Many on the liberal side of the aisle say “no, absolutely not,” thus decrying news of Obama’s apparent proposal to freeze certain kinds of spending, calling it “Hooverism.”
While you can get into the specifics of this proposal if you like, I’m more interested in the overall question. Do you think increased spending is needed to improve the current economy? If so, in what areas/ways? (Here especially is where you can feel free to connect to current policy suggestions.)
No, increased spending isn’t necessary. Just so long as you stimulate demand, the economy will improve. So it could be tax cuts.
More interestingly, can demand be stimulated without increasing the deficit? Trickier question, but I think so. The marginal dollar for someone making 100kpa goes less toward spending than the marginal dollar for someone making 30kpa. So, a crass program of redistributionism itself might have a stimulative effect, my thinking goes.
Jobs can do it. The big companies have dumped workers for decades. The small employers would hire but they can not get loans from the banks. If we took over the banks when Paulson started off and we started lending to get small business rolling ,it might have already improved. But, we allowed the bankers to keep the money and give it to themselves… Only in America ,can the people be convinced something so stupid would work.
There was a study at UMASS that looked at 1 billion spent in various ways via the government and the number of jobs it would create.
Education was the best, then issues like health care, energy, transportation. Then consumption based tax cuts and the military.
However, the jobs created via some of those fields (like energy) would hit the areas hit hardest by the recession, manufacturing and construction.
I’m not an economist, so I don’t ‘know’ if increased spending is needed. But if so, not all spending is the same for job creation.
cut waste and use the saved money for constructive projects instead. sounds simple enough but its one of those things that doesn’t work well in America.
No, certainly not. If the government could simply spend it’s way out of recession they would have done so all the OTHER times we were in one. If the government could just wave it’s magic jobs wand and buy our collective way out of problems then the Great Depression wouldn’t have gone on for nearly a decade.
How do we get out of this particular recession? Beats me. This one is a tangled mess, no doubt about it. Personally, I think Obama is on the right track, at least on the government side of things with this $250 billion spending freeze for 3 years for non-critical government spending. I wish he’d go even further and set even bigger goals…it might make the government think about spending on a limited budget and looking for ways to cut waste and increase efficiency.
Here’s the thing…at some point, with or without the governments ‘help’ we WILL climb out of this recession. Just like we have in all the others. With the governments ‘help’ this may actually take longer, but things will eventually pick up and the economy will start rolling along again. Then people can get back to whining and complaining about the horrible 5-6% unemployment (‘but, but…what about all the folks that just gave up??’) and the horror of corporations making a…gulp…PROFIT! Oh, the humanity…
BOOM!
-XT
You’re not going to get out of the recession until the government stops spending so damned much money. This is a recession driven by excessive debt, massive over-leveraging, and and fiscal imbalances that have capital markets running scared. You just don’t spend your way out of something like that.
What this economy needs is stability. Obama’s got to stop announcing major new regulations and spending programs every second day. Look at what happened to the markets when he started talking about taxing banks. Investors are spooked, and the federal government is running round shouting at them.
The best thing for the economy right now would be a moratorium on new regulations, a serious plan to pay down the deficit in the long term (probably by holding government growth under GDP growth, as we did in Canada), and a stable tax structure.
This isn’t going to be a fast recovery no matter what the government does. But if it keeps trying to ‘stimulate’ the economy with more fiscal shock treatments, it’s going to turn a slow but steady recovery into a chaotic series of fits and starts that will ultimately result in a longer recovery and a huge debt at the end of it.
This is a recession driven by deregulation of various financial industries combined with a shrinking consumer class that cannot withstand economic hardship because their expenses and taxes have gone up while wages have stagnated.
I don’t know what the solution is, but efforts at regulation and spending programs are designed to address these problems.
The thing we need understand about this government “spending” is that it is all borrowed money. It’s not as if the Federal government has a huge trillion dollar savings account with the Bank of Japan that it’s tapping into… or if the USA is selling a section of Alaska back to Russia to raise money to “spend.”
No, the “spending” is increased borrowing – financed by foreign lenders. As a result, America’s credit rating will go down and the price of everything that’s not made domestically will go up. Imported petroleum, electronics, raw materials, etc. Now you’ve set the stage for a recession driven by high import prices because we’re too stupid to connect the dots back to the reckless borrowing.
If you absolutely must commit the evil of spending borrowed money, the best way is to increase the capabilities of domestic production. Just increasing jobs for the sake of increasing jobs is short term and pointless. Giving a grant $10 billion to a R&D firm working on converting landfill garbage to energy is more productive than $10 billion spent to create jobs to clean up the national parks. The example of a company that could transform waste into fuel is contrived but the point is that the money should be spent on increasing capabilities of generating wealth internally. Creating “jobs” doesn’t necessarily create any wealth. Jobs can’t be created by decree from the governement. Legitimate jobs are a result of companies creating real wealth.
We have a nation of 300 million Americans that don’t create enough wealth to pay the world for the standard-of-living they’ve become accustomed to. Which spending proposals rectify that imbalance?
What’s the evidence of this? So far as I can tell, this is a traditional recession as opposed to some new type that’s happening for the first time. Presently there is very little inflation, and little evidence that inflation is coming in the short term. Consumer spending has dropped momentously, and the countries that went the furthest to fill in the spending gap (e.g. China) have fared the best in their response (8% growth over the past year… and yes, since that’s from China it’s probably inflated, but if the economy was shivering there we’d be seeing very bloody signs of it.) Most estimates I’ve seen, from sources ranging from government to private banks, indicate that the stimulus bill has created or saved in the ballpark of a million jobs.
Saying you don’t spend your way out of something like that is like saying a starving, unemployed man can’t get a second mortgage so he can buy food for his family. It’s not the ideal situation, but it’s a hell of a lot better than the alternative of doing nothing.
Foreign lenders comprise about a quarter of the financing for government debt.
Interesting. Are you arguing that this current recession was caused by high import prices, or that the reason it’s lasted so long is fundamentally high import prices? Both are pretty new arguments I’d love to see elaborated on.
What is “real wealth”? I’m in broad agreement with what you said about it being better to focus on building productive capability than dig holes, but here I think you make a misstep. Saying some job or another is illegitimate is simply an imposition of subjective value, amounting to saying “I don’t like it.” Building roads and maintaining national park infrastructure are public goods. Sure, they wouldn’t usually be provided by the market–but that’s why they’re public goods in the first place! And when increased government spending is necessary to make up for the shortfall in spending in the private sector, public goods are an ideal place to invest in, since government can’t hope to allocate private goods as efficiently as the market does.
“Cut waste” always sounds like a reasonable strategy. However, at the bottom of the waste pile is jobs (government employment) and contracts that employ people outside of the government. So, one blow back of serious waste cutting is greater unemployment. If the goal is jobs creation then cutting waste is not the way to go.
Granted the government employment jobs are not fundamentally as effective at wealth creation (the contractor jobs are closer to that mark), but at least the money spent on them doesn’t get accumulated as personal wealth at the executive level, it get spread more broadly through the population.
I’m not suggesting that “cutting waste” is wrong (although, one man’s waste is another man’s livelyhood) just that there is a little more subtlety to consider.
Spending freeze during a recession? I was unaware that I voted for Herbert Hoover in 2008.
I’m ashamed that I voted for Obama. He rightly scoffed at the idea of a spending freeze during a recession when he debated with McCain. Now he’s flip flopping and lending credibility to the GOP world view.
No, this recession is caused by the illusion of paper wealth. Now some stimulus spenders want to create more illusory paper wealth to solve it. This is idiotic.
As for import prices; I’m saying it’s an example of a future problem that will come back to bite us because we’re too stupid to see that selling IOUs do not come for free. There are penalties for selling debt. Are you aware of what the penalties are?
Real wealth is creating something that other people (or other countries) will trade goods and/or services for. China isn’t going to sell us toys, clothes, iPhones, etc because we renovated a national park.
What’s your definition of “real” wealth?
It is not subjective. If cleaning up a national park does not buy you the next 100 barrels of crude oil, or 100 cars from Japan, or 100 medical imaging devices from Germany, it is objectively a measure of money going down the drain.
It is true that the recession was created by the illusion of wealth.
But what’s perpetuating it? Lack of demand. But why is that, when there are plenty of people who wish to buy things, and plenty of people willing to work?
Tightening ones belt works from an individual standpoint. But it’s when everybody does it that we become screwed. People cut their personal spending, demand for goods and services declines, jobs get cut, people cut their spending even more in reaction to that, and the vicious cycle continues on and on.
This process is what is keeping wealth creation at an artificially low level. In cases like this, even paying people to dig holes and fill them back up again will help, because those workers will take their paychecks and spend it stuff that’s actually useful to them.
Being willing to work is not enough. Desire for employment is not enough. It is the capacity for labor PLUS the channeling of that labor into products that other people (and other countries) are willing to buy. Nobody will sell you a car or house or plasma TV because you’re willing to dig a hole and fill it back up.
Well if that was true, we could just send out paychecks to all Americans to just sit in their couch and daydream. No need to even bother with shovels, dirt, and holes. Americans now have more money to spend. We are all richer as a result. Brilliant.
Read up on the Broken Window Fallacy.
Paying people to do nonproductive tasks in a waste of time and resources. The money has to come from somewhere. Typcally that means either taxes or borrowing. In other words you are either taking money away from productive segments of the economy and giving it to non-productive segments or essentially printing money.
Most Americans are pretty stupid when it comes to economics, finance and accounting. These are the same Americans, after all, who think unions are a great idea.
Our economic problems are not being caused by CEOs and bankers getting rich. That’s idiotic populist nonsense that allows “Main Street” to absolve themselves of any accountability or responsibility. In reality both Main Street and Wall Street are to blame.
Banks litterally make money by lending. They don’t stay wealthy by not lending to people. OTOH, they don’t stay wealthy by lending to people who can’t or won’t pay them back. That’s what got Bear Stern and Lehman into trouble.
However, investing in highways, ports, airports, telecom networks, energy and so on indirectly creates wealth by making it easier and more desirable for businesses to do business here. OTOH, we have all heard about highways and bridges to nowhere.
Sure you can, just give tax credits for doing certain things that stimulate jobs. Imagine increasing employment at fast food places by making salads and sugar free items tax deductible with a receipt, for instance. Imagine all the sale of hybrid cars if the owners had no federal taxes to pay for the next 3 years on their income for buying them.
It would be the broken window fallacy if we intentionally broke windows in order to fix them. However, it’s not necesary for us to do that in order to drum up new work.
There are already broken windows that need fixing. Our nation’s infrastructure is in serious need of repair.
Have you looked at what happened to Japan? It is eerily similar to what has happened to the United States, including the mechanism of its rise and fall - a real estate boom/bust. When Japan’s real estate prices went through the roof, the Japanese used the paper wealth to over-leverage themselves. They consumed like crazy, they invested their cash around the world. The Japanese were taking over, remember?
Then real-estate crashed, and the bill came due. The ‘wealth effect’ turned into a ‘poverty effect’. Remember the Wealth Effect? The idea was that when people’s overall wealth starts to grow (because of asset inflation), spending increases even if incomes don’t go up. Savings go down, because people assume they can rely on liquidating their assets at retirement and live off the proceeds. Or they take out second mortgages and spend the money.
When Japan’s real estate bubble popped, all that expectation which drove consumer spending vanished. Uncertainty about where the floor of the economy was created an opposite of the wealth effect - it caused people to spend even less than their current wealth indicated, because they didn’t know how much of it they’d still have in the future. The result was a collapse in consumer spending, a collapse in business investment, and a collapse in government revenues.
Because the velocity of money has slowed way down. The trick is going to be to keep inflation down when the velocity picks up. That’s going to be hard to do, with the amount of money the Fed has injected into the economy. The stage is set for a potential cycle of slow recovery, followed by inflation, followed by higher interest rates, followed by a retrenchment in growth. In other words, stagflation. It may be avoidable if the Fed is very clever, but the risk is definitely there.
This is just not true. China is a different case. If you want to compare apples to apples, why don’t you compare similar countries? Canada is doing better than the U.S. by far (we started actually creating jobs last quarter), and our stimulus was a fraction of the size of yours.
Germany spent a little more than half as much as the U.S. on its stimulus as a percentage of GDP. The IMF now predicts Germany’s economy to grow faster than expected.
Canada spent a little more than a third on its stimulus as compared to the U.S. Canada is creating jobs, and our unemployment rate, which started out higher than yours, is now lower.
Australia’s stimulus was about half of the U.S.'s. Australia’s economy is now expected to lead most of the world in economic performance - It contracted by about as much as the U.S. at first, but now is expected to grow at 3.9% next year, according to the IMF.
In fact, China is about the only example you’ve got of a country that spent more than the U.S. and still has good growth. But China has been growing like mad for years, and never did have the kinds of asset inflation problems the rest of the world has had. And its cheap goods are a benefit in a world economic downturn.
The best example of all of how you are wrong about the effect of a stimulus would be Japan. After Japan’s meltdown, it tried to stimulate its way out. It failed miserably. The Japanese are now burdened by hellacious debt, over-developed infrastructure with many bridges to nowhere which they can’t afford to maintain, and all that spending never brought their economy back to life. Instead, it caused a ‘lost decade’ and turned Japan into an economic basket case full of ‘zombie’ companies that weren’t allowed to fail and infrastructure that soaks up their resources but provides little benefit in return.
Of course, the usual suspects like Krugman say the fault of the Japanese was that they just didn’t stimulate enough. But Japan’s stimulus was about four times the size of the U.S.'s. Japan now has a public debt more than three times higher than the U.S.'s. If that kind of ruinous borrowing isn’t enough to kick-start the economy, how much is? And do you think the U.S. government could ever find the political will in the population to borrow and spend that much money? And exactly who would they find who could even lend them that much?
If a Japan-style stimulus isn’t enough, then a stimulus isn’t the answer.
I’ve looked at those estimates. A lot of them are complete rubbish, based on the most simplistic possible accounting. Totally unknown is the amount of jobs not created because of debt fears, or fears of new regulations, or fears of new taxes. Also not measured are the jobs displaced by the jobs ‘created or saved’. The fact is, the U.S. is STILL shedding jobs at a time when most other countries have kicked back into modest job creation.
Analogies like that are worse than useless. They have no applicability to macro economics, but they make nice emotional scare stories.