[hrothgar]

awm, on Sep 10 2010, 01:03 AM, said:

I'm sure that if I had $10 million tucked away somewhere, I could manage a portfolio and earn $200K a year (2% interest) without difficulty. The reason that more people don't do it is that, like me, they don't have the money to invest.

Hey, its really hard to inherit that much money.

You need to be born to the right parents and then hope they don't screw the pooch before you die...

[helene_t]

phil_20686, on Sep 9 2010, 01:14 PM, said:

I expect someone to challenge me re tac cuts vs stuimulus so here is a summary by a respected economist based on empirical research:
http://online.wsj.com/article/SB1000142405...3298786310.html

Interesting, but hardly conclusive. The author admits that it is problematic to make inferences on this issue, except that he has confidence in his analysis of the effects of defense expenses.

I have taken graduate courses in macroeconomics and public finances at two universities myself and never came across the idea that government spending is less effective in creating employment than tax cuts. Quite the opposite, back then tax cuts were believed to create savings (fine, but not reducing unemployment) and import (not fine as we were selfish Europeans and didn't care for the employment of Chinese assembly line workers).

Maybe more important, government spending creates new jobs directly (more fat cats in the administration, especially great since it improves the employment situation for the ivory tower economists that write the college textbooks), while tax cuts just increases income for people already employed.

Another thing was that raising disposable income for low-income households is better than raising it for high-income households who are more likely to spend the money on savings and imports. Now at that time public sector salaries tended to be higher than private sector salaries, but tax cuts will benefit high-income households to an even larger degree.

I suspect one should be careful when making general statements about this issue - there are many ways the govt can increase spendings or reduce taxes, we don't really know the effects of either but they are likely to vary with lots of circumstances.

Anyway, I like you argument that public construction works don't create much employment in the short run because of the time needed for planning the construction projects.

[PassedOut]

phil_20686, on Sep 9 2010, 11:16 AM, said:

The argument is not that government spending is worse than private investment as a rule, only that a rushing government spending results in worse results. A stimulus designed to make jobs now, must mean construction now, which means a rushed design phase. Thus large stimules packages should be worse than normal government spending.

The objective of the US stimulus was to fund the substantial backlog of projects already planned, but not yet executed because of a lack of funding. I can't speak for all of the US stimulus expenditures, of course, but that was definitely the case for all of the projects that provided work for people in my section of the country.

[P_Marlowe]

phil_20686, on Sep 9 2010, 11:16 AM, said:

y66, on Sep 9 2010, 09:23 AM, said:

Some thoughts from the peanut gallery on stimulus in the form of tax cuts:

Quote

Some bleary-eyed thoughts from Japan on the reported administration proposal for $50 billion in new spending:

1. It’s a good idea
2. It’s much too small
3. It won’t pass anyway — which makes you wonder why the administration didn’t propose a bigger plan, so as to at least make the point that the other party is standing in the way of much needed repair to our roads, ports, sewers, and more– not to mention creating jobs. Once again, they’re striking right at the capillaries.

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.

So suppose we’re going to put $50 billion of resources that would otherwise be idle to work. Is it better to use them to produce public goods like improved roads, or private goods like more consumer durables? That’s not at all obvious — and anyone who tells you that basic economics settles the question, that is says that devoting more resources to production of private goods is better, doesn’t understand Econ 101.

And there’s a pretty good argument to be made that we are, in fact, starved for public goods in this country, so that it would actually be a good idea to shift some resources to public goods production even if we were at full employment; in that case, we should definitely give priority to public goods when trying to put unemployed resources to work.

Just sayin'.

Krugman is quite correct, but for the government to spend wisely it must find things to spend money on. 50bn can quite easily be spent in minor maintenance brought forward, but to spent 1 trillion you must make capital investments like new motorways and new schools etc.

However, building a new motorway takes years of planning, traffic studies etc. Building a new school takes an average of 4 years planning and designing before you start constructing anything. It is for this reason that (Large) stimuli do not work as well as advertised - you cannot infer from a 1bn stimulus that a 1trn stimulus will have an equivalent multiplier.

Moreover, most of the examples like highway maintenance get done anyway during the boom times, so there is limited scope for "repairing" if they are already in good nick.

Krugmans argument for public goods will produce a boom in construction in 2-3 years time.
<snip>
... but it is self evident that complex and expensive projects like public buildings take a lot of planning

Yes, investment in infrastructure is a long term strategy.

And yes, Highway maitenance is also done in the boom times.

But: It may just be hear say, the local infrastructure in
lots of smaler places in the US would need some maitenance.
And there Boom times in the last 15 years.
But this maitenancê is not shiny, so quite often there is no political
benefit doing this in the boom times, espesially if you can cut taxes,
which is always popular, and just do the absolute necessary on the
obvious places, claiming that the Boom time will continue.

The advantage of investing in infrastructure is, that the infrastructure
is also there for the peoble which have to pay for the debt.

The argument for Tax cuts is, that peoble claim, that business will
invest the add.. money in needed infrastructure, that may happen,
... or not.
The middle way would be, to give Tax cuts to the business as some
kine of incencitive, if they invest money in needed infrastructure.

But it may be hard to determine, if the investment was investment in
needed infrastructure, and fraud may be hard to fight.

With kind regards
Marlowe