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January 29, 2009

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Actually, as has been pointed out several times on other threads, tax cuts/rebates, credits, are going to have very limited effect on the economy, whereas infrastructure spending, going towards projects that have gone through all the preliminary stage will provide an immediate jolt.

The only problem with the package as planned (which is properly labeld recovery and not stimulous), is that there are too many tax cuts and not enough spending.

Actually, as has been pointed out several times on other threads, tax cuts/rebates, credits, are going to have very limited effect on the economy, whereas infrastructure spending, going towards projects that have gone through all the preliminary stage will provide an immediate jolt.

Then this stimulus package has no jolt at all, and shouldn't be passed at all for that reason. (I happen to disagree with your premise as well, although, given the complexities - not all spending and tax cuts are created equal - we'll save the debate for another day.)

I'm getting lost in Divisions A and B and so on. Is the chief complaint here that some sizeable percentage of the funds allocated in the bill aren't near term stimulus as such and therefore ought not to be spent?

There is no reason why we cannot pass parts of Division B right quick and spend an extra month considering the ramifications of Division A

Seems so.

Here's what I noted elsewhere (as have other commenters here and other elsewheres):

You're gonna get boondogglery either way; your duty, citizen, is to remain vigilant! Better to bite the bullet and have one bruising political battle now rather than one bruising political battle now and another bruising political battle later when you decide to push the longterm infrastructure redo.

Second, more money guaranteed to flow into the economy later may not be stimulus as such, but it should put a damper on sensations of panic. Better, it will allow firms and investors and lenders to look ahead to stability and growth and plan accordingly, especially if those firms and investors and lenders are connected to sectors on the receiving end of the largesse.


I'm getting lost in Divisions A and B and so on. Is the chief complaint here that some sizeable percentage of the funds allocated in the bill aren't near term stimulus as such and therefore ought not to be spent?

Not "ought not be spent."

My point is that the stimulus consists of immediate-impact things (Division B) and slow-impact things (Division A). We're told that we have to rush both through to achieve salvation. That may be true or it may not be true - but if it is true, it's only true for Division B because of the time frames involved. So focus on Division B and spend an extra month - a negligible period of time, really - trying to decide exactly what should be included in Division A.

So your position that the recession ends in 2009 is from an Andrew Sullivan post referencing a CR post from 1/8/09 about the consensus opinion? I think you may be a trifle out of date.

So focus on Division B and spend an extra month - a negligible period of time, really - trying to decide exactly what should be included in Division A.

Why have two political battles when one will do? If there are problems with the longterm spending decisions included in this particular bill, Congress and the President will have plenty of time to adjust priorities before the funds are actually spent.

this isn't your main point, but I'm annoyed with the idea that tax cuts and direct payments to individuals/the states aren't "spending" but giving money to some contractor to, say, build another bridge across the Potomac is "spending."

They're both spending, only with the former you've outsourced the decision as to what the funds get spent on (assuming they are spent at all).

Well it's not like von is the only one to suggest that the infrastructure spending won't be good "stimulus" to end the recession. Democratic affiliates have said the same.

Personally I am all for breaking the bill up into different pieces and having the stimulus more targeted...because I don't think that the stimulus will work but I do think that long term infrastructure is critically important. I don't want all the very good long term plans to be derailed just because the tax cuts don't actually help anything.


I'm getting the feeling this 'von' entity has one and only one basic point:

The government should not be spending money on the nation's infrastructure.

This would interfere with the basic mission of government, which is to make sure that the ruling class is not impeded from accumulating more money and power.

This would interfere with the basic mission of government, which is to make sure that the ruling class is not impeded from accumulating more money and power.

Also, invading other countries for their oil and torturin' innocents!

I'm getting the feeling this 'von' entity ...

I like to think of 'von' as a subchapter S corporation: an entity that has the goodness of limited liability for state law purposes and the sweetness of transparency for U.S. federal income tax purposes, all rolled into one nice small-business package.

von,

I one of those prior threads you claimed that housing prices are currently "bottoming out" in support of the notion that this recession may not be of long duration. I provided">http://obsidianwings.blogs.com/obsidian_wings/2009/01/a-stimulus-for-tomorrow-part-2.html#comment-6a00d834515c2369e2010536f576cb970b">provided links to Case-Shiller data and to CalcRisk's graphing of that data which strongly suggest we are only halfway down.

This is an important point of evidence because in a normal recession housing leads other sectors in recovering - it leads rather than lags. If this recession is to end by early 2010 then we should see new housing starts trending up by mid-year this year. That would come as welcome news to the home builders. I’m not hearing this at all, and I have professional contacts in that industry.

Here is another leading indicator, per CalcRisk: architectural billing index. This index measures the business activity of architectural firms, which precede construction projects in the CRE sector.

The ABI typically leads construction spending by about 9 to 12 months according to AIA chief economist Kermit Baker. This graph also suggests the collapse will be very sharp, and although there isn't enough data to know if this is predictive of the percentage decline in spending, it does suggest a possible year-over-year decline of perhaps 30% in non-residential construction spending.

Do you concede this point, that leading indicators in RRE and CRE do not support your idea that the recession may be short, or do you have a response?

I agree generally that the stimulus needs to be more front-loaded. But let's assume that the recession formally ends at the end of 2009. That means is that the rate of GDP change is once again positive - but there is still going to be a massive gap between GDP and potential GDP, which will take years to close. So it's appropriate for stimulus to continue beyond 2010 and even 2011, because we will still be in an underperforming economy. That said, the worst pain will be in 2009 and 2010 by far, and the current stimulus proposal is far, far too modest with respect to mitigating the short-term pain. I think the best option is to keep most of the current stimulus as it is, but load a couple hundred billion in additional spending, mostly tax cuts, onto the front end.

> invading other countries for their oil and torturin' innocents!

Regrettably, that doesn't work as satire, because it has too much truth in it. That's kind of a pre-2001 remark ...

My point is that you don't have a real point, von.

Tax cuts and direct payments are faster but infrastructure spending has more effective velocity.

Either way - so what - none of this is nearly big enough to 'solve' this crisis. The point of the stimulus package is, I think, to avert total collapse.

I believe consumers spent about $800 billion from MEW in 2007 alone. The sudden almost complete lack of MEW consumer spending is just ONE of the factors making up this recession.

The Great Depression took about three years from 1929 to take complete effect (GDP to reach bottom.)

Looking three years out is not in the least bit dumb. I think it's quite likely the economy will be under capacity for ten years.

I have two points to make:
First, there is a distinct possibility that the spending in division A will not be spent by the the people who receive the money. If the "Bush Stimulus" can be taken as indicative of what is going to happen the money will go into paying down dept. A good thing, no doubt, but it will not get the economy moving. The devision B money will be spent. By its very nature, most of it has to be spent and this will move the economy.

Second, too much faith is being given to the 'prediction' that the Recession will end by 2011. First the definition has not been clearly stated. When an Economist says a Recession has 'ended' he(she) often means that the contraction of the economy has stopped and not that the economy has started to expand, nor that the effects have ended.

Consider this scenario: The economy stops contracting in first quarter of 2011 but is only expands at the annual rate of 0.001% for the next few years, what then?

This is what I see as the reason for division A spending. Planing ahead farther than the next quarter to ensure that the recovery, when it comes is not anemic.

On a personal note, I hold that graphs without scales are worse than worthless, they are implicitly false.

TheWesson, knowing von for likely longer than you have, I don't think that's his point. But he can speak for himself.

Rather, I see him saying "stimulus A has very immediate effects, stimulus B takes longer, therefore let's rush A through because we need something now, but take time to study B because it's a longer-term tool."

Is that about the size of it, von?

Assuming for the sake of argument that it is, there are two problems that I see in this line of reasoning. The first is that we don't agree on basic facts about the premise on which your argument rests: to wit, that infrastructure spending has a more long-term effect on the economy, whereas tax cuts give it an immediate jolt. No.

From everything I've seen and read, it's actually the opposite in cases where the projects are at a stage where they can quickly move forward. In that case you're creating immediate jobs, producing immediate value for communities, and in the process investing that money in something enduring and of long-term value. With tax cuts or rebates, it depends very much on who's getting them, and even rebates take months to make their way to their targets, let alone have any trickle-down effect on the economy.

The second flaw in this argument is the assertion that because something will take much longer, it should be delayed in favor of something that works right now. You can make an argument at least as compelling that you should move on the longer-term solutions more quickly, so that they will be available sooner.

von seems to be making the following points:

1) The infrastructure part of the stimulus is too large, unless it isn't large enough;

2) A problem with the infrastructure part of the stimulus is that it doesn't arrive soon enough, so the proper response is to put off for several months implementing it;

3) In order to avoid making mistakes that he doesn't specify, we need to go back to the drawing board for all of the infrastructure spending, rather than going ahead with some things and writing an additional bill later.

I'm somewhat sympathetic to the idea that infrastructure spending needs to be thought through, and it's worth taking the time to get it right. However, I can't help the feeling that von isn't making this argument on its own merit, but, rather, is throwing every idea he can come up with against the wall to see what sticks, rather than engaging in intellectual honesty.

"I'm getting the feeling this 'von' entity has one and only one basic point:

The government should not be spending money on the nation's infrastructure."

almost.

You need: ...by justifying it as stimulus when it isn't. It should be justified on its own merits.

Now you pretty much have it right.

Forgetting the stimulus implications for a moment, shouldn't there be an urgency to put money into the nation's infrastructure anyway?

What happened to the outcry and concern over the country's crumbling infrastructure after the Minneapolis bridge collapse?

What about the pipe-bursting incident that caused that Virignia road, I believe it was, into a river?

Isn't this money needed anyway? And why is it such a hard sell?

Castsy, "From everything I've seen and read, it's actually the opposite in cases where the projects are at a stage where they can quickly move forward. In that case you're creating immediate jobs, producing immediate value for communities, and in the process investing that money in something enduring and of long-term value."

That is true, and has pretty much nothing to do with the cases at hand, where the spending isn't projected to begin on many such projects until almost the end of 2010. Which is precisely von's point.

"The second flaw in this argument is the assertion that because something will take much longer, it should be delayed in favor of something that works right now. You can make an argument at least as compelling that you should move on the longer-term solutions more quickly, so that they will be available sooner."

Not really. The immediate stimulus package can/should be dealt with now. If stuff isn't going to happen until 2010, we certainly have at least 2-3 months to sift through it and make it really effective. We are at the throwing stuff around stage, which is always dangerous for considered analysis. So we throw short term stuff around because we feel we have to do it NOW. For stuff that isn't going to be done until the very end of 2010 we can spend at least a week, and probably up to 2 or 3 months actually looking at it. Right?

If stuff isn't going to happen until 2010, we certainly have at least 2-3 months to sift through it and make it really effective.

I'm not sure this is true. Even shovel-ready projects have lead times. You can have plans ready to go, but you still need to put together a Request For Proposals, give companies long enough to actually write proposals, select a bid, go through the permits and appeals process, etc. All of this takes time, so if you start this sort of project today, you won't necessarily see significant outlays for months or even a year.

Sebastian, please explain how waiting 2-3 months deciding whether or not to undertake projects does not mean that it will be an additional 2-3 months before the spending takes place. If the argument is that the stimulus doesn't occur soon enough, how is this not a problem?


> ...by justifying it as stimulus when it isn't. It should be justified on its own merits.

Why can't a given project have multiple justifications?

E.g.:
1) The EPA needs more office chairs (last set bought in 1999 say.)
2) Chair manufacturers will create (or save) X jobs by getting the EPA new office chairs, thereby reducing the shrinkage of the economy by Y dollars.

Keynes believed you could help the economy by setting people to work digging holes and filling them in. (Beats watching TV as an economic stimulus anyhow.)

If you have unused capacity, it's actually not a critical question what it's spent on. It's a bonus if it's actually useful.

Under more normal circumstances, the bar for government spending should be somewhat higher, because then the government is not taking up unused capacity, it's diverting resources away from places where it could be more useful.

Under these circumstances we could spend a couple trillion making elaborate machines, sending them to faraway lands, and blowing them up. That would also help. Doing something useful with the money is icing on the cake.

If people do use tax cuts or direct payments to pay down their debts, those dollars really do nothing to reduce to total public and private debt. It's just a conversion of one type of debt into another. Maybe that's a good thing in so far as the debt can be paid off over a longer term, but there's no reduction going on. It just lets people collectively hand their credit card (or whatever) bills to their collective kids to pay them when they grow up. Of what does actually get spent, how much will be spent on what I think TLTIA (not sure) termed "low-value Chinese goods"?

I think there are quite a few worthwhile projects that are bid-ready and stalled for lack of funding. Issuing bonds isn't what it used to be, revenues are down at almost all levels and there's a lot of belt tightening as a result. So long as the federal dollars don't come with a lot of extra strings attached (if anyone remembers the NEPA discussion), I think there are jobs to be created/saved in a matter of a few months. I like the idea of giving people money in exchange for creating things of value, in the US, a lot more than giving them money just so they have something to spend, possibly on stuff that will save more jobs outside the US, while they're out of work.

Even we don't end up with a lot of new stuff in the end, at least we can keep the old stuff from falling completely to pieces.

"Keynes believed you could help the economy by setting people to work digging holes and filling them in...Under these circumstances we could spend a couple trillion making elaborate machines, sending them to faraway lands, and blowing them up."

This is the epitome of what is wrong with economic modeling. Of course that wouldn't really help, it'd only help in a magical fantasy land sort of way. In no way am I saying that some of Keynes ideas aren't useful (especially about the government stepping in to do constructive spending) but when we start doing things that are just intrinsically stupid because it would help our messed up self imposed construct of reality...it shows we need to change our self imposed constructs.

"Keynes believed you could help the economy by setting people to work digging holes and filling them in...Under these circumstances we could spend a couple trillion making elaborate machines, sending them to faraway lands, and blowing them up."

Instead, we could build lots of houses that will sit empty and slowly fall apart.

First off, I'm sorry if I'm less active today on the boards. Work calls.

Second, That Left Turn deserves a response to his point on the prior thread regarding housing prices, which he restates here. I agree that the market is still in the gutter, but I don't know that it's "half way" down and I don't see the basis for that conclusion in the links. (I of course see the conclusion in the linked material, but it's not supported by any analysis.) But there's been a recent 6.5% increase in sales and inventory declined to 11.7%. A blip? Maybe. Or maybe the start of a bottoming out. (Source: http://www.americanbanker.com/usb_article.html?id=20090126ZPMC0W20).

So I don't concede the point. Nor, importantly, do I agree that the point is relevant even if it is correct. I am not projecting a "short recession." In fact, my arguments here hold if the recession continues for another four full quarters (through 1Q 2010), if not longer.

Third, in response to Turbulence: there are not many shovel-ready projects in Division A. (Check for yourself, but "shovel ready" is really an urban myth.) But a two month delay in approving a shovel-ready project probably translates into ... a two month delay.

von - i agree that you arguments seem to be tension:

1 - You argue that the stimulus doesn't come soon enough. But that only works with a very optimistic assumption about when the recession will end.

2 - If it goes on longer, you treat it as being INSUFFICIENT.

I'd echo a few other points too. I think we're going to still need a big stimulus in 2010. Plus, we know that 100% of this money will actually be spent. We don't know what people will do with tax cuts (that's why they aren't as effective as say food stamps and infrastructure projects).

As for the deficits, that will happen. But micro isn't macro. Sometimes you have to go into a deficit to avoid larger harm. People don't seem ot have lost their taste for treasury bonds at the moment. until that day, i'm not as worried *given the circumstances*

2) A problem with the infrastructure part of the stimulus is that it doesn't arrive soon enough, so the proper response is to put off for several months implementing it;

No, the problem with the infrastructure/spending part of the package is that it's not a true part of the stimulus. It's not the "jolt." So, let's do it right.

Also, I'm a Nevada Chapter S corporation.

"Sebastian, please explain how waiting 2-3 months deciding whether or not to undertake projects does not mean that it will be an additional 2-3 months before the spending takes place. If the argument is that the stimulus doesn't occur soon enough, how is this not a problem?"

Because it isn't really stimulus.

If we aren't doing enough actual stimulus, we should do more.

That is independent from having a pell-mell of projects that might or might not be a good bridge after immediate stimulus. And you seem to be falling into the planning paradox. For infrastructure projects, a little planning makes them much more efficient. This isn't infinitely extendable as a principle of course. And it is very likely that governments in actuality waste time planning. But that is the "It takes 10-15 years to get anything done" scale rather than "hey can't we use 2 months" scale.

You really can't have it both ways. If the span of one or two months is going to be CRUCIAL to the economy, we can't really wait until the end of 2010 (22 months away) to it so we really should do something now.

The CRUCIAL stuff we should schedule for this year and at the very latest the beginning of next year. If we need to bridge from there, we can start planning that in the next 1-2 months, leaving us 20-21 months to implement it. Since an enormous part of the long implementation is government regulations anyway, that can be worked around with waivers (and that is almost certainly going to happen anyway).

TheWesson: "Keynes believed you could help the economy by setting people to work digging holes and filling them in. (Beats watching TV as an economic stimulus anyhow.)"

I'm pretty sure he didn't. And I'm absolutely sure that modern Keynesians like Krugman don't believe that.

SATIPO: "No time to argue. Throw me the idol, I throw you the whip."

von,

Thanks for the fast response, which I appreciate. This discussion probably feels like a swarm of gnats buzzing around your head.

To clarify my points that you disagree with, when I say halfway down I mean that the Case-Shiller data shows flat growth in housing prices for an extended period of time against which the bubble clearly stands out. If you compare the peak of the bubble to a baseline projected from the 10 years of data prior to the bubble, it looks like housing prices are currently about halfway between the bubble peak and that baseline.

With regard to the link you just quoted at americanbanker, I think perhaps you may be misunderstanding the significance of housing sales vs. housing starts. Sales in and of themselves do not signify that the housing market is expanding, which is the mechanism whereby the housing sector leads out of a recession.

If I am living in too large of a house for my needs and you are living in too small of a house for yours, then we can both put our homes on the market. If I purchase your house and you purchase mine that generates 2 sales, causing sales to go up. But aside from real estate agents and moving van companies, nobody in the broader economy benefits from this activity, because no new homes have been constructed, we're just trading places.

The increase in sales volume that you are seeing right now is being driven by REO sales (i.e. foreclosures being sold off), which is very similar to the scenario I just outlined.

Housing starts (the construction of brand new homes) on the other hand are a leading indicator of economic recovery because they represent new construction, with all of the spillover spending which that generates. Not only do the construction companies and building contractors spend the money they are earning, but typically new homes once occupied need to be furnished (which stimulates retail sales) and new housing developments provide a place for new service businesses to develop (gas stations, eateries, etc.)

With that distinction between sales and starts in mind, please take another look at that article you just linked to:

New residential construction numbers for December underscore just how unbalanced the housing market remains. Building permits fell 10.7 percent from November and 50.6 percent from December 2007 to 549,000 units. Housing starts slumped 15.5 percent month-over-month and 45 percent from a year earlier to 550,000.

So permits/starts are down 10-15 percent since the previous month, and 45-50 percent Year-over-Year.

That's not a bottom. That's falling off a cliff.

von, does your estimation of the time horizon for infrastructure spending to boost the economy take into account the economic leverage of guaranteed government contracts for the winning bidders? If not, then I would say that it is an insufficient model. The certain knowledge of big money jobs coming in frees up credit (and spending) for companies routinely, which would actually provide short term stimulus, even though the Federal outlay would not occur until later.

Sebastian quoted me:

>>"Keynes believed you could help the economy by setting people to work digging holes and filling them in. (Beats watching TV as an economic stimulus anyhow.)"

> I'm pretty sure he didn't. And I'm absolutely sure that modern Keynesians like Krugman don't believe that.

Sorry - you're wrong. Take a look at Krugman praising the Iraq war, then (with bonus quote from Keynes about hole digging):

http://krugman.blogs.nytimes.com/2008/02/19/bush-is-right-about-something/

I'm pretty sure he didn't. And I'm absolutely sure that modern Keynesians like Krugman don't believe that.

He did, but then quickly pointed out that digging holes would be a needlessly stupid way to go about stimulus. I think the best article written so far about the planned stimulus is this from Clive Crook:

http://clivecrook.theatlantic.com/archives/2009/01/the_cbo_on_the_fiscal_stimulus.php#more

sorry, link should be:

http://clivecrook.theatlantic.com/archives/2009/01/
the_cbo_on_the_fiscal_stimulus.php#more

TLT, I don't disagree that housing starts are a leading indicator of an economic downturn or that starts dropped again in December. But housing starts are less of an indicator for recovery. Rather, you expect to see housing inventorsy drop and sales increase before you see an effect on housing starts. You expect sales and inventory to rebound before new construction begins. Sales and inventory are a "leading indicator," if you will, for starts.

I'd just like to note that paying people to dig and refill useless holes is almost indistinguishable from a tax cut or rebate.

And to the extent that we can tell them apart, the hole digging is probably BETTER stimulus: the paychecks start arriving right away (no waiting months for a rebate, or until you see a lower tax bill in April 2010); and the paychecks will be going to working class laborers who will spend the money right away, not wealthy taxpayers or businesses who won't.


The general point is that even the most wasteful nonproductive pork (like military spending) can be useful at a time when the economy is at (or heading towards) a lower equilibrium.

If the economy was at capacity, then of course throwing money away on, say, nuclear submarines would be really dumb, and no one would seriously suggest doing that.

But in these times, usefulness of such spending is icing on the cake. Maybe we shouldn't spend all money everywhere on everything, but the bar has got to be lower.

For example, in these times I wouldn't really advocate slashing defense spending by 70%. We can look at that later, when we need to reduce the deficit and cut inflation.

I'm pretty sure he didn't. And I'm absolutely sure that modern Keynesians like Krugman don't believe that.

Well, Keynes did, and the quote is available to anyone who can google. Can't speak for Krugman, but PK has said that in deflationary economies, all out virtues become vices.

Until we can return to an inflationary economy, all increases in productivity and efficiency are deflationary and contracting. Anything that lowers the costs of inputs will lower prices, employment, effective demand, and thereby output.

Many of the FDR projects had very long term productivity payouts. Golden Gate Bridge started 1933, finished 1937, but there wasn't the economy around for massive new commodity distribution. Bonneville Dam. TVA may not have really helped aggregate demand until the South industrialized in the 50s.

So all these projects during the 30s gave no more direct support to productivity or output than digging holes in the ground. Which was the point.

In a depression, the idea is immediate gov't relief of misery with long-long-term infrastructure investment. In the medium term we will all be subprime.

"Second, most of Division A does not get spent until after the recession is projected to end by most accounts."

It's bizarre that you keep citing that link. To repeat what i said in comments on your previous post, Sullivan's post links to an attack on how clueless journalists are.

That's the journalists you are citing as support.

Your own link debunks your source!

It's completely bizarre that you regard a knock-down of your sources as support. Completely bizarre.

Sullivan's linked post is entitled "Clueless Journalists."

You'd think that might be a clue that those people are being castigated for being terrible forecasters.

Then you might read the actual post:

A survey of the nation's top financial journalists shows that many believe reporters seriously screwed up by failing to adequately warn about the financial excesses and investment bubbles that have pushed us into an economic crisis.

Sixty-two of 100 journalists surveyed by Abrams Research, the research and consulting firm started by former MSNBC chief Dan Abrams, were critical of the media’s role in the crisis. (We’d really, really like to have a long conversation with that thirty-eight percent who think the media performed just swimmingly.)

[...]

It should be noted that the journalists are now very bearish. Asked when the recession would end, 31% said early 2010, 26% said mid-2010, 22% said January 2011, and 21% said even later. The survey also asked where the DJIA would close on June 30, 2009. The average of the responses was 8639.12, or about 100 points lower than today. Since journalists screwed up so badly last time and are reliably contrary indicators, this might be a signal that we’re in for a quick recovery.

So why on God's green earth do you point to a post about how unreliable financial journalist are, to support the predictions of financial journalists, von?

How do you see that as doing your argument some good?

And why do you repeat this link when I already posted all this the last time?

Look,look around. After the economy starts growing again, companies are not going to start with a hiring binge. During the depression, they will be doing everything possible to increase efficiency and productivity, and they will very likely succeed. This is a good thing, but it means there will be no hiring or increased effective demand from the private sector for a decade. This is a good thing, and will pay off after a generation or two.

The private sector is not going to create net new jobs for years, and there is no point trying to stimulate that economy. Gov't, federal, state, local is going to do the hiring and feed the hungry.

I'd just like to note that paying people to dig and refill useless holes is almost indistinguishable from a tax cut or rebate.

No, no, no. Consider one example:

1. Give everyone $1000 nonrefundable tax credit for installing energy-efficient lighting (which costs, say $250).

2. Pay everyone $1000 to dig holes and refill them.

#1 gives people an incentive to perform a valuable act (becoming more energy efficient), provide $250 of stimulus to a third party, and provides $750 that can be used to spend or save -- all while being largely labor market neutral. Under scenario #1, I can continue with my $750/year job, which contributes to the economy, while enjoying the benefits of energy efficiency as well as $750.

#2 provides $1000 to spend or save but gives people no incentive to do anything productive and has a negative labor market impact. Under scenario 2, I quit my $750/year job to work for the government for $1000/year, thereby depriving the economy of useful work and reducing both my income and the money supply in circulation.

Re: "thereby depriving the economy of useful work and reducing both my income and the money supply in circulation" .... I should point out that the second half is by comparison to alternative #1.

"During the depression . . ."

Bob: Did I miss something?

TheWesson:

I disagree strongly. That sort of argument works in the classical economic models where every shock is exogenic in nature and resource constraints aren't paid attention to...which is my problem with nearly all of the economists. Their models have unrealistic assumptions so they can only be used to explain things that happened, not necessarily give us a way to actually figure out what to do. I really can't believe they don't even use basic differential equations, let alone nonlinear dynamics, and don't understand that you can create a best squares fit for anything but that tells you nothing about future expectations.

Sorry for that rant but that sort of thinking you said really bugs me; I hate the "equilibrium" models. They literally kill people. In the real world, wasting resources by build stuff we don't need has huge impacts because they are no longer available to use for better things in the future (and if they are renewable it comes down to the rate of utilization that you have).

This obsession with making stuff we don't need -- or even worse, our military industrial complex that literally provides "growth" by blowing stuff up -- is a big part of the problem, as well as the obsession with labor. I don't get why we should pay people to do stuff that isn't necessary instead of just giving them some baseline living. Once we have worked through all our bad debt and have some forward looking businesses in place, then we could tell people to get back to work. The Homo rationalis (or whatever they call the abstract human that populates all these assumptions) might choose not to work in that case, but in real life work gives meaning to many people and plus they'd be getting paid more anyway so they would be rewarded.

Krugman referred to Keynes quote that they suffered from a failure of imagination/understanding...and said that now we have that then we have no excuse. Ignoring the blatant differences between now and then (for example we are the #1 debtor so Keynes would want us to do something different) the point is that our failure of imagination comes not because we don't know how to manipulate all our made up constructs, but that we can't temporarily free ourselves from them and that people will starve for no good reason.

I'm pretty progressive in nature (and I assume ThatLeftTurn is but I don't know) but I'm getting really frustrated that all my fellow political thinkers aren't more skeptical about saddling us with trillions of dollars in more debt that will at best create 10-20 years of stagnation, instead of reassessing whether the entire system is just bull. Like someone I read put it, the two people that had the best understanding of our current problems are Marx and Mises. Of course their solutions suck too and have nothing to do with reality either, but at least paying attention to their points may help us figure out how to actually do something worthwhile.

like bob mcmanus just pointed out: in a deflationary economy, being more productive and efficient actually makes the numbers worse! How screwed up is that?!

(Sighs.) Gary, it's not "Sullivan's linked post." (Sullivan links three posts, and not all concern financial journalists.) And the fact that journalists measured by that particular survey tend to be bearish in the projections is a bias in favor of a shorter recession.

Again, if you want to be taken seriously, say something that's serious.

1. Give everyone $1000 nonrefundable tax credit for installing energy-efficient lighting (which costs, say $250).

Which nets to only $250 in guaranteed spending, if that. The rest very possibly just going to savings/debt paying. And of course the timing of this is vague.

2. Pay everyone $1000 to dig holes and refill them. ... I quit my $750/year job to work for the government for $1000/year, thereby depriving the economy of useful work and reducing both my income and the money supply in circulation.

Which amounts to $250 in immediate extra spending, plus a vacant employment opportunity for someone else.

"like bob mcmanus just pointed out: in a deflationary economy, being more productive and efficient actually makes the numbers worse! "

Sorry, that should be "rise in productivity" which is different than "more productive" which could mean make more stuff that no one wants.

I also agree with his statement that Depressions can be *good* things long term if we weren't so stupid that we let millions suffer for no reason...and the corollary that government guided jobs doing productive things (like putting in new energy sources, massive amounts of research, reassessing social nets etc) to create a new foundation to start the next phase of prosperity is absolutely essential. Unfortunately we tend to not do that unless we're trying to kill people...

On a personal note, I hold that graphs without scales are worse than worthless, they are implicitly false.

I think that when von copyied the chart, he didn't also copy the y-axis scale. If you look at hilzoy's chart, you can see they use the same scales.

Not "implicitly false" as "regrettable error".

"Bob: Did I miss something?"

No, it's careening toward you like a runaway semi--you're just looking the other way.

And this "let's take more time and think it through" stuff? Why do I keep feeling that's a euphemism for "filibuster"?

Again, if you want to be taken seriously, say something that's serious.

Note that this is a statement addressed to Gary Farber by von. Irony really is dead.

And of course if you want to install better light bulbs, a very quick and efficient way to do it would be to employ a couple thousand people, buy them vans, stock them with light bulbs, then just have them drive around and install them in people's houses who request the service.

You'd get the same $250 worth of new energy efficient light bulbs, employ people, and the van and driver are going to cost a lot less than $750 per house.


But housing starts are less of an indicator for recovery.

von, I respectfully disagree with this, in fact I think you have it exactly backwards (IMHO starts do lead out of a recession into a recovery, and are more reliable as a signal than sales in that regard), but I see little point in belaboring this discussion any further. If you disagree with me on this point then further badgering is probably a waste of time for both of us.

"Give everyone $1000 nonrefundable tax credit for installing energy-efficient lighting (which costs, say $250)."

But you just put somebody at a coal-powered plant out of work. Maybe you have created a job at the light-bulb plant, but since she sees her neighbour laid off and knows the tax credit is temporary, she is unlikely to spend at much more than a subsistance rate.

How do you make people confidant of the next 40 years?

"Bob: Did I miss something?"

The depression? "The worst recession since WWII" will be dropped in the next six months.

Maybe it isn't quite here yet, although U-6 is certainly over 14% by now. It may not reach 25%, although it may, but the only reason it doesn't is because we are starting from a much higher baseline of current government employment than the 30s. But the private economy is toast.

Signs we are touching bottom:

1) Overseas high finance crashes and burns, followed by American hi-fi. Many more Icelands.

2) Protectionism and nationalism overseas, followed again by domestically. See William Buiter's lastest post about centripetal forces in the EU.

Obama is gonna be a big fail, because he won't "welcome their hatred." The New Hoover will be followed after one term by a rightwing populist, maybe Huckleberry. The parallel is not to the US in the 30s, but to some European countries, because an FDR apparently wasn't available.

Of course, Obama could see it coming and try to preempt it, but I doubt it, and he certainly wouldn't move radically to the left. hilzoy wouldn't like him if he did that.

"(Sighs.) Gary, it's not 'Sullivan's linked post.' (Sullivan links three posts, and not all concern financial journalists.)"

So you're citing Sullivan's post as your support, but now say, when called on it, that we should ignore one third of it. And I guess that's not a serious point. Okay.

"And the fact that journalists measured by that particular survey tend to be bearish in the projections is a bias in favor of a shorter recession."

And the point of the post Sullivan linked to is that these journalists were completely unreliable.

"Give everyone $1000 nonrefundable tax credit for installing energy-efficient lighting (which costs, say $250)."

But you just put somebody at a coal-powered plant out of work.

Wait, what? I replaced all of my light bulbs last spring with energy-efficient CF bulbs, but they all still run off of the CEI coal plant.

Oh, and Von? The other two links in Sullivan's post? They go to the same quote by Roubini.

So it's not a third of Sullivan's links that contradict your point, but half.

It really helps to click on links.

Von's original post has two main flaws:

1) he is happy to accept the rosiest of predictions that the recession will end in the first half of 2010, but surveys of economists over the past year and more have been consistently overoptimistic. Then, even when the recession technically ends, no one expects a return to rosy growth. Moreover, everyone seems to agree that this is an epochal crisis -- not a simple downtown -- with a real risk of persistent stagflation or, conversely, deflation setting in.

2) thus there is enormous potential for a long period of economic pain, in which case the timetable and scale of the spending plan looks very sensible. And here we come to the second fallacy of the original post: Von criticises the spending projects for not really kicking in until next year, yet also complains that they are rushed and need not be decided on now. Obviously, spending lots of money in sensible ways talks time to implement; if you want to delay making decisions now, you are only going to delay that stimulus even more.

I agree with Von's premise that it would have been nice for these infrastructure schemes to begin sooner, but unfortunately the last administration was criminally negligent. Obama's only been president for a week, it seems absurd to criticise his team for not implementing big spending projects before they were actually running the government.

Ironically, the tax breaks are probably the least useful component. No one expects consumers to suddenly spend the difference like drunken sailors in this environment. What's more, by deepening the government's fiscal hole, the tax cuts will suck money into government bonds that would be more fruitfully used re-inflating the debt markets to aid a nascent recovery.

I'm pretty progressive in nature (and I assume ThatLeftTurn is but I don't know)

Moniker aside, my politics are pretty hard to classify. I'm a social liberal but a balanced budget deficit-hawk (and have been since the mid 1980s), albeit I support a higher level of infrastructure spending=taxation and a more progressive tax structure than most fiscal conservatives.

Under present circumstances I'd like to see the top marginal rate pushed up to about 65 percent (at an income tier hitting the top 0.5 percent), and then relax that back to 50 percent when the economy starts to recover. The top marginal rate should never go below 40 percent IMHO. Capital gains should be taxed at the same rate as median income. IMHO that solves the entrepreneurship problem with high marginal rates, since most entrepreneurial fortunes are built via growth in the value of equity rather than via wages, IMHO. That way people who found their own businesses can still get filthy stinking rich, but not custodial CEOs who just come in to run the business which somebody else built.

I think we should spend much more on transportation and energy infrastructure than we are in this stimulus bill (roughly 2-3 trillion over the next decade), but on a pay-go basis using tax increases to fund it, not by borrowing yet more. I think the amount of deficit spending we are engaged in via this bill is getting close to the limits of what the US can do without suffering ill consequences from a monetary policy standpoint that would make our situation worse.

In my view this is broadly speaking a debt crisis made likely by the loss of collective memory regarding the Great Depression of the 1930s, and as soon as we get out of the deflationary spiral (which justifies a limited Keynesian stimulus IMHO) we are in now I want to see our debt (both public and private) aggressively paid down over the next several decades. I don't expect it to be practical to start doing that for about a decade however, just as it took about a decade and a really big war to get us out of the Great Depression.

Bush starts the Trade Wars on his way out the door. Infrastructure steel must be domestic in Obama's stimulus package.

How Republicans Intend to Win in 2010 and 2012. Ian Welsh at FDL. We needed radical, hateful policies from Obama. We needed class war, a tax increase like FDR's. Now I think it is already too late. Pay-Go? You have to be kidding me.

German Elections 1928 ...for the premature triumphalists

"And this 'let's take more time and think it through' stuff? Why do I keep feeling that's a euphemism for 'filibuster'?"

Grover: I don't know if that was directed to me. Not that it matters, because -- after seeing October's $350 bank bailout going terribly wrong -- I do think it is important to be deliberate this time and get things right. Note that deliberate does note mean "drag one's feet."

---

Bob: I think a Depression is likely if a key bank or two goes bad and unemployment continues to accelerate. But I think you are writing off Obama much too soon. Who would you rather have in charge right now? Bush? McCain? Palin? Limbaugh?

I feel compelled to say that tax cuts aren't immediately disbursed. If there is no sunset provision the tax cuts will cost revenue indefinitely. In many cases the tax cut monies will not start being received for a year.

If you have unused capacity, it's actually not a critical question what it's spent on. It's a bonus if it's actually useful.

From the traditional (expansionist, surplus-maximizing) view, then sure, that's true. But from the complexity view it's deeply wrong.

In the complexity view misused capacity isn't inherently "better" than unused capacity, and "What The Money Gets Spent On" is indeed a critical question. It's at least as significant as "Whether The Money Gets Spent," because whatever the money gets spent on will create irreversible changes in the structure of the economy. Economic activity creates what economists call path dependence, period.

This isn't an argument against stimulus spending, nor even against having the government pay people to dig holes and then fill them back in. It's just an argument that this isn't a linear or a predictable process. A hole-digging stimulus, a missile-building stimulus, and a bridge-building stimulus will each yield a different economic structure afterward.

"von, I respectfully disagree with this, in fact I think you have it exactly backwards . . ."

LeftTurn: How true. If we wake up tomorrow and the headlines show that housing starts are up, we could all do a collective "Yippee!"

Bedtime and LeftTurn:

I wouldn't be so confident that prior correlations will hold this time. We do have tens of millions of houses that we don't need, and when the downturn is over there will be a lot of very cheap foreclosures that are in decent shape. I'm not sure that starts are going to rebound very soon at all.

To me a better guide will be to take out "distressed" sales and if those start rising then it will signal things are getting a bit clearer.

(Sighs.) Gary, it's not "Sullivan's linked post." (Sullivan links three posts, and not all concern financial journalists.) And the fact that journalists measured by that particular survey tend to be bearish in the projections is a bias in favor of a shorter recession.

Again, if you want to be taken seriously, say something that's serious.

This makes no sense to me.

It still seems that you're avoiding answering the questions a whole lot of people have pointed out.

Seems to me that you're not being that serious yourself.

But I think you are writing off Obama much too soon.

Dan Froomkin with quotes from Joe Stiglitz, Dean Baker, and Steve Clemons

"Obama and [Chief of Staff] Rahm Emanuel have hired a group of people who are going to make the rich stay rich -- and who are not designed to really change things for the middle class or the struggling lower end," Clemons writes.

Who would you rather have in charge right now? Bush? McCain? Palin? Limbaugh?

Zombie Rosa & Karl? Slavoj Zizek?

I wrote Obama off about a year ago, though I voted for him anyway. Any delusional hope remaining was killed by the Inauguration. They closed down a runway to park the private jets.

mikkel: You raise a very good point about excess inventory -- which seems to be the case in every industry. This could get very ugly, indeed.

Bob: I still thing you are writing off Obama much too soon.

One thing is sure: The honeymoon must be over if WaPo is basically calling him a closet conservative.

Also, the columns by Stiglitz and Baker were good enough -- especially Stigliz's -- to warrant their own links.

A common theme in both is indeed troubling: That this nation's monetary policy is still being shaped by Goldman Sachs grads.

One of the concerns I had with Geithner, expressed on these pages, is how closely he has worked with Paulson at the New York Fed as one of the architects of the failed $350 bank bailout.

Anyhow, the posts you link make it clear that the Wall Street mindset has fncked us enough already -- and Main Street economists would have been a refreshing change, not to mention a principle Obama campaigned on.

"But housing starts are less of an indicator for recovery.

von, I respectfully disagree with this, in fact I think you have it exactly backwards (IMHO starts do lead out of a recession into a recovery, and are more reliable as a signal than sales in that regard)"

I'm relatively sure that whatever economic activity leads us out of this recession it will NOT be housing starts.

Under scenario 2, I quit my $750/year job to work for the government for $1000/year, thereby depriving the economy of useful work

That's your argument? That the government creating jobs in the current situation would be bad because it would deprive the economy of work?

That's wrong on so many levels. Do you even read the news? When there is a restaurant job around here, hundreds of people put in applications. No exaggeration. And you think employers would have a hard time replacing a worker who took a government job? Can you possibly think of another source of workers for a government job other than the currently employed?

Maybe some of the dozens of people that have started camping in the park at the end of the street in the last few months?

Unbelievable.

But there's been a recent 6.5% increase in sales and inventory declined to 11.7%. A blip? Maybe. Or maybe the start of a bottoming out.

That was existing home sales - those numbers are so earlier this week. Today the new home sales numbers were released:

Sales of new homes in the U.S. fell in December to the lowest level on record, creating an unprecedented glut of unsold properties that casts doubt on any recovery in the industry this year.

Purchases dropped to an annual pace of 331,000, lower than all 70 forecasts in a Bloomberg News survey, Commerce Department figures showed in Washington. Other reports today said orders for durable goods slumped for a fifth month and a record number of Americans were collecting jobless benefits.

The collapse in demand for homes means builders are still constructing a surplus of properties, and signals more pressure on prices. The intensifying crisis will make it harder for President Barack Obama to arrest the industry’s decline with proposed tax breaks and steps to slow mortgage foreclosures.

“Builders are slashing production, but it’s difficult for them to keep up with sales that are falling so fast,” said Nigel Gault, chief U.S. economist at IHS Global Insight, in Lexington, Massachusetts, who at 345,000 had the lowest estimate of economists surveyed.

Happy days are here again, huh? And gee, consensus forecasts by economists were wildly optimistic - not just on average but every single one. I don't think anybody could have predicted that the consensus of credible sources would be wildly optimistic, do you, von?

And hey, I'm still waiting on the answer about how you tell what a just wage for an employee is. Really want to know.

i should add one more critical thing -- good to see you back von. :)


The scary part is that this keeps on happening: some more bad news comes out and it's worse than everybody's worst predictions.

That doesn't give me a good feeling.

Radish, mikkel: I probably agree with you about the collective insanity of our current economic system.

You know what the current economic package is about ... ? Averting chaos in the streets - revolution - same reason for FDR's reaction to the Great Depression. Wasn't so much that he loved the poor ...

"Grover: I don't know if that was directed to me."

No, Bob, it was not.

First, the projections that I cite have the recession going into the last quarter of 2009 through 2010. Since the recession arguably started in the last quarter of 2007, that's either a two or three year recession.

Second, for all those griping about my example of tax credit v. government work, keep in mind that I was responding to the claim that having the governing pay people to dig holes and fill them in -- i.e., do work that is nonproductive -- is equal or superior to providing those same workers with a tax cut or refund.

So, a lot of your criticisms miss the mark: You have to explain why having the government pay people to do useless work is superior to giving those same people a tax credit while they do useful work.

Third, I'm not even sure what your point is anymore, Gary.

That's your argument? That the government creating jobs in the current situation would be bad because it would deprive the economy of work?

That's wrong on so many levels. Do you even read the news? When there is a restaurant job around here, hundreds of people put in applications. No exaggeration. And you think employers would have a hard time replacing a worker who took a government job? Can you possibly think of another source of workers for a government job other than the currently employed?

Oh vey. Again, Now_what, the question is whether its superior for the government to provide a tax credit or cut, as opposed to having the government employ folks to dig holes and fill them (i.e., do useless work).

"No, Bob, it was not."

That was for you, Bob, since I've morphed into you:)

First, the projections that I cite have the recession going into the last quarter of 2009 through 2010. Since the recession arguably started in the last quarter of 2007, that's either a two or three year recession.

Von, you're STILL not grasping the argument.

If the people who are making these projections have a terrible track record, why on earth are you taking them seriously????????

It's a very simple point. ( We're not even getting to the flaws in your own reasoning that this current recession is similar in magnitude to other recessions.) Why on earth are you not grasping that?

So, a lot of your criticisms miss the mark: You have to explain why having the government pay people to do useless work is superior to giving those same people a tax credit while they do useful work.

Easy: Nobody ever said it was the same people.

wonkie: Since the stimulus bill seems to contain a little something for everybody, I am surprised the animal shelters -- such as the ASPCA and Humane Society -- which could really, really use the help (flooded with discarded cats and dogs as a result of the recession) weren't included. Also, the zoos in this country could use a lot of help and, hell, they employ people and, as an accessible tourist attraction, are part of getting money back into the economy.

Maybe better lobbyists are needed.

Pity.

Two phrases, Jack Lecou: Next best alternative and opportunity cost.

Now that Gwangung has taken up Gary's claims, I'll address the whole "projection" issue one last time.

I have taken the position that "many projections" show an end to the recession by sometime in 2010, while allowing that (of course) these projections can be wrong. I cite an Andrew Sullivan post in response. That Andrew Sullivan post has three components:

1. A poll of financial journalists, in which "31% said [the recession would end in] early 2010, 26% said mid-2010, 22% said January 2011, and 21% said even later."

2. Nouriel Roubini, aka, Dr. Doom (for his pessimism), who says the recession will last a full two years (i.e., through the end of 2009) with unemployment peaking in 2010.

3. The Fed, which projects a bottoming out in Q1 and Q2 of 2009 with a sluggish recovery in either Q3 or Q4 of 2009.

Gary originally critiqued this claim by incorrectly claiming that Andrew Sullivan's post exclusively consisted of item 1, the journalist poll. This critique is soundly defeated by the fact that Andrew Sullivan's post actually includes items 1, 2, and 3.

Without acknowledging his initial error, Gary next asserted that Andrew's Sullivan's post actually exclusively consisted of items 1 and 2, because item 3 (the Fed's projection) was just a restatement of Nouriel Roubini's projection. This critique is soundly defeated by the fact that Nouriel Roubini is not responsible for the Fed's projection and, in fact, Roubini's projection is different from the Fed's projection.

3. Gwangung then echoes Gary by claiming that Gary is correct and making very important points, despite the fact that Gary is clearly incorrect and making points that are disingenous, at best. Gwangung then claims that all of these folks have terrible predictive track records, when, in fact, Dr. Roubini has an extremely good track record; there's been no evidence that the Fed's track record is particularly poor; and the evidence suggests that the financial journalists have a bad track record because they are biased toward overstating the length of the recession.

Again, I accept upfront that these projections may be in error. But Gary's critiques are foolish, and not worth any more of my (or anyone else's) time.

Generally speaking, these things, btf, aren't funded as part of the states' budgets, so doing something for them wouldn't relieve states of their deficits, which is where such funding is aimed. The idea isn't to just hand out money to charities and good causes, no matter how good they are. Good causes are good causes, but not all good causes are good stimulus.

"Gary originally critiqued this claim by incorrectly claiming that Andrew Sullivan's post exclusively consisted of item 1, the journalist poll."

This is simply false; I never made any such claim. You're just making that up.

"Without acknowledging his initial error, Gary next asserted that Andrew's Sullivan's post actually exclusively consisted of items 1 and 2, because item 3 (the Fed's projection) was just a restatement of Nouriel Roubini's projection. This critique is soundly defeated by the fact that Nouriel Roubini is not responsible for the Fed's projection and, in fact, Roubini's projection is different from the Fed's projection."

Sullivan's second link, which hints at its content with its title: "Roubini: Two Year Recession":

From Rex Nutting at MarketWatch: Roubini forecasts recession will last 2 years:
The U.S. recession will last two full years, with gross domestic product falling a cumulative 5%, said Nouriel Roubini, ... For 2009, Roubini predicts GDP will fall 3.4%, with declines in every quarter of the year. The unemployment rate should peak at about 9% in early 2010 ...

Roubini is forecasting a pretty serious recession, but far short of a "depression" which is usually defined as a 10% decline in real GDP.

The concensus (and the Fed forecast) is that the economy will bottom in Q2 2009 with a sluggish recovery in the 2nd half of this year.

That's the whole post.

Sullivan's post's third link is is -- this is the entire linked post:

Nouriel Roubini aka "Dr. Doom":
Roubini forecasts recession will last 2 years
By Rex Nutting
Last update: 3:55 p.m. EST Jan. 8, 2009
WASHINGTON (MarketWatch) -- The U.S. recession will last two full years, with gross domestic product falling a cumulative 5%, said Nouriel Roubini, chairman of RGE Monitor. Roubini was one of the first economists to predict the recession and the credit crunch stemming from the housing bubble. For 2009, Roubini predicts GDP will fall 3.4%, with declines in every quarter of the year. The unemployment rate should peak at about 9% in early 2010, he said. Consumer prices will fall about 2% in 2009. Housing prices will probably overshoot, dropping 44% from the peak through mid-2010. "The U.S. economy cannot avoid a severe contraction that has already started and the policy response will have only a limited and delayed effect that will be felt more in 2010 than 2009," he said. End of Story
Readers may observe that this is a link to the same MarketWatch post as Sullivan's second link, and quotes the same quote.

Readers may observe there's nothing in it about a Fed projection.

Not a word.

So much for "sound defeats."

As I said, it actually pays to actually read what one is linking to. By all means, point out which of Sullivan's links go to any actual Fed projection. I'll wait right here.

"Gwangung then claims that all of these folks have terrible predictive track records,"

No, he claims that that's what the first post linked to by Andrew Sullivan SAYS. Because, you know, it does. As I quoted previously.

"But Gary's critiques are foolish, and not worth any more of my (or anyone else's) time."

Sure, Von. I'm content to see what people think. I'm sorry you think this sort of dismissal is a good approach.

Two phrases, Jack Lecou: Next best alternative and opportunity cost.

Is this supposed to make some kind of point?

In case it just went over your head, I am not seriously proposing that we SHOULD employ people to do useless things, anymore than Keynes was. Instead, we should obviously employ people to do useful, enduring things.

The point is only that a non-targeted rebate or business tax cut is a transfer payment that must, by definition, go to someone with income. Furthermore, there's a substantial lag, and a low-ish spending multiplier.

In contrast, paying people (unemployed people, of course) to dig holes is an immediate transfer payment to people who badly need the money and are very likely to spend almost all of it.

In other words, paying people to dig holes is better stimulus than most tax cuts.

(Again, the holes are obviously ridiculous - better are either simple targeted transfer payments like food stamps, or employment to do various useful things. But all three are much better than say, business tax cuts.)

Gary:

You assert:

"Gary originally critiqued this claim by incorrectly claiming that Andrew Sullivan's post exclusively consisted of item 1, the journalist poll."

This is simply false; I never made any such claim. You're just making that up.

Your original post: "Interestingly, Von's link doesn't go to a survey of economists, but to a post of Andrew Sullivan's quoting a blogger whose post is actually quoting and castigating journalists for their incompetence: .... [you then cite a quote from Sullivan's first link, which leads to a discussion of the journalist poll]. (http://obsidianwings.blogs.com/obsidian_wings/2009/01/a-stimulus-for-tomorrow-maybe.html#comment-6a00d834515c2369e2010536f35c38970b)

There is no mention of Nouriel Roubini's projection or the Fed's projection in your comment. So, no, my comment is not "simply false."

Second, note that the reference to "The concensus (and the Fed forecast) is that the economy will bottom in Q2 2009 with a sluggish recovery in the 2nd half of this year", which is distinguished from Nouriel Roubini's projection.

It's ridiculous that you're continuing to argue this point, Gary. The first rule of holes is, stop digging.

Is this supposed to make some kind of point?

In case it just went over your head, I am not seriously proposing that we SHOULD employ people to do useless things, anymore than Keynes was. Instead, we should obviously employ people to do useful, enduring things.

Sorry, Jack, I was distracted by Gary's nonsense and failed to give you an adequate response. Won't happen again.

My point is as follows: if the government offers jobs to the unemployed to do unproductive things, it will have an impact both on the employed and the currently employed. The currently employed will know that, in the event they become unemployed, they can get a job with the government doing something unproductive (e.g., digging holes & filling them in). Thus, they are incentivized to continue with their current job only so long as it is superior to the alternative dig-holes-fill-them-in. This will put positive pressure on wages for productive work and cause some workers to stay out of the "productive" labor market for longer than they otherwise would.

"There is no mention of Nouriel Roubini's projection or the Fed's projection in your comment."

That's correct (as regards my first comment to you; I wasn't addressing either Roubini, or a non-cited Fed projection -- you know, the Fed projection you've yet to find or link to or cite).

But what you asserted is quite different, which is that I made an affirmative claim that there was nothing else in Sullivan's post; you just made that up.

"Gary originally critiqued this claim by incorrectly claiming that Andrew Sullivan's post exclusively consisted of item 1, the journalist poll."

I made no such claim whatever.

"So, no, my comment is not 'simply false.'"

Yeah, it is.

"Second, note that the reference to 'The concensus (and the Fed forecast)"

Yes, and no such forecast is linked to or mentioned in any other way -- not by you, not by Sullivan, not by Rex Nutting's post -- nowhere.

Let me say that again, slowly: N. O. W. H. E. R. E.

Noooowwwwhhhheeeeerrrreeee.

It's just a three-word completely unsupported assertion buried in Nutting's post.

But, hey, if that's what you're reduced to claiming supports your claim that you're all about "the" Fed forcast, which -- somewhere, someplace, at some time -- is what you're talking about, well, fine, I'm content to let that ever-so-well-supported claim by you be judged for what it is.

"The first rule of holes is, stop digging."

Yup.

My point is as follows: if the government offers jobs to the unemployed to do unproductive things, it will have an impact both on the employed and the currently employed. The currently employed will know that, in the event they become unemployed, they can get a job with the government doing something unproductive (e.g., digging holes & filling them in). Thus, they are incentivized to continue with their current job only so long as it is superior to the alternative dig-holes-fill-them-in. This will put positive pressure on wages for productive work and cause some workers to stay out of the "productive" labor market for longer than they otherwise would.

1. Positive pressure on wages is sort of the effect we're after here.

2. This is a pretty tenuous connection. When you're staring at almost double-digit unemployment, it's pretty weird to imagine someone saying, "well, I don't think I'll take that phone support job because after all, I can always just go dig holes for the government." Actually, it's pretty weird to imagine that in any circumstances.

3. Just to repeat #2: "they are incentivized to continue with their current job only so long as it is superior to the alternative dig-holes-fill-them-in"? Seriously?

4. Even if someone did decide to go dig holes instead, 7%-10% unemployment means there's probably someone else ready and willing to sign up to do whatever "productive" work just became available. 7%-10% unemployment means it's pretty difficult to put a lot of upward pressure on wages. (And again, if we do: fantastic. Stimulus success.)

5. All that aside, the hole-digging stimulus plan is hardly perfect. It's just that there are as many--more, really--problems with the tax-cuts-as-stimulus plan. And better alternatives to both.

So, wait, von, you're now claiming that a statement by Gary that Sullivan's post contains X is a positive claim that it "consists exclusively of" X? How on Earth did you ever pass the bar in any U.S. state?

Phil, you might not want to take Gary's claims at face value.

In any event, Gary's had his say and at least he feels better for it. I'm closing the thread.

Comments are open again by popular demand! Let's continue that debate between Gary and von regarding whether Gary or von most misrepresented Andrew Sullivan's linked post!

Hmm, von said there would be brats, but I'm expecting the wurst...

lj: lol

My reaction to von's tax cut vs. spending example is that it's written from the perspective of someone who is secure in their current job.

The point here is to get people employed. Even if people move to the government jobs, we still get more open jobs and therefore more hiring.

The problem with von's logic is that he assumes that the point is to just get money out there into the economy. I'd argue that this is simply the means to solving the following real issues: unemployment and a lack of confidence.

Don't knack wurst if you haven't tried it.

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Whatnot


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