Stimulating Stossel

Sort of like in Airstrip One, where productivity is always up 27%.

The government excuse, er, story linked is funny. "Sure some of the data is bad and none of it's been reviewed, but it totally, definitely proves we've saved zillions and zillions of jobs, even some that don't exist, and what a wonderful saviour His Obamnesty is for being so transparent and doing what's never been done before. Oh, and trust me, the data proves we've saved zillions of jobs so go back to sleep now and ignore the fact that the data has not been confirmed. Ignore the systematic incentives to exaggerate (or just make numbers up). And isn't The Annointed One wonderful??"

It rivals the typical post-set by daniel for low content density!

It's curious that this is what Stossel considers to be the major insight: "That money would have been spent or invested privately by other people if it hadn’t been taxed away". He seems to think that the argument is between people who recognize that this "fact" implies that stimulus isn't really stimulative, and the people who don't recognize the implication of this "fact". What he doesn't seem to realize is that insofar as we can agree that this "fact" is actually true, very few people would advocate stimulus. The real argument is between whether this "fact" of crowding out private investment is really a "fact" or not. People who think we're in a liquidity trap suggest that this isn't a fact at all - and it the "fact" doesn't hold true, then nobody is commiting a Bastiat fallacy by embracing stimulus.

Rather than acknowledging this and defending his assertion about crowding out, he just assumes that the people who disagree with him are too dumb to understand Bastiat's relatively basic insight.

"It's curious that this is what Stossel considers to be the major insight"

Of course you are.

Where does he say anything about people who disagree with him? He doesn't need to defend the Bastiat 'insight', it's a truism. The burden of refutation lies with Keynesians and/or other economic quacks.

He doesn't say anything, which is why I wrote "seems to think". I had to infer, and I may very well be wrong. Bastiat does provide a truism - which is why I'm always confused why people are so impressed with him.

The applicability of Bastiat hinges on whether government deficits truly do crowd out private investment, as Stossel asserts. Keynesians would argue that before the passage of the stimulus package the Federal funds rate was at zero and there was little latitude for interest rates to go down futher, and savings considerably exceeded private investment. In other words, a clear-as-day de facto price floor and liquidity trap where government borrowing would not be expected to crowd out private investment.

That's my argument. I don't see where you or Stossel provide a refutation to that. And since Stossel's crowding-out argument depends on a refutation of those facts on the ground, I think it would have been enlightening if he defended his assertion a little more sufficiently.

"The applicability of Bastiat hinges on whether government deficits truly do crowd out private investment, as Stossel asserts. " -- danielkuehn

By their very nature, government stimulus does crowd out private investment. Its not about how much money is left to private investors, but the resources the government stimulus spending diverts. This is especially if the stimulus actually does create jobs. The people working those jobs are not available to be hired for something more productive.

RE: "By their very nature, government stimulus does crowd out private investment."

Just know that you're assuming your own conclusions if this is your assumption. A lot of people disagree with you on this, at least insofar as the last year is concerned. "By their very nature" on it's own doesn't quite cut it for people who understand the situation that way.

RE: "The people working those jobs are not available to be hired for something more productive."

Give a guess as to what the job seeker to vacancy ratio is right about now. If everyone agreed that these resources would be crowded out there wouldn't even be a debate. Everybody would agree the stimulus is stupid.

What reasons do you have for assuming there is crowding out?

There is never any real shortage of jobs. Just a shortage of people willing to pay people to do them. I blame mostly labor legislation keeping wage prices too high.

This isn't just Keynesianism, by the way. This isn't crazy. Arnold Kling bought into the liquidity trap case against "crowding out" just a couple weeks ago (he has other arguments against the stimulus - just not Stossel's argument). Also in the non-Keynesian column is Scott Sumner (he also has other arguments against the stimulus, namely that quantitative easing is still possible - but still not Stossel's argument). So you can stop trying to marginalize this as a "Keynesian argument". It's broadly held.

I did say 'Keynesians and/or other economic quacks'. ;)

Also, argument by authority or by the quantity of people who hold a particular view is a logical fallacy (but I'm sure you know that.)

BTW, my 'Where does he say anything' in the original post was in reply to your 'he just assumes that the people...'

Anyhoo... I don't believe the current discoordination in the banking system is capable of occurring without the centralised, restricted system we have now. So from my perspective any stimulus, monetary or fiscal must at least be a second-best option to freeing up the banking system so that it may respond in a decentralised way, locally equilibrating the money supply and demand. But if we're stuck with a centralised monetary system and a liquidity trap situation is inevitable, why is government spending the best option or even an option at all, considering the public choice issues, knowledge problems, etc.? Considering that government stimulus must be (I hope) temporary, and must be directed at particular areas of the economy, how can those areas not be negatively affected after the stimulus finishes? How can there not be bidding away of labour and capital resources from other, less damaged parts of the economy? Considering that there's no obvious time when the liquidity trap is 'over', how can the government not crowd out private borrowers at some point? Considering private companies *are* still borrowing and expanding now (such as my company), how can the government not crowd out some private borrowers even during the liquidity trap phase? Considering there is uncertainty about what the government will target, surely there must be businessmen who make otherwise correct entrepreneurial decisions incorrectly, or refrain from making them at all due to uncertainty?

I know argumentation by with a long list like this is a unfair way to debate but there's too many holes in centralised/macro management of the economy (whether it be Keynesianism, Sumner's view* or whatever) for me to take it seriously. It's just not how the market works.

* I have more faith in monetary stimulus than fiscal, mainly because money is fungible and capital isn't. Also it can be applied without anywhere near as many public choice issues.

I may be misunderstanding you - are you saying that liquidity traps couldn't occur in a free banking system? If that is what you're saying, could you explain that logic - I'm not sure I understand.

Re: "* I have more faith in monetary stimulus than fiscal, mainly because money is fungible and capital isn't. Also it can be applied without anywhere near as many public choice issues."

I do too. I'm sort of halfway between the Scott Sumner and the Paul Krugman camp. With Sumner, I'm not sure that just because there's no more latitude for the interest rate that means there's no options left for monetary policy. There are other options - but they mostly involve things like asset purchases, and that has the same sorts of unfungibility/public choice problems that stimulus starts to introduce. I am sort of a classical Keynesian in the sense that I do think there are public projects justified by a social discount rate much lower than the market interest rate, which get under-invested in as a result. So, as long as we're out of options in terms of monetary policy that is completely fungible and has less public choice problems, I'm pretty comfortable with a well designed fiscal stimulus. And even if it's not as well designed, I can't imagine it would be much worse than the Fed buying up troubled assets - and I think it would better than doing nothing.

RE: "Considering that there's no obvious time when the liquidity trap is 'over', how can the government not crowd out private borrowers at some point?"

Oh there's certainly the risk of that and you're almost certainly going to have that situation to some extent during the end. I'm no public finance expert, but I would guess they start to worry about this more when the spread between corporate bonds and Treasury bonds starts to narrow again. It's definitely a risk of destorying wealth - but a de facto price floor in the market for loanable funds (ie - a liquidity trap) definitely destorys wealth - no doubt about it (all binding price floors have dead-weight losses associated with them), so that definite destruction of wealth is more disconcerting for me than the likely, but distant destruction of wealth that will occur as the liquidity trapstarts to disappear.

RE: "Considering private companies *are* still borrowing and expanding now (such as my company), how can the government not crowd out some private borrowers even during the liquidity trap phase?"

How does the fact that private companies and the government borrow simultaneously mean that they're being crowded out? I'm not sure I understand your point. As the liquidity trap closes I'm sure the risk of this increases, but I'm not sure how simultaneous corporate and public borrowing implies that it's a risk.

"This isn't just Keynesianism, by the way. This isn't crazy."

So you do realize Keynesianism is crazy. That's a good first step...

Exactly. His argument against job creation as a stimulant is a side point. He mostly seems to be trying to uncover political garbage numbers and debunk this myth that the Obama administration is any kind of honest.

Right - exposing the numbers was the main point. I'm not sure why this is such a revelation to people. Self-reported jobs numbers are bound to be funny. And who knows what they were thinking when they sent it. Maybe when they said 50 jobs created by a lawnmower they thought it was asking how many people are employed there total. It's a good exercise - eventually if we're going to do anything with this information somebody will have to clean it like this. But I'm not sure it bears all the implications that Stossel is trying to load onto it. After all, the website he got these reports from INVITES people to do exactly what he does: look over it and report waste, fraud, and abuse.

It would be a lot funnier if the administration didn't use this crap data to claim that it "saved or created" all those jobs. Then, we could laugh. Ha ha ha.

He doesn't have to assume those people are dumb. He can also assume they're intellectually dishonest or politically motivated.

Wouldn't buying a lawnmower cost jobs?

Think of how many people could be employed if we went back to scythes (or even string trimmers).

The last paragraph is the most important piece by far. Jobs are costs not benefits, so the whole discussion of jobs created or saved is a red herring.

Bravo, point.
I keep hearing about these people that work three jobs and universally they claim to be miserable.

Government logic would dictate that if people believe "jobs" is a categorical good, give every capable person 27 jobs. Why not 90, why not 211? Jobs are awesome.

Well said. However, I would qualify it to the point that the creation of a "real" job is a good thing in that it means that new wealth is being created. A "job" is created by people getting together and finding a way to prosper together by voluntary trade. Government "jobs", however, seldom meet this requirement. Government jobs are seldom paid for voluntarily and are mostly redistributive, not creative.

pretty impressive...although I hope he has more credible data than lines from newspapers.

Why would such evidence of exaggeration not be credible?

What sort of data on jobs would you expect a reporter to have? Only government can compel businesses to report jobs data. The Obama administration does not report the real data it collects, but rather trumpets exactly the exaggerated lies those newspapers have uncovered.