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February 09, 2009

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Fugazi lyrics are the best way to begin anything, period.

Incentives matter, and that counts for both sides.

An example

Republicans: helter skelter tax cuts for the rich don't help us out of the depression. They don't provide much of an incentive to do the thing we want most: hire people.

Democrats: Payroll taxcuts almost certainly do help us out of the depression. They definitely provide the incentive to do what we want most: hire people. And they do it quickly.

Another one:

Republicans, yes in a normally functioning economy certain levels of unemployment benefits can have a disincentive effect especially if stretched too long. That sucks. But this isn't in a normally functioning economy. Rule's of thumb are great, but for god's sake you have to know what environment they function well in. The stimulus effect of people spending their money on staples is higher than them not spending on staples and going dramatically leaner. You aren't providing a disincentive to find employment if no one is hiring...

By "payroll taxes" do you mean FICA?

If so, does a cut in payroll taxes apply to both the employee and employer parts?

I'm not really convinced that income tax reductions per se will do that much to help. But tax policies that provide concrete incentives for businesses to *hire people* do make a lot of sense to me.

Thanks for this von.

Until we get the financial system fixed, no stimulus package is going to do very much. The effectiveness of the program Geithner rolls out tomorrow will have much more to do with how long and deep the recession is than whether we add another couple hundred billion to the stimulus bill. If today's leaks are accurate, it is going to be very expensive for the Treasury. But will it work? Let's hope because if it doesn't, it's time to start buying canned goods and bottled water.

More birthday ponies!

Incentives matter.

MSNBC just informed me that Alex Rodriguez has admitted to using "a banned substance". I have long held that God has a puckish sense of humor, and this revelation, at this moment, is an example of it. Incentives really do matter.

A-Rod is among the highest-paid athletes in human history. The Market evidently considers him much, much more "productive" than your average plumber. The Market, in its wisdom, pays A-Rod about as much for a home run as it pays a plumber for installing several complete bathrooms. That's a tremendous incentive to "produce" more home runs. Such a tremendous incentive, in fact, that pharmaceutical assistance seemed like a good idea at the time.

Whatever can be said against government spending to "stimulate the economy", this much can be said for it: government spending is less likely to encourage plumbers to artificially juice their "productivity" than The Market encouraged A-Rod (and various bankers we could name) to artificially juice theirs.

There is no free lunch.

This "tired old saw" seems to contradict the other tired old saw our conservative comrades play like a fiddle periodically: "The economy is not a zero-sum game." What the hell does that mean, except that my lunch need not get smaller just because yours gets bigger?

The Economy is not just a mechanism by which we trade with each other in the present, but also a mechanism by which we trade with posterity. "Our grandkids" will either be richer or poorer than we are. Which it will be depends partly on whether we make wise or stupid trade-offs between our incomes today and their incomes tomorrow. If national income over the next century, say, is a fixed number, then of course "there is no free lunch" -- what we eat today comes straight out of the mouths of our descendants. If, on the other hand, we starve ourselves today on the theory that the lunch bill will be too large for our posterity to handle, we risk not having much of a posterity at all.

The concern for future generations on the right is typically, and absurdly, focused on whether future generations will have enough money -- not on whether they will have enough, say, petroleum. It's as if conservatives live on a planet where the supply of oil is infinite but the supply of money is fixed. Curious.

--TP

Um, please don't take this the wrong way, but ObWi, why are you letting this Von character come in here and spout these arguments at the expense of your site's credibility? I have no idea who this guy is or why I should care what he thinks, and he hasn't exactly established his *own* credibility.

Just for example, Von's told-you-so conflation of generalized "tax cuts" with Keynes' single mention in a letter - not a work of scholarship, or anything Keynes ever thought to pursue further as far as I can tell - about "cyclical payroll tax rate changes to follow the business cycle", above, tells me everything I need to know about von's intellectual honesty in these discussions. Keynes didn't even mention spending in the linked piece, yet somehow the omniscient von knows exactly how he meant to compare the two ("Misconception: Keynes thought spending is always more stimulative than tax cuts; he didn't"). The link does not support this statement one bit.

Even if the stimulus package does stimulate, it will have permanently reduced growth over the long term by a modest amount. That's not an error: We will pay tomorrow for any -- or no -- gains today.

We know that. Everyone knows that. Well, the GOP politicians might not, since they seem mired in economic fantasyland.

You state it like it's a huge, hidden point -- but it's the very basis of the macroeconomic reasoning behind this bill. We borrow from the boom of tomorrow to flatten out the bust of today.

High School Economics 101 For Brain Dead Jocks classes cover this -- fiscal and monetary intervention flattens both booms and busts. The busts aren't as deep, the booms aren't as high.

That didn't mean just popping investment bubbles on the upswing.

Let's hope because if it doesn't, it's time to start buying canned goods and bottled water.

What? You don't still have your supply from Y2K?

There are a bunch of stimulative ideas out there. A cut in payroll taxes paid by both employers and employees would be a pretty good short-term punch (that's the tax cut Keynes was endorsing). Cutting the capital gains tax while eliminating loopholes would also be a good move, and could be near-revenue-neutral to boot.

But we're not going to get any of that.

Even if the stimulus package does stimulate, it will have permanently reduced growth over the long term by a modest amount.

Remember that free lunch you said doesn't exist? This is the part of the payback for stimulus now, stimulus which, I might add, absolutely no one is arguing is free.

Or that tax cuts can't have a multiplier effect (albeit with the same caveats).

The main caveat being that the author of the study Mankiw cites doesn't support Mankiw's interpretation of what that study says?

The most recent Senate version has a single, modest improvement: It fixes the Alternative Minimum Tax (AMT). That was a good idea before the economic downturn, and it's a good idea now.

Von, if your point is that there are too many things in the stimulus bill that don't provide enough stimulus, you have no business saying that the AMT fix belongs in it. If there is anything you should be outraged by, this is it. An AMT fix is a good idea, but it's not stimulus. Given the general thrust of your argument, you lose all credibility at this point.

Even if the stimulus package does stimulate, it will have permanently reduced growth over the long term by a modest amount. That's not an error: We will pay tomorrow for any -- or no -- gains today. Perhaps worse, the interest that we'll pay on this unprecedented new debt will not only crowd out growth, but also lead as well to future tax increases and/or cuts in government programs

Again, wrong. The crowding out and future taxes aren't worse than the long term, very small, effect on GDP. Those are what cause the effect. You can't complain about them as if they are different things. Again, you lose credibility.

As for that long term drag, your argument misses the crucial fact that timing matters. Paraphrasing Harry Hopkins, people don't need to eat in 2019. They need to eat today. The CBO estimate is that the effect of the bill would be a cumulative effect of 0.1-0.3% of GDP ten years out If we assume that trend growth is 3%, the effect is a rounding error, which will get lost in the noise. In the meantime, it will help to alleviate a lot of unemployment now, allowing people to pay rent and buy groceries.

Honestly, Von, you need to give up this line of posts, because they make you sound silly.

Um, please don't take this the wrong way, but ObWi, why are you letting this Von character come in here and spout these arguments at the expense of your site's credibility? I have no idea who this guy is or why I should care what he thinks, and he hasn't exactly established his *own* credibility.

Bridget, I assume you apply the same rigor to all of the other commentators on this site. But, in any event, your singular complaint is singlularly misplaced. You write:

Just for example, Von's told-you-so conflation of generalized "tax cuts" with Keynes' single mention in a letter - not a work of scholarship, or anything Keynes ever thought to pursue further as far as I can tell - about "cyclical payroll tax rate changes to follow the business cycle", above, tells me everything I need to know about von's intellectual honesty in these discussions. Keynes didn't even mention spending in the linked piece, yet somehow the omniscient von knows exactly how he meant to compare the two ("Misconception: Keynes thought spending is always more stimulative than tax cuts; he didn't"). The link does not support this statement one bit.

"Generalized tax cuts"? No, I simply pointed out that Keynes didn't always favor government spending as a means of stimulating the economy. It would take a rare bird -- apparently, you -- to make the cognitive leap that I'm asserting that Keynes favored any kind of tax cut over any kind of spending (or even any particular cut over any particular spending program).

As for your more specific point, Keynes did, in fact, criticize government spending in 1942 at the same time that he was promoting a cut in the payroll tax:

“Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.”

(source: http://thinkmarkets.wordpress.com/2009/01/25/keynes-as-public-works-skeptic/)

Oh, and please don't take the above the wrong way, Bridget. We wouldn't want that.

Von, if your point is that there are too many things in the stimulus bill that don't provide enough stimulus, you have no business saying that the AMT fix belongs in it. If there is anything you should be outraged by, this is it. An AMT fix is a good idea, but it's not stimulus. Given the general thrust of your argument, you lose all credibility at this point.

J. Michael, I thought my comment was sufficiently snarky that the reader would, well, get the fact that I wasn't exactly praising the Senate here.

Again, wrong. The crowding out and future taxes aren't worse than the long term, very small, effect on GDP. Those are what cause the effect. You can't complain about them as if they are different things. Again, you lose credibility.

I'm not even sure what you're trying to argue here, but there are two types of "crowding out" in that particularly passage o' mine, and only one has an effect on the GDP (or GNP, for that matter). Maybe you misunderstood?

A couple of things:

1 - To echo J., the AMT point completely undermines your points. It's not at all stimulative, temporary, etc.

2 - The long-term growth thing is a red herring. Tim Ferholz at Tapped had a pretty good takedown. But basically, the CBO says (1) short term stimulus is necessary; (2) we eventually will have more long-term debt for it. But the long-term addition is fairly tiny (wasn't .3?) -- and that's assuming we don't take steps in the meantime to manage long-term debt (which we should).

Though in the spirit of bipartisanship, I am coming around to the iddea that the stimulus will fail, largely b/c its about one-third what it should be, and too much is directed at tax cuts.

J. Michael, I thought my comment was sufficiently snarky that the reader would, well, get the fact that I wasn't exactly praising the Senate here.

Sorry, Von, but that's not the way it reads. There isn't any snark in there about the AMT fix itself. Yes, I understand that you think that, on balance, the Senate version is worse. That doesn't change the fact that all you did was praise the AMT fix.

I'm not even sure what you're trying to argue here, but there are two types of "crowding out" in that particularly passage o' mine, and only one has an effect on the GDP (or GNP, for that matter). Maybe you misunderstood?

Von, you stated that we will lose GDP in the long run by passing the stimulus. Then you stated that "perhaps worse," there will be crowding out. That isn't worse. It isn't even just as bad. It's exactly the same thing. The crowding out, both kinds that you mentioned, are the reduction in GDP. They are not different things. Either you don't realize that, or you are deliberately separating them in an effort to make a stronger rhetorical case. I don't know. Either way, you're wrong.

And, yes, both of the types of crowding out you mention produce the loss in GDP, though they are negatively correlated. The more debt you leave, the less you increase taxes or decrease spending. The increased debt crowds out other borrowing, reducing productive capacity. Raising taxes or cutting spending reduces stimulus, in exactly the same way that the current bill increases it.

By the way, if I'm a little testy (above) in my exchanges with Bridget and J. Michael, it's because I just returned from Disney World with a three-year old boy who is, well, all boy in the stereotypical sense. Testiness will likely continue for some period.

Also, did someone pass a note "you lose credibility" in every critical comment? I mean, if I say something that costs me "credibility" so be it. But I can't for the life of me see how the particularly criticisms made by Bridget or J. Michael would cost me credibility. Isn't it possible that I'm just wrong. ('Tho I'm not wrong, of course: you are. So there.)

But the long-term addition is fairly tiny (wasn't .3?)

0.1-0.3%. As I said above, if you assume 3% trend line growth, it's a rounding error. 3% growth over ten years compounds to 34%. That's the value that's being changed by 0.1-0.3%.

von - at least they're sparing the f-bombs. i had a few of those hurled at me yesterday

Morat20, I don't think that "everyone" gets that today's stimulus means less (or no) growth tomorrow. You and all your friends might, but House Democrats aren't exactly trumpting this fact.

That doesn't change the fact that all you did was praise the AMT fix.

Fair enough. If it's not sufficiently clear as snark, call it looking for the silver lining in a bill that's already beyond help.

Von, you stated that we will lose GDP in the long run by passing the stimulus. Then you stated that "perhaps worse," there will be crowding out. That isn't worse. It isn't even just as bad. It's exactly the same thing. The crowding out, both kinds that you mentioned, are the reduction in GDP. They are not different things. Either you don't realize that, or you are deliberately separating them in an effort to make a stronger rhetorical case. I don't know. Either way, you're wrong.

I may have misread the CBO's more detailed letter to Sen. Gregg, available via (not at) the linke. I took the CBO's crowding out estimate to include only the effect on capital markets and not to include other effects, such as the trade offs I reference. Here's what the CBO writes:

In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive capital. In economic parlance, the debt would “crowd out” private investment. (Crowding out is unlikely to occur in the short run under current conditions, because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.) CBO’s basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital).

There's no mention there or in the CBO's blog that the CBO's estimate includes my stated concern: namely, that the government's service on the debt will cause some shift in how government finances itself. If you see some indicating that the CBO's estimate includes such projections, let me know .... but I've now reread it again and I just don't see it.

Hence, I stand by my original passage.

i had a few [f bombs] hurled at me yesterday

And Brett Favre has thrown "a few" career yards...

Also, did someone pass a note "you lose credibility" in every critical comment? I mean, if I say something that costs me "credibility" so be it. But I can't for the life of me see how the particularly criticisms made by Bridget or J. Michael would cost me credibility. Isn't it possible that I'm just wrong.

This is mighty pissy (and funny) given this.

tax policies that provide concrete incentives for businesses to *hire people* do make a lot of sense to me.

Well, with all due respect, you're probably not thinking straight.

Demand is what we need to stimulate, not investment. Incentives for businesses to hire people are useless, because there isn't a market for the goods we are producing already, much less more goods produced by new employees.

On the other hand, if the government buys something, someone has to build it.

Now, if our problem was insufficent investment in capital goods, a lot of the Republican and Vonian program would make sense. But, that's not the problem right now.

by amazing coincidence, we've spent $800B in Iraq so far. and isn't it funny how that $800B in spending was never going to be the financial ruin of the US?

Off bold?

Phil, I never said that you can't lose credibility via a blog post. (You do all the time!) I just said I didn't understand how these particularly comments cost me credibility.

Anyhoo, maybe that comment is why I'm getting all these "you've lost all credibility, man!" attacks. If so, it at least has a kind of poetry about it.

(Added an update to respond to comments re: my position on the AMT.)

The stimulus is not well targeted, and it will not have the desired effect.

I pretty much stopped reading after this line. If you're wondering why people are questioning you're credibility, look no further.

This certainly looks like the ridiculous Republican talking point du jour (well, maybe du last week), but maybe I'm wrong and you can explain what you meant.

Note that if you have a stimulus plan that is "targeted" in any way (except perhaps broadly toward the bottom third or so), ur doin' it rong.

The idea is to spread the money around on diverse programs (because too much of any one thing gives diminishing returns). Geographically and demographically too.

All the supposedly ridiculous "it's a spending bill" bits that I've seen pointed out by the GOP lunatics so far have seemed to fit those requirements very nicely.

I was just curious, von, as to exactly what your "X costs Y credibility" criteria are, since you weren't too forthcoming in the other thread, but were pretty sure that Opinion Journal has more than the EPI. Can you explain it for us?

It's implicit, and it's obvious if you think about it. If the second form of crowding out, in the form of tax increases or spending cuts, didn't have exactly the same drag on the economy, it wouldn't be worth mentioning the first type. Raising taxes would be a painless way to avoid the crowding out.

The posting system seems to be cutting off all of the quotes I'm trying to include in my posts.

Cutting the capital gains tax while eliminating loopholes would also be a good move, and could be near-revenue-neutral to boot.

A free lunch, one might almost say.

I'm all for eliminating loopholes, as long as I get to say what constitutes a loophole.

The argument for using the added revenue to reduce capital gains taxes, as opposed to some other purpose, seems weak to me. Other free lunches are more appealing.


eternal question of whether Republicans are kid-starving evil or merely baby-seal-clubbing evil

I have little faith, but I do have some hope that though the question is not eternal, the answer will be.

ObWi, why are you letting this Von character come in here and spout these arguments

He owns the PA.

if I'm a little testy (above) in my exchanges with Bridget and J. Michael, it's because I just returned from Disney World with a three-year old boy

Take him to the dentist. That will chill him out.

Well, with all due respect, you're probably not thinking straight.

Quite possible, if not likely. Most of this whole issue is kind of over my head, I'm just trying to keep up. Thanks for your points, they're good ones.

von, care to make a reply?

by amazing coincidence, we've spent $800B in Iraq so far. and isn't it funny how that $800B in spending was never going to be the financial ruin of the US?

Yes it is, and it's also funny how $800B in deficit spending has not kept the economy's head above water; in fact the economy has been a piss-poor performer throughout the Iraq war despite military spending having a decently high multiplier while also directly addressing employment.

Yes it is, and it's also funny how $800B in deficit spending has not kept the economy's head above water; in fact the economy has been a piss-poor performer throughout the Iraq war despite military spending having a decently high multiplier while also directly addressing employment.

Well, I think there's probably some question as to how much of that $800B disappeared as giant stacks of bills on shipping pallets into the maw of some Halliburton exec's Cayman's account...

That aside, the basic answer is that most of that money was obviously spent too early, before the downturn properly started: in early 2008, in 2007, in 2006, in 2005...

I mean, we spent a trillion or three on the cold war back in the '80s, too. Somehow that didn't guarantee an end to recessions forever...

(Yikes. Time for Ellipses Anonymous. Sorry.)

Actually, the spending on Iraq has very limited stimulative effect. Plus, it produces nothing of lasting benefit to the country.

If alrge amounts of money go to a very limited group of people, as is the case in much of the spending for Iraq, and much of that money stays at the higher echelon, again no stimulative effect.

Von appears, to me, to be concerned with the total size of the economy, as measured by GDP, at some point in the future.

Me, I'm also worried about the distribution of GDP within our economy. There's no particular reason why median income needs to have remained essentially unchanged since the late 70s while upper end income has skyrocketed.

Put another way, I don't particularly care if the stimulus slows GDP growth in the future if the only people who are going to capture that growth are the super-rich.

The single biggest success of the New Deal was to prevent the fall of the Constitution. Did it slow GDP growth? The answer to that question is another question: Compared to what? Totalitarian government was awfully popular in the 30s and 40s; there's no particular reason to believe that Americans are so special that we could have avoided revolution of one form or another.

If the only thing the stimulus does is ease the pain of millions of people while the bad debts and stupid decisions of the last 10 years are worked out over the next three, that's fine by me. Actually having improved infrastructure on the back end is a bonus.

At the end of the day, Von objects to make-work jobs. Given the situation we're in, I don't.

Um, please don't take this the wrong way, but ObWi, why are you letting this Von character come in here and spout these arguments at the expense of your site's credibility? I have no idea who this guy is or why I should care what he thinks, and he hasn't exactly established his *own* credibility.

More about von here. Von's been around since before hilzoy, and before publius, and before Eric.

Here's von's first post here at OW, over five years ago. That's practically a geological era, in blog years.

Oh, and before Edward_. And before me, although I lasted somewhere between an eyeblink and way too long. Those two may actually overlap, in places.

Put another way, I don't particularly care if the stimulus slows GDP growth in the future if the only people who are going to capture that growth are the super-rich.

Yeah, although it's worth pointing out that when all the gains go to the super rich, growth is also slower. The fish might look like their growing fast, but it's mostly just that the pond isn't.

Anyway, Von's talk of the long term GDP effects is spurious. The effect is very modest, and it's a level, not a rate effect. And you know what else leads to a permanently lower growth path? An un-remedied depression. Especially if it ends up putting us in a new low-employment equilibrium.

I can't speak for everyone, but I'd much rather just pay the interest on the treasury notes.

Yeah I'm the lateliest come jonny.

boldiexo!

There has been discussion in earlier posts about the multiplier effect of various forms of spending. I stumbled on this while I was doing research for a project i'm working on:

"Return on Redevelopment Agency Investment

Impacts per dollar of RDA spending are an indicator of the effectiveness of redevelopment programs and policies. While this study was not undertaken with the intention of completing a
comprehensive cost-benefit analysis of redevelopment programs, the economic impacts of the programs provide ample justification for current levels of RDA funding and expenditures. The results of this study indicate that:
▪ Every one dollar of redevelopment agency spending generates nearly $14 in instate sales of goods and services.
▪ It was also found that the average dollar of RDA spending increases state income by more than $7."

Source:Executive Summary - The impact of fiscal 2002-2003 community redevelopment agency activities on the California economy. Conducted by: center for economic development at California State University, Chico

I don't know what peer reviewing was done on the study.

A certain Nobel prize winner explains why von is misinformed about crowding out and tells what happened the last few times governments in similar situations implemented the policies he advocates (Hint: it sucked).

Von's an entertaining writer with strong views.

I don't agree much with him, but what that has to do with credibility is beyond me.

I agree with Hilzoy most of the time, which is credible but kind of boring in the long run.

Besides, if you want credibility, go over to Redstate when Von is in the comments and you'll learn something about credibility swimming like a buoyant little boat in the poisonous seas of fatuous non-credibility.

I suspect, however, and agree that in person he's probably one hell of a character.

The single biggest success of the New Deal was to prevent the fall of the Constitution.

And that, my friends, is the real dog tip.

We lost 600,000 jobs in January. We've lost 3.6 million jobs since the recession began in December of 2007. The rate at which jobs are being lost is increasing.

Check this out: if people don't have food and shelter, all freaking bets are off.

We're not close to Great Depression levels of pain yet, but you can kind of see how to get there from here.

With regard to the stimulus bill, proposals either will or will not keep people from losing their jobs and/or help folks out who have already lost their jobs. There is no other relevant question.

If it costs a lot of money, so be it. If it doesn't, all the better. But if it doesn't either keep folks from losing their jobs, or help folks who have already lost their jobs, it's noise.

Otherwise stuff starts burning down. It's not like it's never happened before.

Give a man a fish, he'll eat for a day. Teach a man to fish, he'll eat for a lifetime.

Tell a man sorry, there are no fish, and he'll eat your fish.

It gets ugly when the wheels come off.

"The single biggest success of the New Deal was to prevent the fall of the Constitution."

LOL! The single biggest success of the New Deal was to render most of the constitutional limits on federal power, such as enumerated powers doctrine, or the limitation of federal regulation under the interstate commerce clause to commerce which is interstate, effectively void.

Much more success, and we wouldn't have HAD a constitution anymore.

Brett: Much more success, and we wouldn't have HAD a constitution anymore.

NEW DEAL=NO MOAR GUNS!

Oh dear. Hadn't realized that. How terrible!

russell: With regard to the stimulus bill, proposals either will or will not keep people from losing their jobs and/or help folks out who have already lost their jobs. There is no other relevant question.

I think there is at least one more relevant question – is it possible that the stimulus will make things worse

Contrary to the ongoing theme here and elsewhere (and publius’s latest barrel/fish/shotgun post) not everyone who disagrees with the proposed stimulus is someone who wants to enrich the already rich at the cost of putting the janitor at the opera out of work…

There is genuine concern that we don’t know what the hell we are doing, that we can’t know, that there were no clear lessons from past cycles – and most scary, that the proposed stimulus could actually be the final nail in the coffin.

This (via Insty) is the most convincing thing I have read that argues we may be making a huge mistake.

I don’t know the answer. But I know I feel like this is being crammed down our throats with little justification that it will have the desired effects and no guarantees at all that it won’t actually make matters worse.

OCSteve-


From your article:

The track record is discouraging. Despite Franklin Roosevelt’s aggressive spending, unemployment reached 25 percent in 1933, fell only to 14 percent by 1937, and was back up to 19 percent in 1939.

That article appears to be the same old "the New Deal didn't work" revisionism. Take a look at here and here for a quick rebuttal, though there are no doubt more thorough ones around.

Remember as you look that New Deal spending began in 1933, and continued through 1937, when there was a premature effort to start balancing the budget again. See if that matches up to anything on those graphs...

(It's bizarre that these rebuttals are necessary, but revisionism does unfortunately appear to be a necessary cognitive plank of modern Republicanism.)

Our knowledge may not be perfect, but it's pretty good, and this stimulus represents the best prescription of modern economics. While things are always somewhat uncertain, this is much, much better bet than any of the alternatives - especially neo-Hooverism.

I checked out the link, and a couple things jumped out at me. The first was the misdating of the quote, Jan 3 instead of Jan 7th. Small thing, but it seems calculated to make Obama seem eager to spend.

Also, at the same time, he said this

We're also laying the groundwork for long-term economic growth, which is why a lot of the stimulative -- a lot of the investments are going to be around things like energy, health care, education, things that we need to be doing anyway.

This Online Newshour that deals with Obama's comments immediately after they were made seems a lot more to the point, rather than Glassman taking one phrase like a pubescent kid sneaking his father's Playboy into the bathroom. I mean, I might be doing what you complain about, which is engaging the rhetoric and not the substance, but when you've got "Suddenly, the object of our attention will be back in action, aroused." for a transition sentence, you wonder if there is something else going on.

I mean, I thought we agreed that these areas needed attention, so his call to stimulate these areas is less breathing "into the ear of a reluctant lover" and more dealing with first things first.

Lastly, Glassman cites Amity Shales, and after reading stuff like this and this leaves me less than impressed.

Von:

I don't think that "everyone" gets that today's stimulus means less (or no) growth tomorrow. You and all your friends might, but House Democrats aren't exactly trumpting this fact.

It was covered in high school economics. BASIC high school economics, the sort required for graduation in pretty much every school district in the United States.

I'm not sure why you think the House Democrats should be "trumpting" something anyone with a high school diploma should know.

I pointed it out because you were treating as a flaw something that is, in fact, part and parcel of the whole package. The bit that actually makes fiscal stimulus work, in fact.

It's also worth noting that most of the complaints about the New Deal and the Depression center around not so much the spending, but the experimentation and the uncertainty it engendered in the business community.

But this ISN'T, in fact, 1933. We're deliberately practicing modern Keynesian economics, not replaying the same script from the Roosevelt era. And there are no guarantees in that, but we're not exactly experimenting either. Investors and businesses (ought to) know what is being done and why.

Our knowledge may not be perfect, but it's pretty good, and this stimulus represents the best prescription of modern economics. While things are always somewhat uncertain, this is much, much better bet than any of the alternatives - especially neo-Hooverism.

Any of the alternatives? What’s wrong with Minnick’s (D) plan?

Minnick is a member of the Blue Dog caucus of occasionally conservative Democcrats. His START plan is a $170 billion “bare bones” pure stimulus approach that would put $100 billion immediately into the pockets of low- and middle-income Americans, then use the other $70 billion for basic infrastructure projects that create jobs. START requires that all funds not spent by 2010 be returned to the Treasury. START also stops stimulus spending when the nation’s Gross Domestic Product increases in two of three previous quarters, and all START payments are required to be posted on a public website.

Could be plenty wrong with it... But I’ve heard no serious debate about alternatives and at first look it sounds pretty good to me. There have been several alternative plans proposed – but they’re being ignored all the while some are claiming “no alternatives have been offered” or “(some folks) who just believe that we should do nothing” (Obama last night).

It’s really the cram down of this plan that is starting to bother me most.

It's implicit, and it's obvious if you think about it. If the second form of crowding out, in the form of tax increases or spending cuts, didn't have exactly the same drag on the economy, it wouldn't be worth mentioning the first type. Raising taxes would be a painless way to avoid the crowding out.

J. Michael, I agree that the two effects are related. My point is that the CBO only expressly accounts for one. (Or, if you view the two effects as essentially the same coin -- something I'm not sure I agree with -- one side.)

So: we're not disagreeing on the relationship. We're disagreeing on whether the CBO has attempted the much-harder-to-quantify effect of the deficit on how the government finances itself in the future. Again, I only see the CBO account for the future effects of the current financing effort in the capital markets.

Again, maybe the CBO's estimate implies both effects, but I'm not seeing it.

Demand is what we need to stimulate, not investment.

Rea. why can't we stimulate supply as well? Or are we only allowed to stimulate one curve at a time? FWIW, nothing in (even) paleo-Keynesian theory rules out attempts to stimulate the supply curve. (Does this respond to your comment as well, Russell?).

(The Original) Francis neatly frames a difference in world views. I'm willing to tolerate somewhat more inequality (and risk) than TOF in exchange for the potential for greater growth. (Even heartless I, however, want a safety net of some sort.)

Also, sorry for my absence from comments, but I am going to continue to be tied up through tomorrow. I will attempt to read every comment, however, even if I don't respond.

Rea. why can't we stimulate supply as well? Or are we only allowed to stimulate one curve at a time? FWIW, nothing in (even) paleo-Keynesian theory rules out attempts to stimulate the supply curve. (Does this respond to your comment as well, Russell?).

I'll field this one -- because there IS no problem with supply, and there is one with demand. Take houses, as an example --- there's a LOT more houses than there are buyers now. Stimulating supply in the housing market, for instance, would make the problem worse -- now you'd have even more empty houses competeing for the very few buyers.

The current problem is one of unemployment and dropping demand -- people have less to spend, can no longer borrow against their house, their credit cards are maxed out, and frankly the financial system as a whole has drastically reduced lending.

Dropping demand means producers make less because there are fewer people buying, which means they lay off people, which means -- you guessed it -- fewer people buying.

What POSSIBLE good could stimulating supply do? All you'd do is inflate inventories, making the problem worse. (Extra inventory means even when people start buying again, companies have to work through inventory before they start producing again -- which means that much longer before they need to hire more workers, expand production, etc).

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