. The burden of proof is on both sides. Deficit financed tax cuts that allow individuals to spend are just as bad in this situation as borrowing so the state can spend. We should only cut taxes to the extent that we cut government spending. We should only spend on new government projects/programs to the extent that we reduce spending on old projects/programs.
Love the "open forum" Megan.
Are you gonna embargo this comment too?
To all of you citing the GDP stats from FDR; GDP is a lousy way to guage the health of the economy.
Now that reviving decent GDP growth might require higher taxes on the rich, conservatives have suddenly decided that GDP growth is a poor measure of economic health. During the Bush years, of course, when statistics showed that most households' incomes had been stagnant for decades and had fallen during Bush's presidency, conservatives would reply: "But look at GDP growth!"
GDP growth was over 4% for most of Carter's term too. Does that mean the economy was good?
Yes. Carter's presidency was better for most Americans than Reagan's. Also, Carter reduced the federal debt and the deficit, while Reagan increased both dramatically; economic growth during the Reagan administration was largely a result of government stimulus through deficit spending directed at wealthier Americans.
Rob Lyman
That's all fine, but my point is that my discount rate, in this case, is at most 0. (At least that is what I seem to be claiming) The claim that "As any fool knows, discount rates are always positive for all persons and at all times" is seen to be false with a single counterexample. As with most big issues like this, it is probably the case that there is some economic research could (or has) answered this question beyond a reasonable doubt. I simply don't think the guy Billswift has any actually evidence (as in research) to assert what he did.
Y Ward
I guess the thing is this: I am no expert on economics, so I don't claim to be up on the literature. However, as I said earlier, I would be shocked if the sort of choice you are describing had not been studied. We should probably determine what the consensus is. I seem to remember some research Krugman mentioned on his website not that long ago that claimed roughly that stimulus type arrangements "work better" from some crude standpoint than simply handing out money, but no doubt its possible to find someone else to dispute this claim. Again, I don't have a way (short of trying to learn a fair amount of econometrics) of determining the quality of this paper, or any other economic research paper. I suspect most of us are in that position.
My objection, though, is not with this paper, or any number of papers or study groups. I just find it suspicious that McCardle (and others, like T. Cowen) seem to be arriving at conclusions as a result of their prior beliefs. That is to say, I don't think any evidence would be sufficient to convince McCardle (or Cowen) that they were wrong about this issue. It is sort of a theology with them.
the infrastructure additions/improvements should stand on their own merits as good, positive investments for the future, and not as stimulus, or shocks to the economy. If you believe a shock stimulus is needed (and I am firmly in the camp that thinks such economic reasoning is actually the source of the disease), then why not advocate direct transfers of cash so that you don't have to worry about the coordination problems of having politicians all over the country trying to decide who to pay off.
Yancey, your question has been answered over and over and over and over again.
We are doing BOTH direct cash transfers AND infrastructure spending. The stimulus is intended to address the fact that the velocity of the money in our economy is falling: people are not spending their money, and when they save it, banks are not loaning it out (because people are not spending, hence investment is unwise). The problem with cash transfers is that most individuals will save most of them rather than spending them, which only serves to drive the yield of government bonds down towards 0 and does nothing to help the economy pull out of its downward spiral. The cash transfers, while useful in many ways, will have a low multiplier and will not do enough to get velocity (and hence productivity) back up.
That is why we are ALSO going to have to do more direct government spending. Because private citizens and businesses cannot take the risk of spending individually to break the liquidity trap, the government must take that risk.
And because there is a very large backlog of highly productive government projects (meeting the criterion that their social value is higher than their private value) which have not been funded due to political intransigence and poor priorities over the past 8+ years, this is very easy to do. America's roads and bridges and schoolhouses are poorly maintained. American basic scientific research is underfunded. America's National Parks are in disrepair.
Finally, the reason this spending is wise and urgent is BOTH that the spending makes sense on its own terms -- these are projects that should have been funded five years ago but weren't for political reasons -- AND that we need a burst of government demand right now to pull us out of a liquidity trap.
For reasons of 1. ideology and 2. privileged class self-interest, people such as yourself are doing what John Quiggin identified as a "(Texas) two-step" style of argument to try to wiggle away from the need for government spending: when the projects are advocated on their own terms, you will argue that government spending is by definition less effective than private spending. When the spending is advocated as stimulus, you will hop onto the other foot and argue that stimulus cannot work unless the projects themselves are justified. This pose of deliberate obtuseness has a certain political utility, but as the polls are showing, it doesn't work when people can see the economic reality staring them in the face, in the form of a high possibility that they will lose their jobs.
Its been pointed out elsewhere on this thread that fiscal spending did help grow the economy during the GD. Its been pointed out that the scholarly consensus is that expansive fiscal and monetary policy helped ameliorate the GD and that the massive fiscal spending of WW2 ended it. Its been pointed out that most economists believe this, including liberals like Krugman and conservatives like Bruce Bartlett. Those same economists support a stimulus package, disagreeing only on the mix.
Krugman isn't even an economist any more - he's a propagandist for the Democrats. Bartlett I don't know, so I couldn't say what his story is. I wonder why it is that you believe the scholarly consensus you're asserting here or that "most economists" support the stimulus, though. Do you have any reason to believe this is actually true, or did you mean "most of the economists I follow"?
Stimulus proponents can not reasonably make predictions about the salutary effects of this wild spending spree until they explain what's been going on in Japan for the last two decades. It's really that simple. Japan has followed exactly the prescription proposed for the US economy and yet they're in the same tight spot with a whole lot less money. And they started with more savings and booming export markets.
Jennifer, I have no interaction with our spam filter; we now get so many spams a minute that it isn't possible for me to retrieve comments. Try rephrasing and reposting.
Matt Steinglass-
I'm copy/pasting your last post into an email I'm sending to my co-workers (who are having a discussion about the stimulus) and claiming your words as my own. (I feel alot better about it now that I've owned up to it. I hope you do too.)
Jennifer-
You've made a valiant effort, but I hope you're starting to see now that BasicFact is not really here to engage in a meaningful dialogue. BasicFact's posts are written as graffiti - it's intended to be a 1 way poke in the eye to the likely reader. No matter how hard you try, no matter how effectively you debate, she's not going to cede any ground to you. (Although to be fair, she made that quite clear from her first post...'not my president' etc etc). The best thing to do is to not make eye-contact and keep on walking...
Stimulus proponents can not reasonably make predictions about the salutary effects of this wild spending spree until they explain what's been going on in Japan for the last two decades.
1. As I understand it Japan never got much of its banks' bad debts off their books. We should do so. 2. Japan's economy grew every year, if slowly, from 1991-2004. In 2005-2007 it grew at a healthy pace (2.8% and such). Then it was cold-cocked in September by the US's economic crisis. 3. Since Japan's population is and falling, slow GDP growth means healthy growth in productivity and GDP per capita. In other words, part of the reason Japan is growing slow is that its population is aging very fast, and either retiring or, um, not existing. This is not true in the US, where population is growing at 2% per year, and greying much more slowly.
There. I explained it. Got a problem?
If the pro-stimulus folks get to use bridges as their poster-project(Building bridges - its like puppies or apple pie) then the tax cuts people should be allowed the same leeway - maybe tax cuts that the capitalist immediately uses to build a factory.
Because in reality, the money isn't going to bridges but a grab bag of non-infrastructure stuff plus dog parks. (And bridge building companies can't hire mortgage brokers anyways)
I doubt most people would be against actual infrastructure projects. But that not exactly what the stimulus is about, eh.
They should pass the bill in sections...one for infrastructure and proper stimulus, one for relief (which again, most people are not against), and one for tax cuts/incentives for increasing jobs.
And seriously folks, the tax cuts people are talking about are for payroll taxes or for businesses...those seem pretty useful in the situation we are in, no?
It's low tide. Eventually it will be high tide again. Dumping buckets of water, even a trillion buckets of water, into the ocean may get the beach a little bit wet, but the tide isn't rolling in until it is damned well ready. It makes no sense to waste what water we have for other things to try to force nature to do what we think is best. The very premise of "stimulus" is a flawed fig leaf for government meddling in the affairs of ordinary citizens.
Jennifer:
"Are you gonna embargo this comment too?"
--unlock the caps lock button and try using non-four-letter words there, sweetie.
ssdagg:
You've made a valiant effort, but I hope you're starting to see now that BasicFact is not really here to engage in a meaningful dialogue."
---I love when liberals lose arguments because of abject stupidity. They start pretending conservatives/libertarians are "not really here to engage in a meaningful dialogue." It's a case study in how bipartisanship, to a liberal, means conservatives stfu and doing what liberals say.
"BasicFact's posts are written as graffiti - it's intended to be a 1 way poke in the eye to the likely reader"
---More like a kick in the keister. But continue, dog.
"No matter how hard you try, no matter how effectively you debate, she's not going to cede any ground to you."
---of course, that assumes Jennifer effectively debates, as opposed to, say, reading the Soviet economic opinion of America from 1974.
"(Although to be fair, liberals made that quite clear from 2000 onwards...'not my president' etc etc)."
---FTFY
"The best thing to do is to not make eye-contact and keep on walking..."
----because being schooled will make you doubt the almighty democratic party's logic....
Oh, there's no doubt it would eventually "go away"; I guess the question is how long do you want to wait and how much wealth will be destroyed along the way?
Jennifer, is there no doubt? Because I have seen very few articles in favour of the stimulus that have mentioned that the economy will recover of its own accord sooner or later. To judge by their words, those articles authors certainly do not believe that the economy can recover on its own.
The economy is going to be "in the doldrums" for a minimum of another 2 - 3 years, stimulus or no. That in and of itself is going to give us a minimum half-decade of no or low growth. That's what happens in financial crises - they're bigger than a garden-variety recession and it takes longer to recover from them.
I am suffering from an illness, from which I know I will recover eventually. My doctor proposes to bleed me to speed up the recovery, at great expense. Under what circumstances should I agree? At the very least, I need to know that the treatment will not make we worse off than I am now. I need to know that it will not delay my natural recovery. And I need to know that my recovery will be speeded up enough to make the cost worth while.
The fact that I know I am ill is not, in itself, enough reason to pay a lot of money to be bled. I have to have positive evidence that it will work.
A lot of people did agree to be bled, though, simply because they did not want to be “indecisive do-nothings” like President Hoover.
There are always more ways to make things worse than better. If you do not know what to do, do nothing.
Matt B - Re: "What good are tax cuts when people are getting laid off left and right?"
Tax cuts leave more money for private sector investment and hiring, reducing the extent that people get laid off left and right.
odograph - Re: "Hoover was the ditherer and that Roosevelt (even with flawed policies) proved that government sometimes has to be X of last resort."
Hoover was far more like Roosevelt in his response to the depression than most people realize. Roosevelt was a more active interventionist than Hoover, but Hoover was more active than any president before him.
Roosevelt's trying to act as the "X of last resort", for so many different X's in so many changing ways, is one of the reasons why you had the depression continue for so long.
DaveinHackensack - Re: "Regarding the size of a fiscal stimulus, why not start with an estimate of how much the economy would contract without one and then aim for a stimulus of about that amount?"
That's a good plan if you make ALL of the following assumptions. 1 - That the stimulus will actually work to improve the economy to that extent, 2 - That it will do so at the right time, when the economy is doing very poorly, and not take effect later, possibly when the economy is doing well, pushing things to a new bubble, and 3 - That there will not be harmful effects from the stimulus that are equal to or greater than the benefits.
I don't make any of those assumptions.
Re: "but in the present the government is not taking extra money from you, me, etc., to spend it on building classrooms: it's borrowing the extra money (at historically low rates)."
Borrowing money also pulls money out of the private sector. You crowd out private spending, except perhaps at times when massive credit is easily available from many sources. Now is not one of those times.
You do know that the Japanese really did not try Keynesian style stimulus of anything resembling the prescibed size for their problems --- right...
"Let's Tax Savings --
A more inane idea I have never found.
The Japan experience is in its own way a success. It is a success because of the high savings rate of the Japanese household.
Japanese economist Richard Koo told Radio National this morning that:
...You never become a hero by pre-empting a crisis...and that's what happened in Japan. Japanese GDP never fell during the last 18 years compared to the peak of the bubble. But that was because of all the preemptive fiscal spending...we saw our commercial real estate prices fall 87 percent from the peak...but we managed to keep our GDP from falling...our unemployment rate never went above 5.5%. All that suggests that Japan was doing the right thing...what the Japanese have proven is that, even with massive collapse in asset prices, as long as you have a preemptive fiscal stimulus to keep GDP from falling, then people have the income to pay down debt...Japan has proven that it can be done without first experiencing a massive depression or even a war, which was often the way many countries came out of these recessions in the past...
What Krugman and the anal Keynesians seem not to realize is that for households there is an equilibrium rate of savings which induces spending on other than essentials. The rise in housing values created the the illusion of savings which induced consumers to engage in massive dis-savings (consumer and installment debt)
When housing fell off the cliff, the dis-savings were exposed for what they were. Job losses merely compounded the situation. So now they spend on essentials and not much else. Krugman needs to study what that equilibrium level of savings might be and consider that recovery must be a two step affair.
Others suggest that we must increase social welfare payments to the unemployed and have them spend. We truly do not know the extent of unemployment, because all these brilliant economists can not measure the extent of the Gray Market -- the cash and barter economy. In the lwoer income areas, employers willingly participate in this economy and employees use this to increase total take home income and maintain social welfare transfer payments at the same time.
The Gray Market eliminates the most regressive taxes --withholding, social security and medicare and fosters the related under reporting of of small business income as well as that of suppliers. Government economic policies should be designed to minimize the size of the Gray Market by raising the threhshold for income tax liability (eliminating withholding at the minimum eage levels, and also eliminating the regressive employee side of the social security and medicare taxes oat the lowest wage levels.
It should also put citizens and othe legal residents back to work by aggressively deporting illegal aliens and their families, while modifying welfare into workfare. Yes, the market clearing wages would have to go up on a one time basis, increasing consumer prices. I would venture that the full effect of these wages would result in employers contributing more to the social welfare system in their states.
Politicians are addicted to OPM -- other people's money, an inexpensive way to maintain their electoral plantations. Of course they love the "Porkzilla" stimulus bill to give money to the public sector to spend. Control and reelection are their goals.
To go back to Japan's experience.
The Japanese situation is different. Most basic is the level of household saving and the continuity of those savings. This assisted the the government in keeping the GDP from collapsing.
There may have been a second difference.
The collapse in real estate prices represents a significant reduction in the balance sheets, destroying its opposing entry --equity. The question to be asked -- to determine if there is a parallel with our stimulus planning. People remained employed, but was the low unemployment rate because of continued employment in the private sector or temporary or permanent employment in the public sector?
Given the continuing level of exports (necessary to the functioning of their economy), I would suspect that it was private sector employment that was maintained.
Truthful James
Buffalo Grove, Illinois
peterdee99@hotmail.com