A taxonomy of errors

by Russ Roberts on December 13, 2011

in Stimulus

Why the stimulus failed–a case study by Jim Epstein:

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{ 74 comments }

Invisible Backhand December 13, 2011 at 1:53 pm

As always, I’m gobsmacked that conservatives can complain that Obama isn’t fixing Bush’s f*&^ ups fast enough and to their satisfaction.

The Other Eric December 13, 2011 at 2:49 pm

A troll’s comment. I suggest you become even more gobsmacked about some other excuse.

SmoledMan December 13, 2011 at 4:31 pm

You mean Pelosi’s f***ups?

Invisible Backhand December 14, 2011 at 10:35 am

If you’re blaming Pelosi for then, you have to blame Boeher for now. Your move.

kyle8 December 13, 2011 at 4:56 pm

Hey troll, speed is not the question, Obama can never solve anyone’s f ups because he is employing exactly the wrong means.

That is the story you cannot get straight.

Invisible Backhand December 14, 2011 at 10:36 am

He’s ending the war in Iraq.

Richard Stands December 16, 2011 at 2:56 am

“1. All the United States Forces shall withdraw from all Iraqi territory no later than December 31, 2011.”

http://usiraq.procon.org/sourcefiles/SOFA-11-19-08.pdf

Signed on November 6, 2008 during the Bush administration.

I’m not at all a fan of President Bush. Not even a little. But President Obama does not deserve the credit here.

Henry Morgenthau, Jr. December 13, 2011 at 5:37 pm

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after three years of this Administration we have more unemployment as when we started. … And an enormous debt to boot.

Greg Webb December 13, 2011 at 5:41 pm

Exactly right, Henry!

Invisible Backhand December 13, 2011 at 7:21 pm

I know you’re long dead Henry, but the current problems you are talking about from the grave did not all magically appear out of the blue on Janurary 20, 2009.

Greg Webb December 13, 2011 at 2:10 pm

http://www.huffingtonpost.com/2010/01/13/job-stimulus-results-whit_n_421278.html

Somebody ain’t got this thing right. Reason TV tends to be simplistic and wrong. For instance, one of their solution to the health care crisis was for people to bite the bullet and just buy some heath insurance. This is quite naive and similar to Nancy Reagan’s drug campaign of “Just say no!.”

This video suggest that Obama’s stimulus was a complete waste and failure. Clearly this was a totally one-sided piece; they showed nowhere where the stimulus did some good. This is obviously not believable and discredits their baised, propaganda piece. One would have to question the source of their funding for making such a video. This may be hard to do with the Supreme Ct. allowing corporations to conceal their identities and hide their political and lobbying activities from the public.

James Strong December 13, 2011 at 2:28 pm

Does re-hiring an already employed worker count as a “job created”? My guess is that in the statistics they do.

But more importantly you’re dealing with estimates. Last time I checked it was estimates that say that unemployment wasn’t going to rise about 8%, so now I’m supposed to trust ‘another’ estimate to explain why the first estimate failed?

It boggles my mind that there are economists out there that actually believe they can predict something as incredibly complex as the economy using an equation along the lines of “jobs created = GDP1*GDP2 / spending * fudge factor”

Greg Webb December 13, 2011 at 2:37 pm

There are bad doctors out there just as there are bad economists. Choose carefully, especially a doctor if you get sick. Your life may depend on it.

James Strong December 13, 2011 at 2:43 pm

No, macroeconomics is not like biology. Biology is a hard science that can be tested against principles that do not change. One of the fundemental requirements for science is background independence. Economics is in no way whatsoever background independent.’

Whenever someone who trusts the Keyensian models is called out on the fact that the estimates for unemployment didn’t work, the argument is always “the economy would have been worse off without the stimulus.” That might be very well true, but it’s just a diversion from the fact that the estimates were wrong, and the reason they were wrong is because the economy is an incredibly complex system that is constantly, constantly changing, and you can’t use models that fit past data to predict the future for a system that never stops changing. It’s ludicrous to assume you can.

James Strong December 13, 2011 at 2:51 pm

Eurgh, I wish this comments system had an edit function so I can fix all my typos.

geoih December 14, 2011 at 6:44 am

But I thought all doctors are licensed by the state. How could there be bad ones?

Andrew_M_Garland December 14, 2011 at 1:33 am

Politicians have their heads buried in computer models which happen to support their give-away policies.

Fred: How many jobs have we created?
CBO: Just a second (runs computer program model) 2,343,458 jobs.
Fred: Did this scan a detailed database of collected information?
CBO: No. It always says that.

CBO Creates Jobs On Paper
03/17/10 – Cato@Liberty – Daniel J. Mitchell [edited]:
=== ===
Doug Elmendorf is Director of the Congressional Budget Office (CBO). He basically agrees with me, that their employment model simply spits out pre-determined numbers, regardless of what happens in the real economy. The CBO recently estimated that so-called stimulus spending generated jobs and growth.

Someone asked if the CBO model would be unable to detect whether the stimulus failed. After hemming, hawing, and a follow-up question, he confessed “that’s right”.

(See this at 39:00 on the C-Span video at the link.)
=== ===

Speedmaster December 13, 2011 at 2:36 pm

I think Cafe Hayek and Reason are MUCH more reliable sources of economic reasoning that HuffPo.

Jon Murphy December 13, 2011 at 2:39 pm

I second that, Speedmaster. Reason is a great magazine.

kyle8 December 13, 2011 at 4:49 pm

Your first paragraph is just asinine. Cato has put forth many different market based solutions to health care problems. If you can’t be bothered to read, then please do not make an ass of yourself and post.

Greg Webb December 13, 2011 at 5:42 pm

Stupid Pretender, never cite the Huffington Post as a credible source of information.

Sam Grove December 13, 2011 at 2:17 pm

they showed nowhere where the stimulus did some good

Of course the stimulus did some good…for those who were stimulated, but on net, the stimulus hurt everybody else.
The clue is in Obama’s initial statement in the video: “only the federal government has the resources”

Where does the federal government get its resources?

Salt Water Economist December 13, 2011 at 2:29 pm

Sam

Do to the multiplier effect of federal spending, the Federal Gov’t is kinda like quantum mechanics (where you also can get something out of nothing). Spending money makes your money.

Instead of navel observing the rest of your life, contemplate this sentence.

“According to quantum mechanics, the vacuum state is not truly empty but instead contains fleeting electromagnetic waves and particles that pop into and out of existence.[3][4][5]”

http://en.wikipedia.org/wiki/Vacuum_state

Fred December 13, 2011 at 2:47 pm

There is a multiplier effect, but it is negative.

The federal government removes money from the economy that could have been invested in something that produces value, uses some of it to pay people who produce nothing of value, then divvies the rest out not on whether or not it will produce value but on politics.

The net effect is to destroy money that could have been turned into wealth.

Salt Water Economist December 13, 2011 at 3:03 pm

Fred

Since your mind is closed, I offer a brief rebut for others.

The existence of the multiplier is proved by looking at investment. Look at Krugman’s chart.

http://krugman.blogs.nytimes.com/2011/09/12/shocking-barro/?pagewanted=all#&wtoeid=growl1_r1_v1

Chris O'Leary December 13, 2011 at 4:33 pm

Did you even read the piece you linked to?

It says nothing about the multiplier, much less proves it.

Sam Grove December 13, 2011 at 5:01 pm

Whenever resources are placed under the control of politicians, more will be destroyed than created.

Sam Grove December 13, 2011 at 5:00 pm

Back in 1984, I said to a fellow libertarian that “nothing” is impossible.
He then supposed a space from which all matter had been removed.
I replied that there was energy and force in that space.

vikingvista December 14, 2011 at 2:29 am

The multiplier is nothing but a measure of pushing money around. Pushing money around is not the same as creating wealth. It looks like it on its surface, when costs are ignored. And that superficial appearance seems to be all the circular flow keynesiacs care about. But it isn’t the same. What’s worse, it has a counterproductive effect. Productive activity, believe it or not, is merely a small subset of all activity.

An investor who makes a bad investment in producing a product that nobody wanted, did indeed pass money to suppliers and workers. And they can thank him for that gift, for their gain is only his loss. This might be a zero sum, except that he wasted his time and efforts diverting his and others’ energies and resources into nothing. A wealth transfer, plus an opportunity cost. Negative economic gain.

That is the kind of investor one becomes by spending in a manner that is blind to wealth creation. That is the kind of investor the government is. That is the economics of Keynes.

Darren December 13, 2011 at 6:23 pm

those who were stimulated

I take it you mean the largest campaign contributors.

Salt Water Economist December 13, 2011 at 2:23 pm

So we have two complaints: (1) the stimulus wasn’t large enough to offset Maryland’s budget cuts and (2) Maryland hasn’t been every effective in using what dollars that it has. From this report it seems that the following conclusions are the only ones that can be drawn.

1) Keynes was right. Even an underfunded and poorly managed program has worked.

2) The way to better program design is to elect even more Democrats, for the GOP’s insistence that states be involved hurt rather than helped.

3) In the future, we need a stronger and more effective central or federal government with expanded powers to deal with the economic complexities of modern life. Clearly, it is beyond the capacity of the states.

The Other Eric December 13, 2011 at 2:47 pm

You’re wrong about the problems cited, and your conclusions are utterly misguided. (1) is not found anywhere but the fevered dreams of central planners, not in the video. (2), related to your no. 2 below it: What party does the inept and corrupt governor of Maryland belong to?

Your third point betrays you as a someone who does not understand the underlying problems of central planning, the rent-seeking that feeds central government authority after it has been shown to be ineffective, and your inability to notice other states, far away from the beltway, doing well with few if any stimulus funds.

If you can’t watch a short video and get the basic ideas, how do you call yourself an economist?

Salt Water Economist December 13, 2011 at 3:11 pm

The Other Eric

1. We know the stimulus worked, for we are far better off than we were in the end of 2008 and the start of 2009.

If you think otherwise, put up your charts. How far would unemployment have fallen? How many banks would have failed? Other firms, etc. What would have stopped the free fall, for very clearly we crossed over the zero bound.

Oh, you got no charts? I see

As for the shortcomings of people, no surprise there. You just fail to grasp that is the way it has always been and always will be. People aren’t perfect.

That’s why perfect is the enemy of the good, but you cannot handle that ambiguity

Dick Fitzwell December 13, 2011 at 4:33 pm

Post hoc ergo propter hoc

Slappy McFee December 13, 2011 at 4:46 pm

Brett Favre retired, therefore Brett Favre’s retirement created all the jobs the stimulus is credited with.

Slappy McFee December 13, 2011 at 4:47 pm

I sneezed this morning and caused the Euro to fall against the US Dollar.

Matt December 13, 2011 at 7:25 pm

You, my sir, have a powerful sneaze!

Jon Murphy December 13, 2011 at 4:51 pm
Sam Grove December 13, 2011 at 5:44 pm

1. We know the stimulus worked, for we are far better off than we were in the end of 2008 and the start of 2009.

Perhaps we would have been even better off without it. You just can’t tell from the available information.

In the longer run, we are definitely worse of than otherwise because debt repayment will reduce our standard of living.

Darren December 13, 2011 at 6:28 pm

In the longer run, we are definitely worse of than otherwise because debt repayment will reduce our standard of living.

Remember. It’s for the children (who get to work at paying it off).

Dan Phillips December 13, 2011 at 11:43 pm

Sam, you seem like a pretty smart guy. Maybe you can tell me something I don’t know about the “economics profession.” With all their mathematical formulae, their multipliers, their mystical incantations, etc., is the issue of individual liberty addressed by any economists?

People keep arguing over the effectiveness of the stimulus. I don’t care whether the stimulus put anyone back to work. All I can see is that I am poorer because the stimulus was a frontal attack on my liberty. Is there an economist anywhere that worries more over freedom than so-called effectiveness?

Sam Grove December 14, 2011 at 5:29 pm

Dan Phillips,
Thanks. I try.

Those who subscribe to collective management of resources do tend to gloss over the value of individual autonomy, if they consider it at all.

Getting to the elitism of the progressive left, they frequently express their disdain for the living choices of their lessors, you know, all those victims of Walmart, etc. They believe the poor slobs need to be taken care of. Muirgeo reeks of this disdain.

Sam Grove December 13, 2011 at 5:02 pm

3) Benito is resurrected yet again.

You have defined fascism.

Salt Water Economist December 13, 2011 at 2:32 pm

I have to congratulate myself. I like the Hayekian nature of federal spending.

Money “pop[s] into and out of existence.”

The “spontaneous emergence of order out of seeming chaos.” That’s what federal spending is, due to the multiplier.

Has to be a Noble Prize in Santa’s bag for me next year.

Sam Grove December 14, 2011 at 5:33 pm

Promises to pay pop into existence, do they not?

Greg Webb December 13, 2011 at 2:34 pm

“Where does the federal government get its resources?”

The government has tax revenue and other revenue sources and can also borrow based on its good credit. Please add to my answer if you want to.

The 5th Amendment supposedly prevents the government from taking your property away from you without just compensation.

SmoledMan December 13, 2011 at 4:32 pm

Are you that dense? The government exists on theft.

Greg Webb December 13, 2011 at 5:54 pm

Yes, DwW is that dense.

Sam Grove December 14, 2011 at 5:34 pm

Patience.
And a better word is “extortion”.

Slappy McFee December 13, 2011 at 4:48 pm

I have money in my wallet, therefore my wallet created the money.

Sam Grove December 13, 2011 at 5:46 pm

Tax revenue is money taken out of the commercial/private sector. Borrowing just means resources taken later on.

Where does wealth come from?

muirgeo December 13, 2011 at 2:57 pm

Actually the stimulus DID work as the best studies show.

http://www.washingtonpost.com/blogs/ezra-klein/post/did-the-stimulus-work-a-review-of-the-nine-best-studies-on-the-subject/2011/08/16/gIQAThbibJ_blog.html

No one said it would end the recession. While it was out GDP and jobs were starting to improve. Now that it is over the trends are worse.

We have major structural problems… and libertarians have absolutly no idea how to solve the problems because they do not believe in solutions based on pragmatism or rational thinking… they believe in Market Gods, market fundamentalism and market infallibility.

The obstruction that the congress has put up is far more in line with the libertarian ideas of doing nothing then it is with the ideas progressives and Keynsians would desire to have implemented.

This is far more a libertarian economy than it is a progressive economy.

Mesa Econoguy December 13, 2011 at 3:15 pm
I Miss Nixon December 13, 2011 at 3:16 pm

muirgeo

Explain something to me

How can people who believe in, worship, the Higgs boson of economics—”spontaneous emergence of order out of seeming chaos”—get up in the morning?

I mean, setting the alarm, going to bed early or that one springs forth ready for the day, that’s too much planning for a life that is centered on “the spontaneous emergence of order out of seeming chaos>”

May be they are not telling the truth, to themselves or others

RMN

Sam Grove December 13, 2011 at 5:48 pm

That’s awfully weak but I suppose that expresses your level of economic comprehension.

Mesa Econoguy December 13, 2011 at 3:17 pm

And LMAO, Ezra Klein…..

Good one, Georgie.

muirgeo December 13, 2011 at 3:32 pm

“And LMAO, Ezra Klein…..” Mesa Econoguy

Ezra Klein? No…these guys;

Feyrer and Sacerdote, Chodorow-Reich, Feiveson, Liscow, and Woolston. Wilson. The Congressional Budget Office. The Council of Economic Advisors. Zandi and Blinder. Oh and Reis.

Matt December 13, 2011 at 3:39 pm

Our models that say stimulus ends recessions said the stimulus ended the recession! Wowa!

Jon Murphy December 13, 2011 at 3:42 pm

Or, my favorite from the CBO: “Assuming the stimulus created jobs, how many jobs did it create?”

Matt December 13, 2011 at 4:20 pm

Or how the CBO’s models that failed to predict the effects of the stimulus ex ante were the same models used to evaluate the effects ex post.

Mesa Econoguy December 13, 2011 at 5:11 pm
SmoledMan December 13, 2011 at 4:33 pm

And 2+2 = 5. Big Brother loves us. Slavery is freedom. Ingsoc is doubleplusgood.

Darren December 13, 2011 at 6:30 pm

The obstruction that the congress has put up …

Especially in the first two years of this administration.

Jon Murphy December 13, 2011 at 3:23 pm

The video makes a point that I think may be lost on some: the video, nor Reason, isn’t arguing against the theory of a stimulus. They are arguing against the government’s ability to deploy a stimulus. Watch the video again and point out to me exactly where they claim stimulus cannot work, ever. You will not find it. What you will find are the arguments against a stimulus because it tends to promote those interconnected with the government already (cronies, if you will).

kyle8 December 13, 2011 at 4:54 pm

I would further make the argument that no government can ever deploy a big stimulus correctly because of the political desire to pay off constituents. And even if they did it is highly doubtful that any stimulative effect would be enough to get a nation out of a recession. However, it does always lead to big debts.

Chucklehead December 13, 2011 at 6:34 pm

Governments invest for a political return, not a economic one. That is why “Stimulus” can not work.

Lee Kelly December 13, 2011 at 4:03 pm

Watching this reminds me of one of Scott Sumner’s pet peeves. Why are monetary and fiscal stimuli evaluated so differently? Fiscal stimuli can’t work unless they increase aggregate demand, even if spending is targeted at idle resources. Ultimately, fiscal stimuli should be evaluated on the same terms as monetary policy. While it’s preferable if the government spends the money on worthwhile ventures, but that isn’t the criterion we should be looking at, because the exact same thing is true for private spending enabled by monetary stimuli. There are never any guarantees that money will be spent productively, whether that’s the government or not. By the only standard that’s important, the U.S. government’s fiscal stimulus was a failure: it didn’t stimulate aggregate demand. The probable reason is that fiscal stimuli tend to be passively offset by monetary policy, and so it really was just a huge waste of resources by government for little or no benefit.

Darren December 13, 2011 at 6:35 pm

a huge waste of resources by government for little or no benefit.

IOW, about par for the course.

kyle8 December 13, 2011 at 4:51 pm

Well knock me over with a feather, Lots of easy money = debt, waste, local corruption, cronyism, and big labor giveaways. But no jobs.

Gee, if only someone could have foreseen this happening.

Greg Webb December 13, 2011 at 5:55 pm

All except stupid leftist trolls.

rhhardin December 13, 2011 at 6:15 pm

Stimulus dollars to pay for reports on stimulus dollars… John Gall’s Systemantics (1976) has the following insight about Orwell’s Inversion – the confusion of input and output.

“Example: A giant program is to Conquer Cancer is begun. At the end of five years, cancer has not been conquered, but one thousand research papers have been published. In addition, one million copies of a pamphlet entitled “You and the War Against Cancer” have been distributed. Those publications will absolutely be regarded as Output rather than Input.”

Paul December 13, 2011 at 7:01 pm

Stalin! Now there was a man who could marshal the state administrators to get things done! Nothing like seeing your fellow government hack and his family be shipped off to a Kolymar peninsula coal mine to get that repaving job done.
Really now, what gov hack fears the metrosexual or his drunk clown VP?

brotio December 13, 2011 at 11:58 pm

If your comment was intended as disrespect toward St Franklin’s favorite nephew, Barry O, or His revered Uncle Joe; Cardinal Yasafi Torquemuirduck is calling for a tidal wave of crude to be heading your way.

Greg Webb December 13, 2011 at 8:24 pm

Excellent video by Reason TV documenting the failure of the stimulus as carried out by inefficient and ineffective government bureaucrats!

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