Stimulus Rush

What if the government hadn't waded into the U.S. housing market in a huge way; hadn't created Fannie, Freddie and the FHA; hadn't created and expanded the CRA; hadn't created and then destroyed the Savings and Loan industry; hadn't supported secondary markets in substandard mortagage backed instruments; hadn't pumped money into the economy in support of asset prices - how could we have ever had this recession?!

Imagine there was no stimulus, no unemployment, no social security, no FDIC and no tarp.

How would we NOT be in a Depression??? Who would be spending money?

"How would we NOT be in a Depression?"

The result of Keynesian ideology has been a massive expansion of the political class at the expense of the productive class. That is, the productive class has never been allowed to recover from the depression. We are simply burdened more and more with each passing year. What? You don't see it? Well, that's because you are comparing where we are to the limited vision of your ideology, and not to what we could have been without your ideology.

Imagine there was no stimulus, no unemployment, no social security, no FDIC and no tarp.

Holy shit!

I think you found a lost verse to that stupid John Lennon song!

LOL!!!!!

Good one :)

I believe that if there was no stimulus, no unemployment welfare, no social security, no FDIC and no TARP, the country would be a complete and epic wreck for about a year or so and then recover in a huge way.

Best part about that policy is that all the parts of the economy that are currently dragging, meaning causing damage, would be rooted out and liquidated. You cannot re-build your home after a hurricane if you don't clear off the trashed shell that's currently sitting on the foundation.

I'm basing this on economic downturns previous to 1913 when the government usually did nothing or close to nothing. The best example of this was the 1920-1921 depression that carlsoane referred to.

It should also be noted that in every case panics and depressions took hold it was usually to government policy (inflationary policies, bimetallism, or harsh branch banking taxation and regulations.)

Most people try to counter this argument with the so-called "long depressions" in the late 1800's. The problem with their argument is that it rests on GNP statistics which do not take into account increases in productivity and currency valuations.

Do you undestand back then economic recessions were more frequent and prolonged. Poverty rates were way higher then they are today and 60 hour work weeks for starvation wages were the norm.

Wonderful point muir. I know, you have also stated here that since 1980, recessions have been frequent and severe. Your ability to bend facts to suit situations is amazing. I'm in Awe.

I'm waiting for you to prove that the first man on earth was born 8lbs 10oz and a first full of benjamins. I know you can.

I mean to say "fist full of benjamins"

You're making the Keynesian argument based on Keynesian assumptions. The counter argument is Warren Harding's response to the 1920 depression. In the face of a 25% drop in GNP, Harding cut expenditures and taxes and the economy revived.

1920 bears no resemblance to 2008. Inflation was high and interest rates were high. How in the world does that resemble what Keynes said about depressions? How in the world does that "counter" the Keynesian argument?

Not all downturns are identical. It's a fallacy to assume they are. If inflation were high in 2008 and interest rates were high, you wouldn't see nearly as many economists advocating fiscal stimulus.

You and muirgeo have valid criticisms. My analogy was overly simplistic. There are a great deal of differences between 2008 and 1920.
That said, I would argue that two issues have been conflated. There is the issue of Keynesian stimulus to escape a liquidity trap and the issue of a lender of last resort to avoid a bank run. I think the government (including the Federal Reserve) acted correctly in its capacity as a lender of last resort when it provided liquidity last year. I do not think the government acted correctly when it enacted the stimulus plans and now when it continues to spend far beyond its means. A bank run, especially in a highly leveraged situation like last year, has the capacity to destroy even well run companies because it takes everyone by surprise. The stimulus activity tends to waste resources that would otherwise be better spent.

Two questions -

1. Why don't you think the government acted correctly with stimulus - I'm not clear on what your reasoning is, exactly, and

2. Why do you think it spends far beyond it's means?

People have practically been paying the government to borrow there money, the debt level as a percent of GDP could always be lower, but it's well within historical precedent. Peer nations have taken on considerably more debt in the past, and weaker nations are taking on considerably more debt than us now, and the bond markets don't seem to be punishing them for it.

So why do you think we are spending far beyond our means?

1. To put it simply, I think they spent too much to keep spending levels high on things where it probably should drop:
- education costs have been going up beyond the pace of inflation for years but a great deal of the expenditures were for education (a couple of hundred billion).
- extending unemployment benefits as much as they did, although understandable, will lead to less flexibility in wages as people are able to sustain themselves longer without a pay cut (another couple hundred billion)
- money for public transport and rail transport (another 30 billion or so)
- green technology (another few billion)
- loans for first time homebuyers (another few billion)
and more

2. True, some nations have survived greater amounts of debt, but history shows many countries have dropped precipitously from power because of taking on debt. I'd rather not gamble that we fall into the former camp even if the bond markets aren't punishing us today.

Not just 1920, you can apply it to any recession prior to 1913. Not that government didn't try anything, but only very limited attempts. Even the worst one of them all - 1893-94 lasted only about 2 years. There was a long period between the end of civil war and 1893, when recessions were rare, short, and relatively mild.

As for 2008, the official inflation rate scaled almost 5% just before the collapse. Now, there is a large enough difference between the inflation as it was reported back in 1970s and today - Boskin commission recommendations, hedonic adjustments etc.

But the point is there was no reason to apply any fiscal stimulus in 1920, unless you know something I don't. I don't know about the conditions in all of those earlier recessions (ie - whether stimulus would have been justified or not, but in the 1870s and 1880s you had extremely long downturns as well.

But the point is there was no reason to apply any fiscal stimulus in 1920, unless you know something I don't

Why not? "Aggregate demand" collapsed at a rate faster than that of the great depression, did it not? Unemployment rate spiked, at a rate faster than that of the great depression, did it not? What other criteria does the Keynesian academics frequently trump up in support of the current stimulus?

but in the 1870s and 1880s you had extremely long downturns as well.

I can say categorically that there weren't any such downturns. Look up the data on measuringworth.org

Did you even read the post you responded to? Interest rates were high in 1920 and they were moving up. There was no liquidity trap, so fiscal stimulus would have been self-neutralizing. The solution is monetary stimulus, or (since the whole reason why interest rates were going up was to pop the post-war bubble), just letting the bubble pop and waiting it out.

This is precisely why it's so stupid to keep promulgating this caricature of Keynesianism as "spend your way out of a recession". It's not. It's not. It's not. It never has been. When you pretend that's what Keynesianism is you end up thinking things like "1920 proves Keynes wrong". In the 30s we were in a liquidity trap and inflation was very low or negative. Those were just plain not the conditions in 1920.

RE: "I can say categorically that there weren't any such downturns. Look up the data on measuringworth.org"

You should consult your own data, and confirm with NBER if you don't believe it. I hope you aren't neglecting the fact that population was growing faster back then. Look at GDP per capita. The 1870s are not considered to be a period of extended depression out of pure fantasy, sandre.

Did you even read the post you responded to?

Followed by

You should consult your own data, and confirm with NBER if you don't believe it. I hope you aren't neglecting the fact that population was growing faster back then. Look at GDP per capita. The 1870s are not considered to be a period of extended depression out of pure fantasy, sandre.

Did you even look at the data that you pretended to look at? The real per capita GDP grew between 33 and 34 percent between 1871 and 1880. Compare it to a purportedly glorious keynesian decade - 1950s when percapita GDP grew only 11%. What's your point?

"spend your way out of a recession". It's not. It's not. It's not. It never has been. When you pretend that's what Keynesianism is you end up thinking things like "1920 proves Keynes wrong".

Did you even properly pretend to read my post?
Here it is again "Not just 1920, you can apply it to any recession prior to 1913. Not that government didn't try anything, but only very limited attempts."

And give me examples of peace time depressions of 1800s that lasted a decade due to liquidity trap and lack of government stimulus.

I would suggest that you read the blog post, comments and the linked article ( written by a keynesian ) about the phantom depression of the 1870s. After the high inflation and high interest rates of the civil war, the Federal government followed a deliberate contractionary monetary policy until 1878, in an effort to put the country back on a gold standard. No there was no monetary stimulus after high interest rates, inflation and war, and economy expanded at an amazing clip.

You yourself has responded to me in the comment section of the blog that on further research you realized that 1870s was a faux depression.

Why in the world are you looking at the change from 1871 to 1880? Of course the economy is growing - it's been on a secular growth trend for centuries. According to your data (eyeballing the line graph) real GDP per capita grew 50% between 1928 and 1946. Does that mean we didn't have a depression. Don't just look at a whole decade, sandre. Look at periods acknowledged to be depressions. There were downturns in the 1870s and 1880s. It's in your data. Don't look at a percent change between two years that are far apart - look at the line graph covering the period. It's not a sharp crash - you're not going to have a sharp crash (like we do now) when most of the country works on a farm, many of them their own farm. But it was an extended period of stagnant growth, accompanied by a sharp crash in the financial sector.

Re: "Did you even properly pretend to read my post?
Here it is again..."

Now you're confusing your own posts!!! That quote is from two posts back. I was responding to this, from the post I was actually responding to: "Why not? "Aggregate demand" collapsed at a rate faster than that of the great depression, did it not? Unemployment rate spiked, at a rate faster than that of the great depression, did it not? What other criteria does the Keynesian academics frequently trump up in support of the current stimulus?"

RE: "And give me examples of peace time depressions of 1800s that lasted a decade due to liquidity trap and lack of government stimulus."

The only liquidity traps I'm aware of is the 1930s, Japan in the 90s, and the current one. It's not a common occurance, plus it's a very modern problem. Nominal interest rates have been much higher throughout history - they always had a room to adjust downwards (not that central banks really practiced monetary stimulus back then anyway). I'm looking at your data from Measuring Worth and the only other year that interest rates get low enough that you could possibly consider it a liquidity trap/Keynesian depression is 1891. I don't know if that is considered one or not (interest rates are still higher than they were during the Depression, for example), but that would be the one other potential place to look. I'm not particularly familiar with that depression. Keynes's General Theory was written to grapple wih questions he had about the great depression. It doesn't address all downturns (although there was a decade or two when a lot of economists treatd it like it did).

I'll take a look at the article.

Re: "No there was no monetary stimulus after high interest rates, inflation and war, and economy expanded at an amazing clip."

You're still not getting that I'm NOT advocating a one-size fits all approach to recessions, are you? Or that I don't think that all downturns are catastrophic.

Re: "You yourself has responded to me in the comment section of the blog that on further research you realized that 1870s was a faux depression."

It is remembered as a terrible recession largely because most of the pain came through a fall in nominal income - which can fool people. Is that what you mean? It wasn't as bad as it looked to people thinking in nominal terms, but it was still a period of stagnation - and as I said, failure in the financial sector.

There is nothing in the data that suggests prolonged depressions, and it is consistent with my statement that recessions were rare and mild between end of civil war and 1893. You can squirm all you want. I made a mistake, and I should have realized before responding to you that you, as somebody stated on mises blog, -say a lot and yet say almost nothing - "Like Krugman, Standard charlatan maneuver is to express in the vaguest way that can be misunderstood to the uncareful reader, to differentiate things by minute quantities rather than definite qualities. It makes skating in circles much easier when found out."

Peace out!

A very skillful attempt to wriggle out of a problematic situation - peace out indeed :)

You yourself has responded to me in the comment section of the blog that on further research you realized that 1870s was a faux depression.

This admission didn't come in this particular blog entry, but in one of the past blog entries.

Forgot to link
http://blog.mises.org/archives/009790.asp

I read it, it's hard to evaluate without data. I would say a couple things:

1. I definitely agree it was largely a nominal contraction. "Money illusion" makes people unnecessarily confident when nominal wealth increases, but it also makes people unnecessarily despairing when nominal wealth decreases. That having been said, your own data suggested that real GDP per capital also dropped for a period, and then stagnated through the early 1870s. Was it as bad as historians had painted it previously? No. Was it a period of stagnation - the data certainly seem to suggest it.

2. This was a period of rural-urban migration. Of course employment increased because people were entering formal jobs. Of course the size of farms increased because the remaining farmers bought up farms from the people leaving. This is all good - my only point is that you need to keep it in mind when looking at these indicators that are sensitive to trends in rural-urban migration. It doesn't mean they're not in a downturn just because there is major restructuring.

3. He mentions output measures. When the population is growing as fast as it was at that time, I think it's better to look at per capita figures.

4. I'm trying to recall, but didn't this hit the West harder than other regions? National data may not be the best way to evaluate this either. I'm in the DC suburbs - things are looking fine around me right now. That doesn't mean Florida and California and Nevada aren't hurting.

I don't come to the 1870s with a lot of preconceived notions. It's broadly identified as a depressionary period. It's definitely more of a nominal depression than a real one. I'm perfectly willing to stipulate that conventional thought about it isn't always accurate (I'm willing to stipulate that about any period of history!), but it's not like nothing happened.

So you think if we cut taxes and government spending in September of 2008 things would be better now???

Who would have money to spend to grow the economy with so much debt and deflation of assetts? Who would be lending? What would China have done with out treasuries it holds? You really believe that stuff?

That's a fantastic question. It is very important that Carbon trading firm of Al Gore and David Blood get loans at 0% interest. It is also important that Gaia worshippers get their wishes granted this christmas, so Pachauri & Khosla can make green on their world saving green schemes, while we get burried under the worst blizzard on record.

Love you man. You are just amazing.

mmmwwwwaaaaahhhh

Muir will show his multivariate regression analysis that proves the connection between "tax cuts" and economic collapse. Hold you breath everyone. He is the evidence man.

Love you muir, let's go.

Hang on....do you mean that people don't want to toil for the state? Ha!! That's because the state wasn't Obama before. The One's pathological narcissism is incentive enough for us to toil for Him. Here, let me pull up some ferkakta graphs about Democrats and stock markets to prove it.

Local governments are realizing something - they better not create reoccurring expenses with this stimulus because it will probably go away. Although Obuma seems pretty determined to keep stimulating until serfdom is achieved.

"....until serfdom is achieved."


This just made me realizee something. Serfdom has a very specific meaning. It occurs when all property is held privately. The idea that increasing government regulation and enlarging government intrusion can lead to serfdom is quite inaccurate. I guess it could lead to socialism but serfdom. And to think of Hayek great work, The Road to Serfdom... is his whole premise actually BS? I think it might be.

Serfdom comes in a number of different forms; none of them require or have all property held privately. Indeed, all serf societies have plenty of publicly held property.

Now much of what makes a serf society a serf society is the relationship between public and private landowners and the people who work on that land. It is the social and economic relationship involved in that makes a serf society a serf society.

All property is private. Property is created by productive behavior and exists only in the possession of those who create or trade freely among themselves. What was once property becomes merely loot when seized through political behavior.

In other words, your assumption that serfdom can only occur when property is private is the result of a misconception about what property is. You hold the view that a thing of value continues to be property even when held as the result of theft. This is common political propaganda, but false. And serfdom, by the way, is alway the result of political behavior (i.e., exploitation of human beings).

Wonderful point muir. Yes it will lead to socialism, and we need socialism and government intervention for the sake of the welfare of such giant hearted billionaires like Arthur Blank....Warren Buffett....Barry Diller....Michael Eisner....David Geffen....Charles Gifford....Jeffrey Katzenberg....Norman Lear....Penny Pritzker....Goerge Soros....Steven Spielberg....Steve Tisch....and, Oprah Winfrey.....


I tell you, libertarians have nothing. We have got all the billionaires on our side.

You know, I've changed my mind about you, Muirdiot.

I used to think that you're a useful idiot.

Now, I realize you're not useful.

Ouch! Now think about if Muir where a high school econ teacher....

Thanks a lot, Justin!

I was all set to go to bed, laughing at Methinks' post @ Yasafi. Then you had to remind me that, when it comes to microscopic IQ, there are few people truly in Yasafi's league, but he does have competition from union-activist public-school teachers.

Ha ha I hope I didn't give you nightmares.

3 comments but not one rebuttal of my claim. Just personal attacks.
Anyone want to attempt to logical explain the claim that increasing government intrusion will lead to manoralism? I'm not the stupid one. I think the premise makes no sense. I don't think any of you are intellectually capable of mounting a logical rebuttal... and thus the name calling.

Over the past three years we have discovered that you're too stupid to understand a logical argument. Thus, most of us no longer waste our time mounting a response to your mental diarrhea. After all, you know what they say about doing the same thing over and over again and getting the same response.

Of course, I don't actually expect you to understand a word of this.

So you reply with more name calling?

"Serfdom has a very specific meaning. It occurs when all property is held privately"
Your absolutely wrong. Land and Landowners were at the whim of the State/King. Landowners weren't private but a state issued property that could be confiscated at the whim of the State for any reason.

"The idea that increasing government regulation and enlarging government intrusion can lead to serfdom is quite inaccurate."
So the Killing Fields of Cambodia didn't happen?

Justin, go slam your head into a brick wall spiked with steel studs. It'll be less painful than an exchange with YASAFI.

When he reads your words, all he hears in his head is the teacher from Charlie Brown.

Yes and no. I think you're right on NEW recurring expenses. But a lot of the aid to states is just an attempt to shore up revenue shortfalls that are constraining because of balanced budget requirements. Is keeping a teacher on a "recurring expense" if in normal times normal revenue would cover that teacher? I think that sort of "recurring expense" is fine and responsible.

Well, first of all public education is a disaster, so keeping that teacher is a waste of money.

A lot of the aid to states is the result of the states pushing up expenditures in good times without any back up plan for bad times. As for "balanced budget amendments," well, those don't exist in any real form; most of the states find ways around them. Just as budget gimmicks rule the day in D.C. so do they in the states.

Re: "As for "balanced budget amendments," well, those don't exist in any real form; most of the states find ways around them."

True, but not to the extent that the federal government can. To a large extent I see the aid to states as just a federal preemption of balanced budget requirements. They're ridiculous - what firm would prevent itself from debt financing if it needs to take that course? If states didn't have these rules it would actually be a huge victory for federalism - I imagine the federal government would receive a lot less pressure to take on new activities and powers if the states could address those concerns more vigorously, and the ability to finance their budgets with debt would help.

They're ridiculous - what firm would prevent itself from debt financing if it needs to take that course?

The difference is that a actually has some skin in the game; a firm can fail, so there is some incentive to make wise decisions. States cannot fail - or at least they think that they can't - so they make all manner of very unwise decisions.

...I imagine the federal government would receive a lot less pressure to take on new activities and powers if the states could address those concerns more vigorously, and the ability to finance their budgets with debt would help.

No, what would happen is this: when states are even in greater trouble because there isn't even the semblance of legal restraints on spending and borrowing, they will call on the federal government even more.

The difference is that a actually has some skin in the game; a firm can fail, so there is some incentive to make wise decisions.

Even more importantly, consequences for bad decisions. Also important, companies can't confiscate wealth from the population. Only government can.

Besides - governments that borrow are disciplined by bond markets. Public debt encourages representative, smart government - it punishes despotisms. Taxes offer no such guarantee. Government borrowing introduces a modicum of market disciplines to government decision making.

Pretty clearly, the states were not not disciplined by the bond markets; if they were they would not have been so profligate in their promises.

:) Always funny to hear a libertarian describe "profligate". Here's a hint - the market probably doesn't have the same understanding of government profligacy as you guys on here do.

Since the "market" in this instance up to its neck with moral hazard problems its understanding isn't terribly useful.

wtf? Moral hazard would ensure they have a STRICTER definition of what qualifies as "profligate", not a more lax definition!!!!!!

What exactly do you think the definition of moral hazard is???

And of course the lenders are aware that risks are reduced with states and they happily lend them the cash, though the real downside is hidden.

It refers to insulation from hazard; which is what states are when they borrow because they have all manner of backstops to help them avoid responsibility for their actions. Now if states were not insulated in this way borrowing would not be so problematic ... however, enforcing such would be problematic because states have the power of coercion.

Borrowing actually allows for governments to ignore the consequences of their decisions; they can make promises and pretend that there no consequences to those promises. Only later when the taxes come due - and they always come due - does this realization happen. So what it encourages is politicians who over promise to populations who rather easily believe the lie.

That's kind of a weird perspective. Obviously governments aren't firms, but would you say the same thing of firms - that when they borrow to finance something they are "ignoring the consequences of their decisions"? Both have to pay their creditors, both face higher interest payments if they screw up. Both can default if they screw up. Both can become pariahs in bond markets if they default.

I fail to see why debt-financing is such a boogey-man in the case of government. Of course irresponsibility it POSSIBLE. There's no good reason to think it's more possible for borrowers than non-borrowers. There's no good reason to think that as long as borrowers (public or private) go to the markets to borrow they won't be required to pay for if they are thought to be a risky bet. There's no good reason to think that market discipline suddenly stops working when the borrower is a government. In short, there's no good reason for states not to borrow if it makes sense to borrow.

Why it is dangerous for states to borrow is rather obvious; firms fail; states do not, or at least will use every despotic measure to keep themselves from failing. The Roman Empire, the Kingdom of France, etc. all became heavily indebted due to overreach, this lead to greater tyranny, greater efforts to squeeze taxes from the population, make the population more dependent on the state and make the population more legible. This is exactly what is happening in the USA.

States don't fail?!?!?!?!?!?!?

You have the cart before the horse. Borrowing was hard for France BECAUSE it was despotic. Borrowing is much easier for France now, precisely because it's NOT despotic anymore (well, not by normal people standards... maybe by libertarian standards).

Besides, France wasn't NEARLY as indebted as Britain was. Why? Because it couldn't get as indebted because the market wouldn't allow it because France was despotic!

BTW, I did not state that states don't fail; oh, let me quote myself for you:

...states do not, or at least will use every despotic measure to keep themselves from failing.

I followed this of course with examples of states that did fail; largely because of their very dumb economic policies (economic policies which revolved around state indebetedness).

RE: "I followed this of course with examples of states that did fail; largely because of their very dumb economic policies (economic policies which revolved around state indebetedness)."

Maybe historians have weaker evidentiary standards or something, I don't know. Let me frame it this way: lots of firms and households fail because they make dumb decisions and get overlegeraged. Does that mean that it is wrong for households and firms to take on debt?

Well, in the case of firms and families the downside to indebtedness is generally not a police state.

Actually, didn't I already pwn you on this issue? I did. France was in fact more indebted than Britain was. It was the debt that sunk it and nearly sunk Britain. Britain had to increase taxes at both home and abroad (meaning squeezing more from the Indians that they basically had enslaved) to pay for it, thus curbing future productivity.

OK, but since when does financing something with debt vs. taxes prevent someone from making a bad decision? If they're going to make bad decisions they're going to make bad decisions, unfortunately. I fail to see what implications that has for restricting public financing options. Look at California - they have to pass balanced budgets and that hasn't prevented them from screwing up royally. If anything the flexibility to finance something with debt would make budgeting easier and California-style disasters and huge fluctuations in budgets less likely.

Actually, California doesn't have to pass balanced budgets in any meaningful way; they can "roll" their budget deficit to the next year. Indeed, California has a fairly unique way of dealing with this issue; so you picked basically the worst example you could have to make your point.

No, the worst example that I could pick would be a state that doesn't have a balanced budget amendment.

These critiques of yours are always hilarious. Listen, no state has a Platonic ideal of a balanced budget requirement. Most can issue bonds for capital projects, many have wiggle room, etc. etc. This is all obvious and implicit. The point is (1.) California is uniquely bad at budgeting, which means it IS a good example for me to use, (2.) whatever wiggle room California law allows, the point is they still have to cut a ton of spending to meet what the law does require, which means it IS a good example for me to use.

I'm not critiquing this Platonic ideal of a balanced budget requirement that you're fixating on. I'm criticizing goofy attempts to restrict how government can finance what it does out of some misplaced principle that borrowing is a "bad" thing.

Well, objectively California doesn't have a balanced budget amendment, so it is the worse example you could have used.

The point is (1.) California is uniquely bad at budgeting, which means it IS a good example for me to use,...

California is exactly what one should expect from states which think that they can borrow their way to prosperity.

...(2.) whatever wiggle room California law allows, the point is they still have to cut a ton of spending to meet what the law does require, which means it IS a good example for me to use.

They only have a "ton of spending to meet" such when times are good; they lack such when times are bad, and the state goes into "crisis," they raise taxes (which California has done), they call on the federal government for money (which California has done and received), and they harm the future prosperity of most of the people in the state. All because they over-promised at a time when they could borrow a lot of money.

I'm criticizing goofy attempts to restrict how government can finance what it does out of some misplaced principle that borrowing is a "bad" thing.

Borrowing is a bad thing. It leads to all manner of negative consequences which you will not admit because you are a dogmatist on this issue.

RE: "They only have a "ton of spending to meet" such when times are good; they lack such when times are bad, and the state goes into "crisis,""

Just let me know when it finally dawns on you that allowing complete flexibility to borrow would be the obvious solution to this boom-and-bust-budgeting style. You've gotta be getting close to the realization.

RE: "Borrowing is a bad thing. It leads to all manner of negative consequences which you will not admit because you are a dogmatist on this issue."

I'M a dogmatist?!?!??! Borrowing is just trading off current and future spending. There is no moral dimension to intertemporal preferences! There's nothing "bad" about borrowing.

Just let me know when it finally dawns on you that allowing complete flexibility to borrow would be the obvious solution to this boom-and-bust-budgeting style.

The U.S. government has such flexibility, and it has a boom and bust style of budgeting.

I'M a dogmatist?!?!??!

Yes, you are.

There is no moral dimension to intertemporal preferences!

Sure there is. We see really bad consequences from from such throughout the U.S. right now; be it by the government or by individuals.

OK - this has been one of the most surreal conversations I've ever had with you, but you haven't been calling me stupid today so I'll quit while I'm ahead - I need to get some work done. Have a Merry Christmas.

I'm an atheist.

And I'm more or less a deist that puts little stock in the Christ myth. I still hope you have a merry Christmas!

RE: "The U.S. government has such flexibility, and it has a boom and bust style of budgeting."

This is a joke, right? The entire libertarian blogosphere has been out of it's gourd over the fact federal spending is high during recessions. Now you're arguing that they cut spending during recessions and spend too much during booms????

RE: "Sure there is. We see really bad consequences from from such throughout the U.S. right now; be it by the government or by individuals."

Wait a minute... so are you arguing that it would be more moral to have neutral time preferences? How does that make sense?

Now you're arguing that they cut spending during recessions and spend too much during booms????

Actually, they increase during both, however, during bad times the promises that they made in good times cannot be met. So there is a definite "bust" which they cannot meet. This leads to the rather vicious cycle we are currently in.

Wait a minute... so are you arguing that it would be more moral to have neutral time preferences?

Your inability to admit that there is no downside to borrowing is just surprising. I'm just flabberghasted.

RE: "Your inability to admit that there is no downside to borrowing is just surprising. I'm just flabberghasted."

Ummmm, people can miscalculate in their decision to borrow - but no, there is no INHERENT downside to borrowing. I advise you not to repeat this sentiment of yours to an economist - you'll get your feelings hurt when they laugh at you.

Actually, there is an inherent downside to borrowing (borrowing is risky after all, by borrowing you eventually forgo some current consumption due to interest rate payments one must make, etc.); the issue is whether that downside beats the upside associated with borrowing (future consumption made now, etc.). For individuals, families and firms that is a much less problematic calculation than it is for states.

OK, now you're making more sense. But the market seems to disagree with you. The market seems to think that it's less risky for states than it is for households and businesses. And since the market has been lending to all three for centuries, it seems like you should have a really good reason for contradicting that understanding.

Oh, and I was always making sense.

I'd challenge the empirics of that claim, and even if it is viewed as less risky as a general rule, states do so many terrible things by borrowing (amongst them war, war, war, and war), whether it is risky for the market or not (and again, states do a heck of a lot to hide those risks) is not the only thing to consider.

A government is not a firm.

Aide to the states is just a way to launder political pay-offs. Or is the fact that the overwhelming majority of "aid" went to Dumbocrat districts? But don't let anybody stand in the way of you slicing and dicing the stimulus to convince yourself it's something entirely wonderful.

RE: "A government is not a firm. "

Wonderful - I am guaranteed that today we agree on at least one thing. It's a somewhat basic point, but I'll take whatever agreement I can get.

RE: "Dumbocrat districts"

You were really proud of that one, weren't you :)

You are filled with far too much unchecked desperation for agreement with your endless statism.

It's clear from what you said that we don't agree and I'm in no mood for your Ginsu knife chopping of every syllable in an effort to convince everyone (including yourself) that you're not just a statist true believer.

RE: "You are filled with far too much unchecked desperation for agreement with your endless statism."

My statism clearly isn't endless. I'm taking some time off of my statism for Christmas and Christmas Eve. Plus, every once in a while oppressing and exploiting defenseless libertarians can be exhausting, so I take breaks. My statism isn't COMPLETELY endless. That's just crazy.

You don't oppress libertarians, you just troll them.

Of course, given the runup in state budgets recently, existing expenses were likely new expenses at some point in the not too distant past.

err...btw, if the states can't cover existing bloated recurring expenses in the absence of a massive asset bubble, then that's a sign those expenses are also unsustainable.

Yes, Danny. NEW recurring expenses. My use of the word "create" implied that, don't you think?

a lot of the aid to states is just an attempt to shore up revenue shortfalls that are constraining because of balanced budget requirements.

Ha ha!! I love it when you crack jokes! You're such a kidder.

Aid to the states is an attempt by politicians to use taxpayer money to buy votes for themselves. Keynsian stimulus is just politicians spending my money instead of me. If I spend it, they get no credit. If they spend it, they have a shot at political glory and lining their pockets. You may not have figured that out yet, but they have.

"Job creation is something that can happen only in the private sector."

Said the Professor from Ole Miss... "A Great Public University". I guess the professor doesn't have a job. These people never cease to amaze me.

"But that requires government to get out of the way by reducing taxes...."

Umm DID THAT prior to the crash... Who said something about insanity and repeating the same things over and over again?


"...eliminating oppressive regulations..."

Glass Steagall, commodities and futures modernization act, free trade agreements, Alan Greenspan at the Fed.... DONE prior to THE CRASH.

This sort of economic skullduggery needs to go for the more reality based stuff. These guys are seriously dangerous to our future.

http://www.debtdeflation.com/blogs/

http://demandside.podbean.com/

Umm DID THAT prior to the crash... Who said something about insanity and repeating the same things over and over again?

That's a wonderful point muir. Which is precisely the reason why homo sapiens were hunter-gatherers until 1916, until the passage of income tax act.

On another note, One of our buddies who show clips of exotic world on the travel channel did our bidding for us yesterday. He said by showing this exotic world to the proles, he is actually prompting them to visit these places there by causing ruination of these places. Proles need to be kept out at all costs from such "pristine" places as Exit glacier.

Love you man, mmmmwwwwaaaaahhhhh

commodities and futures modernization act, free trade agreements,

Muir, you are wonderful. How about adding wonderful sarbanes oxley to that list. While you are at it, why don't you provide us with some numbers on the net loss of regulations. I'm sure we can settle this debate in favor of our giant hearted friends like Al Gore, David Blood, Rupert Murdoch, Ted Turner, Warren Buffet, Bill Gates, Sergey Brin, Larry Page, Bernie Madoff, Steve Jobs, Larry Ellison, Rajendra Pachauri etc.

You are so close to winning this argument once and for all, now go on, give it the final push that it needs, give us some numbers. I know you are an evidence kind of guy who backs up everything you say with "facts".

Elites want unbridled free markets so badly that republicans aren't cutting it for them, they are filling the libertarian parties coffers with giant stashes of cash.

Love you, Mmmmmwwwwaaaaaahhhhh