The stimulus is a joke

by Russ Roberts on October 29, 2009

in Work

The theme of this story is that a recent government report overstated (surprise!) the number of jobs “saved or created” by the stimulus spending. It turns out that the report includes double counting, giving people raises instead of creating jobs, and so on. But the real headline should be about this:

There’s no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president’s promise of creating or saving 3.5 million jobs by the end of next year.

On it’s way? Are they kidding? Who cares whether it’s 30,000 or 25,000 (the “real” number). The economy creates and destroys millions of jobs every month. Thirty thousand jobs is a rounding error. It’s irrelevant.

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{ 159 comments }

Anonymous October 29, 2009 at 4:47 pm

Perhaps the “stimulus” will create and/or save (how do you define and measure this number?) millions of jobs, but it will undoubtedly destroy millions as well. The problem with the argument against the stimulus: jobs (potential jobs mostly) destroyed by government spending are even harder to concretely point out but will undoubtedly be higher than the number bureaucrats claim to create or save…

Anonymous October 29, 2009 at 5:03 pm

I agree it’s going to be tough to identify net employment effects – but why do you say “undoubtedly”? If the answer is really so beyond a doubt to you you must be a lot more intelligent than people who have spent years trying to get a reasonable answer to this very tough question (and they’re still not entirely satisfied with the answers we have).

Anonymous October 29, 2009 at 5:13 pm

Undoubtedly in my mind due to derivative reasoning, not due to any explicit data… people have spent years trying to find a quantitative “proof” doesn’t mean they can’t create conjecture with very reasonable arguments. Can these arguments every truly be proven? I’m not claiming any statistical proof…

Anonymous October 29, 2009 at 5:16 pm

I’d agree with that – in fact I have very reasonable arguments for thinking just the opposite. I guess I just suppose that in the absence of evidence I’d be less comfortable with “undoubtedly”. We’re still very much in the dark about fiscal policy, particularly because it’s impact seems to be so context-specific.

Seth October 29, 2009 at 5:38 pm

Three questions. 1. Do you think that stimulus can destroy jobs? 2. Has the administration ever acknowledged that publicly? 3. Does its “create or saved” estimate include an estimate for “destroyed” to get to a net number?

Randy October 29, 2009 at 5:48 pm

I too will go with “undoubtedly”. My reasoning is simply that the “jobs” being created aren’t really “jobs”, by which I mean the creation of a service or product that someone valued enough to trade for voluntarily.

Seth October 29, 2009 at 8:11 pm

Very well said Randy. Thanks for that.

Anonymous October 29, 2009 at 5:00 pm

This was sent to me today:
“When told the reason behind daylight savings time,
The old country geezer said, “Only a fool like government
Could believe that cutting a foot off the top of a blanket, and
Sewing it to the bottom, will give you a longer blanket.”

Which we can paraphrase and make it applicable to government spending.

When told the reason for the stimulus
The old country geezer said, “Only the government or a fool
can believe that you can take 45% of the people’s money in
taxes, and then spend 15% of that on public projects and make
the people better off.”

Anonymous October 29, 2009 at 5:05 pm

Which is exactly why fiscal policy is conducted by adjusting the deficit over the business cycle, not increasing revenue collection.

People aren’t as dumb as you think they are, vidyohs.

Seth October 29, 2009 at 5:21 pm

Is that the technical way of saying borrowing from our children?

Anonymous October 29, 2009 at 5:26 pm

Most definitely. But from ourselves too – I plan on being in the labor force for many decades. We’re also making investments for our children, though.

Seth October 29, 2009 at 5:35 pm

I’d rather not borrow against my future to fund “investments” I have no control over. To apply the Friedmans’ logic on how carefully we spend money, the investments are not the most productive, at best.

Anonymous October 29, 2009 at 6:37 pm

We are making at best poor investments for our children. For example, any sane person would never send their child to a public pr… school.

And of course we are not borrowing from ourselves to make sound investments for the future, we are being borrowed from today to benefit discrete groups today.

muirgeo October 29, 2009 at 6:41 pm

No hopefully only a few of are children will have to pay this back. Hopefully 98% of them will see no big increase in their taxes from what their parents now pay. Now of our children who do become exceptionally wealthy and earn multiple millions of dollars they indeed are being borrowed from. ( and I checked with my two daughters… they are fine paynig back 70% of everything over 5 million a year).

Anonymous October 29, 2009 at 5:32 pm

Really sonny?

Then why don’t you tell me how having 45% of my wealth stolen in taxes, and receiving 15% of that 45% back on public projects makes me better off?

You can write until your fingers fall off but the figures say you’re full of crap.

I am better off when nothing is taken, and I contract for what I need or want.

Anonymous October 29, 2009 at 5:41 pm

Old man, you have no concept of what life would be like in a world where 0% of your wealth was taxed. And neither do I. We can only speculate – and we should only speculate, rather than sound off as you are wont to do.

My simple point was that people aren’t as dumb as you always seem to think they are – that it’s not just shifting who pays the bill, as in your old country geezer analogy – it’s a matter of shifting when the bill is paid. The fact that you’re still even asking me how taxing and spending can help when my whole point was that taxing is ANTI-stimulative makes me wonder if you’re even processing what I’m saying. My whole point is that taxing 45% just to give a portion of it back to you is not stimulative – I AGREE with you on that, which is exactly why nobody calls that stimulus. They only call that stimulus in your own imaginary world of caricatured enemies.

Randy October 29, 2009 at 5:54 pm

They’re not imaginary, Daniel. They are real. And they do exactly what Vidyohs says they do. They take 45%, give 5% back, and then brag about the “services” they provide.

Anonymous October 29, 2009 at 6:41 pm

I myself have a very distinct concept of what life would be like in such a world. There is a fair amount of archaeological evidence for such in fact.

muirgeo October 29, 2009 at 6:26 pm

So what you’re telling me Vidyohs is that your pension money or the money we pay for your medical bills or to subsidize your commissary food cost, or to pave your roads, turn your green lights red or the water you drink, or the poop you put into the sewer system would do more good if it were in some off shore account of a multi-billionaire as opposed to in and out of the hands of the local merchants you interact with in your local community.

I think sometimes things are a little more complicated then what an ol’ geezer might surmise.

I think it’s great that you stimulate the economy using other peoples tax money… even if you are a MinArchMan. God job! Keep on spending my tax dollars and creating jobs with out even trying.

Anonymous October 29, 2009 at 8:38 pm

No muirduck, I am not telling you anything. I found long long ago that talking to you was much like standing at the edge of a cesspool throwing wooden alphabet letters in the crap. They sometimes float, sometimes sink, but mostly just get lost in the crap that is in there. And, there is no way they can ever come out again untainted by that crap.

Your head is like that cesspool, words just do not seem to hang together for you socialist like they do for intelligent people.

Gil October 30, 2009 at 2:09 am

Yeah, muirgeo! Vidyohs understands that if you ‘contract’ for it then it’s not stealing.

Gil October 30, 2009 at 2:09 am

Yeah, muirgeo! Vidyohs understands that if you ‘contract’ for it then it’s not stealing.

muirgeo October 30, 2009 at 5:32 am

Yeah and I’m sure Goldman Sachs has/ had a contract for TARP money. And people who get welfare need to sign contracts as well so you must be right.

mesaeconoguy October 30, 2009 at 6:41 am

George, were you partially intelligent, you would have commented on the irony of the upper right-hand icon above showing Hayek reserving tables. That’s not very spontaneous now, is it?

Instead, you choose to pick random fights about Keynesian Reuters/NYT/AP stories (actually, you don’t even do that, because you’re too slow) and minutiae, which is incorrect. You cite them, because you think they’re “correct.”

You’re wrong, and so are they.

You are a walking case study endorsement of libertarian economic beliefs.

mesaeconoguy October 30, 2009 at 6:41 am

George, were you partially intelligent, you would have commented on the irony of the upper right-hand icon above showing Hayek reserving tables. That’s not very spontaneous now, is it?

Instead, you choose to pick random fights about Keynesian Reuters/NYT/AP stories (actually, you don’t even do that, because you’re too slow) and minutiae, which is incorrect. You cite them, because you think they’re “correct.”

You’re wrong, and so are they.

You are a walking case study endorsement of libertarian economic beliefs.

muirgeo October 30, 2009 at 5:32 am

Yeah and I’m sure Goldman Sachs has/ had a contract for TARP money. And people who get welfare need to sign contracts as well so you must be right.

Anonymous October 29, 2009 at 5:01 pm

It’s a joke that you and I and everyone else is paying for.In other news, Congress wants to extend the house buyer tax credit. I was unaware that it only applies to people earning below $75,000/$150,000 for couples. Just what we need – use general tax revenues to subsidise house sales to people who may not be in a financial position to buy a house.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoI9KTlHpwzI

Justin P October 29, 2009 at 7:15 pm

Before it was just implicit, now it’s explicit. Do they expect a different result?

Anonymous October 29, 2009 at 6:17 pm

daniel – you seem to be skeptical of the effects of stimulus AND of what Russ Roberts has to say on the matter. You seem to think there is some explanation in between.

Anonymous October 29, 2009 at 6:39 pm

Actually, I agree with Russ completely – 30,000 is essentially a rounding error. I hope Russ isn’t saying that’s the impact of the stimulus – my understanding is that’s only jobs created by federal contract recipients. It doesn’t include jobs attributable to grants to states. It doesn’t include jobs attributable to consumption that is stimulated, etc. And obviously it doesn’t include jobs that are crowded out, which is the standard thing to worry about in government programs. It also doesn’t include jobs that are crowded-in, which is a less standard thing to think about but something to consider under depressionary conditions. So I agree with Russ, unless of course he’s trumpeting that as the total impact of the stimulus – which I hope he’s not.And of course there’s good reason to be skeptical of stimulus. Normally we shouldn’t expect it to have a positive effect. The only reason to expect better results here is the special conditions – a de facto price floor in the market for loanable funds, and deflation or at least disinflation that provides a reason to worry about the prospect of wage adjustment. Stimulus is always dicey. I don’t think there’s any problem with being cautious about it without completely rejecting it.

Anonymous October 29, 2009 at 7:01 pm

When politicians tell us that stimulus programs are dicey I’ll have some reason to take them seriously. Just like a lot of the firms in the recent crisis, this particular firm (the government) takes the rosiest picture as the assumed outcome and runs with it. That by itself is reason to reject stimulus plans.

Anonymous October 29, 2009 at 7:16 pm

:) I’d never advise you to take politicians seriously.

And I’d never expect them to address these issues honestly. That doesn’t in and of itself make stimulus a bad policy. What I support isn’t guided by political press releases – I work off the assumption that those press releases and claims serve the interests of the politicians themselves.

Anonymous October 29, 2009 at 8:37 pm

This should be the lesson we should have learned from the Iraq war. The stimulus plans, etc. are merely the Democratic version of that war.

Sam Grove October 29, 2009 at 8:51 pm

Stimulus may not ALWAYS be bad policy, but having a system and politicians with the power to make such stimulus is bad policy. Wait and see.

Anonymous October 29, 2009 at 6:34 pm

I think you have to understand the true underlying purpose of stimulus plans before you can understand why they are on the whole failures: that is re-election.

Justin P October 29, 2009 at 7:16 pm

You hit the nail right on the head. One part of the Stimulus that doesn’t get talked about nearly enough is how long it is. Not to mention that ~40% of the programs in the Stimulus bill are ment to be permanent.

muirgeo October 29, 2009 at 6:36 pm

“The stimulus is a joke”

Since the stimulus:

Stock market up more then 25%

AND

GDP Expanded 3.5% in 3rd Quarter

AND

Job loss has been cut in third

Anonymous October 29, 2009 at 6:37 pm

muirdog obv never heard of “correlation does not mean causation”. Prove it that the 15% of stimulus has done all those wondrous things.

muirgeo October 29, 2009 at 8:45 pm

“muirdog obv never heard of “correlation does not mean causation”.”

AS

Oh I’ve heard the phrase regularly. They teach it first thing at the School of Libertarian Group Think. It’s the only way to defend yourself from the onslaught of anti-correlative data. Anti-correlation… I think I made that one up before… but it works.

If I’m defending a position I’d much rather have the data correlate with my position then to have to act like a lame ass and ALWAYS remind people that the data that doesn’t correlate with my position but doesn’t prove the other guys position… God doesn’t that get old for you? I suspect a lot of you choose this as the words in your tattoo.

The new Libertarian motto, “Free markets work…but correlation does not mean causation.”

Anonymous October 29, 2009 at 8:49 pm

Muirdog free markets work just because they do. I don’t need to prove anything. YOU do have to prove that the 15% stimulus had any effect on the private economy. You haven’t.

muirgeo October 29, 2009 at 9:13 pm

You are the ones claiming the stimulus would ruin the economy. But the trends don’t support your claims. They support mine better… and all you can do is spout the correlation causation anthem… because that’s the best libertarians can EVER do with regards to the data.

Anonymous October 29, 2009 at 11:39 pm

If I you hate free markets so much then I suggest you move to a society which lacks such. The beauty of a capitalist society is that it even has a place for anti-capitalists.

muirgeo October 30, 2009 at 12:09 am

We live in a Constitution-based federal republic with a strong democratic tradition and regulated market-oriented economy with a social safety net … according to the CIA World Fact book. . I’m fine with this as it is. We just need better regulation and better representation of peoples needs over corporations or those of the wealthy elites.

I think the policy changes that I would recommend are FAR less dramatic then what you and other libertarians are proposing.

We’ve seen high taxes on the rich, many countries provide public health care and most countries have a better electoral process. So what I propose is nothing new. What you propose exist no where and when it has been tried in the past almost no one in the population would agree to it based on the inequitable results.

Justin P October 29, 2009 at 8:04 pm

It’s easy for stocks to be up when you throw Trillions of Dollars at Wall Street.

Job loss being cut still means….People are still losing JobsThere is no net gain, which is what the stimulus was supposed to do…hence it failed!

Anonymous October 29, 2009 at 8:19 pm

You don’t know what the counterfactual would have been – how do you know whether the stimulus did what it was supposed to do or not?

People lose jobs during booms too. So?

Justin P October 29, 2009 at 8:34 pm

You don’t know what would have happened if we just let all those banks fail in the first place and how fast the economy would have improved if there wasn’t any Stimulus as well.

But judging from what the politicians used to sell the damn thing, Jobs Jobs Jobs…it’s an abject failure.

Anonymous October 29, 2009 at 9:38 pm

Daniel, we already argued on stimus, but I will reiterate my points and ask you a question.

You base your optimism about stimulus on a range of studies that used either simulations or VARs to prove that fiscal spending stimulus has a positive effect ont eh economy.

However, both of those types of proofs are wanting.

If we look at the historical examples, though, there is not a single case where it can be shown that government spending resulted in a recovery.

We have, however, an example of the 1921 recession where the economy quickly rebounded without government interference and the 1987 crash which also went well without intervention.

So since there is no convincing empirical evidence that spending stimuli work apart from dubious statistical and modelling excercises while of course there is no iron proof of the opposite.

Thus theoretical explanations become significant. I remember that you do not think that the paradox of thrift is a problem which is solved by the stimulus. So could you please explain in theory what economic ills a spending stimulus is supposed to cure and how it is supposed to work.

Anonymous October 29, 2009 at 10:35 pm

A couple thoughts:

1. I base my confidence in stimulus on what theory says it can do during a deflationary depression with very low interest rates. The modeling and multiplier isn’t perfect – that’s not what I base my confidence on. But it is suggestive. And the lowest estimates for multipliers come from cases where the conditions for effective stimulus don’t apply (ie – higher inflation, non-zero interest rates, etc.). So those can be expected to be biased downward. It’s all suggestive, none of it’s conclusive, but since it jives with theory it makes me more confident. My advice – go cautiously. Don’t try to fill the whole output gap with stimulus, but do some.

2. On 1921, 1987, and you can throw 1981 in there too – interesting examples but bad ones. Interest rates were high in those recessions and inflation was high. New Keynesian theory says you don’t need a stimulus in that situation – a monetary response is appropriate. It bears no resemblance to 1929 or 2009 where inflation is non-existant and interest rates are at a zero lower bound with indications that the market for loanable funds still isn’t clearing. In other words, you’re comparing apples and oranges. We did the right thing in 1921 and 1987. We did the right thing but WAY too weakly in 1929, and we did the right thing with a few dumb policies tacked on in 2009. I don’t think 1921 refutes my understanding of the economy – it is perfectly consistent with my understanding of it.

RE: ” I remember that you do not think that the paradox of thrift is a problem which is solved by the stimulus.”

Of course it is! I’m not sure what I said before to make you think this. The whole point of stimulus is to borrow money cheap to re-equilibrate the market for loanable funds. The purpose of stimulus is to get monetary policy traction again, in otherwords.

Something you might be interested in – I’ve been corresponding with Thomas Woods over this very same 1921 question (for the reason I explained above, I think he has it all backwards). He’s promised to respond to me at length – if you’re around here in the future after I get that from him I can share his thoughts with you.

Always a pleasure, Daniil. You’re one of the few people on here or Econlib that it’s possible to talk with civily about this stuff.

muirgeo October 29, 2009 at 8:53 pm

Justin,

If every politician elected last November were a libertarian and instituted only libertarian policies what do you think the current state of the stock market, jobs and GDP would be?

I suspect we’d be in a very deep depression. That wouldn’t mean the libertarian policies were necessarily failing but only that correction and equilibration could be expected to take longer then 9 months.

Not admitting this and quickly claiming …” hence it failed!” is nothing but intellectual dishonesty.

Had this economy which was handed to Obama been delivered after 8 years or 28 years of Democratic dominance we’d never here the end of how they screwed up. But it wasn’t. Like the Last Republican Lead Great Depression this one also followed the same prescribed free market policy shifts promoted by libertarians and enacted by Republican creationist types.

Justin P October 29, 2009 at 9:23 pm

Oh you suspect? Do you have any proof?

You should reread what I said…the Obama admin sold the stimulus as a jobs booster…jobs are still being lost…no amount of …”they are being lost at a reduced rate” is going to hide the fact that jobs haven’t and probably will not recover for years to come. Since they sold it as a jobs booster, it has failed on that account.

Since when have Republican been fiscally conservatives…they use the same ole Keynesian economics as the Dems…and you wonder why we are in the crapper.

Anonymous October 29, 2009 at 8:40 pm

The Nikkei had 140% rallies during Japan’s two lost decades. A 25% rally? Big deal.

GDP is still negative for the year.

Sam Grove October 29, 2009 at 8:53 pm

Stock market up more then 25%

Which may or may not be significant if the dollars used as value reference have themselves lost value.

Anonymous October 29, 2009 at 9:19 pm

Good point. What’s the Dow/Gold ratio over the last year?

Anonymous October 29, 2009 at 6:46 pm

Anyway, what all of this illustrates is what Bryan Caplan calls make-work bias; that is the underlying flaw of stimulus programs. It rather stupidly assumes that creating a bunch of jobs – any sort of job – is what makes an economy prosperous.

Sam Grove October 29, 2009 at 8:55 pm

To expand on your point:

Jobs are a cost, not a boon, to the economy. Make-work jobs are just a form of redistribution.

muirgeo October 29, 2009 at 8:57 pm

Hey it’s a better assumption then the one I see libertarians making all the tie…. that being the belief that income, wealth and profits must be correlated with productivity.

Free market Wall Streeters created NO WEALTH when left to their own and derivitivised / leveraged out $50 trillion of bad debts. That breaks any record of government malfeasance and ineptitude by 100 fold at least.

The Efficient Market theory is hogwash.

pauliv October 29, 2009 at 9:10 pm

Sometimes I think some of the more outrageous comments are written by the Professor to stimulate discussion.

Anonymous October 29, 2009 at 8:39 pm

muirdog would have us believe that private industry wouldn’t exist except for government created infrastructure & services.

muirgeo October 29, 2009 at 9:16 pm

Good point even Somalia and Afghanistan have some private industry.
We don’t ned no stink’in government!!!

Anonymous October 29, 2009 at 9:17 pm

Muirdog – your anarchist strawman has been debunked so many times already on this blog. I’m not going to waste any more time on you.

Justin P October 29, 2009 at 9:24 pm

“We don’t ned no stink’in government!!!”

The only reasonable thing you have ever said. But of course, your spelling is atrocious.

Mike October 30, 2009 at 12:33 am

30,000 is a joke (though we don’t know what the alternative outcome would have been), and it’s lame that the administration would try to brag about such a meaningless number. But it also seems that it is a bit early to pass judgment on the stimulus (unless, of course, you do so solely on the basis of doctrine or theory, which is just as lame).

Most of the money hasn’t even been spent yet.

Anonymous October 31, 2009 at 12:20 am

Did I miss something?
I couldn’t find in the reports I have read whether that 30,000 jobs number had been appropriately discounted by the Keynesian multiplier. If not, isn’t the actual number of jobs directly “saved or created” by the stimulus something less than 20,000 jobs, with the Keynesian multiplier accounting for the rest?

Anonymous October 29, 2009 at 5:45 pm

1. There’s no doubt at all it destroys jobs. And it’s possible it could even destroy jobs on net. I think under current conditions it’s unlikely but under other conditions it could be very likely that fiscal stimulus would destory jobs on net.

2. I have no idea – I doubt it.

3. I have no idea what the administration is counting. I can’t imagine any economist evaluating this stimulus in the future would consider anything but net job creation. There’s no point in counting anything else.

muirgeo October 29, 2009 at 8:22 pm

“1. Do you think that stimulus can destroy jobs? ”

I’d be surprised if you could point to one single job in actuality or even theoretically lost to date do to stimulus spending. Explain how that would have happened.

Anonymous October 29, 2009 at 5:57 pm

Yes – we run programs that are funded with tax revenue. I’m not denying that.

Vidyohs was talking about fiscal stimulus – and the whole point of fiscal stimulus is that it isn’t funded by tax revenue. I’m agreeing with vidyohs that just taxing us and giving it back to us is pointless from an economic stimulus perspective, and I’m reassuring him that stimulus advocates aren’t that dumb – but he’s not even processing that I agree with him that there’s nothing stimulative about taxing 45% of our wealth and giving it back to us.

Anonymous October 29, 2009 at 6:43 pm

Actually, in the short, medium and long term fiscal stimulus is funded by taxes. Which is in major part why they are not stimulative in nature; the anticipation of future taxes curbs present investment. It is something like a vicious circle.

Anonymous October 29, 2009 at 7:14 pm

Sonny, this:

“Vidyohs was talking about fiscal stimulus – and the whole point of fiscal stimulus is that it isn’t funded by tax revenue.”

is why I know your brain is broken.

Just WTF do you think the money comes from if not from taxes, a magic fairy wand? Taxes today, taxes tomorrow, taxes ten years on; taxes today at 45%, tomorrow at 50%, and so on, it makes no freaking difference, it is still taxation as a source. Government has no other source.

Are you really immature and silly enough to promote the idea that government is somehow in a profitable business and will pay for the stimulus with its future profits?

God help me. Good night.

muirgeo October 29, 2009 at 6:45 pm

If they are not then how come America has (until recently) the strongest economy and standard of living since EVER began.

You use government services almost every minute of your life.. to your benefit and t the benefit of the economy as a whole… and all you do is complain because you haven’t really sat down and thought how things would be without them.

Do you really want your own out house as opposed to government sewer systems? Really?

Anonymous October 29, 2009 at 7:08 pm

An “equivalence”, if you will :) Right, but that’s like saying firms finance everything out of revenue because they eventually pay off their debts. It’s true in one sense, but the time structure of those payments is what is most important.And I should note – this isn’t some kooky left-wing criticism of this argument. In fact, the three best criticisms of your argument out there that I know of are from (1.) Martin Feldstein, (2.) James Buchanan, and (3.) Greg Mankiw – none of whom are particularly well known for being wishy-washy liberals! To some degree the argument definitely holds – which is why no one is proposing running trillion dollar deficits forever (and why lots of us complained about running running deficits of hundreds of billions of dollars during a period of growth). But to say that taxes do indeed increase to pay off the debt is not the same thing as saying that they will perfectly increase to pay off the debt. In other words, to acknowledge the reality of that mechanism is not the same thing as acknowledging “they are not stimulative in nature”, as you say.

Anonymous October 29, 2009 at 7:46 pm
Justin P October 29, 2009 at 7:18 pm

Re: #3 “I have no idea what the administration is counting.”

Do you think it’s in the Administration’s best interest to tell the net number or just the “saved or created” number?
If you answer that honestly, then you’ll have the answer to the former.

Seth October 29, 2009 at 8:10 pm

I haven’t heard the administration acknowledge job destruction resulting from stimulus. I’m not saying they haven’t. I don’t follow everything they put out. If they haven’t though, they don’t score any credibility points with me.

Anonymous October 29, 2009 at 7:19 pm

RE: “Just WTF do you think the money comes from if not from taxes, a magic fairy wand?”

I know you like to play with your fairy excessories, but I was thinking more along the lines of a bond issuance. See my response to Mommsen1625 – he/she makes your argument but in a much less combative way.

Anonymous October 29, 2009 at 7:50 pm

What do you mean the net number OR the “saved or created” number? Are we assuming “saved or created” means gross changes? Because I’m not sure what that means exactly.

I don’t know, Justin. If I were to assume that everyone in the country was an idiot I’d say it’s in their best interest to report the gross change numbers. If I were to assume that everyone in the country was intelligent I would say it’s in their best interest not to look disingenuous and report the net change numbers.

And since we live in a world with a nice mix of dumb people and intelligent people, I’m not sure what is in the administration’s best interest. And I’m also not sure what interest motivates them – informing the public, guaranteeing reelection, presenting the president in a good light. I imagine all of these interests weigh on them in varying degrees.

Which is exactly why I never turn to presidential speeches or press releases for information on the impact of the stimulus.

Anonymous October 29, 2009 at 7:52 pm

And it’s worth noting – we don’t have the ability to estimate net change numbers at this point anyway, so it’s a moot point. The best we can do is estimate based on past experience (which is pretty shaky anyway).

Justin P October 29, 2009 at 7:58 pm

I agree, they only guess. The problem is that most people, either know this but don’t care, or take those numbers with blind faith. I’d argue that those supporting Obama (aka Dems) are the later while the rest are a mix of both of those with some people like me who don’t believe a word that comes out of Washington. Much like the new GDP numbers…they hide a lot of bad things by skewing the number with programs like Cash for Clunkers and the Home owning tax credit.

Justin P October 29, 2009 at 8:00 pm

You also have to consider who disseminates the information. Most of the MSM are nothing more than propaganda arms of the White House. A lot of people take what they hear on MSNBC or CNN on blind faith, there by giving the administration an incentive to throw out phony numbers…the people that will complain will be few compared to the people taking the numbers as fact.

Anonymous October 29, 2009 at 8:11 pm

Usually they say “the administration said X”. You have a pretty low view of people if you think that they think (a.) that mean’s that’s CNN or MSNBC’s position, or (b.) that that is true just because the White House presented the estimate.

And not a number like this comes out without vigorous debate over how seriously we should even take it.

Look – I’m not disagreeing with you on the number from the administration itself. I just don’t think you should be so myopic about public discourse.

Anonymous October 29, 2009 at 8:17 pm

I didn’t say guess – I said estimate. I’m not sure about your dichotomy, either.

I’m a Democrat that supports Obama and I understand these are tenuous estimates. And there are opponents of Obama that don’t even treat estimates as estimates – they assume there is no impact regardless of what estimate is produced for them. They’re just as faith-based and deluded as the people who assume a priori that the stimulus is going to be all sugar and spice and everything nice.

muirgeo October 29, 2009 at 8:26 pm

What job destruction Seth? Point it out.

Seth October 29, 2009 at 8:30 pm

America became the strongest economy ever because it had a government that restrained its own interference in our private lives to protecting its citizens’ individual liberty.

I also believe that, as you indicate with your ‘until recently’ comment, that until recently is because we are seeing the effects of government expanding beyond its role, primarily as a result of influence from special interests.

I agree that I use government services daily and I do recognize the value. I don’t necessarily use a lot of Federal government services. Many of the government services are provided by local governments. If I don’t like the service they provide, I can choose to live elsewhere. In my small metro area, I have a choice between two states, 6 counties and 30 – 40 municipalities. The competition helps keep them honest and looking to provide good levels of service.

Also, every day I use products brought to me by voluntary transactions. The improvements I’ve experienced in my life time on such products exponentially outpace on those provided by government at any level. While I might grade the government performance on some things decent (especially on those things in which they face direct competition from neighboring communities), I’m not convinced that our lives could be vastly better if government restrained itself more and tried to bring in the free market more often. The main city I live is has an antiquated city owned sewer system that it can’t afford to replace, and yet it also has a state of the art, privately owned electrical distribution system that has generated a nice financial return for its shareholders over the years.

mesaeconoguy October 30, 2009 at 2:16 am

Arguing that government toasters are somehow preferable to previously private cereal bowls and ham& eggs is beyond asinine.

mesaeconoguy October 30, 2009 at 2:16 am

Arguing that government toasters are somehow preferable to previously private cereal bowls and ham& eggs is beyond asinine.

Anonymous October 29, 2009 at 8:36 pm

It’s unlikely because there is still so much savings around to be borrowed at fire-sale interest rates (which is EXACTLY why you only want to mess around with fiscal stimulus with low interest rates and savings that exceed investment).

However, there can be special cases. Road repair crews and school construction crews probably wouldn’t have had a lot of other work, but there’s potentially more productive work they could have been doing. The idea that there would be one-for-one displacement of productive work in a liquidity trap like this is utter nonsense. But that doesn’t mean we should write off the possibility of some displacement.

Which again – is the whole point of looking at NET job changes – not admitting that there are some jobs created and some jobs destroyed. Both statements are trivially true.

john November 1, 2009 at 9:09 am

I would hold that it is not the case that jobs have been directly eliminated by the stimulus, but I do believe that the false incentive for labor jobs that have been created and supported by Government-injected capital would bring about about a certain state of affairs –that when obtained, would influence a shift to that job market. This shift would undermine second order industries and jobs thus causing a type of slippery slope. This could, speculatively, bring more and longer lasting job losses.

Justin P October 29, 2009 at 8:37 pm

What public discourse? True discourse happens only on the margin, the Politicians do not care about the margin. If people were like you envision, propaganda would never work…ever!
One only has to open up a history book to see that, that isn’t the case. On the margin people aren’t fooled but as a whole they are sheep.

Anonymous October 29, 2009 at 8:41 pm

…which is why no one is proposing running trillion dollar deficits forever (and why lots of us complained about running running deficits of hundreds of billions of dollars during a period of growth).However, that is what we will get. That has been the case throughout history. Why? Because there is no incentive to do otherwise.

It looks like a free lunch to politicians and they act like it is a free lunch.

Anonymous October 29, 2009 at 8:43 pm

Re: “If people were like you envision, propaganda would never work…ever!”

More absolutism in responses…

No, I’m not saying no people are dumb and gulible. I’m saying a heck of a lot of people aren’t. And even the ones that are dumb and gulible are only dumb and gulible in degrees.

Justin P October 29, 2009 at 8:46 pm

What is estimation but a guess made by someone with a PH.D? Remember that correlation does not equal causation, so just because a so called “expert” makes an educated guess, it only holds true if his underlining assumptions are correct. What has this crisis taught us? If anything, it’s that our underlying assumptions were not correct. I’d argue with Taleb, that it’s mostly random. It might look nice on a bell curve, but a Black Swan is only around the corner.

Look at the assumptions being made for these estimate? My god man you know statistics…you know how skewed sample polling can be. That’s all those estimates are based on…polls and numbers that may or may not be true, depending on the incentives for the individual actors involved in recording those numbers. Enron, WorldCom mean anything? People lose millions because they had the underlying assumption that those companies were putting down the true numbers…which we know was a false assumption. I’m only taking that lesson and applying it to Government, which is staffed by the same flawed, profit seeking actors as can be found everywhere. I’d only add that some in Government are even worse off because they think they are doing the right thing. How many rounding errors are there in those numbers because some staffer thinks:
“Well the numbers weren’t what we think they should have been so I’ll just fudge it just a little bit. No one will notice.”
Now aggregate all those little rounding errors and number fudging and what do you get.
(as a personal anecdotal evidence, I work at a DOD facility…and you will not believe how numbers are whipped, especially safety numbers, to make management look better.)

Justin P October 29, 2009 at 8:50 pm

Then please explain how propaganda works?

So basically we are arguing over how big the Std Dev of gullible people compared to people that aren’t fooled.

Justin P October 29, 2009 at 8:51 pm

Great comparison…never thought about that one.

Also…Remember when Obama said he’d listen to the Generals?

Anonymous October 29, 2009 at 10:21 pm

That may make sense in your head, but you’re going to have to explain it… actually, nevermind. I think I can guess what you’re gonna say.

Besides, I wouldn’t let the Democrats off so easy – the Iraq War was the Democratic version of the Iraq War. A hell of a lot of them voted for that misadventure.

muirgeo October 29, 2009 at 9:10 pm

This just underscores your lack of understanding on the stimulus. Their was no need to increase spending during the time of the Iraq war because there was no recession and drop in net demand. Further bombs blowing up in other countries adds nothing to the infrastructure of our country. Spending on infrastructure here as the current stimulus does on roads, transit, schools ect does strengthen the economy.

Anonymous October 29, 2009 at 9:15 pm

Really I think nobody here ever said the stimulus would “ruin” the economy. More like have no effect or slightly harmful(see cash for clunkers). I honestly don’t know what you’re getting attacking libertarians. Would you prefer all out socialism? Read the “Black Book of Communism” to see how many stinking corpses YOUR ideology left in the 20th century. About 100 million?

Anonymous October 30, 2009 at 1:54 pm

I agree that the correlation causation anthem gets a little old when it’s not backed up, but your position isn’t as solid as you’d like to believe. During the bubble the stock market went up, GDP went up and jobs were created. I could therefor use your three indicators to suggest that the government stimulus is merely being used to fuel another bubble.

The reason everyone here keeps reminding you that correlation doesn’t imply causation is because positive economic indicators (and I don’t particularly think the ones you’ve cited are all that informative) correlate with real recovery and with bubble formation. Even if government spending is responsible for the positive signs you’ve noted, you have no way of proving that we are proceeding in a worthwhile and sustainable manner. This stimulus could have the same effect that Greenspan’s policies had in the early 2000′s.

You need to first show that the stimulus is responsible for the improvements (or at least their magnitude since they might have improved on their own) and then go on to show that they are productive and sustainable and not just the beginning of another bubble. Until you’ve done that, saying that “the market went up after the government dumped a bunch of money into the economy therefor it was a good thing for them to do” is just asinine.

Anonymous October 30, 2009 at 1:54 pm

I agree that the correlation causation anthem gets a little old when it’s not backed up, but your position isn’t as solid as you’d like to believe. During the bubble the stock market went up, GDP went up and jobs were created. I could therefor use your three indicators to suggest that the government stimulus is merely being used to fuel another bubble.

The reason everyone here keeps reminding you that correlation doesn’t imply causation is because positive economic indicators (and I don’t particularly think the ones you’ve cited are all that informative) correlate with real recovery and with bubble formation. Even if government spending is responsible for the positive signs you’ve noted, you have no way of proving that we are proceeding in a worthwhile and sustainable manner. This stimulus could have the same effect that Greenspan’s policies had in the early 2000′s.

You need to first show that the stimulus is responsible for the improvements (or at least their magnitude since they might have improved on their own) and then go on to show that they are productive and sustainable and not just the beginning of another bubble. Until you’ve done that, saying that “the market went up after the government dumped a bunch of money into the economy therefor it was a good thing for them to do” is just asinine.

Justin P October 29, 2009 at 9:19 pm

I take any insult by you as a complement thank you.

You need to rehash your reading comprehension skills though…Mommsen is talking about the plans and how they don’t reflect the real intentions of the politicians and reality. The comparison between Iraq and Stimulus is valid.

Justin P October 29, 2009 at 9:28 pm

100 Million, that’s just from Stalin and Pol Pot…how many did Anita Dunn’s favorite commie, Mao kill?

Anonymous October 29, 2009 at 10:26 pm

OK – I know this isn’t going to play well but I always think it’s a cheap shot to equate Stalinism with Communism. Whatever Communism’s faults, you can’t impute the faults of militant state socialism to Communism.If you don’t like Stalinism, criticize Stalinism. Communism has taken many, many forms – some are very peaceful, communal, narcotic-enhanced, and smelly. Some are industrial and militant. Each has it’s own unique faults. It’s like saying Christianity is bankrupt because of it’s crimes. Christianity has it’s faults, but if you really want to blame the Inquisition, blame the damned Inquisition and be done with it!

Seth October 29, 2009 at 9:31 pm

You don’t think stimulus spending has opportunity costs?

Anonymous October 29, 2009 at 9:33 pm

Good point! If we take the estimates for each:Mao(50-70 million)Stalin(30-50 million)Pol Pot(3 million)That gets us between 83-123 million killed by those 3 alone! Probably a few millions more by many other petty dictators.

Now how many people have libertarians killed by comparison?

Justin P October 29, 2009 at 9:35 pm

What’s a few million between friend eh?

Anonymous October 29, 2009 at 9:37 pm

It’s amazing that you and I feel the horror of those regimes, but muirbot couldn’t care less. Or maybe he’ll even deny the numbers.

Anonymous October 29, 2009 at 10:10 pm

Huh? I just said that people vigorously debate these numbers all the time.

You’re the one that responded by saying propoganda was never possible. I never claimed that. Of course it’s possible. I never argued it wasn’t.

Anonymous October 29, 2009 at 10:14 pm

RE: “What is estimation but a guess made by someone with a PH.D? Remember that correlation does not equal causation, so just because a so called “expert” makes an educated guess, it only holds true if his underlining assumptions are correct.”

I earn my living providing estimates of various things, and I don’t have a PhD. You’re the one bringing “experts” into it, not me.

Anonymous October 29, 2009 at 10:17 pm

RE: “However, that is what we will get. That has been the case throughout history. Why? Because there is no incentive to do otherwise.”

What do you mean that has been the case throughout history?!?!?!?! No it hasn’t!!!!!! Deficits the size we are running now (and I should have expressed it as a % of GDP, not in trillions of nominal dollars) are very rare historically, and I can’t think of any instance where people have tried to perpetually sustain them.

What are we doing now? Somewhere around a deficit of 10% of GDP? If it has been the case throughout history, give me an example of where deficits that high were run for extended periods of time (ie – more than a couple years). Nobody has done it. Nobody proposes it. You’re fighting a straw man.

Anonymous October 29, 2009 at 10:37 pm

I should say we did the right thing in 1933-34, not 1929. That was part of the problem!

Anonymous October 29, 2009 at 10:37 pm

How much of that 15% that’s been spent is on repairing crumbling infrastructure? Perhaps a stimulus could have the needed effect(increase business investment) IF businesses thought the government was doing more then just giving more money to the teacher unions.

Anonymous October 30, 2009 at 12:40 am

I believe almost everyone here is quite civil towards to you actually.

As for Woods, I wasn’t terribly impressed with “Politically Incorrect…”

Anonymous October 30, 2009 at 12:40 am

I believe almost everyone here is quite civil towards to you actually.

As for Woods, I wasn’t terribly impressed with “Politically Incorrect…”

Anonymous October 30, 2009 at 8:29 am

Also a pleasure for me, Daniel. These are legitimate disagreements that need to be discussed civilly if we do not want to talk past each other all the time.

Especially, because we are not discussing mormative issues here, as normatively I would be against stimulus even if it worked because I am not a utilitarian, and because the long-term counsequences of the stimulus for economic freedom for me outweigh any short-term gains a stimulus might bring.

Still, the subject of our discussion is the mechanism.

In this regard, I see several problems with your theoretical explaination.

Even if interest rates were high at the beginning of the 1921 recession, it was still highly deflationary. So the actual supposedly destructive process at work was the same as in the Great Depression. Or was not?

And what prevented inflation to fall even further in 1921-22 to reach the point where disinflation becomes destructive?

This brings us to the main problem with the Keynesian thinking. It does not explain the underlying process at work. It just says that if in a low-inflation environment, AD starts to fall, it turns into a deflationary spiral and so on. It basically looks just at the symptoms (nominal variables) and as such does not allow to say when the deflationary process will end or whether the economy will contract to a point where people cannot reduce spending any more which is absurd.

I believe that what requires explanation in your story is why interest rates do not rise even if the economy is awash with liquidity.

And what interest rates? The fact that the fed funds rate is low does not mean that other rates are at the lower bound. There are lots of interest rates in the economy. There is not a single market for loanable funds. It is just an abstraction.

And what is more important is that interest rates are ultimately determined by intertemporal preferences, not by imaginary market for loanable funds. And in terms of intertemporal preferences, the Keynesian story is self-contradictory.

1. On the one hand it says, that as interest rates are so low, consumers are willing to forego current consumption.

2. On the other, hand it says that despite low interest rates investment projects, even the long term ones, are not profitable.

But I do not understand the explanation for (2).

Anonymous October 29, 2009 at 11:31 pm

You’d have to be familiar with the many classical empires to understand what I am getting at.

Anonymous October 29, 2009 at 11:38 pm

The Iraq war was declared based on a bunch of wishful thinking and overly rosy estimates of what would happen there; similarly the stimulus plans, the so-called reform of health care, etc. are based on a bunch of wishful thinking and overly rosy estimates.

Anonymous October 29, 2009 at 11:58 pm

This is something of a case of logomachy, but “communism” as it is properly understood comes in Marxist and non-Marxist forms. All of its Marxist forms have proven to be mostly disastrous and at best ineffective; the most disastrous being the forced industrialization of Stalinism, the rural socialism and the cultural upheaval of Maoism and the autarky of Hoxhaism. As for the other forms of communism, the non-Marxist variety, they have either been religious and small-scale (and have generally wrapped up after a generation or two) or they have been – to use Marx’s term – “primitive” and also small scale. The latter has been more lasting (indeed, it has been around for thousands of years), but it has not been the basis for large societies to the best of my knowledge (not even among the peaceful, trading city states which have been found in the Andes) and in it we the see the birth of slavery (in the capture of members of other groups) human sacrifice and kleptocracy (contra Rousseau, there are no noble savages in other words).

Anonymous October 30, 2009 at 12:07 am

As for the Inquisition, it would be best to blame the religious and secular authorities which found such activities appropriate. What is interesting (and ultimately what condemns it the most) about Christianity in that instance isn’t that it was sending people off to be tortured for being Jews who converted yet continued to practice their original religion in secret* or few being a witch or warlock, it was that they were doing the exact thing that the secular authorities were doing. “Christianity” proved itself in that instance not be a moral bulwark against the general attitudes and actions of the society which it was a part of. That seems to me to be the most problematic aspect of it all. Then again, I am an atheist (of the non-evangelical variety).

*Which would be much to the delight of that moral paragon of Christianity, Aquinas, who felt that the death of apostates was their just reward.

Anonymous October 30, 2009 at 12:28 am

Good ‘ole Disingenuous Kuehn, criticize Stalinism not communism.

And Stalinism would have come about without Lenninism and without communism? Criticize communism and you ARE criticizing Stalinism, Obamaism, muirduckism, and DKism. Criticize communism and you are criticizing the left, all of it.

Communism damn near defeated the Pilgrims that came over on the Mayflower. They didn’t prosper until they purged that stupidity. No Stalin emerged there because the group was too small to offer the bland arbitrary, yet vicious, and power hungry man that opportunity.

You have all the answers, Duplicitous Kuehn, but somehow they all seem to be wrong.

Mike October 30, 2009 at 12:05 am

Though it sounds better in abstract than when you’re paying for your groceries with food stamps because you’re unemployed. Then, a job is a job is a job.

Anonymous October 30, 2009 at 12:35 am

We live in a Constitution-based federal republic…

We do? The Constitution has been treated so shabbily that seems rather unlikely.

We just need better regulation and better representation of peoples needs over corporations or those of the wealthy elites.

Better regulation? You can have all the regulation you want in the world, if it discourages people from acting responsibly, and most regulation does this, it will fail. There really is no substitute for self-enforcement.

As for representation, the American public as a rule gets exactly what it wants; only on the margins can political actors have much free will.

I think the policy changes that I would recommend are FAR less dramatic then what you and other libertarians are proposing.

That seems likely. After all, the freedom to eat or drink what one wants to eat or drink, to live where one wants to live, to work at what one wants to work at are dramatic departures from what we see today.

We’ve seen high taxes on the rich, many countries provide public health care and most countries have a better electoral process.

(1) Where the first exist the rich flee to countries with lower taxes (France and Sweden are perfect examples of this).

(2) Those countries who provide such are constantly tinkering with them because of the complaints regarding service, coverage, cost, etc. – and of course those systems are subject to all manner of lawsuits by people who want to opt out of them (many of which have been successful over the past ten years or so).

(3) If you think that Europe has a better electoral process then really, think again. For example, their populace is just as ignorant as our own on matters of public policy. Indeed, I am of the opinion that a population which is less interested in voting and less interested in politics is likely as freer population. Indeed, it is one possible explanation for why we have fewer say agricultural subsidies; fewer portions of the population are interested expanding the realm of rich, overpaid farmers that they exist in right now (basically the five crops that the government subsidizes).

Justin P October 30, 2009 at 2:19 am

“We just need better regulation and better representation of peoples needs over corporations or those of the wealthy elites.”

First one is never going to happen.

We are in complete agreement with the second. The best way to get rid of corporate and special interests is to have a smaller government. Less to give out means less people trying to get the stuff.

Justin P October 30, 2009 at 2:19 am

“We just need better regulation and better representation of peoples needs over corporations or those of the wealthy elites.”

First one is never going to happen.

We are in complete agreement with the second. The best way to get rid of corporate and special interests is to have a smaller government. Less to give out means less people trying to get the stuff.

Anonymous October 30, 2009 at 1:18 am

I don’t know about “almost everyone”, but you’re right – “civily” was probably the wrong word choice. “Fair, rational, and not sarcastic” is probably better. Daniil has always approached these discussions with a very noticable desire to get to the bottom of questions – not to grind an axe against “politicians” or “leftists” or whoever else.

I haven’t read his politically incorrect guide to history – this is what I was disputing in my conversation with him: http://www.youtube.com/watch?v=czcUmnsprQI I wasn’t terribly impressed with the logic here either. I think that’s often how historians approach economic history, though. They often treat all recessions as if they’re equal, or all circumstances as if they’re equal. You see it in Amity Shlaes’s writing too. Actually I had a shorter correspondance with her last fall. In a Bloomberg article she argued that the Johnson administration’s policy was “Keynesian” and comparable to FDR’s – and that it was an example of why stimulus doesn’t work. Which if you know anything about economic conditions in the 60s is obviously a ludicrous claim. Some people see “government spending” and just call it Keynesian (Shlaes). Some people see a recession and just assume it’s the same as all the other recessions (Woods). Anyway – I think this way of looking at the world glosses over a lot, and I’m looking forward to Woods’s response.

Anonymous October 30, 2009 at 1:18 am

I don’t know about “almost everyone”, but you’re right – “civily” was probably the wrong word choice. “Fair, rational, and not sarcastic” is probably better. Daniil has always approached these discussions with a very noticable desire to get to the bottom of questions – not to grind an axe against “politicians” or “leftists” or whoever else.

I haven’t read his politically incorrect guide to history – this is what I was disputing in my conversation with him: http://www.youtube.com/watch?v=czcUmnsprQI I wasn’t terribly impressed with the logic here either. I think that’s often how historians approach economic history, though. They often treat all recessions as if they’re equal, or all circumstances as if they’re equal. You see it in Amity Shlaes’s writing too. Actually I had a shorter correspondance with her last fall. In a Bloomberg article she argued that the Johnson administration’s policy was “Keynesian” and comparable to FDR’s – and that it was an example of why stimulus doesn’t work. Which if you know anything about economic conditions in the 60s is obviously a ludicrous claim. Some people see “government spending” and just call it Keynesian (Shlaes). Some people see a recession and just assume it’s the same as all the other recessions (Woods). Anyway – I think this way of looking at the world glosses over a lot, and I’m looking forward to Woods’s response.

Anonymous October 30, 2009 at 1:25 am

When people start calling you names or that most prevalent term on the interwebs – “disingenuous” – they are no longer being civil. In other words, this is an incredibly civil forum in comparison to most forums one can find out there.

Anonymous October 30, 2009 at 1:25 am

When people start calling you names or that most prevalent term on the interwebs – “disingenuous” – they are no longer being civil. In other words, this is an incredibly civil forum in comparison to most forums one can find out there.

Anonymous October 30, 2009 at 1:26 am

The problem is, even the Marxist forms haven’t really been implemented. What you’re really talking about is Leninism or Maoism. Marxism is an idea, a theory, an ideology, a philosophy, a school of thought – it’s any number of things at this point but Marxism is not a political system and it hasn’t been tried. Marx is an interesting read and he is an important read. I don’t know – I suppose it’s just a shame to conflate the intellectual legacy of Marx with the political movement legacy of Stalin or Mao.

It’s like Hegel – you can’t have Marx without Hegel, and you can’t have Stalin without Marx. So are you going to throw Hegel out too? Maybe a cynic could argue that we can dump all of Marxist thought and we wouldn’t be worse off for it. But would anyone in their right minds argue that about Hegel? So where do you stop? When does the book burning and the denouncing end? I say just stick with denouncing Stalin and pointing out the logical flaws in Marx.

Anonymous October 30, 2009 at 1:26 am

The problem is, even the Marxist forms haven’t really been implemented. What you’re really talking about is Leninism or Maoism. Marxism is an idea, a theory, an ideology, a philosophy, a school of thought – it’s any number of things at this point but Marxism is not a political system and it hasn’t been tried. Marx is an interesting read and he is an important read. I don’t know – I suppose it’s just a shame to conflate the intellectual legacy of Marx with the political movement legacy of Stalin or Mao.

It’s like Hegel – you can’t have Marx without Hegel, and you can’t have Stalin without Marx. So are you going to throw Hegel out too? Maybe a cynic could argue that we can dump all of Marxist thought and we wouldn’t be worse off for it. But would anyone in their right minds argue that about Hegel? So where do you stop? When does the book burning and the denouncing end? I say just stick with denouncing Stalin and pointing out the logical flaws in Marx.

Anonymous October 30, 2009 at 1:28 am

Exactly my point. I agree entirely. I’m an atheist when it comes to Marx. I’m not a Marxist. But I don’t think we should throw the baby out with the bath water. Because where does it stop? Like I said above – you might get some heads nodding if you denounce Communism. But what if you then want to denounce Hegelianism? It’s a dangerous line of reasoning.

Anonymous October 30, 2009 at 1:28 am

Exactly my point. I agree entirely. I’m an atheist when it comes to Marx. I’m not a Marxist. But I don’t think we should throw the baby out with the bath water. Because where does it stop? Like I said above – you might get some heads nodding if you denounce Communism. But what if you then want to denounce Hegelianism? It’s a dangerous line of reasoning.

Anonymous October 30, 2009 at 1:30 am

Yeah!!!! Why don’t we just wipe the slate clean back to Plato! That jackass wanted philosopher kings after all!!!

Come on.

Stalin killed millions and therefore we should hate Stalin. The rest of ‘em we should just read, write about, and argue about.

Anonymous October 30, 2009 at 1:30 am

Yeah!!!! Why don’t we just wipe the slate clean back to Plato! That jackass wanted philosopher kings after all!!!

Come on.

Stalin killed millions and therefore we should hate Stalin. The rest of ‘em we should just read, write about, and argue about.

Anonymous October 30, 2009 at 1:37 am

I’ve read a fair amount of Marx and I would say that the problem with Marxism is that Marx really gives little in the way of actual guidance to those who want to found a socialist state that will eventually evolve into communism. Well, that and he adopts a lot of the flawed ideas of Ricardo. Then again, one of the primary disagreements between Austrians like myself and Marxists is over subjectivity.

But would anyone in their right minds argue that about Hegel?

I find Hegel’s arguments to be deeply flawed; particularly his theory of history. And there are of course other criticisms of his thinking: http://en.wikipedia.org/wiki/Hegel#Criticism

Anyway, I have not suggested that any books be burnt; I’d have to burn some of my own if that were the case.

Anonymous October 30, 2009 at 1:37 am

I’ve read a fair amount of Marx and I would say that the problem with Marxism is that Marx really gives little in the way of actual guidance to those who want to found a socialist state that will eventually evolve into communism. Well, that and he adopts a lot of the flawed ideas of Ricardo. Then again, one of the primary disagreements between Austrians like myself and Marxists is over subjectivity.

But would anyone in their right minds argue that about Hegel?

I find Hegel’s arguments to be deeply flawed; particularly his theory of history. And there are of course other criticisms of his thinking: http://en.wikipedia.org/wiki/Hegel#Criticism

Anyway, I have not suggested that any books be burnt; I’d have to burn some of my own if that were the case.

Justin P October 30, 2009 at 2:00 am

Huh? You need to reread what I said.

Justin P October 30, 2009 at 2:00 am

Huh? You need to reread what I said.

mesaeconoguy October 30, 2009 at 2:01 am

Dk, listen to vidyohs – he’s right. It makes not one whit of difference that a “bond” issuance by the gov’t to cover our current fiscal mess isn’t a de jure tax: it can, will, and must result in future taxation (as fiscal policy is currently conducted). Higher debt levels (and rising interest rates in our case) automatically guarantees that future burden will be borne by taxpayers, either in the form of direct taxation (a tax), future bond issues (an indirect tax), or debasement of the currency (another indirect tax). Probably a combination of all 3. It really is that simple.And at no other time in economic history have we dumped this much fiscal stimulus into the financial and economic system, making our current results particularly pathetic.

mesaeconoguy October 30, 2009 at 2:01 am

Dk, listen to vidyohs – he’s right. It makes not one whit of difference that a “bond” issuance by the gov’t to cover our current fiscal mess isn’t a de jure tax: it can, will, and must result in future taxation (as fiscal policy is currently conducted). Higher debt levels (and rising interest rates in our case) automatically guarantees that future burden will be borne by taxpayers, either in the form of direct taxation (a tax), future bond issues (an indirect tax), or debasement of the currency (another indirect tax). Probably a combination of all 3. It really is that simple.And at no other time in economic history have we dumped this much fiscal stimulus into the financial and economic system, making our current results particularly pathetic.

Anonymous October 30, 2009 at 1:43 pm

I’d like to take issue with your argument. Fiscal stimulus MUST be funded with tax revenue. Taxes are the only revenue the government has access to. Selling bonds is equivalent to future taxation.

When a business sells bonds, it must convince its investors that the business as a whole is trustworthy of the loan and will be around long enough to pay it back. If the loan is prudently invested, the bond holders get their money back and the business gets to keep any profit made. If the loan is poorly invested both parties lose out. The important thing to remember is that at no time is the business assured it will have the money to pay back off the bond holders which is how prudence on their part is inforced.

When the government issues a bond, they know they will have the money to pay bond holders and the bond holders know this as well. The government can either get the money through taxes or by printing it. Taxes curtail future investment for dubious current investment; printing money leads to inflation. Investors can demand higher interest rates to protect against inflation, but this just means the government pays its debt, bond holders are protected from inflation and everyone else gets poorer. I say the current investment is dubious because if government knows it can get the money to pay off the bonds whether or not its investments pan out, it is more likely to cater to pet projects and special interests (not to mention the fact that even if the government was run by angels there would still be the knowledge problem).

Anonymous October 30, 2009 at 1:43 pm

I’d like to take issue with your argument. Fiscal stimulus MUST be funded with tax revenue. Taxes are the only revenue the government has access to. Selling bonds is equivalent to future taxation.

When a business sells bonds, it must convince its investors that the business as a whole is trustworthy of the loan and will be around long enough to pay it back. If the loan is prudently invested, the bond holders get their money back and the business gets to keep any profit made. If the loan is poorly invested both parties lose out. The important thing to remember is that at no time is the business assured it will have the money to pay back off the bond holders which is how prudence on their part is inforced.

When the government issues a bond, they know they will have the money to pay bond holders and the bond holders know this as well. The government can either get the money through taxes or by printing it. Taxes curtail future investment for dubious current investment; printing money leads to inflation. Investors can demand higher interest rates to protect against inflation, but this just means the government pays its debt, bond holders are protected from inflation and everyone else gets poorer. I say the current investment is dubious because if government knows it can get the money to pay off the bonds whether or not its investments pan out, it is more likely to cater to pet projects and special interests (not to mention the fact that even if the government was run by angels there would still be the knowledge problem).

mesaeconoguy October 30, 2009 at 2:09 am

Iraq was based on incorrect assumptions that 1) our intelligence was accurate, 2) our intelligence was (relatively) politically untainted, 3) Iraq posed a significant destabilizing threat to the region (it did), and 4) we would see it through, and would possess the political will to do so this time.

Many bad assumptions, but like global warming, impossible to prove a non-falsifiable scenario (what would have happened had we done nothing, i.e. opportunity cost – could have been a whole lot worse).

mesaeconoguy October 30, 2009 at 2:11 am

And having our current system with our current politicians/overtly unintelligent policymakers running a socialist sweepstakes during economic decline is unbelievably dangerous.

mesaeconoguy October 30, 2009 at 2:11 am

And having our current system with our current politicians/overtly unintelligent policymakers running a socialist sweepstakes during economic decline is unbelievably dangerous.

Justin P October 30, 2009 at 2:14 am

It’s an example, hence the “”. You know the point I’m making, nit picking is unbecoming of you.

Justin P October 30, 2009 at 2:14 am

It’s an example, hence the “”. You know the point I’m making, nit picking is unbecoming of you.

Seth October 30, 2009 at 4:13 am

Just as one more hit of crack, is one more hit of crack, is one more hit of crack. It solves the addict’s problem for the moment, but the long-term picture isn’t so good.

Seth October 30, 2009 at 4:13 am

Just as one more hit of crack, is one more hit of crack, is one more hit of crack. It solves the addict’s problem for the moment, but the long-term picture isn’t so good.

muirgeo October 30, 2009 at 5:28 am

To date no. There has been NO opportunity cost as no one has paid for the spending yet. And that is why you do it during a deep recession only. Government is the only one to spend money when aggregate demand has fallen off. Spending money creates jobs and gets money flowing through the economy. And if the spending is on infrastructure or something already in need it pays for itself. It’s not a complicated idea… just antithesis to some too rigid ways of thinking.

muirgeo October 30, 2009 at 5:28 am

To date no. There has been NO opportunity cost as no one has paid for the spending yet. And that is why you do it during a deep recession only. Government is the only one to spend money when aggregate demand has fallen off. Spending money creates jobs and gets money flowing through the economy. And if the spending is on infrastructure or something already in need it pays for itself. It’s not a complicated idea… just antithesis to some too rigid ways of thinking.

Anonymous October 30, 2009 at 10:10 am

Re: “Even if interest rates were high at the beginning of the 1921 recession, it was still highly deflationary. So the actual supposedly destructive process at work was the same as in the Great Depression. Or was not?”

But the point is the deflation of 1921 – like the deflation of 1981 (which is why I think that’s an even better comparison than 1987) was completely man-made. The recession was generated to stop the preceeding inflation. If you look at a chart of inflation for 1918-1940 or so, you’ll see a high spike up, then a sharp deflationary spike down in ’20-’21, then almost no change in the price level through a lot of the 20s, and then a gradual deflationary slope down through the thirties. In the 30′s we essentially fell into a deflationary spiral from practically unchanging prices and zero interest rates – so when the economy started to collapse the Fed had much less recourse. Think of 1920 like the 1970s. Inflation was high and rates were high, so the Fed had a lot of latitude to put on the breaks with a sharp, short recession – and they did.

Re: “It basically looks just at the symptoms (nominal variables) and as such does not allow to say when the deflationary process will end or whether the economy will contract to a point where people cannot reduce spending any more which is absurd.”

I don’t see it that way – what it does is look at how nominal prices impact the ability of real prices to equilibrate. We live in a nominal world – one way of looking at the whole Keynesian story is precisely that the disconnect between nominal and real prices drives depressions.

Re: “I believe that what requires explanation in your story is why interest rates do not rise even if the economy is awash with liquidity.”

Why would they? In a world where liquidity increases you’d expect rates to fall, not rise. Money is cheap when we’re swimming in it. And that’s the problem. Money is cheap but not enough people want to borrow it and nominal price floors prevent the money from getting even cheaper to the point that people will want to borrow it. So the government has to step in and borrow.

Re: “And what interest rates? The fact that the fed funds rate is low does not mean that other rates are at the lower bound. There are lots of interest rates in the economy.”

Of course – but once you take risk premiums and that sort of thing into account for other interest rates, they may very well be at their nominal lower bound. The Fed funds rate is obviously more flexible than most other rates – so it’s a stark indicator when that hits zero. That truly cannot move any lower. Others MAY be able to move lower, but they’re still approaching some damn near non-negotiable rigidities. Think of it like wages. When Keynesians talk about nominal wage rigidities they call it “rigidity” because obviously it’s possible to move lower, but the adjustment process is still a lot more challenging. So in the case of some rates they’re not zero, but once you take risk premiums into account (assuming inflation premiums are non-existent right now), they’re up against a de-facto price floor – there’s not too much more room for adjustment.

RE: “And what is more important is that interest rates are ultimately determined by intertemporal preferences, not by imaginary market for loanable funds.”

I’ll fully stipulate the imaginary-ness of the market. But you know what? My demand for a Friday donut is determined by my donut preferences, not by an imaginary market for donuts. Just like “loanable funds” there are a wide variety of donuts and I may only be in the market for one of them – but we can still conceive of a broader “donut market” where people demand and supply a specific kind of donut, but other donuts are close enough substitutes that it’s worth considering them together. Or you could break it out into multiple loanable funds markets – that works just as well, it’s just easier to talk about it as one market. These markets are all interconnected – they’re all up against a nominal rate floor. Some of the floors are more binding than others, but they’re all broadly in the same predicament.

As for your questions 1. and 2., first I’m not sure why you would expect suppliers of funds and demanders of funds to have symmetric responses. Do we ever expect that? A lot of this is chalked up to behavioral responses – this is where animal spirits and liquidity preference comes in. I think Arnold Kling’s recalculation story is relevant here too. A lot of borrowers made some very bad bets and are losing from those bets. It doesn’t mean they won’t make additional investments – but they’ll only make additional investments if it’s dirt cheap to make them. Workers are scared of losing their jobs, so they save a lot as a cushion – even if the rates they get on those savings are very low. Firms are scared of another project failing so they get conservative and won’t even borrow at very low rates. That story seems pretty sensible to me!

Anonymous October 30, 2009 at 12:36 pm

=But the point is the deflation of 1921 – like the deflation of 1981 (which is why I think that’s an even better comparison than 1987) was completely man-made. The recession was generated to stop the preceeding inflation. If you look at a chart of inflation for 1918-1940 or so, you’ll see a high spike up, then a sharp deflationary spike down in ’20-’21, then almost no change in the price level through a lot of the 20s, and then a gradual deflationary slope down through the thirties. In the 30′s we essentially fell into a deflationary spiral from practically unchanging prices and zero interest rates – so when the economy started to collapse the Fed had much less recourse. Think of 1920 like the 1970s. Inflation was high and rates were high, so the Fed had a lot of latitude to put on the breaks with a sharp, short recession – and they did.=
But the thing is that whoever started the deflation, the mechanism of deflation was the same in 1921 and in 1929-33. My question was what prevented prices and interest rates from falling even further (to the lower bound) in 1921.

=I don’t see it that way – what it does is look at how nominal prices impact the ability of real prices to equilibrate. We live in a nominal world – one way of looking at the whole Keynesian story is precisely that the disconnect between nominal and real prices drives depressions.=
Please explain in more detail if possible.

=Why would they? In a world where liquidity increases you’d expect rates to fall, not rise. Money is cheap when we’re swimming in it. And that’s the problem. Money is cheap but not enough people want to borrow it and nominal price floors prevent the money from getting even cheaper to the point that people will want to borrow it. So the government has to step in and borrow.=
Not necessarily. If the amount of money is increased while the amount of goods and services falls, then at some point you will see inflation. I do not see how nominal interest rates may change that.
I think the problem with your view is that you disconnect the liquidity preference (and interest rates) from the demand for goods. In your world, people may have unlimited liquidity preference. That is why you can at the same time say that (1) the liquidity preference is keeping the interest rates low and (2) that low interest rates do not allow liquidity preference to fall. But this is just circular reasoning.
=Of course – but once you take risk premiums and that sort of thing into account for other interest rates, they may very well be at their nominal lower bound. The Fed funds rate is obviously more flexible than most other rates – so it’s a stark indicator when that hits zero. That truly cannot move any lower. Others MAY be able to move lower, but they’re still approaching some damn near non-negotiable rigidities. Think of it like wages. When Keynesians talk about nominal wage rigidities they call it “rigidity” because obviously it’s possible to move lower, but the adjustment process is still a lot more challenging. So in the case of some rates they’re not zero, but once you take risk premiums into account (assuming inflation premiums are non-existent right now), they’re up against a de-facto price floor – there’s not too much more room for adjustment.=
But why should the risk-premium necessarily fall? Risk premium is not wholly determined by inflation. It is determined by uncertainty which even increases in a recession.

=I’ll fully stipulate the imaginary-ness of the market. But you know what? My demand for a Friday donut is determined by my donut preferences, not by an imaginary market for donuts. Just like “loanable funds” there are a wide variety of donuts and I may only be in the market for one of them – but we can still conceive of a broader “donut market” where people demand and supply a specific kind of donut, but other donuts are close enough substitutes that it’s worth considering them together. Or you could break it out into multiple loanable funds markets – that works just as well, it’s just easier to talk about it as one market. These markets are all interconnected – they’re all up against a nominal rate floor. Some of the floors are more binding than others, but they’re all broadly in the same predicament.=
My point was not exactly about multiplicity of the markets for loanable funds. My point was that there is no such thing as loanable funds market(s) separate from the market(s) for goods.
As for importance for multiplicity of markets, the point is that prices are relative. That means that a price always rises or falls relative to something. As prices are relative, the concept of AD is useless.

=As for your questions 1. and 2., first I’m not sure why you would expect suppliers of funds and demanders of funds to have symmetric responses. Do we ever expect that? A lot of this is chalked up to behavioral responses – this is where animal spirits and liquidity preference comes in. I think Arnold Kling’s recalculation story is relevant here too. A lot of borrowers made some very bad bets and are losing from those bets. It doesn’t mean they won’t make additional investments – but they’ll only make additional investments if it’s dirt cheap to make them. Workers are scared of losing their jobs, so they save a lot as a cushion – even if the rates they get on those savings are very low. Firms are scared of another project failing so they get conservative and won’t even borrow at very low rates. That story seems pretty sensible to me!=
Again, this story only holds if there is a separate market for loanable funds. I don’t believe it exists.

Anonymous October 30, 2009 at 12:36 pm

=But the point is the deflation of 1921 – like the deflation of 1981 (which is why I think that’s an even better comparison than 1987) was completely man-made. The recession was generated to stop the preceeding inflation. If you look at a chart of inflation for 1918-1940 or so, you’ll see a high spike up, then a sharp deflationary spike down in ’20-’21, then almost no change in the price level through a lot of the 20s, and then a gradual deflationary slope down through the thirties. In the 30′s we essentially fell into a deflationary spiral from practically unchanging prices and zero interest rates – so when the economy started to collapse the Fed had much less recourse. Think of 1920 like the 1970s. Inflation was high and rates were high, so the Fed had a lot of latitude to put on the breaks with a sharp, short recession – and they did.=
But the thing is that whoever started the deflation, the mechanism of deflation was the same in 1921 and in 1929-33. My question was what prevented prices and interest rates from falling even further (to the lower bound) in 1921.

=I don’t see it that way – what it does is look at how nominal prices impact the ability of real prices to equilibrate. We live in a nominal world – one way of looking at the whole Keynesian story is precisely that the disconnect between nominal and real prices drives depressions.=
Please explain in more detail if possible.

=Why would they? In a world where liquidity increases you’d expect rates to fall, not rise. Money is cheap when we’re swimming in it. And that’s the problem. Money is cheap but not enough people want to borrow it and nominal price floors prevent the money from getting even cheaper to the point that people will want to borrow it. So the government has to step in and borrow.=
Not necessarily. If the amount of money is increased while the amount of goods and services falls, then at some point you will see inflation. I do not see how nominal interest rates may change that.
I think the problem with your view is that you disconnect the liquidity preference (and interest rates) from the demand for goods. In your world, people may have unlimited liquidity preference. That is why you can at the same time say that (1) the liquidity preference is keeping the interest rates low and (2) that low interest rates do not allow liquidity preference to fall. But this is just circular reasoning.
=Of course – but once you take risk premiums and that sort of thing into account for other interest rates, they may very well be at their nominal lower bound. The Fed funds rate is obviously more flexible than most other rates – so it’s a stark indicator when that hits zero. That truly cannot move any lower. Others MAY be able to move lower, but they’re still approaching some damn near non-negotiable rigidities. Think of it like wages. When Keynesians talk about nominal wage rigidities they call it “rigidity” because obviously it’s possible to move lower, but the adjustment process is still a lot more challenging. So in the case of some rates they’re not zero, but once you take risk premiums into account (assuming inflation premiums are non-existent right now), they’re up against a de-facto price floor – there’s not too much more room for adjustment.=
But why should the risk-premium necessarily fall? Risk premium is not wholly determined by inflation. It is determined by uncertainty which even increases in a recession.

=I’ll fully stipulate the imaginary-ness of the market. But you know what? My demand for a Friday donut is determined by my donut preferences, not by an imaginary market for donuts. Just like “loanable funds” there are a wide variety of donuts and I may only be in the market for one of them – but we can still conceive of a broader “donut market” where people demand and supply a specific kind of donut, but other donuts are close enough substitutes that it’s worth considering them together. Or you could break it out into multiple loanable funds markets – that works just as well, it’s just easier to talk about it as one market. These markets are all interconnected – they’re all up against a nominal rate floor. Some of the floors are more binding than others, but they’re all broadly in the same predicament.=
My point was not exactly about multiplicity of the markets for loanable funds. My point was that there is no such thing as loanable funds market(s) separate from the market(s) for goods.
As for importance for multiplicity of markets, the point is that prices are relative. That means that a price always rises or falls relative to something. As prices are relative, the concept of AD is useless.

=As for your questions 1. and 2., first I’m not sure why you would expect suppliers of funds and demanders of funds to have symmetric responses. Do we ever expect that? A lot of this is chalked up to behavioral responses – this is where animal spirits and liquidity preference comes in. I think Arnold Kling’s recalculation story is relevant here too. A lot of borrowers made some very bad bets and are losing from those bets. It doesn’t mean they won’t make additional investments – but they’ll only make additional investments if it’s dirt cheap to make them. Workers are scared of losing their jobs, so they save a lot as a cushion – even if the rates they get on those savings are very low. Firms are scared of another project failing so they get conservative and won’t even borrow at very low rates. That story seems pretty sensible to me!=
Again, this story only holds if there is a separate market for loanable funds. I don’t believe it exists.

Anonymous October 30, 2009 at 1:10 pm

Let me quote what you said: “If people were like you envision, propaganda would never work…ever!”

And I’m simply saying no – that’s the implication of the way I view people.

Anonymous October 30, 2009 at 1:10 pm

Let me quote what you said: “If people were like you envision, propaganda would never work…ever!”

And I’m simply saying no – that’s the implication of the way I view people.

Anonymous October 30, 2009 at 1:22 pm

I’m pretty busy – I have some thoughts but I’ll get back to you tomorrow or the next day.

Anonymous October 30, 2009 at 1:22 pm

I’m pretty busy – I have some thoughts but I’ll get back to you tomorrow or the next day.

Anonymous October 30, 2009 at 1:27 pm

OK, Daniel. I appreciate it.

Anonymous October 30, 2009 at 1:27 pm

OK, Daniel. I appreciate it.

Justin P October 30, 2009 at 2:34 pm

I’m just wondering now, how you square that with the fact that politicians fool the masses all the time?
Because from what I’m hearing out of you, it seems like you think that everything a politician says is “vigorously debated”, hence the implication that politicians are incapable of fooling the masses.

Justin P October 30, 2009 at 2:34 pm

I’m just wondering now, how you square that with the fact that politicians fool the masses all the time?
Because from what I’m hearing out of you, it seems like you think that everything a politician says is “vigorously debated”, hence the implication that politicians are incapable of fooling the masses.

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