I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
On August 20 2012 21:03 paralleluniverse wrote: I'm definitely not opposed to redirecting "poor quality government spending" to better uses. You say that this is the main thing you're advocating for, but it's not obvious from any of your writings that that's your view. The standard Republican view is to gut all spending (apart from tax cuts to the rich, of course).
The "making stuff up" comment was directed at your factoid that stimulus is ineffective when debt is high. I can't accuse you of making stuff up now that you have given a source (probably the most random and no-name source that's been linked this thread). However, I still don't agree with the content in your link.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
Now, while you're source is quite no-name, it does cite some more reputable studies (in the "Recent Academic Evidence" section) to come to the view quoted above, that being Reinhart, Reinhart, Rogoff. But your source has misinterpreted the finding of this paper, which is that recessions caused by debt overhangs are long, and that high debt (the magical 90% number) is correlated with slow economic growth.
It even calls it a "corollary", because it's the implication they drew from the evidence. But it does not follow from the Reinhart, Reinhart, Rogoff paper that was cited, that even higher debt, in the form of stimulus, will cause even slower economic growth. This Hoisington paper confuses correlation with causation. The original source says that prolonged levels of high debt is correlated with slow economic growth.
They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
But, let's see what Reinhart and Rogoff actually have to say about stimulus:
The U.S. must reduce its debt or suffer economic stagnation, they said in interviews with McClatchy, but in the short term they also favor more government stimulus to boost the economy, even if that raises the debt a bit more.
"We may need another stimulus bill just to decompress from the previous one, a smaller one to cushion the landing," said Kenneth Rogoff, a Harvard University economist and a co-author of the book.
Added his fellow co-author, Carmen Reinhart, a University of Maryland economist: "I'm not one of those deficit hawks. ... I'm not saying you run out and pull the plug and have an adjustment that could derail what fragile recovery we do have."
However, she cautioned, "the whole thing that we can disregard debt because we're the U.S. is really grasping at straws. Taxpayers need to understand the tradeoff, and that is, we're going to be paying for this in terms of lower growth in the future."
As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”
This seems to be a very reasonable economic position: stimulus now, cut spending later. In fact, it's pretty much the position of Barrack Obama. Note that the first link is from 2010, these days I believe Rogoff has become a typical "cut everything, now, now, now!!" Republican.
Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
Your basing the fact that stimulus doesn't work off of what? Gut feeling? Fox News? You've just made a statement mocking stimulus, implying that it's worthless, backed up by nothing but right-wing dogma. Anti-intellectualism at its finest.
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
Your basing the fact that stimulus doesn't work off of what? Gut feeling? Fox News? You've just made a statement mocking stimulus, implying that it's worthless, backed up by nothing but right-wing dogma. Anti-intellectualism at its finest.
Haha then you can look at the CBO's methodology, which boils down to assuming stimulus works, then declaring it to work because their model assumed it would work, and have another good laugh. What does saved or created a job even mean? How long did these jobs last? Were they economically productive?
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
Your basing the fact that stimulus doesn't work off of what? Gut feeling? Fox News? You've just made a statement mocking stimulus, implying that it's worthless, backed up by nothing but right-wing dogma. Anti-intellectualism at its finest.
Haha then you can look at the CBO's methodology, which boils down to assuming stimulus works, then declaring it to work because their model assumed it would work, and have another good laugh. What does saved or created a job even mean? How long did these jobs last? Were they economically productive?
For within-country evidence, see Chodorow-Reich, Feiveson, Liscow, and Woolston (2010); Suárez Serrato and Wingender (2010); Shoag (2010); Fishback and Kachanovskaya (2010); and Nakamura and Steinsson (2011). For cross-country evidence, see International Monetary Fund (2010); Council of Economic Advisers (2009); and Kraay (2010). For time-series evidence (as well as simulation-based evidence), see Hall (2009); Barro and Redlick (2010); Fisher and Peters (2009); Coenen et al. (2010); and Christiano, Eichenbaum, and Rebelo (2010). On this list, all but Kraay, Barro and Redlick, and Fisher and Peters implicitly or explicitly try to provide evidence about the case where monetary policy does not act to offset the effects of fiscal policy. With the exception of two of these three (Kraay and Barro and Redlick), the papers all suggest substantial effects of fiscal policy. As I describe below, this brief tour omits all work that predates the crisis.
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
Your basing the fact that stimulus doesn't work off of what? Gut feeling? Fox News? You've just made a statement mocking stimulus, implying that it's worthless, backed up by nothing but right-wing dogma. Anti-intellectualism at its finest.
Haha then you can look at the CBO's methodology, which boils down to assuming stimulus works, then declaring it to work because their model assumed it would work, and have another good laugh. What does saved or created a job even mean? How long did these jobs last? Were they economically productive?
For within-country evidence, see Chodorow-Reich, Feiveson, Liscow, and Woolston (2010); Suárez Serrato and Wingender (2010); Shoag (2010); Fishback and Kachanovskaya (2010); and Nakamura and Steinsson (2011). For cross-country evidence, see International Monetary Fund (2010); Council of Economic Advisers (2009); and Kraay (2010). For time-series evidence (as well as simulation-based evidence), see Hall (2009); Barro and Redlick (2010); Fisher and Peters (2009); Coenen et al. (2010); and Christiano, Eichenbaum, and Rebelo (2010). On this list, all but Kraay, Barro and Redlick, and Fisher and Peters implicitly or explicitly try to provide evidence about the case where monetary policy does not act to offset the effects of fiscal policy. With the exception of two of these three (Kraay and Barro and Redlick), the papers all suggest substantial effects of fiscal policy. As I describe below, this brief tour omits all work that predates the crisis.
Obviously a liberal ploy. I don't see a single member from the Cato Institute!
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
Your basing the fact that stimulus doesn't work off of what? Gut feeling? Fox News? You've just made a statement mocking stimulus, implying that it's worthless, backed up by nothing but right-wing dogma. Anti-intellectualism at its finest.
Haha then you can look at the CBO's methodology, which boils down to assuming stimulus works, then declaring it to work because their model assumed it would work, and have another good laugh. What does saved or created a job even mean? How long did these jobs last? Were they economically productive?
For within-country evidence, see Chodorow-Reich, Feiveson, Liscow, and Woolston (2010); Suárez Serrato and Wingender (2010); Shoag (2010); Fishback and Kachanovskaya (2010); and Nakamura and Steinsson (2011). For cross-country evidence, see International Monetary Fund (2010); Council of Economic Advisers (2009); and Kraay (2010). For time-series evidence (as well as simulation-based evidence), see Hall (2009); Barro and Redlick (2010); Fisher and Peters (2009); Coenen et al. (2010); and Christiano, Eichenbaum, and Rebelo (2010). On this list, all but Kraay, Barro and Redlick, and Fisher and Peters implicitly or explicitly try to provide evidence about the case where monetary policy does not act to offset the effects of fiscal policy. With the exception of two of these three (Kraay and Barro and Redlick), the papers all suggest substantial effects of fiscal policy. As I describe below, this brief tour omits all work that predates the crisis.
Obviously a liberal ploy. I don't see a single member from the Cato Institute!
On a serious note, where did you find all these?
These are all summaries of papers on the evidence on stimulus rather than papers on the effect of stimulus.
The first link was a response to the Mankiw et al paper on the Romney economic plan.
The next two were linked on Krugman's blog,
And that paragraph is a footnote in the last link.
I'm well aware of that problem. But it's a red herring in the debt discussion.
If you think Republicans give it shit about the debt, then you've been duped. The Republicans are the cause of the debt problem, they blew a surplus into a deficit, started 2 wars and pass the Bush tax cuts which is one of the most significant contributors to the deficit.
And Romney and Ryan now want to take the Bush tax cuts even further. In what world is that deficit reducing?
Continuing with my Ryan series, let’s look at what his budget (pdf) actually proposes (as opposed to vaguely promises) in its first decade.
First, there are a set of tax cuts for higher income brackets and corporations. The Tax Policy Center (pdf) estimates the cost of these tax cuts, relative to current policy, at $4.3 trillion.
Second, there are spending cuts. Of these, approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts.
On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.
So if we look at the actual policy proposals, they look like this:
This is, then, a plan that would increase the deficit by around $2.6 trillion.
How, then, does Ryan get to call himself a fiscal hawk? By asserting that he will keep his tax cuts revenue-neutral by broadening the base in ways he refuses to specify, and that he will make further large cuts in spending, in ways he refuses to specify.
And this is what passes inside the Beltway for serious thinking and a serious commitment to deficit reduction.
TARP, the 2008 Stimulus, and both wars received bilateral support. The first two I would even argue were Democrat ideas. Once again, the Democrats are just making things worse (notice how the graph goes down instead of up?). It's not ok to make the problem worse by pointing a finger and screaming "BUT HE STARTED IT!!!" Two wrongs don't make a right. Or did you miss that lesson in Kindergarten?
I don't have time to address the rest right now. Gotta run to work.
As you can see from the graph, TARP and the stimulus is peanuts compared to the Bush tax cuts and the 2 wars.
In fact, by today TARP has made a profit.
A lot of the increase in the deficit under Obama is due to falling tax revenues as a result of the GFC. Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue. They're also proposing cuts to spending and taxes on the rich. Romney is going to make it worse by blowing up the deficit with massive tax cuts in a plan that the TPC calls mathematically impossible.
lol @ JOBS bill. The naming of these things is so ridiculous because it actually works...
Democrats are proposing to solve the problem by a jobs bill (stimulus), which will increase employment, GDP, improve the economy and hence increase tax revenue.
You honestly believe that will work? It didn't work the first two times, but the third times it's going to *poof* and all the problems go away? I'm sure that plan and the claimed "savings" comes with an 8% estimated GDP growth by the CBO too...
We actually could "poof" reduce unemployment by simply creating more government jobs like we did under the New Deal but the Democrats aren't likely to get behind such a notion these days much less Republicans.
It always brings a smile to my face when paralleluniverse pwns all you people convinced that trickle down, supply side, Austrian, boogeyman economics makes any real sense compared to mainstream Keynesianism. I mean dayum, man.
On August 24 2012 22:39 Savio wrote: Anderson Cooper not letting Wasserman Schultz get away with anything regarding Romney and the party platform: www.youtube.com/watch?v=8k-KuYJraEg lol
EDIT: Also that woman is annoying
Good for Anderson Cooper.
Yes, I agree that she's annoying. I don't understand why democrats have so many clods in mouthpiece positions. If I were running their party, I'd put in a bunch of Southern bubbas to speak on behalf of the party. I'm sure that alone would increase their image ratings by 10 points.
On August 20 2012 21:03 paralleluniverse wrote: I'm definitely not opposed to redirecting "poor quality government spending" to better uses. You say that this is the main thing you're advocating for, but it's not obvious from any of your writings that that's your view. The standard Republican view is to gut all spending (apart from tax cuts to the rich, of course).
The "making stuff up" comment was directed at your factoid that stimulus is ineffective when debt is high. I can't accuse you of making stuff up now that you have given a source (probably the most random and no-name source that's been linked this thread). However, I still don't agree with the content in your link.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
Now, while you're source is quite no-name, it does cite some more reputable studies (in the "Recent Academic Evidence" section) to come to the view quoted above, that being Reinhart, Reinhart, Rogoff. But your source has misinterpreted the finding of this paper, which is that recessions caused by debt overhangs are long, and that high debt (the magical 90% number) is correlated with slow economic growth.
It even calls it a "corollary", because it's the implication they drew from the evidence. But it does not follow from the Reinhart, Reinhart, Rogoff paper that was cited, that even higher debt, in the form of stimulus, will cause even slower economic growth. This Hoisington paper confuses correlation with causation. The original source says that prolonged levels of high debt is correlated with slow economic growth.
They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
But, let's see what Reinhart and Rogoff actually have to say about stimulus:
The U.S. must reduce its debt or suffer economic stagnation, they said in interviews with McClatchy, but in the short term they also favor more government stimulus to boost the economy, even if that raises the debt a bit more.
"We may need another stimulus bill just to decompress from the previous one, a smaller one to cushion the landing," said Kenneth Rogoff, a Harvard University economist and a co-author of the book.
Added his fellow co-author, Carmen Reinhart, a University of Maryland economist: "I'm not one of those deficit hawks. ... I'm not saying you run out and pull the plug and have an adjustment that could derail what fragile recovery we do have."
However, she cautioned, "the whole thing that we can disregard debt because we're the U.S. is really grasping at straws. Taxpayers need to understand the tradeoff, and that is, we're going to be paying for this in terms of lower growth in the future."
As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”
This seems to be a very reasonable economic position: stimulus now, cut spending later. In fact, it's pretty much the position of Barrack Obama. Note that the first link is from 2010, these days I believe Rogoff has become a typical "cut everything, now, now, now!!" Republican.
Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
On August 20 2012 21:03 paralleluniverse wrote: I'm definitely not opposed to redirecting "poor quality government spending" to better uses. You say that this is the main thing you're advocating for, but it's not obvious from any of your writings that that's your view. The standard Republican view is to gut all spending (apart from tax cuts to the rich, of course).
The "making stuff up" comment was directed at your factoid that stimulus is ineffective when debt is high. I can't accuse you of making stuff up now that you have given a source (probably the most random and no-name source that's been linked this thread). However, I still don't agree with the content in your link.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
Now, while you're source is quite no-name, it does cite some more reputable studies (in the "Recent Academic Evidence" section) to come to the view quoted above, that being Reinhart, Reinhart, Rogoff. But your source has misinterpreted the finding of this paper, which is that recessions caused by debt overhangs are long, and that high debt (the magical 90% number) is correlated with slow economic growth.
It even calls it a "corollary", because it's the implication they drew from the evidence. But it does not follow from the Reinhart, Reinhart, Rogoff paper that was cited, that even higher debt, in the form of stimulus, will cause even slower economic growth. This Hoisington paper confuses correlation with causation. The original source says that prolonged levels of high debt is correlated with slow economic growth.
They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
But, let's see what Reinhart and Rogoff actually have to say about stimulus:
[quote] And then there's this from Reinhart (again): [quote] This seems to be a very reasonable economic position: stimulus now, cut spending later. In fact, it's pretty much the position of Barrack Obama. Note that the first link is from 2010, these days I believe Rogoff has become a typical "cut everything, now, now, now!!" Republican.
Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
So when you said "huge amounts of stimulus" were being pumped into states like ND, you meant "huge amounts per capita", which means absolutely nothing in terms of its impact on the federal budget? Are you even conscious of the hoops you're jumping through in order to find something negative to say about the stimulus and what paralleluniverse is posting?
On August 20 2012 21:03 paralleluniverse wrote: I'm definitely not opposed to redirecting "poor quality government spending" to better uses. You say that this is the main thing you're advocating for, but it's not obvious from any of your writings that that's your view. The standard Republican view is to gut all spending (apart from tax cuts to the rich, of course).
The "making stuff up" comment was directed at your factoid that stimulus is ineffective when debt is high. I can't accuse you of making stuff up now that you have given a source (probably the most random and no-name source that's been linked this thread). However, I still don't agree with the content in your link.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
Now, while you're source is quite no-name, it does cite some more reputable studies (in the "Recent Academic Evidence" section) to come to the view quoted above, that being Reinhart, Reinhart, Rogoff. But your source has misinterpreted the finding of this paper, which is that recessions caused by debt overhangs are long, and that high debt (the magical 90% number) is correlated with slow economic growth.
It even calls it a "corollary", because it's the implication they drew from the evidence. But it does not follow from the Reinhart, Reinhart, Rogoff paper that was cited, that even higher debt, in the form of stimulus, will cause even slower economic growth. This Hoisington paper confuses correlation with causation. The original source says that prolonged levels of high debt is correlated with slow economic growth.
They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
But, let's see what Reinhart and Rogoff actually have to say about stimulus:
[quote] And then there's this from Reinhart (again): [quote] This seems to be a very reasonable economic position: stimulus now, cut spending later. In fact, it's pretty much the position of Barrack Obama. Note that the first link is from 2010, these days I believe Rogoff has become a typical "cut everything, now, now, now!!" Republican.
Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
Stop changing the subject. Your argument was that stimulus is like a sledgehammer that will blanket the economy. The example you gave was that ARRA continues to shove money at North Dakota despite its 3% unemployment rate. Basically, that stimulus is necessarily a blunt instrument, affecting states that don't need that money, so that it is inefficient and wasteful. The first part is completely false, as I've previously said.
For the second part, in the case of ND, to judge whether ARRA was inefficient and wasteful, the correct metric to use is the proportion of ARRA money given to ND, not the amount of ARRA money ND received per capita, because the fact that only 0.4% of all of the ARRA money was given to ND means that had there been a more efficient and optimal allocation of money that gave ND less money it would make virtually zero difference to the economic effect of ARRA because 0.4% is a completely trivial amount. Further, you haven't shown that with the information known in 2009 that ND received too much ARRA money.
A point I've been trying to make about the deficit talks.
Dave Weigel makes a good point: there’s a huge inconsistency between the way Republicans are responding to the new CBO report on the fiscal cliff and everything they’ve been saying for the past two years.
What the CBO says is that allowing the Bush tax cuts to expire and the sequester to kick in would hit the economy hard next year — because it would lead to a sharp fall in the deficit while the economy is still depressed. It’s pure Keynesianism, the same point that all of us anti-austerians have been making for years. If the right was at all consistent, it would be denouncing the CBO report for failing to take into account the impact of a lower deficit in deterring the invisible bond vigilantes and encouraging the confidence fairy.
But whaddya know: suddenly the deficit is not an issue.
Of course, it has been obvious all along that the whole deficit-hawk pose was insincere, that it was all about using the deficit as a club with which to smash the social safety net. But now we have a graphic demonstration.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
[quote] They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
[quote] Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
Stop changing the subject. Your argument was that stimulus is like a sledgehammer that will blanket the economy. The example you gave was that ARRA continues to shove money at North Dakota despite its 3% unemployment rate. Basically, that stimulus is necessarily a blunt instrument, affecting states that don't need that money, so that it is inefficient and wasteful. The first part is completely false, as I've previously said.
For the second part, in the case of ND, to judge whether ARRA was inefficient and wasteful, the correct metric to use is the proportion of ARRA money given to ND, not the amount of ARRA money ND received per capita, because the fact that only 0.4% of all of the ARRA money was given to ND means that had there been a more efficient and optimal allocation of money that gave ND less money it would make virtually zero difference to the economic effect of ARRA because 0.4% is a completely trivial amount. Further, you haven't shown that with the information known in 2009 that ND received too much ARRA money.
I don't agree with this. If ND and CA had been given the same amount or proportion of ARRA money, then obviously it would have a bigger impact on the ND economy, precisely because ND has fewer people (and a smaller statewide GDP as well) so the same amount of ARRA dollars represent a larger proportion of the state's economy.
If it seems random and no-name it was mentioned on CNBC a few weeks back (randomly) and so I took a look at it then. It is also reflective of the views and opinions of quite a few guests they have had on the channel over the last couple years. It is not wise to ignore what market participants are telling you. Plenty are saying that the high level of government debt and deficits are leading to less investment - that's not a good thing and it needs to be noted.
[quote] They are not arguing that stimulus is causing slow growth. The argument is that government stimulus is far less effective following a debt overhang than normal and that high levels of government debt (in general) leads to slower growth. Because of that higher and higher levels of stimulus will not lead to added growth (or very little of it) because the added growth from stimulus will be offset by the private sector reacting negatively towards it.
We know that excessive debt is an issue for both households and businesses and leads to lower economic growth. Now, government debt is a bit different but not exceedingly so. Ultimately the cost of that debt will be paid for by households and businesses through higher taxes or lower government spending or a prolonged period of negative real rates. So it is not a huge leap in logic to say that a huge pile of government debt will have a similar impact as private debt.
Maybe the 90% number isn't a good number. But according to usgovernmentspending.com we'll be at 122% of GDP this year. To a lot of people in the economy that's a scary number, and because of that many have already pared back their spending and investment plans... which has slowed growth.
[quote] Sure they praise the stimulus back during the recession and at first into the recovery. But that was years ago. We're now talking about continued stimulus, and even added stimulus years after growth resumed and government debt has piled up to higher levels. We're getting to the point where perpetual stimulus is being called for as has happened in Japan over the past few decades.
I think Obama's plan is to spend more now, and cut more later. He wants additional stimulus like the American Jobs Act. I don't think the cost of new stimulus like that is worth the benefits. We might get a bit more growth now, but it will just set us up for a new fiscal cliff in the future and then need a new stimulus plan to offset it.
Now, maybe additional stimulus is the best plan out there. But there's no 100% certainty to that. There's a risk that the added stimulus won't be very effective and will just make the future more painful. In light of that risk the prudent thing to do is redirect the garbage spending.
They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:
Finally, this paper should not be interpreted as a manifesto for rapid public debt deleveraging in an environment of extremely weak growth and high unemployment. However, our read of the evidence certainly casts doubt on the view that soaring government debt is a non-issue simply because markets are presently happy to absorb it.
Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
Stop changing the subject. Your argument was that stimulus is like a sledgehammer that will blanket the economy. The example you gave was that ARRA continues to shove money at North Dakota despite its 3% unemployment rate. Basically, that stimulus is necessarily a blunt instrument, affecting states that don't need that money, so that it is inefficient and wasteful. The first part is completely false, as I've previously said.
For the second part, in the case of ND, to judge whether ARRA was inefficient and wasteful, the correct metric to use is the proportion of ARRA money given to ND, not the amount of ARRA money ND received per capita, because the fact that only 0.4% of all of the ARRA money was given to ND means that had there been a more efficient and optimal allocation of money that gave ND less money it would make virtually zero difference to the economic effect of ARRA because 0.4% is a completely trivial amount. Further, you haven't shown that with the information known in 2009 that ND received too much ARRA money.
Stimulus is like a sledgehammer because it goes to regions, industries and individuals that do not need it. Just because it is theoretically possible to spend stimulus in a very targeted and well thought out manner doesn't make it a reality. As I've pointed out three states never needed a stimulus (ARRA or otherwise). We can add to that states that are doing fine currently and could stand on their own with substantially less federal stimulus. We can then add to that industries that received stimulus money that were / are doing just fine regardless. There's a reason why we don't completely turn the economic keys over to the government - it is inefficient. That inefficiency doesn't go away when writing stimulus bills.
As for the 'trivial' nature of ND stimulus I would reply that stimulus wasted on ND is not the only stimulus wasted. An example of waste need not invalidate an entire spending program to be a valid example of waste.
As for judging the decision to give ND a stimulus ex-ante - well that's a very interesting idea! I'll have to get back to you on that one
On August 21 2012 18:58 paralleluniverse wrote: [quote] They are arguing that when there's high debt (for the record: Bush's fault), then stimulus, which increases debt would "perpetuate the period of slow economic growth". And this is a misinterpretation of the cited work of Reinhart, Reinhart and Rogoff, which finds that high debt is correlated with slow growth. This does not imply that even higher debt will cause even slower growth. In fact, where in the Reinhart, Reinhart and Rogoff paper does it say that stimulus is bad when debt is high? It doesn't. It's a invalid inference made my this no-name paper. It fails to understand the most simplistic mantra of statistical inference: correlation does not imply causation.
In the very last paragraph of the Reinhart, Reinhart and Rogoff paper it says:[quote] Why was this statement ignored? The finding that high debt is correlated with low growth doesn't imply that even higher debt will cause even lower growth. If the government doesn't spend, then who will? Why would the private sector spend when there is a lack of aggregate demand?
I generally don't dispute that in the long run, high debt is bad for growth. High government debt isn't cost-free. But this is a correlation, it can run both ways, maybe low growth causes high debt. In the short run, trying to cut government spending now would be doing exactly what Reinhart, Reinhart and Rogoff cautions us to not do. The idea that when government spending is cut, people would be inspired by the confidence fairy to spend more is exactly the flawed logic behind Europe's disastrous austerity. Cutting spending in a recession further depresses the economy, making it even harder to pay down government debt in the long run. Having high debt is not a sustainable long run policy, but in the short run, it is self-defeating to make the recession worse by cutting spending which makes the debt problem worse.
Also, that quote from Reinhart in the Washington Times, essentially saying that stimulus saved the economy, wasn't from many years ago. It's from November 2011, which is quite recent. Where does she say that stimulus is a waste of money?
The fact that people are somehow spooked out of investing my high government debt is laughable. Government debt should only factor into investment decisions to the extend that rational agents anticipate higher future taxes because the government would need to pay down the debt later. The argument that this stops stimulus from working is known as Ricardian Equivalence. Krugman got into a long debate with Chicago economists on why this is completely wrong: http://krugman.blogs.nytimes.com/2011/12/26/a-note-on-the-ricardian-equivalence-argument-against-stimulus-slightly-wonkish/
They've since backed down from the claim.
Rogoff argued for a stimulus going into and during the recession. But Rogoff also argued that after the recession (where we are now) more prudence was in order.
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression. There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it.
As to the Krugman article - yes, buying a home on credit will result in a large net increase in spending. But in following years spending will be lessened due to repaying the mortgage.
In policy terms, yes, deficit spending can boost overall spending but the after affect is sluggish growth. Just as the mortgage results in a crimp in household spending, the government debt acts as a drag on growth. If the response to the sluggish growth is more debt then the consequence will repeat itself - more debt, less growth, leading to more debt and continued sluggish growth. That's the story of Japan over the past 30 years as government debt climbed from 60% of GDP to 230%.
Moreover, what if we consider bad debt? If a bank lends out money to finance a home purchase and sees that the homeowner is having difficulty paying it back then the bank will increase its loan loss reserves and curtail new lending.
Similarly if people see government spending as inefficient or unsustainable it will result in them curtailing their own lending, spending and investment. It may not be $1 for $1, but it will be more than nothing.
Did the Bush tax cuts and resulting deficits result in a prosperous decade? Certainly not. The tax cuts may have helped stabilize the economy following the recession but it didn't make the economy very robust afterwards. Why? Were the tax cuts just not big enough? Yeah, that's the ticket...
Now you've changed the subject from whether fiscal stimulus is effective when government has high debt to the cost of fiscal stimulus.
The idea that people would withhold a small portion of spending due to anticipated future tax increases that is needed to pay off the debt incurred with fiscal stimulus is highly unrealistic. But even if we stick to the model, and assume this is true, you're assertion that people will spend less in the future because of this doesn't mean that fiscal stimulus is a bad idea.
You're comparing 2 scenarios: (a) reduced future spending due to stimulus with (b) no reduction in future spending due to not doing stimulus. Then you conclude that (b) is better than (a), therefore stimulus is bad. But this only shows that fiscal stimulus is useless in normal times (which it is), it completely misses the point. The alternative to (a) isn't (b). In the absence of stimulus, in a recession, (b) will not happen, future spending will decrease due to the collapse of aggregate demand as part of the recession. Here, (b) does not describe a recession absent stimulus, it describes an economy in normal times absent stimulus. Therefore, your analysis does not apply in the current economic environment. The two choices are more like: (a) reduced future spending due to stimulus and (b) even more reduced future spending and prolonged recession due to not doing stimulus.
We are neither in normal times nor recessionary times. We're in between. I don't deny that a stimulus can help during a recession - though the one we had wasn't particularly effective - but we are not in a recession anymore.
That's not to say that if we look at the economy as a whole things are fine and dandy - they certainly are not. But economic misery is not evenly spread out. Sure, California with a 10.7% unemployment rate could use a stimulus, but certainly not North Dakota with a 3% unemployment rate. Yet the ARRA continues to pour money into North Dakota and any new stimulus bill will do the same. The disparity isn't just regional either. Some industries, such as natural gas drilling, are doing phenomenally well while other industries, such as new home construction, continue to languish.
Yet the reality of any current or planned stimulus is that it will blanket the economy. Stimulus is like a sledgehammer. If during a recession it is the only tool you have then by all means use it. But once the recession ends the sledgehammer should be returned to the tool shed and more precise tools need to be employed.
But I thought you were for well-designed stimulus?
Now you're just looking for every petty excuse to say no to stimulus.
The US is technically not in a recession, but this is just a matter of semantics. Unemployment is high, inflation is low, GDP is far below potential, treasury yields are low, tax revenue is down, the Fed's rate is at the zero lower bound, etc, these are the situations in which stimulus is most effective. Going back to the example, the updated choices of (a) and (b) apply to the current situation, where a lack of action will prolong this period of high unemployment, subpar GDP growth, low inflation, and falling tax revenue, all of which make the debt problem worse. Low employment, at potential GDP growth, higher inflation, increasing tax revenue -- all of these things make the debt problem better.
Fiscal stimulus is a sledgehammer? What? Fiscal stimulus can be as precise and well-targeted as you want. North Dakota has low unemployment -- fine, don't give them stimulus. In fact, there's absolutely no reason why a stimulus package can't take money away from North Dakota and shift it to Nevada. 34 states have unemployment greater or equal to 7%. Also, saying that North Dakota has 3% unemployment because ARRA money keeps pouring into it is a (clearly accidental) admission that stimulus works.
The highest unemployment got in North Dakota was 4.2% in Mar of '09. South Dakota peaked at 5.3% Nebraska peaked at 4.9%
These are not unemployment rates warranting a fiscal stimulus (ARRA or otherwise).
There are currently 10 states with an unemployment rate below 6%. Yet we keep pumping huge amounts of stimulus into these states and the President wants even more pumped into them. Yes, theoretically you can target a stimulus quite well. But that's not what the stimulus was or is or ever will be so long as we maintain the mindset that government spending is a virtue in and of itself.
So I just had a look at the numbers for North Dakota.
Please stop making things up. ND has received $913,291,125. Of the 51 main states, a total of $214,906,607,851 was given out. So ND got 0.4% of the money. That's less than half of 1%.
In fact, only 4 other states got less money.
So this idea that all the ARRA money is pouring into a state with 3% unemployment is bogus. And even if it were true (which as I've shown, it isn't), this isn't even an argument against stimulus, at best, it's an argument to do stimulus better.
Here's another graph. ND is hardly even visible on this graph.
Lol, North Dakota is a small state.
Per capital North Dakota has received $1,597 in direct ARRA spending and California has received $922.
Stop changing the subject. Your argument was that stimulus is like a sledgehammer that will blanket the economy. The example you gave was that ARRA continues to shove money at North Dakota despite its 3% unemployment rate. Basically, that stimulus is necessarily a blunt instrument, affecting states that don't need that money, so that it is inefficient and wasteful. The first part is completely false, as I've previously said.
For the second part, in the case of ND, to judge whether ARRA was inefficient and wasteful, the correct metric to use is the proportion of ARRA money given to ND, not the amount of ARRA money ND received per capita, because the fact that only 0.4% of all of the ARRA money was given to ND means that had there been a more efficient and optimal allocation of money that gave ND less money it would make virtually zero difference to the economic effect of ARRA because 0.4% is a completely trivial amount. Further, you haven't shown that with the information known in 2009 that ND received too much ARRA money.
Stimulus is like a sledgehammer because it goes to regions, industries and individuals that do not need it. Just because it is theoretically possible to spend stimulus in a very targeted and well thought out manner doesn't make it a reality. As I've pointed out three states never needed a stimulus (ARRA or otherwise). We can add to that states that are doing fine currently and could stand on their own with substantially less federal stimulus. We can then add to that industries that received stimulus money that were / are doing just fine regardless. There's a reason why we don't completely turn the economic keys over to the government - it is inefficient. That inefficiency doesn't go away when writing stimulus bills.
As for the 'trivial' nature of ND stimulus I would reply that stimulus wasted on ND is not the only stimulus wasted. An example of waste need not invalidate an entire spending program to be a valid example of waste.
As for judging the decision to give ND a stimulus ex-ante - well that's a very interesting idea! I'll have to get back to you on that one
You have neither showed that the stimulus that went to ND or elsewhere was not needed, nor that the amount of stimulus that was not needed was in any way comparable to the amount of stimulus that was needed. The overall impact of the stimulus was studied extensively and the studies have shown it has helped save/create millions of jobs.
EPT![[image loading]](http://images.newstatesman.com/obama-graph.jpg)
![[image loading]](http://www.econbrowser.com/archives/2009/09/cea_arra5.gif)
