[kenberg]

So first off: I think the debates, both of them, have been extremely useful. Before the pres debate it appeared as if Obama might be re-elected because the Republicans forgot to show up. Now there is a contest. This is good.


As far as truth telling is concerned, it is my understanding that the State Department asserts, contrary to Biden's statement, that there was a request for additional protection at the embassy. And it is at least less than certain that the early intelligence reports suggested the attack sprung from reaction to the YouTube video. Some fact checking on both parties is in order.

I also want to comment on the fact that Ryan sought stimulus funds for Wisconsin businesses. I never like this game no matter who is playing it. Warren Buffett suggests that people like himself should pay more taxes, the response is that no one is stopping him from donating money to the government. No. If there is stimulus money to be had, it is not wrong to apply for it even if you believe that the government should not be offering it. Now I would prefer that congressmen not be part of such a process at all. Businessmen should apply directly to the government. But things are as they are. I take the tax refund I am legally entitled to, I accept the social security check that is deposited to my account and so on. I can advocate one policy or another, but I live by the government policy as it currently is. I do not criticize others for doing likewise.

In fact we have some very serious problems to address. I expect the closing weeks of the campaign to be interesting.

[VMars]

kenberg, on 2012-October-14, 14:27, said:

...I also want to comment on the fact that Ryan sought stimulus funds for Wisconsin businesses. [...] No. If there is stimulus money to be had, it is not wrong to apply for it even if you believe that the government should not be offering it. Now I would prefer that congressmen not be part of such a process at all. Businessmen should apply directly to the government. But things are as they are. I take the tax refund I am legally entitled to, I accept the social security check that is deposited to my account and so on. I can advocate one policy or another, but I live by the government policy as it currently is. I do not criticize others for doing likewise...

(I edited to only display the points to which I wanted to reply)

I think that point is not that Ryan said it was "bad policy" to try to stimulate the economy through government support. If that's what he was accused of saying, I would agree that the criticism against it holds no water.

I think that the point of the attack is a claim that Ryan said to a nationwide audience that the stimulus was "bad policy" because it wouldn't work (i.e. WON'T stimulate the economy or be helpful), but then requested money for Wisconsin, claiming that it would help his district (i.e. it WOULD stimulate the economy).

[mike777]

My guess is the real argument is we needed the stimulus spending, but much of it was spent on crap that helped little or not.

see Multiplier effect....

I strongly agree at the time we needed massive fiscal spending...and damn the debt.
AND OF course massive fiscal spending will equal lots of waste...that is a given trade off.

[kenberg]

VMars, on 2012-October-14, 18:58, said:

(I edited to only display the points to which I wanted to reply)

I think that point is not that Ryan said it was "bad policy" to try to stimulate the economy through government support. If that's what he was accused of saying, I would agree that the criticism against it holds no water.

I think that the point of the attack is a claim that Ryan said to a nationwide audience that the stimulus was "bad policy" because it wouldn't work (i.e. WON'T stimulate the economy or be helpful), but then requested money for Wisconsin, claiming that it would help his district (i.e. it WOULD stimulate the economy).

The deal : The government will give you money if you can make a convincing case that it will help the economy. So you make a convincing case. I hope you are not shocked, but people do this. I was 14 when my birth certificate said I was 13 because I wanted a job setting pins in a bowling alley.. Similarly I was a Presbyterian when a potential employer asked my religion. I signed a truly bizarre loyalty oath to defend the state of Maryland from attack by surrounding states when I joined the faculty. Such statements are totally meaningless and everyone knows it. The people who are dispensing the money have the responsibility to determine if it is a good use of their money. Since, in the case under discussion, the money is being given to stimulate the economy, everyone who applies says that it will stimulate the economy. The phrase "It will stimulate the economy" can be directly translated to "I want you to give me the money". I don't regard myself as a cynical person, but some things are just common knowledge.

[cherdano]

I have two opinions on this:

• Republicans are talking non-sense when they claim that the stimulus didn't create jobs. And I am happy to bet that next time there is a recession during a Republican presidency, a Republican Congress would happily pass a stimulus in order to boast their guy's re-election chances. (Yes, probably many of the Republican congressmen believe what they are saying when ranting against the stimulus, but I am sure Rove and troops would work hard to get them up to speed with economic theory if that was necessary to save a Republican presidency.)
  
• It doesn't make sense at all to criticize Ryan for hypocrisy for voting against the stimulus, and requesting stimulus funds for his district once it passed. If you believe that the stimulus doesn't work, it must be because it crowds out private investment (a strange theory with 8% unemployment and business having difficulties getting a credit), or because the federal deficit somehow magically destroys jobs. No matter where your believe comes from, it would be disastrous for your district if a non-working stimulus gets passed and your district doesn't see any of its money. Ryan is under no obligation to hold his district hostage for his beliefs.

2. is just silly campaign non-sense. 1. is hypocrisy at its worst, in effect holding the country hostage in order to beat the other team's guy.

[mike777]

I fully agree with most of the posters

the argument seems to be who will make you richer...

Romney is in full fault..... day after day


I really truly expect the Pres.. will make me richer....than Romney

[kenberg]

Just one more word about applying for stimulus money. What I found dismaying was that the congressman, or any congressman, was involved at all. Over the years I have applied for various scientific grants. I was successful sometimes, other times not. It never even occurred to me to get a supporting letter from a congressman, and I both hope and trust that if I did so I would receive a terse reply from the National Science Foundation explaining that this isn't how things are done with their agency. In a proposal you explain what you intend to do and what your qualifications for doing it are, and the proposal is evaluated by people who know something (they know quite a bit actually) about what you are saying. The decisions are not always perfect, but they are seriously addressed and do not involve political influence.

In applying for stimulus funds, a proposal should say something about the park (or whatever) to be built, how many people will be hired, what the background and expertise is of the proposing company. Then this should be evaluated. Supporting letters from congressmen should be placed in the trash.

Yes, since it is a stimulus package the proposal must say it will stimulate. Well, it will. The people who are hired will be stimulated. Whether it will solve the nation's economic problems is beyond the expertise of the proposing company. Their job is to describe what they intend to do and then, if funded, do it.

[aguahombre]

mike777, on 2012-October-15, 02:06, said:

I really truly expect the Pres.. will make me richer....than Romney

That is the President's job...to make you richer? Some of us believe his job is to not make us poorer and to stay out of the way of our efforts to make ourselves and our lives richer.

[Flem72]

aguahombre, on 2012-October-15, 08:08, said:

That is the President's job...to make you richer? Some of us believe his job is to not make us poorer and to stay out of the way of our efforts to make ourselves and our lives richer.

Or simply to make the nation richer, more productive and stronger; to preserve the idea of America.

[aguahombre]

Flem72, on 2012-October-15, 08:13, said:

Or simply to make the nation richer, more productive and stronger; safer and to preserve the idea of America.

The other things are our job.

[phil_20686]

As I understand it, the Republican point about stimulus, is that it is not beneficial, over the long term. I.e., the cost of paying it off is exactly equal to the benefit now. So if you are going to be saddled with paying for a share of the stimulus repayment ten years from now, you are getting the negative part, and you should benefit from the stimulus in the short term. It is not contradictory to claim that the sum of these two parts is zero, or slightly negative, and still want your stimulus cash, given that you are certainly going to have to do your part in the repayment of federal debt.

Ultimately this all comes down to an argument about multipliers. These are basically impossible to really measure. The difference between 0.8 and 1.2 is small enough that second order effects like the effects on human capital of unemployment are important, and are essentially impossible to measure with any certainty.

However, there is a fairly easy way to understand why/when the multipliers are more or less than one. A value of one basically means the following: The government gets the full value of its purchase while total production is constant. When the economy is operating normally one (or slightly less than one) is the default assumption. We can think of it this way, when you have deficit spending, you are increasing the money supply, since US treasuries are so liquid as to be basically money, when the economy is at full capacity, money creation leads to inflation, since the money supply increases but the supply of goods does not. E.g. if you have a deficit of 1% of GDP and no spare capacity, you get 1% inflation when you spend it, so your multiplier is 0.99. More broadly, the country as a whole is not worse off (nor better off), since government spending is basically a series of transfer payments regarding the goods and services produced.

When there is idle capacity, the amount of goods and services increases in line with the money spent, so there is no inflation, and now your multiplier will be 1 directly. However, there are second order effects, since unemployment erodes human capital, putting people back to work improves your human capital. These benefits are `free', so in total the multiplier must be >1. My understanding is that it is hard to find cases where the multiplier is better than 1.2 in modern industrialised countries. Some estimates in super extreme circumstances like post war britian, get as high as 2. (Think of what that means, it would mean that a deficit of 5% would generate 5% extra GDP growth `for free').

So, given that, the republican case is that we are not in a `depression', but instead are involved in a `necessary' rebalancing away from `malinvestments' like too much housing/useless luxuries/services, towards a more sustainable distribution with much more manufacturing. Such a thesis involves believing that we want different things now from in the past, and that it takes time for the economy to retool itself and its workers to meet its new needs. This is the Austrian thesis, where recessions are about `creative destruction'. There are certainly cases where this is more believable, the UK 1946-1948 is one such case. We had converted almost our entire manufacturing base to a war footing, and when we stopped making tanks real production collapsed until the factories were repurposed to make other stuff. Technically it wasn't a recession, but that was only because it was basically a centrally planned economy up until 1951 when rationing ended. Its hard to have meaningful gdp statistics when most consumption like food and fuel was given out based on ration cards.

There is, of course, a very easy way to check. If large deficits and monetary stimulus lead to high inflation (say, greater than 4-5%), then the economy is obviously `busy' and unable to respond to extra demand. This is why the real buisness cycle/austrians keep predicting high inflation. If inflation stays low we are in a (unnecessary) demand side recession. Here is the inflation rate (CPI) for the US 2005-present.

So you can see that inflation has not exactly run away despite a 1trn fiscal stimulus, and close to 2trn in monetary stimulus. In fact, its five year average remains about 1.6%, well below its historical average of 2.2%, and below the target rate of 2%.

Ultimately, it is unfair to call Ryan a hypocrite on this issue. He is just wrong, but a substantial fraction, perhaps a majority, of the economics profession misdiagnosed this crisis. Ultimately, the analysis of Friedman(i.e. monatarists) have proved completely right, while the analysis of Keynes was still broadly right, and the austrians/Hayekians, have been completely wrong.

[PassedOut]

phil_20686, on 2012-October-15, 10:17, said:

Ultimately, it is unfair to call Ryan a hypocrite on this issue. He is just wrong, but a substantial fraction, perhaps a majority, of the economics profession misdiagnosed this crisis. Ultimately, the analysis of Friedman(i.e. monatarists) have proved completely right, while the analysis of Keynes was still broadly right, and the austrians/Hayekians, have been completely wrong.

Great post. By the way, still looking forward to part 2 of your Stagflation series on WorldOfInterest.

[WellSpyder]

phil_20686, on 2012-October-15, 10:17, said:

However, there is a fairly easy way to understand why/when the multipliers are more or less than one. A value of one basically means the following: The government gets the full value of its purchase while total production is constant. When the economy is operating normally one (or slightly less than one) is the default assumption. We can think of it this way, when you have deficit spending, you are increasing the money supply, since US treasuries are so liquid as to be basically money, when the economy is at full capacity, money creation leads to inflation, since the money supply increases but the supply of goods does not. E.g. if you have a deficit of 1% of GDP and no spare capacity, you get 1% inflation when you spend it, so your multiplier is 0.99. More broadly, the country as a whole is not worse off (nor better off), since government spending is basically a series of transfer payments regarding the goods and services produced. [....]

Except that as conventionally defined, no increase in output means that the multiplier is zero, not one....

[dwar0123]

WellSpyder, on 2012-October-15, 10:36, said:

Except that as conventionally defined, no increase in output means that the multiplier is zero, not one....

Have to admit, I may not be following this all that well, but my understanding is that for the multiplier to be zero, the stimulus money would have to have no impact on the economy. This would be equivalent to setting 100% of the money on fire and not using it for warmth, light or making any entertaining point. Even when you look at a 'complete failure' like Solyndra, the money paid people's salaries, paid for manufacturing, The salaries was used to buy coffee at the local Starbucks, spend a night out at the movies, etc. All positive impacts on the economy, granted the multiplier is still not 1, not worth it in this specific case. But it was still well above 0 and not all stimulus was a failure like Solyndra.

Not only that, but I think the private corporations receiving the money would have to burn 100% of the cash. If the government burned their own cash, that really only costs them the amount of money it costs to physically reprint/replace the money. And reprinting the money will put people to work. In fact actually printing trillions of dollars for the private companies to burn would entail quite a lot of economic stimulus for the money printing industry. It is very likely impossible to get to a 0 multiplier.

[Vampyr]

I am ashamed to say that I had never heard of Hayek before reading the highly informative post above. Here is an article I found interesting if a bit basic.

To be perfectly honest, though, I had always thought that the necessity of spending one's way out of a recession was obvious by inspection and didn't require explanations by the great minds of our finest economists. If the people have no money to spend, and the government spends little, no goods or services are changing hands, no jobs are needed etc.

[aguahombre]

In a recession, if the people have no money to spend, and the government has their money, the solution is for the government to spend it? I can think of another solution.

[dwar0123]

aguahombre, on 2012-October-15, 11:38, said:

In a recession, if the people have no money to spend, and the government has their money, the solution is for the government to spend it? I can think of another solution.

Does it involve time travel?

[phil_20686]

WellSpyder, on 2012-October-15, 10:36, said:

Except that as conventionally defined, no increase in output means that the multiplier is zero, not one....

So there are complications in how you define output. Economists do not seem to be consistent, I agree that if you define it as real output/increase in government spending, then the default is zero. But real output is not something that you can actually measure, so most use a proxy, eg, NGDP. If its NGDP/increase in government spending then a multiplier of less than one is impossible in the absence of imports and (monetary) inflation. This was one of the criticisms of old style keynesian models. the government spending multiplier is something like (delta)Y=(delta)G/(1-a)(1-b), where a = marginal propensity to consume and b = tax rate, but since a and b are between 0 and 1, its greater than one by definition, if you exclude inflation. Similarly, the balanced budget multipliers are defined to be 1 for the same reason. Its kinda `obvious' why this is so, the old style keynes models do not assume that total production is limited, so if you spend more money you get more output by assumption. That was probably a fine modelling assumption in the period 1945-1960, but its terrible now. I mean, the IMF just produced a paper saying that in open economies with flexible exhange rates the long run cumulative multiplier was not significantly different from zero for any industrialised countries.

I have seen other attempts such as defining them to be "the real value of all goods and services", but increased demand changes the price level by definition, so its not at all clear to me that that is an internally consistent approach. There are further complications, since multipliers really only make sense if you have no fiat currency. Post Keynesian analysis is crucially dependent on the role of the interest rates in managing consumption, since both fiscal and monetary policy can move interest rates, since any time the multiplier is >zero (in your definition), then the central bank could increase output by printing money/lowering the interest rate.

I chose to use (increase in the value of government services)/(Change in government spending) because its intuitively obvious. In general I don't think that multipliers are a useful way to think about anything, they just contribute to the money illusion.

I don't really like to think in terms of multipliers for these reasons. I prefer to think in NGDP and total output.

[phil_20686]

aguahombre, on 2012-October-15, 11:38, said:

In a recession, if the people have no money to spend, and the government has their money, the solution is for the government to spend it? I can think of another solution.

This is exactly the wrong way to think about a recession. It is "the money illusion" talking. Just imagine that the economy is a glorified barter economy. When the barter breaks down, you get a recession. Now of course we don't really barter, we have money, but money is just an intermediate stage. You barter for money and then you partner your money for services. The break down occurs when the price of money fluctuates, since the old prices in terms of money no longer match up to the prices in terms of the consumption that they entitle you to. Thus the total money earned becomes insufficient to purchase all of the production. In an idea world, prices would change instantaneously to reflect changes in the price of money, but in the real world there are frictions, like contracts, and the money illusion. Thus since prices do not change (at all really), then we can instead change the price of money to insure that all production is consumed. This is the essence of both monetary and fiscal policy.

[hrothgar]

phil_20686, on 2012-October-15, 12:23, said:

Thus since prices do not change (at all really), then we can instead change the price of money to insure that all production is consumed. This is the essence of both monetary and fiscal policy.

Classic Keynsian arguments about the government "priming the pump" during a liquidity trap operate on very different principles.