Two highlights from last night's press conference with the President:
The first step we took was to pass a recovery plan to jump-start job
creation and put money in people's pockets. This plan's already saved
the jobs of teachers and police officers. It's creating construction
jobs to rebuild roads and bridges.
Huh? Has any money been spent yet? I think he's referring to the part in this speech where he mentions $2 billion in Justice Department funding. But I don't think any of it has been spent yet.
And someone should explain to the President that teachers and police officers don't get fired very often. They are not the most at-risk parts of the employment picture.
Then there's this (HT: Steven Spiller):
long run is not with a budget that continues the very same policies
that have led us to a narrow prosperity and massive debt. It's with a
budget that leads to broad economic growth by moving from an era of
borrow and spend to one where we save and invest.
Glad the era of borrowing and spending will be ending soon:
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Russ –
I agree on your deficit concerns. But it might help to present deficit as a percent of GDP, rather than what you've put up there.
Daniel,
I agree. But it doesn't affect the veracity problem.
Daniel,
There is no way to predict what GDP will be that far in advance, especially with such as unpredictable market.
Also, I think that it complicated things that government spending as a percentage of GDP will be rising. Private sector GDP will be important to watch in terms of accurately looking at economic recovery.
Maybe it would be better to look at deficits in terms of private sector GDP instead of total GDP.
this is the chart of deficit per % GDP
http://zfacts.com/p/318.html
Chris –
Predicting GDP that far in advance is just as hard as predicting the deficit. I'm not sure why private sector GDP is better than total. Granted – the private share is very important. But production is production – a job is a job. Who produces it is an important question – I don't want to belittle that. But I don't see why private GDP is a relevant denominator.
gnatman -
No, that's the debt as a percent of GDP, and it only projects one year. Deficit to GDP looks very similar to Russ's, except it goes down more after the recession subsides. Which I think is reassuring and worth noting – but it still won't be going down far enough IMHO.
Russ -
It doesn't affect the veracity problem, certainly. I'm not going to be an apologist for Obama on this issue. But the situation does look better than it does how you've presented it, and that's good. Centrist Democrats were lopping even more out of the budget today. The veracity issue is very disheartening to me – I'm a moderate deficit hawk Democrat. But I DON'T think this is a "meet the new boss, just like the old boss" situation. I think there are some important signs of hope, and Obama has been dealt a very, very tough hand. He hasn't addressed it as well as I'd like – but it's worth noting.
Daniel,
"But production is production – a job is a job."
I completely disagree. Value matters. Even Marx knew that.
Well, I agree that value matters and Marx knew that
The point is, what we're interested in is the burden of the government deficit on wage earners, right? That's the point of Russ's post. Government employees pay taxes to support the budget just like private employees do. So the relevant denominator is going to be total GDP, not private GDP. Tell me – what exactly would private GDP tell you IN THIS CONTEXT?
I put "in this context" in caps because I agree the public/private distinction is very important in it's own right. Contrary to what a lot of people think of me, I'd like to keep the share of GDP that you can ascribe to the public sector relatively small. That's an important thing to track.
But it is completely irrelevant if we're talking about the relative burden of either the deficit or the debt.
"But production is production – a job is a job."
Pretend that half a billion dollars are taken (at gunpoint) from Americans so a few Alaskans can cross a Bridge to Nowhere to avoid a ferry. Locals all get good government "jobs."
So it doesn't matter what is created, even if it's almost useless and uses massive resources, as long as it can be included in GDP.
Sounds Keynesian.
The LA USD has to notify ~9000 teachers that they may be laid off, due to union notice rules, but how many will actually get laid off depends on how much and how fast the stimulus is…
http://www.contracostatimes.com/california/ci_11989960
Isn't there a special verb tense for this ("shall have saved jobs")?
There is no way to predict what GDP will be that far in advance, especially with such as unpredictable market.
I'm thinking there's a pretty high probability that the real GDP will be lower over time. The USSR had a growing GDP for decades. It went bankrupt. 'Nuff said.
Daniel,
"Government employees pay taxes to support the budget just like private employees do."
No, not really. Private employees create something of value and part of that value is taken by government (Marx's theory of surplus, if you will). Public employees are paid an amount from the surplus value in the trough, and then put some of that amount back into the trough, in order to create the appearance that they are paying taxes just like everybody else.
Now, do the public employees also create something of value? Maybe, but they can't prove it so long as their services are not provided as a free exchange of value for value. The default assumption has to be that they do not.
Healthy Markup -
Insofar as government projects are wasteful, GDP growth is going to suffer. But you're still producing a bridge. You're still buying the steel for that bridge. The bridge builders are still getting paid and buying groceries and clothes in their local stores.
This shouldn't be nearly as controversial as you're making it. Even Russ said that dividing by GDP would be useful. The point is, who bears the burden of the deficit? Wage earners and investors. So what should we divide the deficit by if we're concerned about the burden that it poses? Total GDP. Right? Is that really such a tough concept.
It has nothing to do with Keynes. This is pretty simple stuff. I'm not advocating high public share of the economy.
Government employees pay taxes to support the budget just like private employees do.
Except that government doesn't create wealth. So, the private sector has to create the wealth to pay the government employees who then pay a portion of that in taxes. Without wealth creation by the private sector, the dollars used to pay government employees would have to be printed and the real GDP would decline. No?
production is production and a job is a job but the two are not necessarily related.
Randy -
Why is the default assumption that they do not? My default assumption is that they definitely do produce something of value, but that that value may be less than their pay because they don't exchange their labor on a market. Why would you assume they produce zero value? Do you think they just sit in their office, doing the crossword puzzle? I think it's a silly assumption. Clearly they produce something – the question is "how much?".
I'm utterly perplexed by your claim that government employees don't pay taxes… try telling that to the teachers and firemen out there. Bureaucrats in Washington are easy to disregard – but there are lots of other government employees that are just as burdened by taxes as you or I.
Randy -
At the same time, it's quite possible that what they produce is worth more than what they're paid. A lot of people do certain government jobs (Peace Corps, teachers, etc.) out of a sense of public service and are probably willing to take below market wages because they get some utility simply from doing the job. Obviously this doesn't count everybody. But it's another reason for me to scratch my head on why your default assumption is that they do not produce something of value.
Daniel,
That's some cool depression era thinking you've got there. A bridge is not a bridge. If the bridge was not built, then the private sector thought it was a negative expectancy project. It's an inefficient allocation of resources, which means that it's a net loss. A bridge that increases commercial activity is a net positive and a bridge that doesn't is a drag on the economy. The two are not equivalent. Surely you know that.
Methinks -
OK, this is starting to get ridiculous. I agree that government is particularly bad at creating real wealth. But why do you insist:
"Except that government doesn't create wealth. So, the private sector has to create the wealth to pay the government employees who then pay a portion of that in taxes."
What are you talking about?!?!?! Let's imagine the nationalization of the oil industry in America. One day, private firms are refining oil, the next day it is seized by the government and now the government is doing the job. Does all that wealth produced by the oil companies on the first day MAGICALLY disappear after nationalization? Of course not! Wealth is produced when labor, capital, knowledge, land, etc. is brought to bear on the creation of a product. It doesn't matter who is doing it. So government can absolutely produce wealth! This should be a no brainer.
The point is, because the government (generally) operates outside of market signals, it is less efficient at producing wealth than private firms and individuals (obviously there are complications – market failures may make government MORE efficient in some cases, but lets ignore those for now). That's a totally valid case that I agree with. But it's completely beside the point if we're talking about the relative burden of the deficit or total wealth creation!!!!
Methinks –
I never said the bridge is a net positive. I said it is part of that year's GDP. Since the government is often bad at deciding what to build and do, it's entirely likely that that bridge is going to decrease the net present value of all future GDP. It's very likely it will be a net loss. But it is part of this year's GDP. This isn't depression-era thinking. This is common sense.
Daniel,
"Why would you assume they produce zero value?"
Because the evidence that a product or service has value is that someone is willing to freely give up something of value in exchange for it. Because government products or services are not a free exchange of value for value, there is no evidence that they have value. And indeed, because people are forced to pay for them, the assumption has to be that they would not pay if they were not forced. Thus the default assumption has to be that they do not have value.
"…utterly perplexed by your claim that government employees don't pay taxes…"
Because again, the default assumption must be that government services do not have value, the assumption must also be that the pay of government employees comes entirely from the surplus value created by those who do create value. Thus the so-called taxes paid by government employees are an illusion. They take a measure of surplus out of the trough, keep some, and put some back.
Randy –
No, the default assumption does not have to be that they have no value.
Read my oil nationalization example and explain how it has no value.
Look – I'm suspicious of a government hand in the economy too. But I thought this would be an easy point for me to make to Russ! These default assumptions are nuts. You can be perfectly consistent with libertarianism or whatever you ascribe to and admit that government produces some value! You don't have to imagine the value of public production is equal to zero. That's not rational at all!
If the bridge was not built, then the private sector thought it was a negative expectancy project.
It's possible that the bridge is negative expectancy for any private sector investor and yet provides a net benefit when constructed by government. Specifically, because the private investor must recoup their investment via tolls, which are quite inefficient to collect, it's possible that the government (which can recoup its investment in other ways) will be a more able constructor of bridges and some other public works.
The Bridge to Nowhere, of course, is still an abomination.
"It's with a budget that leads to broad economic growth by moving from an era of borrow and spend to one where we save and invest."
It's politician speak. "Save" means tax and "invest" means government.
Now that we are on the topic of deficits and deficit as a fraction of GDP. Here is a courageous English member of European Parlament takes Gordon Brown to task. He was on Neil Cavuto a few minutes ago and said he would have voted for Ron Paul in the U.S presidential election.
Daniel,
"That's not rational at all!"
Actually it is. You just don't like the idea of prioritizing the will of the individual over the will of the state.
Now, the oil nationalization example. If I buy oil in a free exchange of value for value, then we have evidence that the oil has value. It has exactly as much value as I am willing to exchange for it.
If the state seizes the oil but allows competition, then I may buy my oil from the state or I may buy from the competition. If I buy from the competition it has evidence that its effort have created value, but the state does not. Only if I buy freely from the state does the state have evidence that its efforts have value.
If the state seizes the oil and does not allow competition, but does not force me to pay for it, then it has evidence of value only to the extent that I do freely choose to buy from the state. I may choose some other alternative.
If the state seizes the oil, does not allow competition, and forces me to buy oil, there is no evidence that the oil has value. The evidence is only that I am being forced to buy oil.
Randy -
First, evidence of what the value of a product is is just that – information on the value. It doesn't mean that absent that price there is no value to the product.
It's like saying because a blind man can't see things his default assumption should be that there is no such thing as color.
I don't prioritize the state over the individual. I just don't assume that the world turns inside out and upside down when the state gets involved.
I don't prioritize the state over the individual. I just don't assume that the world turns inside out and upside down when the state gets involved.
I agree. World doesn't turn inside out, but almost every single time the state gets involved, individual choice gets replaced with the will of the ruling class.
Daniel,
Yes, I suppose the government can extract natural resources and I suppose the government can also run factories instead of the private sector. We both know exactly how efficiently it does those things. But, in the United States, we haven't yet seized the means of production and brought it under government control, which means that government will only undertake new projects that were rejected by the private sector. Plus, most of the work government does outside of useful things like providing for the common defense and running the court system is just redistributive and creates less value than the resources it eats up. Adding regulators, for example, is a cost borne by industry and by taxpayers but has no net benefit. We both agree that expanding government in this way will add to this year's GDP at the expense of future GDP – regardless of what Obama says. What I fail to see is why you seem to think that's a good thing.
Why do you assume that all government employees produce things of value? Just because they're doing something most of the day doesn't mean that what they're doing is necessarily valuable. In fact, what they're doing may be destroying value instead of creating it.
Daniel,
Your simile is invalid because value is subjective and color is objective.
My turn. I'll go with an analogy. If, without agreement, some guy paints your house while you are out, can he assume that his work has value to you? Can he demand payment? Even if your house could use a bit of paint? Even if you intended to get it painted soon?
bbartlog,
It's theoretically possible. Unfortunately, where the state might gain efficiencies in collecting the toll, the political process destroys so much efficiency in building and maintaining the bridge that it's pretty much always more costly for the state to build it – even if the bridge had positive expectancy for the private sector, inefficient toll collecting and all.
I don't prioritize the state over the individual. I just don't assume that the world turns inside out and upside down when the state gets involved.
Spoken like someone who has never had to work with the state. If the state is involved to preserve rule of law, police, the courts, then the state is a benefit. The minute the state gets involved in economic decisions, things get turned upside down and inside out.
Methinks -
We have several of our contracts with the government, and many aspects of the way we run our business are regulated by the government.
How does my saying "the government isn't worthless" always get translated into me defending the efficiency of government?
I'm not even sure if I need to be defending myself!
I'm an economic policy researcher at a private, not for profit firm. I've interacted with economic policy researchers who work for the government. They're not that different from me. They use the same methods. They look into the same problems. They publish in the same publications. Things don't magically change when your employer is the government. There are DEFINITELY efficiency problems associated with their operation outside the market. It doesn't mean it's a different world.
Randy –
Give me a break.
OK – how about this. Beauty is subjective. Can the blind guy say "there is no visual beauty in the world because I can't see it"? No. He just can't see it, but precisely because he doesn't have any information about the world, he can't have the default assumption that there is no visual beauty, simply by virtue of the absence of his sight.
The problem with your painter's analogy is (1.) I never claimed that all government production is going to have a positive value, and (2.) there is usually consultation with all kinds of stakeholders before the government does anything – so while some people certainly won't like it, it's not like they produce things at random or simply to satisfy their own whims.
"I'm an economic policy researcher at a private, not for profit firm."
Wouldn't that make you amongst about five or so people here who actually have professional economics qualifications D. Kuehn?
Gil -
Huh? I was just at a conference this weekend with about fifty people with professional economics qualifications. So I'm not sure quite what you're getting at.
It really wouldn't be accurate to call me a professional economist, though. I have training in economics – I'm more of a "policy analyst", although I do much of the same stuff a professional economist would do. I aspire to be one someday
That's just in the interest of full disclosure and honesty on my employment.
Gil -
Oh! Five or so people "here". I don't know what's up with me tonight!
I don't know who else is a professional economist here. I assume several are.
Gil -
Sorry, still don't know what you were getting at. I wasn't touting my qualifications. I was just saying there are a lot of people LIKE me employed by the government and they do essentially the same stuff and produce the same value. Employer doesn't mean much, at least in the market for my labor.
Danny is a parasite. Who woulda guessed?
How does my saying "the government isn't worthless" always get translated into me defending the efficiency of government?
I don't know what you're talking about, Daniel. I don't remember claiming the government is worthless myself.
I don't know the details of exactly what you do. Research is different from running a business (my parents are academics). It has a different objective and it is more tolerant of the idiotic inefficiencies that my mother constantly complains about because it is not forced to make a profit to survive. If you worked in the private, for profit sector you would have more experience with the real effects of government interference in the economy. Most of it is pretty bad. That's all I meant. But, don't get your knickers in a twist and worry about defending yourself. I often say things tongue in cheek.
Daniel,
Can the blind guy say "there is no visual beauty in the world because I can't see it"?
No, but he might not have much interest in buying works of art. Can I claim to have given him something of value by forcing him to pay for a nice landscape?
I never claimed that all government production is going to have a positive value…
Its possible that some of it does. But they have no evidence as long as they force people to buy what they're selling. Make it voluntary and allow competition, and then we'll find out.
there is usually consultation with all kinds of stakeholders before the government does anything…
By stakeholders, you mean the participants in the scheme? Of course it has value to them. That's why they use force.
it's not like they produce things at random or simply to satisfy their own whims.
Yes, actually, that's exactly what its like. If it weren't, they would make paying for their products and services voluntary and allow competition.
"But you're still producing a bridge. You're still buying the steel for that bridge. The bridge builders are still getting paid and buying groceries and clothes in their local stores."
Using tax dollars, you're wasting steel that could be used to make something valuable, you're paying workers to do something pointless and the fact that they have money to buy clothes and groceries in the "local store" because of means they don't feel compelled to: accept lower wages, retrain, move somewhere else to work. Keynesians advocate boondoggles to raise GDP which is why I think you sound like them.
"I've interacted with economic policy researchers who work for the government. They're not that different from me. They use the same methods. They look into the same problems. They publish in the same publications. Things don't magically change when your employer is the government."
The quality of work is changed by government employ because no financier or customer can stop paying it to waste money. They don't get a choice in the matter. The incentives are totally different.
Daniel,
You are definitely good at what you do.
Every single comment here and arguement presented here about government is specifically targeted at the government of the USA, and we all know it. When comments are directed at other governments, people say so,
Good try Daniel, but Methinks made a statement that you carried off into your socialist la la land and your scenario had nothing to do with what she said, it was a twisting of her point.
When Methinks said this:
"Except that government doesn't create wealth. So, the private sector has to create the wealth to pay the government employees who then pay a portion of that in taxes."
We both know she was talking specifically about the government of the USA.
You cleverly morphed her truth into this:
"What are you talking about?!?!?! Let's imagine the nationalization of the oil industry in America. One day, private firms are refining oil, the next day it is seized by the government and now the government is doing the job."
You can imagine up any scenario you wish but it is just magicing like the wealth you assume the government could make on nationalizing the oil companies. Your answer to her should have been based in the same current reality in which she made it.
Methinks correctly pointed out that until the recent acquistion of banks and a lot of real estate, the government of the USA does not produce any wealth. Her point was never about what the government could do, it was about what the government currently does, and historically has done….which is consume wealth not produce it.
Now that the government owns banks and real estate I'll wager my next year's income (nontaxed of course in my case) that the government manages to lose money on them and will continue to do so as long as they exercise management control.
You're good Daniel, a subtle troll, but you could be a lot better.
Government employees are best viewed as non-value adding overhead in a private company or support troops in the military.
Both are a necessity, but everyone understands that they have to be kept at their most efficient minimum in order for the organization to work at optimal levels.
There has to be someone to do certain jobs of course, but they cannot, by definition, add value.
Methinks -
OK, well I've worked in the for profit sector before too. I'm just currently working not for profit (we still compete for contracts – honestly it is more competitive than my private sector job was for two big national firms that were only really that competitive at the upper executive level). I'm still not sure what you're getting at. I've always held that regulations are more often than not inefficient and government can be inefficient. All I'm adding to that is that the reason why we (most of us at least) deal with the inefficiency is because there are important positive contributions of government as well. I've never known that point to be lost on people who work in the for-profit sector, despite the frustration that government can cause sometimes. Usually a find that people who quibble over that point disagree for political reasons and then use their work experience to justify their politics. Which is totally fine, don't get me wrong. Those real life examples are important and they shape us. But I'm not sure my "eyes will be opened" by working in the private sector again
vidyohs -
Why are my points so hard to understand for you? I wouldn't be surprised if they lose money on the banks too. Part of that is that government is a very poor manager of businesses – part of that is that we're in the middle of a financial crisis and they're taking over the weakest banks.
Fine, you don't like the nationalization example. The reason why I used something that stark was to demonstrate that mere public ownership means nothing with respect to the question of value creation.
The point is, some people here are saying that the government produces zero value. I think Randy has come around and admitted that it can produce positive value, we just don't know what that value is because we don't have a price signal (I agree with that). What about the interstate highway system? What about the Hoover dam? What about the TVA? What about Fermi lab? What about our public univerisities? What about the panama canal? What about the early internet? What about velcro and tang for God's sake!
I'm not being that subtle and I didn't start this discussion as a troll. I started it by liking Russ's post and then suggesting "why don't you divide by GDP" (which Russ agreed with, by the way). Then people started saying the government produces zero value and I became a de facto troll simply by stating "wtf?!?!?!".
Healthy Markup -
Of course quality of work changes because the incentives are different. Thank you for repeating a point I have made. I am a Keynesian of sorts – what I was saying was that admitting that government contributes value to GDP doesn't MAKE ME a Keynesian. I have yet to meet an economist that doesn't think that. What makes you a Keynesian is what impact you think fiscal policy has on the economy during a deflationary recession.
Daniel,
Then people started saying the government produces zero value and I became a de facto troll simply by stating "wtf?!?!?!".
You got into this by saying;
But production is production – a job is a job.
and then,
Government employees pay taxes to support the budget just like private employees do.
Both of which depend on the idea that government creates value. As we have now determined that the value created by government is questionable at best, what say you now?
I've always held that regulations are more often than not inefficient and government can be inefficient. All I'm adding to that is that the reason why we (most of us at least) deal with the inefficiency is because there are important positive contributions of government as well.
I'm not quibbling over that point, Daniel. You and I have quibbled over specifics and your reasons seem pretty political. At least your unsupported reasoning (the unexplained claim of destruction of an undefined "regulatory superstructure") seems to be taken directly from the talking points of a certain political party. The other party is in such disarray, it's not worth talking about. I think I've been very clear about where I think government is efficient and where it's inefficient. Now that government has satisfactorily performed its most efficient tasks it is expanding into areas in which it is much less efficient than the alternative and creating inefficiencies in pursuit of government expansion for its own sake.
As for this thread, while we agree that deficits are only meaningful in relation to GDP, we seem to disagree about the value of GDP from private vs. public sources. I think you overvalue GDP from public sources.
Randy -
I don't think we've determined that at all! What I think (many) at least have come around to is that yes, the government does produce value. It doesn't produce zero value. Government employees pay taxes. Government employees produce. Government employees hold jobs.
Now, there is a measurement problem which we've all agreed to. It's hard to measure HOW MUCH value the government has created because there is no market mechanism to price it. But not being able to measure something precisely doesn't mean it's not there. So I'm confused – what exactly do you expect me to say now?
Methinks -
I'm not sure how you come to the conclusion that I overvalue GDP from public sources. All I've said is that they're not zero – that they contribute positively to GDP, but that they may contribute negatively to the NPV of future GDP (although I would assume/hope that is relatively rare).
Look – I'm not a regulation expert. If I remember I listed several major laws from the 1990s and said they were a meaningful and generally positive deregulation of financial services, but that I'm sure other regulations were added on top of that – Sarbanes-Oxley to be specific, and I'm sure a lot of other smaller, more frustrating ones that I'm not aware of. If that's still "undefined" and "unexplained" I don't know what else to do.
In many ways I agree it is expanding to inefficient areas. But that is a very general statement. Increased funding for schools is an "efficient" area, not in the sense that the government does such a great job at it – but in the sense that market failures in the provision of primary education ensure that markets will chronically underinvest in that human capital. Same with incresed basic research funding – another area where it is well understood that the market chronically underinvests. Same with infrastructure, and same with uncertain technologies with distant payoffs (green tech stuff). We know the market sub-optimally invests in these things. We know that Social Security is very efficiently administered. In health care I think things get more dicey. I'm not as gung-ho here. But there is evidence that Medicare has more efficiently managed it's caseload than private insurers. Certainly the scale economies of health reform will add some efficiency. Don't hold me to these last couple health comments – I'm not sure where all the evidence falls out on them – I'm just saying don't write that off as automatically inefficient yet either – leave it in the "unknown" column.
So yes, I agree with you – there's a lot of stuff the government is doing right now that is relatively inefficient. Part of that is admittedly just to get money out into the economy in the short term.
But there are a lot of proposals out there that do make sense on efficiency grounds, too. That's not the only thing we should base our decision on. We have to ask "is this the role we want the state to play" in addition to "is it efficient". But I wouldn't just assume a priori that it's less efficient.
Daniel,
"But not being able to measure something precisely doesn't mean it's not there."
What got me on this train of thought a couple of years ago was the habit that the political class types have of declaring that government services have infinite value. If questioned, they immediately fall back to the Hobbesian argument that without government it would be anarchy, dogs and cats living together, etc. Which got me to thinking, okay, prove it. Prove that what the government does has value. No one ever has. Your statement above, well, its the same statement used by religious types when asked for proof. It indicates to me that at least you recognize the problem. That's good enough for now.
Randy -
Well if the alternative is that government services have infinite value, of course that's crazy! Is anyone seriously saying that?
It's not religious proof at all. We have lots of evidence on the economic value of primary education – same with basic R&D. Highways? Would it be worth me googling some of this stuff for you? I think there is tons of proof.
It's not tough to prove there is value – that's easy. What's tougher to prove for some of these is whether the private sector would have done it and whether they would have done it better. There's strong reason to believe they wouldn't in some areas. Others are more hazy.
And then of course there is the question of "is this government's job in the first place".
But I don't think proving that there is value to what is done is all that tough.
Daniel,
We have lots of evidence on the economic value of primary education.
Really? To who? What competition can you compare them to against which the government run programs produce greater value?