Okay, I am definitely not disputing anything. I honestly and simply want to learn:
What puddleglum said made sense to an economic ignoramus like me. I would be interested to hear the salient counterpoints to his argument.
Again, I have no dog in this fight; I am genuinely curious to know and learn.
Thanks!
As an example of what Krugman said, here is what he said in early January 2009:
And, here is what he said in early July 2009:
So, you are quoting out-of-context one little technical argument that Krugman had about what sort of growth rates are POSSIBLE when an economy is not utilizing its full capacity and ignoring the larger body of work where he actually discussed what Obama’s stimulus plan would do.
And, it has nothing to do with the magical thinking of people envisioning future tax rates and everything to do with conventional economic science.
The closest comparison would be the Carter/Reagan recession. This recovery has been slower. The trillion dollar recovery program implemented in this administration has not broken the 8% unemployment level in 4 years. To quote Obama: “shovel ready was not as uh, shovel ready as we expected”.
Here is a column from late 2008 where Krugman explains why running big deficits in a recessed economy is good idea…and, of course, the actual facts regarding interest rates over the last several years have borne out exactly what Krugman is saying. Admittedly, he doesn’t take on the new argument that puddleglum has now presented when the first one was shot down that the problem is really that everyone anticipates higher taxes in some distant dreaded future and hence doesn’t invest…probably because few people have had the gumption to make it and nobody that I know of has had the gumption to provide any evidence for it.
Here by the way is a good place to hunt down Paul Krugman columns from October 2010 and earlier.
That recession was not accompanied by a financial crash and a crash of the housing market.
That does not explain unemployment. That only explains upside down mortgages.
Every adjective you use to describe the recovery would certainly be worse without the bailouts (reasons below). Just because the predictions were off doesn’t mean things would be better if the government did nothing. I hardly think that hundreds of thousands more unemployed helps the economy.
Out of curiosity, has there ever been a time when consumers have been so far in hock that they’re being advised to pay down their debt, and at the same time are expected to spend to get the economy going? How do you predict what they’re going to do with their money?
As for the article you cited:
Where did that money go?
The government doesn’t assume it’s better at spending. That’s a purely disingenuous statement and the author should be ashamed for it. It had to spend money because, contrary to another falsehood of hers, the private sector doesn’t spend its own cash in a severely recessed economy when there’s no return on it. Look, she says so herself right there: “Entrepreneurs’ decisions to spend their own cash are guided by monetary profit and loss”. So yes, in this case, the government was better at spending $800 billion, by default. It was either spend the money or let the country sink even deeper because it wasn’t going to get any help from private enterprise when there’s no profit to be made. Even the Bush administration acknowledged as much in reply to Mitt Romney’s “Let Detroit Go Bankrupt” idea: “Romney’s strict no bailout stance, according even to Bush administration officials, ignored the fact that there was no private capital during the crisis to help the car companies avoid insolvency.”
And let’s remember, that’s the same private enterprise with its singular amoral goal of maximum profit that got us into this royal clusterfuck in the first place. How is it that it still gets worshipped as our saviour while government gets vilified for bailing it out from its irresponsible screwups?
Getting back to the article you cited, what’s with these simplistic paeans to free enterprise that pass for economic analysis these days? Sure, free enterprise is a great system for everyone when the people running it work responsibly, but let’s not pretend it’s pure as Jesus. You’d think a private business never spent an inefficient penny on extravagant parties and plush offices and executive jets and exhorbitant bonuses, or went broke through mismanagement, or swindled customers out of their life savings, or bought politicians, or brought down the world’s economy through sheer hubris. And that a government that encourages responsible private enterprise but has to put the brakes on its selfish excesses–because it’s plain they won’t stop themselves–is somehow evil. But experience tells us otherwise. Or it should.
What? There was a large collapse in demand due to this huge loss of wealth. (Why do you think the economy was losing ~3/4 million jobs per month when Obama wheb Obama took office?)..And, rising housing prices, which have traditionally helped to lead us out of recessions (according to Krugman) are not present this time?
I’m an economic ignoramus as well, but I’ll give it a shot.
Here are some flaws in Puddlegum’s argument:
From the perspective of the political right, Pres. Obama is blamed for high unemployment and a slow/stalled economic recovery because he created unnecessary uncertainty among business leaders and investors by: 1) signing a new, complex health care law (aka the Patient Protection and Affordable Care Act, PPACA, ACA, or ‘Obamacare’) that’s 2,600+ pages of complicated regulations and includes new taxes on tanning bed salons and medical equipment among other things, 2) signing a financial reform bill into law (aka Dodd-Frank) that’s 1200+ pages long, complex, and establishes a lot of gray areas where regulators establish some of the rules at a later time, 3) preventing (or at least delaying for further study) expansion of the XL pipeline for oil sands transport because of environmental concerns, 4) vocally supporting regulation of carbon emissions, 5) signing a huge stimulus bill into law that didn’t curb unemployment, added to the treasury debt, and funneled money into a failed enterprise (Solyndra, a solar panel manufacturer), 6) dithering during the debt ceiling debacle of summer 2011 which led to a credit rating downgrade by one of the major ratings agencies (S&P i think), 7) threatening to raise income taxes among the wealthy and corporate ranks.
From the perspective of the far right wing, Obama is responsible for crashing the economy because he’s a homosexual sympathizer (which angers God), a baby killer (also angers God), a marxist socialist, an atheist muslim, et cetera who wants to destroy the USA. He is an incarnate of Satan according to some. Revolutions don’t happen without a lot of economic problems and general unhappiness. Obama is only half-way there and needs another four years to finish the downfall of the USA.
From the perspective of the left, I refer you to the Paul Krugman arguments that have presented in this thread topic already. The general sentiment on the left is that Obama needed more stimulus more quickly. Of course, the Dems did not have a filibuster proof 60-vote majority in The Senate when the stimulus bill was passed (Sen. Al Franken did not join The Senate until June '09 because his election was too close to call and there were court battles over ballot count disputes), so the stimulus bill needed at least one Republican vote in The Senate (and it was Sen. Olympia Snowe if I recall). Republicans hate increasing deficit spending for reasons other than military purposes and tax cuts.
Personally, I think the health care and financial reforms have contributed to sluggish hiring and that the stimulus should have been larger and/or better directed. There are also significant external factors that have not helped the situation such as the currency crises in Europe, threats of insanity by Iran or North Korea, lots of natural disasters, the gulf oil spill, etc. I place a lot more blame on Congress for slow economic growth due to their gridlock on debt reduction matters and passing complicated dogshit bills written largely by lobbyists and interest groups.
Much obliged.
In fairness, though, puddleglum did qualify his points with “unless the economy starts growing again, tax rates will have to be raised . . .” (emphasis added)
That was very helpful. I hadn’t appreciated the effect (real or perceived) of ‘ObamaCare’ on the economy. Still, I’m not sure I understand the relationship between his ‘green’ activities and the dull economy. To me, that sounds awfully much like the same argument you hear about ‘global warming’ and how it’s just an attack on US industry in disguise.
Absolutely true, I must have glossed over the first part of the sentence. I apologize if I offended you, puddlegum. I did not mean to misrepresent your argument.
I don’t have the theory chops to express it correctly, but it seems to me that the root problem of this argument is that it’s viewing the economy as something similar to a zero sum game. If done properly, government spending can provide the infrastructure for your economy to expand well beyond its original size. If done in a manner that just boosts the amount of money moving around to stimulate aggregate demand, I think you’re going to get poorer results than if you invested in some (useful) infrastructure projects that in turn employ a noticeable number of people.
In all fairness, the problem with Keynesian theory is a problem that is easily understood by anyone who’s ever borrowed: It’s rather easy to borrow when times are tough, it’s harder to be thrifty pay down your debt with the extra you make when times are good. My only advice on that count is to elect responsible adults.
There is plenty of good evidence that people base decisions on expections of future wealth, not just current wealth. Look at what happened to the tax rebates of 2008. If you expect people to base consumption and investment decisions based solely on current wealth than a one time tax rebate should goose consumption.Here is the evidence it did not. What happened was consumption remained flat even though there was a temporary jump in disposable income. The same thing happened in 1974 when Ford sent 100 dollars to everyone who filed a tax return. Consumption patterns did not change at all.
Here is a study the fed did about what happened when congress passed a temporary change in the depreciation schedule. What they found was that for the most part business did not respond to short term changes like they would to a permanent change.
Here is a paper on how current and anticipated deficits can be contractionary.
At this point, whether or not the economy starts growing again, tax rates will have to be raised to pay the money back. And the USA is a very wealthy economy with a very high standard of living. It’s likely that we literally can’t grow as fast as we did mid-century, when global trade was unusually depressed and we were a net oil exporter.
A lot of what you say makes sense. The problem is in the sentence I bolded. There is no evidence that tax rates depress the economy enough to make them not worth it. Yes, they pull money out of the economy, but they also put it back in. And redistribution of money–of resources, funds, and power–via taxation allows us to break out of the destructive cycles that “free-market,” “consensual” private business can fall into.
Decades of institutionalized insanity have wrecked the economy, and all Americans can think about is whether they’re better off now than they were a little while ago. You’re bleeding to death, and all you can think about is what color bandaid to wear.
The future is always uncertain. If you think that your economy is going to shrink for the amount of time that a government can carry a debt, you’ve got far worse problems than your future tax rates.
Thank you, ignorance fought. It’s still not a foregone conclusion that increasing tax rates will affect your economy to the point where it begins shrinking, or even that the change will be greater than the general noise in the numbers. There are also other things you can do to affect your economy in a positive way while you have to raise taxes.
This is a short sighted metaphor. Again, if your economy is not going to be gaining ground any time soon, taxes are the least of your problems. You’re probably going to be worrying about feeding everyone and maintaining a capitalist system at all before very long.
I think you are moving the goalposts here. What I was objecting to was a notion that was based on three things, any one of which being wrong would mean that the argument completely breaks down:
(1) Supply-side arguments.
(2) Arguments that people make decisions based on future expectations for taxes.
(3) Arguments that people make such decisions based not just on concrete expectations based on tax laws currently in place but rather on the basis of vague notions like “Oh, look, he had to increase the deficit to do this. I bet that several years down the road, somebody is going to raise my taxes to make up for it.”
What you have responded with is some stuff that seems to show that a short term tax rebate did not produce much of an increase spending (from a source, the WSJ editorial / op-ed pages, that are known to regularly lie and deceive to further their philosophical agenda, but let’s assume for the moment that they haven’t in this case). However, this sort of negative result, while interesting, does not really further your argument very much. For example, it can just as well be used (and has been used) to support the argument that government spending is a much more effective stimulus than a tax rebate or tax cut of any kind. (See, for example, the discussion here, with no hard-and-fast conclusion drawn by Politifact other than that macroeconomics predictions are still all over the map. Note in particular the low multiplier effects estimated by some for extending the Bush tax cuts…although others seem to claim larger effects.)
That paper, now quite dated (1984), seems to propose as its main mechanism as to why such deficits aren’t stimulatory the idea that they can lead to higher long-term or short-term interest rates. As I have noted, it is going to be hard to argue, based on empirical evidence, that this mechanism is imposing a significant limitation on the stimulatory effects in the current climate of historically-low interest rates. Are you saying that in the absence of a stimulus and the accompanying higher deficits, banks would be paying us to borrow money from them?
What What? you’re trying to link housing prices to jobs. That makes no sense at all. At best, the rise in housing prices follows an increase in wealth as an indicator. We have the lowest interest rates in my lifetime and nobody is borrowing money.