# Federal reserve implements its own stimulus **URL:** \ **Category:** Great Debates\ **Created:** [November 4, 2010, 7:56pm UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500 "2010-11-04T19:56:33Z")\ **Posts on this page:** 13\ **Page:** 5
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [November 30, 2010, 5:30pm UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/81 "2010-11-30T17:30:40Z")
> [@Sam\_Stone](#): > > Ireland had a booming economy in the 2000’s, with skyrocketing revenue due to a large economic bubble. Ireland then simply grew the size of its government to eat up all the revenue. Then when the bubble collapsed and the revenue vanished, Ireland found itself with an unsustainable governmental structure. > > Between 2000 and 2006 Ireland _doubled_ the size of its expenditures. After their revenue began to collapse in 2007, Ireland continued to increase expenditures, adding almost as much again in two years as their entire expenditure level in 2000. It wasn’t until 2009 that Ireland began cutting spending, two years after revenue began to collapse. As of FY2010 they had only reduced spending back to roughly the 2007-2008 level, which is still more than double what they were spending in 2001. > > If you look at the graph I linked, it shows that the rate of revenue loss actually slowed after Ireland cut spending. That may be just a correlation, but there’s nothing in the data that I can see which shows that cutting spending made the situation worse, and the cuts certainly didn’t cause the problem since they lagged the collapse in revenue by about 2 years. You linked a graph that showed Irish government spending rising exactly in line with revenue until thewir economy started to nosedive. Just before their economy started going into reverse Ireland was running a small budget surplus. Their response to the meltdown was, as the record clearly shows, to start cutting existing spending. And it doesn’t matter if their spending _doubled_ over any given period. US government spending _doubles_ every ten years, often much less than that. If revenues _double_ over the same period then the fact that spending _doubles_ as well is irrelevant. And your own graph shows spending keeping the exact same pace as revenues, so bringing up the fact that their spending _doubled_ is disingenuous irrelevance. That’s completely unlike you Sam. And I think we’re all still waiting for the explanation of how a completely unregulated financial sector/low tax, low-government-spending business-friendly pro-growth economy could fail as disastrouslyl as Ireland has. How could it possibly have happened? Obviously the private sector was completely blameless so how did the Irish government fuck things up so badly Sam? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [November 30, 2010, 10:28pm UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/82 "2010-11-30T22:28:43Z")
> [@Dick\_Dastardly](#): > > You linked a graph that showed Irish government spending rising exactly in line with revenue until thewir economy started to nosedive. Yes, the government grew exactly in proportion to the revenues collected during an overheated, unsustainable economic bubble. When the bubble popped, the country was left with a huge gap between government expenditures and revenue. Remember, good Keynesians are supposed to run large surpluses during the ‘good times’ so they can afford the big deficits they run during the bad times. If you’re just going to make government bigger every time you get a little extra, then your Keynesianism is just a one-way ticket to eventual fiscal collapse. > [@](#): > > Just before their economy started going into reverse Ireland was running a small budget surplus. Their response to the meltdown was, as the record clearly shows, to start cutting existing spending. Their response to the meltdown was to cut spending _two years_ after the revenue began to collapse, and to make cuts not nearly big enough to close the budget shortfall. > [@](#): > > And it doesn’t matter if their spending _doubled_ over any given period. US government spending _doubles_ every ten years, often much less than that. If revenues _double_ over the same period then the fact that spending _doubles_ as well is irrelevant. No, it’s really not. Because that doubling of the size of government has many other effects. And again, if the revenue gain was unsustainable, then the government’s size was unsustainable. And there’s no need to grow government during periods when the economy is hot an unemployment is low. That’s precisely the kind of environment where you want to _shrink_ the size of government - especially if you tend to inflate it during the bad times to replace AD lost due to recession. I hate to bring up Canada as an example again (actually I don’t…), but that’s exactly what we did. When unemployment was low and the economy was churning along fine, we used the opportunity to reduce the size of our government, since the private economy was capable of picking up the slack. Then when the recession hit, we weren’t stuck with a huge bloated government, and had more flexibility in our response to the crisis. But it’s typical of the left to always find an excuse to grow government. Times are good? Well, we’ve got lots of money to spend on new government programs! Times are bad? We need to spend more on government programs to stimulate us back to good health! There’s never a good time for cutting the size of government, is there? > [@](#): > > And your own graph shows spending keeping the exact same pace as revenues, so bringing up the fact that their spending _doubled_ is disingenuous irrelevance. That’s completely unlike you Sam. It’s not irrelevant! It’s exactly the problem. Revenue grew in unsustainable fashion, and the government grew in direct proportion. Then when reality asserted itself, Ireland found itself with an unsustainable public expenditure level. We did the same thing here in Alberta under the Lougheed government. When oil revenue skyrocketed in the 1970’s, he grew the size of our government to match. Then oil prices plummeted, leaving Alberta with huge deficits and a government that was too big and workers that were paid too much. It took us two decades to unwind that little disaster and get our fiscal house in order. But we did, by making very large, very painful cuts in the size of our government. It would have been much better for everyone if we had never grown it to that size to begin with. > [@](#): > > And I think we’re all still waiting for the explanation of how a completely unregulated financial sector/low tax, low-government-spending business-friendly pro-growth economy could fail as disastrously as Ireland has. Low government spending? Ireland’s government is now at 55% of GDP. That’s a _huge_ government. > [@](#): > > How could it possibly have happened? Obviously the private sector was completely blameless so how did the Irish government fuck things up so badly Sam? I never said anything about the private sector being blameless. My understanding is that Ireland has a larger-than-average real estate bubble, due to a rapidly expanding money supply. Being tied to the Euro meant Ireland couldn’t devalue its currency or take other steps to get its act together. But I’m not an expert on Ireland’s economy, so I’m not willing to make pronouncements about all the reasons they got to where they are. Maybe the private sector shares some of the blame. Maybe the regulators do. I do know that whatever caused the problem, they would have been much better off if they had grown their government at a more reasonable rate, or even used the opportunity to reduce the size of it, simply because it would mean they wouldn’t have such a large gap now between revenues and expenditures. But I’m sure you’ve got it all worked out, and government was completely blameless, and it’s all the fault of those evil capitalists, right? Damned free markets, always ruining everything. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [December 1, 2010, 1:56am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/83 "2010-12-01T01:56:21Z")
I’m certainly no expert in the Irish economy. But Sam: 1. Once Ireland gives up monetary policy, fiscal policy is the only game in town. 2a. If Ireland leaves the Euro, devaluation will be anticipated. Then we get the mother of all bank runs, as people shift their funds to German/French/real Euro banks. So, according to Eichengreen, there’s no reversal. 2b. Except… if a bank run/collapse happens anyway, _then_ the Irish government could devalue as they pick up the pieces. That was Krugman’s insight, now acknowledged by Eichengreen. Hey, I think the UK did the right thing by staying out of the Euro. But that’s water under the bridge. So if Sam is against fiscal policy in Ireland, that means he is either advocating depression or financial collapse. Or maybe he wants to appeal to the confidence fairies. I know this is harsh Sam, but sometimes economies face unpleasant choices. 1. The contention that Ireland had out of control governmental spending before the 2007 crisis is simply false. Let’s look at the govt expenditure/GDP shares: ```auto year Canada US Ireland OECD Ireland-OECD 1992 53.3 38.6 44.8 42.3 2.5 1993 52.2 38.1 44.6 42.8 1.8 1994 49.7 37.1 43.9 41.9 2 1995 48.5 37.1 41.1 42.7 -1.6 1996 46.6 36.6 39.1 41.6 -2.5 1997 44.3 35.4 36.7 40.4 -3.7 1998 44.8 34.6 34.5 40.6 -6.1 1999 42.7 34.2 34.1 39.7 -5.6 2000 41.1 33.9 31.3 38.7 -7.4 2001 42 35 33.2 39.8 -6.6 2002 41.2 35.9 33.5 40.3 -6.8 2003 41.2 36.3 33.2 40.8 -7.6 2004 39.9 36 33.5 40.2 -6.7 2005 39.3 36.2 33.7 40.5 -6.8 2006 39.4 36 34.2 39.9 -5.7 2007 39.1 36.8 36.2 39.9 -3.7 2008 39.7 38.8 42 41.4 0.6 ``` Source: OECD I added Canada and the US for the heck of it. Special thanks to vBulletin for permitting tabs inside code boxes in their latest release. Anyway, Ireland had small government from 2000-2006 relative to the US, Canada and the OECD. The post-crises figures are distorted due to the collapse of GDP, and I haven’t broken them out (the analysis would take me about 30 min in practice). As a share of GDP, Ireland expanded big guv about as much as George Bush. 1. One thing I can’t claim without spending an hour on it is that Ireland has subjected itself to greater austerity than Spain or Iceland – and reality has depressed their economy accordingly. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [December 1, 2010, 2:09am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/84 "2010-12-01T02:09:23Z")
> [@Sam\_Stone](#): > > You’re right. My bad. When I wrote that, I was looking at a graph of spending as a percentage of GDP, which does show a huge ‘ramp up’. But as you say, that’s not because of additional program spending, but because GDP has gone down while spending remained constant. It was already pointed out once to him that numbers have denominators, and yet he still spewed the same wrong conclusion out again. He does this constantly. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [December 1, 2010, 2:09am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/85 "2010-12-01T02:09:30Z")
> [@Measure\_for\_Measure](#): > > Anyway, Ireland had small government from 2000-2006 relative to the US, Canada and the OECD. The post-crises figures are distorted due to the collapse of GDP, and I haven’t broken them out (the analysis would take me about 30 min in practice). As a share of GDP, Ireland expanded big guv about as much as George Bush. …at least through 2005. In 2006, Ireland had a bit of a party. But seriously, it wasn’t that large - it’s dwarfed by the 2001 and 2002 expansion in US government spending for example. ```auto year Canada US Ireland US-2000 Ire-2000 1992 53.3 38.6 44.8 1993 52.2 38.1 44.6 1994 49.7 37.1 43.9 1995 48.5 37.1 41.1 1996 46.6 36.6 39.1 1997 44.3 35.4 36.7 1998 44.8 34.6 34.5 1999 42.7 34.2 34.1 2000 41.1 33.9 31.3 0 0 2001 42 35 33.2 1.1 1.9 2002 41.2 35.9 33.5 2 2.2 2003 41.2 36.3 33.2 2.4 1.9 2004 39.9 36 33.5 2.1 2.2 2005 39.3 36.2 33.7 2.3 2.4 2006 39.4 36 34.2 2.1 2.9 2007 39.1 36.8 36.2 2.9 4.9 2008 39.7 38.8 42 4.9 10.7 ``` ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [December 1, 2010, 2:43am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/86 "2010-12-01T02:43:02Z")
But you’re looking at numbers in terms of GDP. That’s my whole point - Ireland’s GDP Growth was clearly not sustainable, but the government grew at the same rate. Look at this chart: [Ireland GDP Growth](http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_kd_zg&idim=country:IRL&dl=en&hl=en&q=ireland+gdp+growth). Ireland’s annual GDP growth between 1995 and 2007 was out of this world. Of course if you measure government expenditures against that it’s going to look reasonable. But that’s only because the baseline it’s being measured against was unreasonable. Ireland basically rode a big bubble, and instead of being prudent with the revenue they spent it all on more government. Then the revenue went away, and here we are. By the way, I wasn’t arguing for any particular solution. I’m just pointing out the cause of Ireland’s big fiscal trap - they used a bubble to blow up the size of government, then the bubble popped. Now they’re in a world of hurt. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [December 1, 2010, 2:44am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/87 "2010-12-01T02:44:13Z")
> [@MOIDALIZE](#): > > It was already pointed out once to him that numbers have denominators, and yet he still spewed the same wrong conclusion out again. He does this constantly. You want to talk smack about me in the third person, take it to the pit. I post heavily cited posts with a lot of numeric content in them on a regular basis. I’ll put my record of accuracy up against yours any day, sparky. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [December 1, 2010, 2:51am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/88 "2010-12-01T02:51:28Z")
> [@Sam\_Stone](#): > > You want to talk smack about me in the third person, take it to the pit. I post heavily cited posts with a lot of numeric content in them on a regular basis. I’ll put my record of accuracy up against yours any day, sparky. Sparky? Sam, such language is unbecoming in Great Debates. And who’s keeping records of accuracy? Is there a Great Debates’ League Leaders page I’m unaware of? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [December 1, 2010, 3:25am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/89 "2010-12-01T03:25:28Z")
Why, you must be keeping track, since you said I do this sort of thing _constantly_. But if you want to retract that statement, fine. In the meantime, I’d appreciate it if you’d refrain from the personal commentary. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [December 1, 2010, 3:33am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/90 "2010-12-01T03:33:26Z")
And we’d all appreciate if you’d stop spewing your conservative think-tank nonsense in every GD thread. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [December 1, 2010, 5:06am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/91 "2010-12-01T05:06:09Z")
I dunno Sam. Ireland was receiving accolades from Heritage et al in 2005. When your GDP shares are over 5 points below the OECD average, you have a lot of room for error. Or at least you would if you had flexible exchange rates. And if it’s solvency you’re concerned about, that’s a question of whether they were running budget surpluses, not about the size of government. I think you’re barking up the wrong tree. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [December 1, 2010, 5:28pm UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/92 "2010-12-01T17:28:42Z")
> [@Sam\_Stone](#): > > Yes, the government grew exactly in proportion to the revenues collected during an overheated, unsustainable economic bubble. When the bubble popped, the country was left with a huge gap between government expenditures and revenue. > > Remember, good Keynesians are supposed to run large surpluses during the ‘good times’ so they can afford the big deficits they run during the bad times. If you’re just going to make government bigger every time you get a little extra, then your Keynesianism is just a one-way ticket to eventual fiscal collapse. > > Their response to the meltdown was to cut spending _two years_ after the revenue began to collapse, and to make cuts not nearly big enough to close the budget shortfall. > > No, it’s really not. Because that doubling of the size of government has many other effects. And again, if the revenue gain was unsustainable, then the government’s size was unsustainable. > > And there’s no need to grow government during periods when the economy is hot an unemployment is low. That’s precisely the kind of environment where you want to _shrink_ the size of government - especially if you tend to inflate it during the bad times to replace AD lost due to recession. > > I hate to bring up Canada as an example again (actually I don’t…), but that’s exactly what we did. When unemployment was low and the economy was churning along fine, we used the opportunity to reduce the size of our government, since the private economy was capable of picking up the slack. Then when the recession hit, we weren’t stuck with a huge bloated government, and had more flexibility in our response to the crisis. > > But it’s typical of the left to always find an excuse to grow government. Times are good? Well, we’ve got lots of money to spend on new government programs! Times are bad? We need to spend more on government programs to stimulate us back to good health! > > There’s never a good time for cutting the size of government, is there? > > It’s not irrelevant! It’s exactly the problem. Revenue grew in unsustainable fashion, and the government grew in direct proportion. Then when reality asserted itself, Ireland found itself with an unsustainable public expenditure level. > > We did the same thing here in Alberta under the Lougheed government. When oil revenue skyrocketed in the 1970’s, he grew the size of our government to match. Then oil prices plummeted, leaving Alberta with huge deficits and a government that was too big and workers that were paid too much. It took us two decades to unwind that little disaster and get our fiscal house in order. But we did, by making very large, very painful cuts in the size of our government. It would have been much better for everyone if we had never grown it to that size to begin with. > > Low government spending? Ireland’s government is now at 55% of GDP. That’s a _huge_ government. > > I never said anything about the private sector being blameless. My understanding is that Ireland has a larger-than-average real estate bubble, due to a rapidly expanding money supply. Being tied to the Euro meant Ireland couldn’t devalue its currency or take other steps to get its act together. But I’m not an expert on Ireland’s economy, so I’m not willing to make pronouncements about all the reasons they got to where they are. Maybe the private sector shares some of the blame. Maybe the regulators do. > > I do know that whatever caused the problem, they would have been much better off if they had grown their government at a more reasonable rate, or even used the opportunity to reduce the size of it, simply because it would mean they wouldn’t have such a large gap now between revenues and expenditures. > > But I’m sure you’ve got it all worked out, and government was completely blameless, and it’s all the fault of those evil capitalists, right? Damned free markets, always ruining everything. Let’s go back to the start of the conversation again. I asked you why Ireland is such a disaster. You then blamed it on their economy tanking and waffled on about revenues falling (they did) and the Irish increasing spending (they cut their budget in fact, the increased spending was them bailing theirbanking sector out, something they had to do to prevent their financial sector bankrupting the country and sending europe then the world into an even bigger meltdown.) I then point out that the whole revenues/taxes situation is incidental to the fact that their banks blew the economy up. Their banks have just recieved a bailout of about $120 billion which is half Irish GDP on top of the tens of billions they’ve already been given. Yes there was an unsustainable bubble and yes the collapse of this bubble caused a drop in revenues but the bubble is small potatoes compared to the bad debt the banks issued and now need covered by the government, a figure now over half the entire Irish GDP and probably more to come yet. Ireland would have no serious economic problems at all had the banks not gone nuts over the past few years. When asked directly what caused the meltdown and who was responsible for it you dodge the issue. You claim not to be an expert on the situation so you’re unable to say what happened. Well you’ve proven to be not an expert on endless economic issues over the years yet this hasn’t prevented you from endlessly pontificating about them in thread after thread after thread. I think the reason you won’t answer this is beacause there’s no Fannie O’Mae or Freddie O’Mac to blame this one on. The Irish crisis, as accepted by everybody who does have an opinion on the subject, was caused by an unregulated private sector making vast quantities of dangerous loans and investments. Go and look at the Heritage Foundation website and similar nutjob outlets and see if there’s anybody anywhere making any kind of case that the Irish economic disaster wasn’t 100% down to the private sector. Do five minutes reading around the nutosphere and becmome as expert on Ireland as you are on everything else. Then in your expert opinion let us know if there’s anything the Irish government did that caused the meltdown. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [December 2, 2010, 2:58am UTC](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500/93 "2010-12-02T02:58:31Z")
Well if we must continue with this hijack, perhaps I can pass on the recent thoughts of a true expert in the field, Barry Eichengreen, who has been driven to distraction by the EU’s recent cock-up: > [@Barry Eichengreen](#): > > Ireland’s Reparations Burden > > Barry Eichengreen > > The Irish “rescue package” finalized over the weekend is a disaster. You can say one thing for the European Commission, the ECB and the German government: they never miss an opportunity to make things worse. > > It pains me to say this. I’m probably the most pro-euro economist on my side of the Atlantic. Not because I think the euro area is the perfect monetary union, but because I have always thought that a Europe of scores of national currencies would be even less stable. I’m also a believer in the larger European project. But given this abject failure of European and German leadership, I am going to have to rethink my position. > > The Irish “program” solves exactly nothing – it simply kicks the can down the road. … [Barry Eichengreen on the Irish bailout – The Irish Economy](http://www.irisheconomy.ie/index.php/2010/12/01/barry-eichengreen-on-the-irish-bailout/#more-8831) [Previous page](https://boards.straightdope.com/t/federal-reserve-implements-its-own-stimulus/559500.md?page=4)