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February 09, 2009

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Day's top snark. *BARNSTAR*

Sweet Jesus.

This is why I get depressed. It's as though they aren't even trying to make decent arguments.

It would provide an incentive for job-seekers to delay reentry into the workforce.

When I hear "moral hazard" I reach for my pistol.

Does anyone know what state the Senate bill is in? Like I thought the "compromise" took out most of this stuff. Which would make it in the running with the Detainee Act for the worst "compromise" in quite a while.

"We’re all about bipartisan understanding here at ObWi – so I wanted to find a good thought-provoking critique from someone who feels the stimulus bill is full of waste. I needed a different perspective. So I checked out the Corner and K-Lo obliged."

Are you being sarcastic about this and you were looking for a fish to shoot in a barrel? Because if you were actually looking for thought provoking critique of the stimulus bill you could have chosen MarginalRevolutions or EconLog.

Did you just not know where to look, or did you find precisely what you were looking to write about?

seb - it's actually far less noble. i was seeing what the NRO rxn was to the press conference. then i saw her link, and then i made the part you quoted up.

So yes, sarcasm. :)

But there is a serious point -- like Obama said, you may agree or disagree that this stuff is stimulus. but it's absurd to call it 'wasteful' (in the "pork" sense that's being used by gop legislators)

If you ever were interested in thoughtful critique (along the the lines of TLTinABQ's tightrope problem from here, this by Arnold Kling. In an additional post he writes:

The present scenario analysis highlights two black swans. The first one is Depression Averted, under which a stimulus keeps the economy from falling in a downward spiral of layoffs and shutdowns. The other black swan is Catastrophic Collapse, in which a loss of confidence by investors in U.S. government debt leads to a total collapse in the U.S. financial system, with economic activity contracting by 90 percent or more.
The case for or against a fiscal stimulus comes down to the relative importance of these two black swans. A stimulus is worthwhile if the probability of Depression Averted is very high compared to the probability of Catastrophic Collapse. Although neither scenario is likely, I believe that Catastrophic Collapse represents the greater risk.


Read the whole thing. My point is not that I think that a sovereign debt crisis is likely if the U.S. enacts the stimulus. But I think it represents a much worse possible outcome.

The sensible policy would be to enact a small but genuine stimulus. The current stimulus bill is both too small (in terms of the actual stimulus) and too large (in what it does to the U.S. fiscal position). Greg Mankiw's idea of cutting payroll taxes while scheduling future increases in the gasoline tax would be better.

hmm, the analysis seems to make sense until we get to that grand ole remedy -- cut business taxes.

Come rain or come shine, CATO believes that the tax burden on the businesses in the most productive (on a per-person basis) economy in the world is too high.

(btw, i'm curious as to why SSA contributions are suddenly a tax on business. Most of the time it's a tax on employees. who's Kling's audience?)

of course, elections have consequences and one faces a recession with the Congress one has, not the Congress one wishes to have. I wish Prof. Kling all the best in his battle in the marketplace of ideas with the likes of Prof. Krugman.

But I think it represents a much worse possible outcome.

Well? Out with it.

Cutting payroll taxes for people who have no jobs is a pretty stupid idea for a stimulus. Economic statistics are fairly clear as to the poor fiscal stimulus provided by tax cuts, even for the poor (many of whom already get federal rebates, but no relief from local taxes). And scheduled "future" increases in taxes stimulate the economy exactly how? Even the economic theory you worship so blindly claims that "free money" has little, if any, real economic effect--have you forgotten your Milty Friedman so casually?

Mankiw's total (often verging on lying) subservience to the Bush political agenda has irredemably sullied any reputation he may have acquired as an academic economist.

"Real Stimulus" as advocated by the stalwarts in the current version of the GOP is real fantasy. It is nothing less than a desperate version of supply side economics--a theory that has been tried and utterly discredited.

Cutting corporate and payroll taxes will free up money for firms to fund their own operations. Kling lays out the case here.

Francis said, "I wish Prof. Kling all the best in his battle in the marketplace of ideas with the likes of Prof. Krugman."

Why do you think Krugman is more qualified than Kling is?

Are you being sarcastic about this and you were looking for a fish to shoot in a barrel?

Publius did use the terms "good", "thought provoking", and "analysis" in the same sentence as "NRO", so that should answer your question from the get-go.

But on a serious note, is it possible to want the stimulus (preferably as it looked before the sensible centrists pooped all over it) and hate the TARP? Can one work without the other?

Francis, "hmm, the analysis seems to make sense until we get to that grand ole remedy -- cut business taxes.

Come rain or come shine, CATO believes that the tax burden on the businesses in the most productive (on a per-person basis) economy in the world is too high.

(btw, i'm curious as to why SSA contributions are suddenly a tax on business. Most of the time it's a tax on employees. who's Kling's audience?)"

I don't think you understand the position of payroll taxes. They are a tax that makes employment more expensive. That tax is ultimately bourne by the employee in good economic times (he can only negotiate to a certain total level of compensation plus taxes) and in times like these it is a serious cost because it prices out employees who are on the margin of being employeed. Cutting the employment tax is an especially good stimulus because it makes it cheaper for people to do one of the very most important things in a depression--hire people to work for them!

And since that model is supported by economists from Keynes to Mankiw to Delong to Cowen (pretty much the entire spectrum), I'm not sure why you identify it as a CATO idea. It may be the one thing that almost everyone in economics agrees is almost certainly stimulus.

And yes even Krugman (at least as recently as 2003 when he published "The Great Unravelling") believed that cutting the payroll tax was one of the best ways to help the American worker.

"Cutting payroll taxes for people who have no jobs is a pretty stupid idea for a stimulus."

I don't understand what you are talking about. The proposal is to cut payroll taxes for businesses that employ people.

"Economic statistics are fairly clear as to the poor fiscal stimulus provided by tax cuts, even for the poor (many of whom already get federal rebates, but no relief from local taxes)."

You're getting your reports confused. You're mixing all possible types of tax cuts as if they were the same. They aren't. This by the way is the exact same mistake that Senate Republicans are making when they act as if income tax cuts for the rich are stimulus--it confuses 'certain types of taxes are stimulus' with 'all taxes are the same and therefore stimulus'. They aren't.

"Mankiw's total (often verging on lying) subservience to the Bush political agenda has irredemably sullied any reputation he may have acquired as an academic economist."

I look forward to your view on Krugman whose entire academic career was based on showing how awful tariffs were, but now that Democrats are milling around the idea, he is edging toward defending them.
And indeed he seems to be hyper-hedging his former views on the payroll tax.

"Francis said, 'I wish Prof. Kling all the best in his battle in the marketplace of ideas with the likes of Prof. Krugman.'"

Krugman's expertise is in trade, not macroeconomics.

Why do you think Krugman is more qualified than Kling is?

Publications listed in Econlit, the main database for academic research in economics: Krugman 399, Kling 16

Publications listed in the Social Sciences Citation Index: Krugman 127, Kling 8

Citations listed in the Social Sciences Citation Index: Krugman 14097, Kling 16

Nobel Prizes: Krugman 1, Kling 0

If only the economists and thinkers to whom Sebastian linked had as much influence on conservative politics as the mouth-breathers at NRO, this country might actually get somewhere. The problem -- and almost certainly the reason that publius found this so easy to write, is that they don't.

This is a very difficult time for conservatives. Just about everything in the stimulus bill runs contrary to their core beliefs about the role of government. And they have been betrayed by the Republican party whose failures over the last eight years left the country's finances in poor condition to respond to the current crisis.

If the current situation wasn't so frightening, I would find the attempts by congressional Republicans to return to their long lost fiscal conservative roots amusing.

Its a really hard time for republicans because they are paid to advocate for a system of wealth aggrandizement that is running counter to the reality experienced by most working people and citizens at the moment. Until they address that obvious fact, that millions are losing their jobs, homes, livlihoods and health care, their proposals will continue to look like a child sticking his fingers in his ears and shouting "I can't hear you" as a truck barrells down on him.

aimai

Sebastian, in fairness to Krugman, when he's being honest he acknowledges that Krugamn the economist often clashes with Krugman the liberal Democrat. I remember seeing a Charlie Rose interview that was interesting, especially when he said he still though that deficits (in good times) were worse than a government with balanced books, but that the government should still run deficits to provide more social services.

publius, ol buddy, ol pal. We're talking about money WE DON'T HAVE. We're talking about strawmen arguements curing a disease created by the medicine we're about to take. We're talking snake oil. Warm and fussy don't pay the Piper. The cause may be worthy in some eyes, but that ain't the point. Our new president is making the same mistake our last president made (that should ruffle your feathers), letting his own party call the escape the barn. President Obama could reach the heights he's set for himself by saying "STOP, we're not doing this right". Congress, go back to work and do it this way (a way is out there). I will not sign any bill that does harm. We will do no harm!" He needs to set Pelosi on her butt and lead in her absence. publius, you're enabling drivel is not helpful. Obsidian Wings, please return to the Voice of Moderation. It would serve us well.

Eric..."This is a very difficult time for conservatives. Just about everything in the stimulus bill runs contrary to their core beliefs about the role of government. And they have been betrayed by the Republican Party whose failures over the last eight years left the country's finances in poor condition to respond to the current crisis."

Well, let's change "conservatives" to "Americans". And we're not flag waving here; I mean "us" at the most common denominator. Then change "Republican party" to "Congress". Now we're cooking.

Erin, sorry about the "Eric". Sometimes stream of consciousness don't spel good.


If you ever were interested in thoughtful critique (along the the lines of TLTinABQ's tightrope problem from here, this by Arnold Kling.

Seb,

I am very much concerned with the sovereign default and/or dollar denominated assets crisis scenario outlined by Buiter and others, but I have to say that the paper by Arnold Kling you linked to is a shockingly poor piece of analysis. His entire text can be abstracted as:

1 - I read Taleb, so I know it is now hip to say "Black Swans!"
2 - If we do nothing, recession or depression? Recession! Why? Because shut up, that's why.
3 - If we pass the stimulus bill does it provide a return on investment, or not? Not! Why? Because I said so.
4 - If we borrow the money (nevermind how much or under what terms) then confidence in the dollar will collapse and we will all die! Why? Because Asian Flu, Freddie and Fannie, that's why!

There is no quantitative analysis here - in fact the only actual numbers with any empirical support (footnotes 3 and 4) in his entire report are concerning corporate costs and profits (a telling indicator as to what Cato actually cares about). Nor are there any links to quantitative data supporting the author's arbitrary selection of various outcomes as being more or less likely - this is nothing but argument by assertion.

Now I can be accused of the same sins (although I do try within the constraints of the time avaiable to me to embed links to folks on the econblogs who present actual data), but I have a much better excuse - I'm just some loudmouth on the internet and not getting paid to do this either. What is Kling's excuse? If this were a paper submitted in Econ 101 it would deserve a D- grade with a scathing "show your work" comment.

If you are going to make a serious argument please don't go waving this paper around and please don't associate my name with it.

There is no quantitative analysis here

Well, of course not--you didn't expect an impartial, scientific approach, did you? Anything other than a priori reasoning would run the risk of coming to the wrong conclusion.

Lest anyone think Publius is really attacking a strawman, check out the official Senate GOP list.

I'm not really sure what your objection to 'show your work' is. The piece is an informal article much like Krugman might write for the NYT, not a publish-for-econ-journal article.

Actually one of the good things about Kling is that if you look at his blog he is completely upfront about why you don't do a quantitative analysis of these particular systems--he thinks that economists don't know enough about these types of situations to put up real probabilities on things like "could this cause a dollar denominated assets crisis situation" in a useful way such that saying it 1% or 0.1% is just creating a false scientistic look rather than proving useful numbers.

(Which is not at all the same as saying that it wouldn't be useful if you could get the numbers, just that economists who confidently claim to have such numbers are presenting a false front).

As such it seems very useful to outline the other side of the tightrope, which is pretty much being ignored in the stimulus debate even if you can't directly quantify how likely the scenario is. (Now if you can safely relegate it to extremely unlikely that is fine, but at this point we can't really do that).

Now I'm only a statistically understanding economics layman so maybe I'm missing something. But for what it is worth, both Tyler Cowen and Alex Tabarrok from MarginalRevolutions seem to take him very seriously on a constant basis, and they both have pretty solid reputations.

jack, I'm not certain what the point of your reference is. I do see the word "contruction" listed frequently. At least the residue would be something substantial. I know gov'ment is going to do something, so no sense clinging on to the do nothing meme. (Even though I've mentioned the valor it would represent) I just wish our presidents would take on their party in Congress when warranted. On the other hand, we took billions in cash to Iraq and spread it around like Snicker bars, and I'm sure you agree that ended well. HEH.

This prety much sums up my view on the Senate compromise:

Now fiscal responsibility is generally a good thing, and so a centrism mindlessly focused on tweaking legislation away from deficit spending has its uses. But what Nelson, Collins, Specter and Co. have done isn't a new kind of politics. It's the definition of politics as usual. And in this particular case, there's a reasonable argument that it's actively pernicious - that if you can't shrink the stimulus package much more substantially than the centrists have done, you shouldn't shrink it at all. There's a case to be made for a stimulus that's radically different than the one we have now; there's a case to be made for a stimulus that's like the one we have now, but a great deal smaller and more targeted; and there's a case to be made for a stimulus that's absolutely gargantuan. But thanks to the centrists, we're getting the cheapskate version of the gargantuan version: They've done absolutely nothing to widen the terms of debate about what should go into the bill, and they've shaved off just enough money to reduce its effectiveness if Paul Krugman is right - but not nearly enough to make it fiscally prudent if the stimulus skeptics are right.

This means that if the damn thing doesn't work, we won't even know whom to blame.

ARGH!

We're talking about strawmen arguements curing a disease created by the medicine we're about to take.

Prior fiscal profligacy caused bankers to generate $600 trillion in exotic mortgage related securities and debt instruments?

Really?

jack, I'm not certain what the point of your reference is.

Really?

The point is that this is apparently the best list Senate Republicans could come up with of "non-stimulative" spending, and it's absolutely no better than K-Lo's.

Second item on the list? State fiscal relief. And it doesn't get better from there.

From my POV, the important aspect of Publius' post is that the arguments he quotes are coming from NRO, which is much more influential on the right than Arnold Kling and Tyler Cowen added together and squared.

In other words, whatever the sensible economic arguments against the stimulus package, the arguments put forth by conservative (and "centrist") politicians are ridiculous, because they reflect Lopez' "thinking."

"In other words, whatever the sensible economic arguments against the stimulus package, the arguments put forth by conservative (and "centrist") politicians are ridiculous, because they reflect Lopez' 'thinking.'"

Do they? I'm not at all sure who Lopez speaks for. I certainly wouldn't be confident that arguments put forth by Lopez represent the thinking of any particular politican.

Seb:
I don't understand what you are talking about. The proposal is to cut payroll taxes for businesses that employ people.

I don't pretend to speak for bobbyp, but it seems to me that what he was getting at is that a payroll tax cut does squat for people who have lost their jobs. It only benefits those who still have them. Now, for a number of reasons, I'm okay with this sort of tax cut, as it may slow further job losses, and could even encourage a bit more hiring (somebody has to distribute all those free ponies that will come in that fantasy-world, but I'm ever the optimist), but the point still stands that payroll and income tax cuts don't help people who have no income and don't receive payroll.

Actually one of the good things about Kling is that if you look at his blog he is completely upfront about why you don't do a quantitative analysis of these particular systems--he thinks that economists don't know enough about these types of situations to put up real probabilities

So, his attitude toward economics mirrors the past administration's attitude toward global warming -- "Let's wait for more evidence to come in before we act too hastily" -- and that's supposed to be a positive trait?

And finally, curse you for finding a Douthat quote that I provincially agree with...

Bernard:

Hear, hear!

Sebastian: You have reasonable objections but, sadly, many of the GOP caucus are not making sensible arguments, or offering sensible alternatives.

Witness, 37 out of 41 GOP Senators voting for a bill comprised of tax cuts alone!

Would that you be in charge of the GOP, the country would be better off.

Krugman's work in other areas doesn't make him more qualified to discuss the stimulus than Kling, neither does the nobel prize he won for new trade theory.

I'm not at all sure who Lopez speaks for.

Sebastian,

The question is not who Lopez speaks for, but who she speaks to. National Review, and NRO (not to mention Limbaugh, etc.) have a much larger audience than Tyler Cowen.

"I don't pretend to speak for bobbyp, but it seems to me that what he was getting at is that a payroll tax cut does squat for people who have lost their jobs. It only benefits those who still have them. Now, for a number of reasons, I'm okay with this sort of tax cut, as it may slow further job losses, and could even encourage a bit more hiring (somebody has to distribute all those free ponies that will come in that fantasy-world, but I'm ever the optimist), but the point still stands that payroll and income tax cuts don't help people who have no income and don't receive payroll."

This isn't a particularly good objection. Payroll tax cuts probably won't do much to help discover the Unified Field Theory, stop global warming, or teach youngsters how to appropriately ask for a date. But they do actually provide good stimulus, which is one of the main things we want out of a stimulus package. Other things (like increased unemployment insurance and food stamps) help the unemployed workers you are talking about and also are stimulus.

And it does in fact benefit people who lost their jobs, because it stimulates employment. Which is what we are ultimately after right?

But they do actually provide good stimulus, which is one of the main things we want out of a stimulus package.

Which is why, as I stated, I generally support them. But of course the question isn't just whether it will be stimulative, but how stimulative it will be. And that's an open question. All I'm saying is that if tax cuts are to be a part of the package (as it seems they inevitably will be), then they should be of this sort rather than of the top-down sort.

And it does in fact benefit people who lost their jobs, because it stimulates employment.

This, I think, assumes facts not in evidence. Which, to be fair, is true of virtually everything we're talking about here. But nonetheless, I find it exceedingly hard to believe that a payroll tax cut would meaningfully stimulate employment in practice. It would reduce the cost of headcount by only a small fraction, and I can't see how that fraction would make that much difference given the scale of the problem.

And that's why bobbyp's objection resonated with me. By Obama's (repeated) definition, the primary objectives of the stimulus package are to create or save jobs, and to provide assistance to those who have lost their jobs (so they can remain active in the economy). It seems to me that a payroll tax cut is pretty far down the list of things you'd do to meet that end, because it doesn't directly impact either of those objectives.

"It would reduce the cost of headcount by only a small fraction, and I can't see how that fraction would make that much difference given the scale of the problem."

But is is both broad (in the sense of impacting a large cross section of employers) in the way we want, targeted in the way we want (it helps employers who are employing, not just random rich people), it helps keep employers who are treading water afloat, it makes employers who are doing better than treading water more likely to be able to hire, and it takes effect almost immediately.

All of which are things that we want out of good government stimulus.

Krugman's work in other areas doesn't make him more qualified to discuss the stimulus than Kling, neither does the nobel prize he won for new trade theory.

Publications on financial and currency crises specifically, as listed in Econlit:
Krugman - several dozen, exact number depends on classification criteria (multiple cases of double counting; several of the papers are classics in the field and have been republished repeatedly)
Kling - six

"So, his attitude toward economics mirrors the past administration's attitude toward global warming -- "Let's wait for more evidence to come in before we act too hastily" -- and that's supposed to be a positive trait?"

No, you should read some of his stuff. He is actually taking a very solid scientific position of "we don't know" and then he lays out the dangers of a bunch of different potential actions. He is skeptical that randomly trying to spend money is going to help if you don't deal with the underlying problems in some cohesive way (like the mortgage market, the business lending market, and the lack of savings) and that randomly spending money might hurt if it dramatically if it pushes our already teetering national debt over the edge.

Just because he doesn't totally agree with the slapdash stimulus in every particular doesn't make him fundamentally crazy or procedurally unsound.

So far as I can tell even "don't ask questions, just trust us" stimulus package boosters like Krugman are pretty much of the "hope it works, I'm not really sure" variety of economist right now. He is just hoping really loudly.

Would that you be in charge of the GOP, the country would be better off.

Oh sweet Jesus, can I live in that world too?

Let's see, we have a widely accepted framework that tells us why stimulus is needed now, backed up by the research and argument of many Nobel prize winning economists, and we have examples of what happens when such stimulus isn't provided.

But wait! There's a link to a paper at cato.org that has a completely non-rigorous just so story that supports the policies that cato.org was going to support no matter what the facts or evidence are.

Stop the presses!

I mean, really. If that is the best the people who oppose the stimulus for ideological reasons can come up with to support their ideology, the case for a stimulus is stronger than people imagined.

"There's a link to a paper at cato.org that has a completely non-rigorous just so story that supports the policies that cato.org was going to support no matter what the facts or evidence are." And you didn't read it yet did you? And you aren't even trying to figure out that the payroll tax cut actually is good policy are you?

K-Lo and the corner are just preaching to their choir that does not believe in spending stimulus. Thus, they, like most of the GOP, have made themselves irrelevant to the debate. The public expects there will be some waste, but dont care, which is why they laugh WITH Obama's "its made in Washington" line. Just let these people continue to be irrelevant.

And you aren't even trying to figure out that the payroll tax cut actually is good policy are you?

Good policy compared to what? I can already read any number of analyses from qualified and non-partisan sources that explain where a payroll tax cut ranks among the ways of stimulating an economy once monetary policy has failed.

When I see an organization with well known biases picking one non-rigorous argument that plays to those biases instead of one of hundreds of more rigorous arguments that do not, I know pretty well what is going on.

You don't?

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