A lot of economists are saying that this lengthened the great depression by merely extending the time taken for the markets to correct. I wonder if we may be doing the same thing here with this large stimulus package.
The question has been asked before, but let me ask it again: in your estimation, does the construction of roads help create wealth?
Yes, but then they’d lose a taxpayer early.
My definition of wealth is money. Profit. The bottom line. What’s yours?
A government program is perfectly capable of improving the profits of many businesses, and in some cases, providing the entire venue in which the business can operate, let alone profit.
There ya go. Wealth. Money. Dollars. Profit.
Government produces all kinds of things with the money it takes. You keep saying it doesn’t, but it does. It’s not like when money goes into taxes, they just throw it in the woodchipper. That money goes right back out again, supporting millions of businesses, big and small, and supporting the economy. It makes no difference to the economy whether it’s a government or a corporation or a citizen spends a dollar. All that matters is how fast, how often, said dollar is spent.
A business takes in money and produces goods and services.
A government takes in money and produces goods and services.
Your boss pays you money. His net worth goes down, yours goes up. You spend that money on a new car. Your net worth goes down, the car dealership’s goes up. they buy more cars. and so forth, and so on.
The government gets money via taxation. Your net worth goes down, theirs goes up. They spend some of that money on a new car. Their net worth goes down, the car dealership’s goes up. They buy more cars. And so on.
All economic activity is a transfer of net worth.
you have to give up this mystical libertarian idea that tax money disappears over the horizon, never to return.
Economically, it’s all the same.
No. It benefits people locally at the expense of all. For instance, road construction in New York does not benefit all people in the country equally. Some people will make money building the roads and others will benefit from the roads being present, but this is not a creation of wealth…it is still a transferrence of wealth. The government taxed everyone some small amount for these specific roads. Alternatively, people in New York do not benefit from from roads built in Alaska.
None of this is to say that government spending is evil or that there is not some tangible benefit to any program. My point is that wealth is not created by taking money from all to benefit some. For instance, if I stole your wallet and gave the money to a homeless guy I have not created wealth. The homeless man is definitely wealthier but you have lost money as a result…no creation of wealth, merely transferrence.
That’s an interesting question. But it’s more complicated than it sounds… because sometimes, making the markets correct more slowly is exactly what the patient needs, because the shock of a rapid correction would kill him.
In real world terms, it could be that doing nothing would be far, far worse than a Depression. Just look at what is happening in Iceland for an example of how bad a total economic collapse can be.
It can wreck your entire society. Government, economy, and all.
Surely you must acknowledge that the creation of roads, sewers, and other infrastructure is a prerequisite for economic growth.
For example, the mall you shop at didn’t spring forth from the head of Zeus. If the public sector did not build the necessary roads, those stores would not exist to create wealth in the way you’re talking about. Agreed?
However, you assert that it’s a zero-sum game. If the road works cost $1,000,000, and give $2,000,000 in benefits, then it’s not a zero-sum game. And, hopefully, the totality of all government projects benefit everyone equitably.
And a road in Alaska can benefit a person in New York, e.g., by reducing the transport costs of goods produced in Alaska and consumed by the person in New York.
Government can increase profits for a company ONLY by taking from someone else. You MUST be able to understand that that my taxes being used to prop up a business is a loss for me and a gain for the company. This is NOT a creation of wealth…it is a transfer of wealth.
Comparing private and public spending is like comparing apples and oranges. If I buy a car my net worth does not go down. I have made a trade with an individual. We both have received something. I have money and they have cars…let’s trade. Also, your boss does not hire you to have his net worth go down. You work to increase the company’s net worth…i.e. the company will make enough money to offset your salary plus make a profit or it is not worth their time to hire you. That’s called efficiency…something the government sorely lacks.
Also, you can stop putting words in my mouth. I did NOT say that tax money disappears…only that all must pay for the benefit of some. This, by definition, is a transfer of wealth. And, again, the government produces NOTHING. They take our money and pay someone to produce something…maybe something that would have been produced anyway. They are not having bake sales to raise money. At least that would be producing something (assuming they did their own baking, of course)
No, this is still a zero sum game. Locally there are more benefits but those who do not benefit have lost their money ( or had it transferred if you prefer). And we all know that government projects do not benefit everyone equally. The wealthiest have more money taken and less benefits given. The reverse is true for the poorest.
Any dollar spent is economic stimulus for Keynesian purposes. I heard somebody last week (Greg Ip of the Economist?) make this point on* Washington Week.* It’s either disingenuous or ignorant to disregard that.
Now, that some of these will take more than a quarter year to all be spent is a concern. But they are stimulus simply by existing & being spending.
While economists are pretty firmly behind this stimulus package if you peruse the economic literature the jury is still very much “out” on stimulus spending and its effects.
As far as blaming it on the Republicans…Democrats have really one good argument and that is Bill Clinton. He ran a surplus, during a boom time, at a time when most people felt America could afford to drastically reduce defense spending and such as a share of GDP. Any previous Presidents or subsequent Presidents have had to contend with fundamentally different situations.
yorick73, perhaps you could provide an example of someone other than a government creating wealth? Then we can try to work out what the difference is between what that someone else is doing and what the government is doing.
You seem to have a very distorted sense of time in your analysis. If you think that buying a car doesn’t lower your net worth, you must be buying only rare vehicles that are highly prized, because every car that everyone I know has bought is a depreciating asset, even setting aside the additional cost in terms of interest payments, licensing, parking tickets, etc.
Similarly, the idea that the economic impact of a new bridge, highway, or whatever starts and ends with the payment of the contract for the construction of the infrastructure is also awfully short sighted.
For example, if a new four lane road is built into the suburbs of DC, and only then does Home Depot, Best Buy, and Exxon set out their shingle, there’s no doubt that the majority of the economic impact will be local, in terms of new jobs and consumer spending. But you seem oblivious to the fact that Home Depot must buy its softwood lumber from Canada, Best Buy is importing electronics from Taiwan, and Exxon is moving petroleum from the Middle East. Just because the new stores will contribute mere millions of dollars to the local community, one cannot dismiss that the economic development which was made possible through government investment in infrastructure ultimately contributes to keeping lumberjacks, electrical engineers, and Saudi princes employed.
So as much as you’d like to portray government spending as having zero net impact, essentially being a transfer of wealth, one need only look at the chorus of economists who are calling for a stimulus, none of which would agree that the multiplier for government spending is exactly 1. Though this isn’t a unanimous view of the field of economics, my strong suspicion is that you actually aren’t making an economic argument at all – you’re making a philosophical one.
It just can’t be this difficult to set up an abstract analogy for yorick73. See if this works:
(1) I buy $1M of widgets from Chronos. Non-zero sum game, wealth created, right?
(2) I give $1M to yorick73, who then buys $1M of widgets from Chronos. Non-zero sum game, wealth created, right?
(3) I give $1M to the government in taxes, which then buys $1M of widgets from Chronos. Zero-sum game? Is wealth created or not?
If that’s an accurate, albeit over-simplified, situation, I’m not seeing that the answer to (3) is anything but “Non-zero sum game, wealth created.” If the situation is inaccurate, I’d like to understand where and why.
I do realize that all government spending is a stimulus of sorts, just like all government spending will contribute to the overall GDP. However, what really is at issue is what is the most effective thing to do with that government dollar.
The point that yorick73 is making is that the government has to borrow money to do what it wants (e.g. sell bonds to other countries with money, like China); and/or take from the people and redistribute it to others. In either case, the net effect arguably isn’t building wealth. Home Depot and Best Buy were going to get their shipments in one way or another. Adding efficiency is merely adding value. Adding value to an infrastructure project isn’t really creating wealth because the infrastructure isn’t a product that is sold and consumed; it is paid for through wealth redistribution or government borrowing. It’s like building more nuclear missiles. Does creating more nuclear missiles stimulate the economy? Arguably, yes… Does it create more wealth, yes, but not really, at least not in a way that is tangentially useful.
Look at it another way: Yes, increasing infrastructure to at some point will create some wealth. However, the government should also consider the costs. If the infrastructure payments are through taxes, then the question to consider is if the taxes collected are offset by the wealth created from the infrastructure. Or, if through bond issuance, will the added wealth offset the interest payments and future debt to the next generation. If either of these is “no,” then it appears that wealth is not being created.
Also, consider the drawbacks: how does the government know where to start building? What do state/local governments do while the fed makes it decision, i.e. do they hold off construction that they would have paid for anyway and wait to get the government money, or do they proceed with the project and hope they get additional money later down the road? Infrastructure projects are not done overnight either. I’ve seen cites that most of the stimulus won’t be available until after 2010, 2011. By that time, the recession should be over and infrastructure improvements become inflationary in nature which is bad for the economy. The government will react by raising interest rates, putting a further damper on economic activity.
Government spending also has distortive effects on the market place. Government mandates and regulations may require wages/resources/etc. paid at a wage above market level (because regulation is reactionary to market pressures). Any time this happens, bubbles tend to form. What does construction firm stock prices look like right now? (Honestly, I don’t know, I’ve been very, very busy lately). Does the country really need another bubble?
all economic activity is a transfer of wealth.
Thank you! Finally. someone who grasps basic economics.
Which means that 22% (or 36%, to use the revised figure) will not affect the length or severity of the current recession, which is ostensibly the point of the whole bill.
According to every projection I’ve read, it’s likely that by 2011 we will be seeing the economy picking up again, pretty much regardless of what the government does.
Splain to me just how it is you know exactly how long the current recession will be? We were in it for over a year before the great financial powers admitted it. Is there any reason whatsoever to think that they’ve cut out the baseless happy-talk now that everyone admits that the shit’s hit the fan?
There’s not a strong basis for credible predictions by anyone here, not even Republicans. Surely you can see that?
I should mention that I have no opinion on this…just throwing that out here. I think it is an interesting question that should be examined before we spend so much money without knowing the effect