Can hosing the Republicans stimulate the economy?

[Sam_Stone]

@septimus

Not quite. First, borrowing is generally stimulative whether it’s private or by government. Second, you contradict yourself, first “diverting money away from productive ends” and later (“money [spent lobbying] will ultimately be paid for by people buying insurance policies”) tacking it on. So third, although OP was obviously striving for humor, unproductive activity can be stimulative.

Let’s step back and examine the rationale for a Keynesian stimulus and a ‘multiplier effect’. The idea is that when times get tough, people tend to save their money and not spend it. This causes a drop in demand, which causes productive assets to stop being productive (i.e. factories shut down). So the notion is that the government can replace the demand through borrowing money and injecting it back into the economy. That’s what Keynesian ‘pump priming’ is all about.

Now, if your health insurance company is already operating at full capacity, spending all the money its business model says it should spend, and charging what the market will bear for insurance, and the government suddenly dumps a huge risk on it (“We might force you to change your business model in a way that will eat your profits!”), and therefore they are forced to spend more money than they wanted to in an attempt to mitigate their risk, you aren’t stimulating anything. Sure, more money is going to PR flacks and politicians and advertising agencies, bu that money is coming from somewhere else - maybe they’re cutting services to pay for it, or laying off employees, or raising premiums (which causes the health care consumer to divert his or her own funds).

Assuming that the health insurance industry is competitive and reasonably run (big ifs, I’ll grant you), then this forced diversion of funds will make the enterprise less efficient, and ultimately hurt the economy. If there is a very short term stimulus because the firm has to work its employees harder or borrow money to pay for its lobbying campaign, it will certainly not have any kind of positive multiplier because the money is crowding out other investment. So once the money has run full cycle (i.e. the loan is paid back), you’ll find that the net result is worse than if the government hadn’t forced the diversion in the first place.

A famous example of this was the Valdez oil spill which increased U.S. GDP and employment.

You need to understand that GDP doesn’t measure everything. If you raze a city to the ground, you will get an increase in GDP because everyone is working like crazy to rebuild. Would you suggest that razing cities to the ground is good for the economy? What’s missing from the formulation is the capital destruction that took place when the city was destroyed.

A simple example: Let’s say I’ve got a nice house, and I’m working part-time to build a second home. Now someone comes along and destroys my house. Now I have to work full-time to recover my asset. So GDP goes up. But by the time I’ve rebuilt the house, what does my personal economy look like? I have a house again. Had it not been destroyed and I continued to work part time, I’d still have the house, AND half a house I built in my part-time work. In this case, destroying my home raised annual GDP output from that point forward, but ultimately left the economy poorer.

This is the essence of the broken windows fallacy. The only way Keynesian spending can possibly overcome this is if there are so many assets lying idle, and the money circulates enough times, that the overall growth in GDP overwhelms the capital-destroying effect of wrecking my home. Theoretically, this is possible, but it would require exactly the right circumstances.

You do hint, correctly, that productive spending is better than non-productive spending. This is why rationalists are baffled that GOP thinks highly of ammunition for Iraq, but frowns on Obama’s domestic infrastructure repair.

This is a glib and superficial analysis of the type that ‘rationalists’ like to make. I can easily give you a ‘rationalist’ response to both of these assertions. For example:

• spending money on ammunition in Iraq is a good investment, because a peaceful, democratic Iraq helps stabilize the region and reduce the influence of radical islam. This eventually cause more stable energy prices, reduces the risk of an economy-wrecking WMD attack, increases trade, and ultimately paves the way for a more peaceful middle east that will require a smaller U.S. military footprint, saving money in the long run.

• Spending money on a domestic infrastructure could easily lead to over-building, which in return leads to long-term maintenance costs. In the meantime, the forced infrastructure stimulus is likely to be timed to land after the recession is over, which means the useless infrastructure will crowd out investment in other things.

I’m not saying that these arguments are unambiguously true - just that your opponents are smarter than you give them credit for and likely have better arguments than the simplistic caricatures you offered.

And why rationalists are baffled that GOP, who brag in another thread about their sense of community, don’t see health care and education as being particularly productive spending.

Again, this is a case of you not understanding your opponents arguments. They would argue that federal spending of this sort crowds out local structures that do the same thing, and ultimately destroys community. For example, before there was a widespread social safety net, personal welfare was provided for through extended families (i.e. grandparents moved back in with their children), parents saved more for the education of their children, which gave them more control and a vested interest in making sure their kids worked hard and got good value, etc. And the children relied more on their parents, which meant they had to accept more parental control and oversight. These forces bind families together.

Charity received from a relative, friend, or neighbor instills a sense of obligation and reciprocal behavior, which binds communities together. Charity given by a faceless bureaucrat instills a sense of entitlement and breeds resentment and class warfare.

Interesting link you provide; better would be one with the relevant totals. The SEIU (Union) ranks #5 on your cited list, but represents no less than 2.2 million people. By comparison, Altria Group ranked #23 with only 10,400 employees.

So what? The fact remains that Democrats may work for the benefit of this special interest, even when it conflicts with the general welfare. That’s a bad thing. Have a look at California and New York, where the public unions are running their respective states into the ground.

By the way, your phrase “not even Keynesians” suggests that the phrase “We are all Keynesians now” (attributed to Milton Friedman and/or Richard Nixon) is no longer operative.

It was never operative. It was a political statement made to justify big government spending. Or are you suggesting that the words of Richard M. Nixon represent revealed truths?

Are you a “fiscal conservative”, Sam Stone? If so, perhaps you (or any “fiscal conservative” reading this) can clarify the term for me by answering some true/false questions:

(1) Reagan’s deficit spending was better for America than Clinton’s budget balancing.
(2) Obama’s debt-increasing stimulus was bad for the economy.
(3) Cutting spending is generally good, but if there’s still a deficit after all cutting, taxes should be raised to balance the budget.

Again with the simplistic arguments. I don’t have time for these right now, but I’ll be happy to attack them later if you want me to.