Stimulus Stuff
Talking Points Memo, quoted entirely because I agree with every word:
This week, out on the broad wastes of cable news drekdom and the uplands of Beltway journalistic drivel, a simple fact has gone almost entirely unreported: virtually everything congressional Republicans are saying about the Stimulus Bill wouldn't cut it in remedial economics. Not ( Read more... )
This week, out on the broad wastes of cable news drekdom and the uplands of Beltway journalistic drivel, a simple fact has gone almost entirely unreported: virtually everything congressional Republicans are saying about the Stimulus Bill wouldn't cut it in remedial economics. Not ( Read more... )
I agree with both of those sentiments and I'm not a Republican.
Creating jobs - out of what, pixie dust and children's wishes? Why weren't those jobs available in the first place? I don't believe the U.S. employment market is a perfectly free market like we find in textbooks, allocating jobs to employers and wages to laborers with faultless efficiency. But I don't believe that companies are refusing to hire, or that new enterprises aren't starting up and demanding laborers, out of spite or laziness. I believe jobs aren't available because either the supply of capital or the demand for labor are low.
Running the money presses doesn't create capital, not in a legitimate sense. It waters down the value of all money currently existing, by inflating currency.
So government initiatives can "create" jobs only by destroying them elsewhere.
Government spending as a stimulus: the presumption that consuming drives an economy - or drives it more efficiently than saving - got us into 10 of the last 10 recessions. If you consume more than you save, you go into debt. If stimulus measures encourage consumption without also encouraging savings, they will increase debt. Again.
Capital comes from stockpiled resources - either mine (savings) or someone else's (taking out a loan). Government spending comes from seized resources - either harvested directly (taxes) or watered down through devaluating the currency (inflation).
The Feds can't "stimulate" capital growth - they can merely allocate capital to more volatile markets instead of the boring safe markets it's in currently. This is wealth redistribution, not growth.
(For the record, if someone made a case for redistributing wealth from people who've clearly used it poorly - like AIG, GM, etc - to other sectors of the economy, I'd be willing to entertain the argument. But I haven't seen any serious proposals for gutting General Motors like the dying buffalo it is and harvesting its sweetmeats for the tribe)
And if you object to the phrase "recession economics," just replace it with "Keynesian theory" or something, which is what I believe is his meaning. (And maybe you don't like Keynesianism, but it's not as if it's disreputable!)
It oughta be! ;)
Keynesian theory got us into the present crisis. And the last one (in 2000). And the last one (in the late 80s). And the last one (in the stagflating 70s). And so on. It's the most consistently wrong theory taught in major universities since phlogiston.
Of course, good luck convincing anyone aside from the Austrian School of that.
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Because saying "government does not create jobs" really is just asinine. Millions of people are directly employed by governments. Millions of people are directly employed due to contracts with governments. These are jobs. You have your more subtle critique that government jobs only exist by crowding out private sector jobs, which is at least arguable even if I don't believe it, but jobs exist and government caused them to exist. So at least stop trying to defend the indefensible there.
And you disagree on a very fundamental level with Keynesianism. My macroeconomics coursework was a long time ago so I'm not going to get into it in depth. But Keynesianism is still quite mainstream, so you'll have to forgive me for thinking you could at least consider it a fundamentally valid school of thought. (And in your argument here, I'd like to make one point. You're ignoring the effects government spending on transportation, schools, and other infrastructure, that lower costs for everyone doing business. Yes, I consider that stimulative.)
And Keynesianism causing the present crisis? In my view, it was caused by over reliance on fiscal policy causing a bubble, combined with utterly negligent regulators. I don't see how it was caused by government spending at all.
Do you reject wholesale the idea that government should exist? What are its proper roles, in your p.o.v.? I'm seriously asking because I feel I don't even know what framework of discussion you wouldn't object to. Do you consider yourself an Austrian School-er? Because if you don't believe in statistics and econometrics and applying the scientific method to economics then there probably aren't even any arguments I'm capable of making. (And I'll warn you, I'm doing a lot with statistics and econometrics right now, so chances are you'll be subjected to plenty of doses of them in the future if I continue to force myself to write more this year.)
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I'm not disputing that. What I am disputing is that it's an improvement. Would the tax revenue used to pay those employees have created more jobs in the private sector? Or would those private sector jobs have been more efficiently allocated?
But Keynesianism is still quite mainstream, so you'll have to forgive me for thinking you could at least consider it a fundamentally valid school of thought.
I know Keynesianism is mainstream. In the field of economic policy, the debate's largely between the Keynesians (fiscal policy drivers) and the Neoclassicals (monetary policy drivers). I don't like either of 'em.
I know this makes me a bit of a crank.
(And in your argument here, I'd like to make one point. You're ignoring the effects government spending on transportation, schools, and other infrastructure, that lower costs for everyone doing business. Yes, I consider that stimulative.)
True; for the sake of this discussion I am ignoring the positive externalities that investing in infrastructure creates. So, yes, that's a gain.
Although the cynic in me will note that the second-largest federal investment in infrastructure in history - the 2005 Highway Bill - was passed by a Republican President and a Republican Congress. If that bill failed in its purpose, how is this one going to succeed? If that bill succeeded, why do we need an even larger bill 3 years later?
And Keynesianism causing the present crisis? In my view, it was caused by over reliance on fiscal policy causing a bubble, combined with utterly negligent regulators. I don't see how it was caused by government spending at all.
I see it as caused more by bad monetary policy from the 90s on out - easy credit encouraging bad loans - which would make it more the Neoclassicals' fault than the Keynesians, so perhaps I misspoke. Sorry John Maynard!
I'd request that you not respond to what I'm saying by talking past me.
I'm not trying to! I'm sorry if it sounds like I am! Really, I'm not just pulling out Libertarian Talking Points 7 through 17 and copy-pasting.
(Besides, since you're now pursuing an advanced degree you are, by default, better educated in Econ than I am)
However, as an Austrian devotee, I have serious reservations against the core tenets of Keynesian macroeconomics, which means "just about everything taught as macro." So I'm coming from a different paradigm.
This probably won't make for very satisfying conversations in the future (though we'll get to yell a lot!), so I understand if you'd rather I bug out.
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Then why did you lead by agreeing with it? I mean, I call the statement asinine exactly because it is intended to conceal--not reveal--an argument. It's willfully obtuse and designed just to make the other side mad and distract them from making their own case. Which is the point of the original post. Hence why I suggested you were talking past me.
So to actually address your point, all I can say is that Romer's research shows that cutting taxes does not stimulate GDP in the same amounts that productive spending does. This research is the "credible evidence" Marshall refers to.
But you're a fan of the Austrians, and maybe that means you don't respect that research. My main problem with them is their unwillingness to listen to arguments based on math, statistics, and the scientific method. I think they are to economic policy what Neocons are to foreign policy: they have their ideas and set up a framework that makes it impossible to argue with them. For these reasons, that paradigm may be helpful as criticism, but it's not so good at setting the agenda. (Story of all the Bush Administration's philosophies, I'd say.)
Anyway, there are also two factual problems with what you're saying here. One, the "positive externalities" of physical and knowledge infrastructure are not side benefits, but one of the main points. They central to achieving the multipliers that Romer's research suggests. Spending on some things (building and maintaining stuff) really is better than spending on others (blowing things up in foreign countries, bailouts of Monopoly players cum finance companies).
Second, the highway bills that you mention are not bonus spending bills per se. They're allocation bills. They're not extra money, they're the baseline of money for all federally-funded surface transportation. This is why they keep happening. They are only valid for 7 or 8 years. They also cover all kinds of surface transportation, including trains, subways, buses, bikes, and pedestrians. And while they are famous for their earmarks such as the bridge to nowhere, they also have a lot of actually good policies in them too, like the Safe Routes to School program and the mandate that states plan their transportation in accordance with where population growth will actually occur. (Their names are ISTEA (1991), TEA-21 (1998), and SAFETEA-LU (2005) if you want to read more about them. I guess coming up with legislative acronyms must also be a good job.)
So lastly, "better educated in Econ" is not always a good thing... I'm sure we can agree that a little economic knowledge is a very dangerous thing. And so is a lot... economics professors are also engaging in a flamewar right now. (Mankiw and Barro vs DeLong & Krugman, mainly, while Romer tries to maintain the dignity of her new office and Stiglitz and Volcker attempt to stay above the fray. Meanwhile Summers is making off with the picnic basket.) I don't know if I'd say that puts us in good company, but I guess it's at least reputable company.
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