I’m assuming by “depression” here you don’t mean “economic downturn” – if you’re saying that Keynsianism is going to free us from the basic cycle of expansion and retraction, and we’re going to go ever upward, I’m at a loss. If you mean another Great Depression, again: we’re not in one now, I’m not aware of any serious economist who thinks we are going to be, and the fundamentals of the economy are so different now that ISTM plausible to argue that things can’t get that bad ever again (though I’m not sure I’d go that far).
It’s all fine to say that a massive stimulus will get rid of that output gap; but even if we grant that, human nature, and politics, are such that when the economy is roaring again, that’s going to be taken as the cue to raise spending even more; that’s been the general precedent of the last few decades. So far as I’m aware, even Keynes wasn’t saying that you can just run larger and larger deficits forever and it wouldn’t matter.
No, this isn’t freedom from the business cycle. Fiscal stimulus isn’t nearly nimble enough for that, despite the hopes of the early Keynesians. This is just a method that can help when Plan A has failed.
There were credible fears of worldwide financial collapse late last year. These weren’t outright predictions, but that’s not exactly an event you can mark on your calendar.
Iceland might not be the only country to get screwed over. It could be just the first. I don’t know any serious economist who’s actively predicting that situation, either, but no one expected Iceland’s problems. You take these events as they come, and meanwhile, you work to improve the overall situation. And the faster we improve the overall situation, the less problem there’s likely to be.
You’re free to think the Dems have no credibility, but they’re actually the party that has more consistently demonstrated fiscal responsibility.
It was under Reagan and Dubya that the budget exploded for no good reason. H.W. took steps to balance the budget, and Clinton finished the job. And now Obama has specifically mentioned that we need to have some serious budgetary reform, including entitlement spending, sorta like Clinton tussling with the welfare system. Maybe you think Obama’s all mouth, but at the very least you have to admit that he’s got a purty mouth.
That’d be great, as I’d like to examine that more closely. I’m not being adversarial, BTW. I genuinely would like to know.
Again, I’m not saying that no such projects exist. I would like to know how “substantive” these items are, though. I rather doubt that you have many infrastructure projects that have all been planned out and that simply await funding – but I’m willing to be proven wrong.
If I thought the pubs as a group were righteous on fiscal responsibility, I’d be one. It’s exactly* because* they are just as bad if not worse that I say that no congress of either party is going to scale back.
And yes, Obama has said a lot of things which got my hopes up; which is why it so disappoints me that his first act in office is a huge chunk of “we’ll be fiscally responsible – just as soon as we finish passing all this long-term spending on things my political base wants.” That sound a lot to me like “I’ll sober up after one more drink.” I pray he is another Clinton. I fear he is another Carter.
ISTM both parties have their stimulation preferences, both of which can be taken too far. Tax cuts have been shown to be stimulative in some times and places, and so the pubs always push them, in all times and places. Spending has been shown to be stimulative in some times and places, and so the dems always push it, in all times and places.
But you can’t just keep cutting taxes, otherwise you’ll end up with a tax rate of 0%, which obviously won’t work; OTOH, if you keep intervening more and more in the economy, with more and bigger government, at some point you end with complete central planning and history shows that doesn’t work either.
This is not a legitimate equivalance. The Democratic stimulus plan has several big tax cuts whereas the Senate Republican plan had absolutely no spending ; it was the same kind of tax cuts they have been touting for the last 8 years and more. There is a much greater degree of pragmatism about fiscal policy on the Democratic side as exemplified by both Obama and Clinton. Obama included a sizeable tax cut in his initial plan even before he started negotiating and was roundly criticized by liberals for “negotiating with himself”. Similarly Clinton, over the course of his presidency adopted different policies as the circumstances changed. Some times he supported tax cuts at others tax increases. Sometimes he increased government spending at others he restrained it. Since HW the Republican party has basically refused to even discuss the possibility of tax increases while all the time continuously proposing budget-busting tax cuts. It’s a fundamentally unserious economic vision which has contributed greatly to the current mess.
In that post, I was not talking about the specific stimulus bill so much as general principles. I acknowledge there are are cuts in this bill, some perhaps OK, some definitely not. If it was coming down to political horse-trading, I’d happily junk all the cuts in there in exchange for an equal junking of the long-term spending.
The plan Sam Stone pointed to – advanced by a Democrat – is IMO much superior to the one Obama is advancing. It’s Obama’s plan which is, IMO, more of what we’re used to: cut taxes AND take on long-term spending committments, and it’ll all pay for itself someday.
And as I said, if Obama is a Clintonian pragmatist, I’ll be pleased. So far, I’m very skeptical.
Was reading CNN and saw this article so thought I’d put it in here without comment:
Ok, I lied…I will put in a brief comment. Someone asked ‘What’s wrong with the stimulus’…my answer is, look at what we are spending money on to supposedly ‘stimulate’ the economy here. Not that some (or even most) of these projects aren’t worthy of consideration…but for supposed economic stimulus?? :dubious:
A few points about the CBO numbers. It’s true that it says there is net reduction of GDP but it’s just 0.1 to 0.3% over a ten year horizon which is miniscule. So roughly speaking the stimulus may deliver a 6% GDP boost over the next three years and then a 6.2% GDP reduction over the seven years after that because of the greater debt.
This is a pretty good deal for several reasons. The boost is concentrated in three bad years when the economy really needs it where the reduction comes over a longer and likely more prosperous period. Secondly the boost will disproportionately help the disadvantaged including the unemployed and the poor whereas the reduction will be spread across the economy.
Also note that under George W Bush the federal debt increased by around 3 trillion compared to the 800 billion dollars stimulus and with much less justification. I bet most of the people who are attacking the stimulus hailed Bush’s budget busting tax cuts back in the day. Many probably supported the budget-busting Iraq war as well. Their credibility when it comes to fiscal prudence isn’t exactly strong.
The CBO obviously does have a method, which they used to get their prediction of a 0.1-0.3 percent loss of GDP in the long run. But I haven’t yet looked into their detailed findings, just their conclusions. I can’t give you specifics here, but I can tell you it’s complex stuff. You’d need estimates of all sorts of future variables: savings, government spending and revenues (to derive deficits, and thus the need for future g-bonds), the current account deficit (to include the effects of foreign investment), GDP, interest rates, inflation, the strength of the dollar internationally, and some other things I’m sure I’m not thinking of off the top of my head.
But the conclusion of a slight loss in GDP in the long run is pretty practical. Pretty straightforward. A 6.0% boost now that comes with a 6.2% loss later, as Lantern pointed out: that’s a big relief targeted specifically at suffering people now, with the costs spread out over more people and more time.
I question if the people in charge really understand the problem well enough to apply the money properly.
The GI education bill helped educational infrastructure. The housing loans helped infrastructure.
The price of fuel the last couple of years leveraged expenses catastrophically. That must be addresses, and perhaps stimulus money could be effectively spent on research wages. The price of fuel really hurt my company badly. No way to avoid it.
Primary industry, like manufacturing, mining, and agriculture should be stimulated, rather than outsourcing it overseas.
Yes, as we all know, when a local government builds a road, the money is flushed down the toilet. No contractors are hired, no materials are purchased, and nothing that gets built on that road subsequently is helped at all. Yup, that wouldn’t stimulate anything.
This is a terrible deal, for exactly the reasons you mentioned. Think it through: If the economy is on the rebound in three years, the ‘stimulus’ will turn into a drag and slow it down. If it’s not on the rebound, you’re going to be in a situation where for a long time, this ‘stimulus’ will make it harder to recover.
This is exactly what happened both during the New Deal and in Japan - the stimulus didn’t do much, and ran up the deficit. When the economy finally did start to recover, it happened just as the government was forced to raise taxes to pay for the stimulus, which killed the recovery in its tracks.
The only way the stimulus makes sense is if you get it out fast, and then expect the economy to recover fast, so by the time it starts being a drag you already have a robust economy going again. If this recession drags out for years, this ‘stimulus’ is just going to make it worse.
Oh, come on. First of all, using this argument is a form of ad-hominem. Satan himself can oppose the stimulus, and all that matters is whether his arguments hold up. Second, Bush raised the deficit by 3 trillion dollars over 8 years, and throughout that whole period the left was screaming that it was fiscally irresponsible, and that they were actually the party of fiscal responsibility. Many of us on the right were also screaming about it. I was bitching about the Bush Administration’s spending sprees starting from his first year as President. Now Obama is about to bring in deficits of over a trillion dollars a year, and as high as two trillion dollars a year - a burn rate three to five times faster than Bush managed.
This ‘stimulus’ represents a permanent increase in the size of the government. A lot of these departments that are getting funding boosts are going to baseline their new budgets starting from the new funding level, and everyone knows it. if the Dept of Education takes its doubling of funds and hires a slew of new teachers and builds new schools all over the place, are you expecting them to shut down after the stimulus money runs out? Lay off all those teachers? Not on your life. The Democrats have used the ‘crisis’ to push through a permanent increase in the size of the federal government - forever more, it is going to be at least 10-20% larger. That means a larger tax burden or higher deficits, in perpetuity.
And they are doing so at a horrible time. Every dollar in this package that is not a direct stimulus is part of the problem, and not the solution. This is a horrible time because there’s another big drag coming on the economy - the massive rise in entitlement spending that’s about to occur as the baby boomers leave the work force in large numbers and start collecting Social Security and Medicare. Those numbers are downright terrifying.
Medicare’s unfunded lotal liability in the neighborhood of 50-80 trillion dollars. In 2007, the National Center for Policy Analysis estimated that by 2020, Medicare’s share of the budget is going to jump from 11% of the Federal budget to over 20%. By 2030, it will be 30%. By 2040, it will be 40%.
And that projection was before the current meltdown, with its subsequent reduction in Medicare witholdings. So the situation just got worse. Much worse. Medicare costs are going to start busting the budget badly within five years - just as the the ‘Stimulus’ also becomes a large net drag on the economy.
This whole thing is so irresponsible it’s hard to fathom. This is easily the worst bill I’ve ever seen the U.S. government pass.
How much had Bush spent a month into his first term? Or, to be fair since the economic thing is an expensive mess, how much of that did he spend in the first year given 9/11 was an expensive mess too?
Bush had eight years to spend stupidly, so are we really ready to start saying “Bush spent allllllll this much, but Obama has only spent 25% of that (to date) so it’s not nearly as bad!”?
Which is part of what I was wondering, thank you. To my mind, it was possible that there’s some very simple relation that might apply – similar in simplicity to a supply/demand curve. But I figured it more probable that there were reams upon reams of numerical tables involved.
I wish I had more time to delve into this stuff…estimates based on estimates that are derived from historical data and applied to a known atypical situation should, at best, be looked upon with high suspicion.
It wants far more physical infrastructure spending. One, you actually get something from it. Our bankers may be grateful for our largesse, but I already have a calender and a pen. Two, its visible, its apparent, people can see it.
Its like the old salesman’s trick: get the prospective victim to hold the object in his hand, that makes it real, and real is more desirable. What we need first is for the people to have money to spend, and then we need them to spend it. If they can see things actually happening, it becomes more real.
Getting money in people’s hands is almost easy, getting them to have the confidence to spend it is another matter altogether. Hence, do things people can see every day, do things that will remind them every day that the effort is being made.
Here’s what else is wrong with the stimulus bill: No one voting on it will have a chance to read it. That’s because the compromise bill was put together behind closed doors by a small committee (containing no members of the minority party), then rammed down the throats of everyone else. The House voted on it today, after having a grand total of about 8 hours to read the 1000+ page bill. Obviously, they hadn’t read it when they voted on it.
This is a fundamental abdication of their responsibility to their constituents - the least you can ask of your public officials is that they actually know what they are voting for.
On the other hand, lobbyists had the bill yesterday, so they could give their ‘input’ to the committee.
And what does Obama think about this?
Oh, sorry. That was the hopey-changey Obama speaking. This one doesn’t give a shit.
This is obviously the toughest part to chew on, but it’s the essence of the business.
Economies in crisis do not function the same way as healthy economies.
There is a justification, straight from modern macroeconomics, to increase deficit spending in a recession. This is not because deficit spending suddenly becomes perfect and good and right. It’s because the negatives of government inactivity outweigh the benefits. There is a cost to debt, yes, but there can be an even larger cost to doing nothing. That justification does not exist when the economy is healthy. Reagan and Dubya both pissed away money for no good reason.
Obama is not in a good situation. We’re playing a different ballgame here. It’s not like anybody’s saying, “Hurray, deficits!” It’s just that we’re looking at the potential fallout if we don’t step up here, the enormous opportunity cost of doing nothing. So, yes, it’s fair to compare Dubya’s irresponsibility with spending so much with Obama’s good sense with spending so much. This does not mean that you have to agree. But at the very least, we need to acknowledge the distinction between an expanding economy and a contracting economy. Once you acknowledge that, you see that Obama has mainstream opinion at his back. This isn’t an argument ender, I know, but this distinction cannot be ignored. It’s the heart of the stimulus argument.
And it’s tough to grasp. elfkin477 doesn’t see the distinction. And I see Sam Stone doesn’t acknowledge it, either (although it’s been pointed out to him at least two times before). That’s just unacceptable. It’s okay to be leery of spending, but at the very least, you have to engage the arguments that are actually being offered, and that means acknowledging the different nature of a deflating economy.