The Stimulus Seems to have failed

[joobz]

A long time ago I read a quote from someone who was arguing that the economy was going to suffer because the politicians were like journeymen trying to fix an incredibly complicated clock mechanism with a sledge hammer. The argument being had by the vast majority today is that their hammer is better than the other guy's.

The crisis we are in is in large part one of confidence. How can anyone have confidence when almost 1/2 of the country wants to use the "wrong" hammer?

Too true, Too true.

Although some people complain even when it is the "right" hammer wielded by the wrong party.

 

[drkitten]

Yeah, I agree with you. He's obviously completely sure that he is right. I just can't understand how anyone could be so sure, when it comes to something as subjective as politics. It's not science, there are no right or wrong answers, the best we can say is that there are some ideas that seem to work better than others, right?

Well, I think that's a bit over the top. If an idea appears to work worse, I have no problem saying that it's "wrong," especially if it works worse in a sufficiently strong sense that it provides negative value.

And we can get evidence for our various claims.

Ultimately, that's where BAC falls down. He looks for evidence to support his views -- since his views are ultimately, wrong, it's very difficult to find. But instead of realizing that his views are wrong, and instead of even realizing that the "evidence" he cites is actually evidence against his views, he spams anyway in the hopes that no one will read his links any more closely than he did.

I don't necessarily even think he's that wrong about this topic, even though I think it's obvious that stimulus spending has to work on some level. But as to whether it works better to stimulate the economy than tax cuts... I'm just not completely sure.

Well, the professionals have done that experiment. A temporary tax cut would generate about $1.03 in stimulus effect for every dollar "invested." By contrast, a long-term corporate tax cut would generate about $0.30 in growth per dollar, and making the Bush tax cuts permanent would generate even less. By contrast, every dollar spent on food stamps generates about $1.73 in stimulus, and every dollar spend on extending unemployment generates about $1.64. Of course, the numbers are a little dated now (2008), but newer numbers could easily be made available if anyone wanted to see them.

 

[drkitten]

LTD, I believe you are sincere in wishing to have this type of adult discussion but I caution that you are not going to get very far with it if you insist on vilifying BAC while siding with the likes of drtKitten. In the field of arrogant dogmatics drtKitten is at least the equal of BAC.

Yes, but the difference is that my citations actually back up the point I'm trying to make.

 

[YoPopa]

Too true, Too true.

Although some people complain even when it is the "right" hammer wielded by the wrong party.

IMHO, there is no right hammer as they are being argued by the two sides here represented. A much bigger stimulus hammer or a much bigger tax cut hammer are equally inane. We need to start considering some new tools.

 

[drkitten]

IMHO, there is no right hammer as they are being argued by the two sides here represented. A much bigger stimulus hammer or a much bigger tax cut hammer are equally inane.

Well, that's certainly an opinion, but I'd want to see some better evidence than simply the desire to declare "a pox on both your houses" before I agreed.

From a standpoint of economic theory, "money supply" can only go in two ways -- up or down. The idea that there's a third alternative is ludicrous. If all you're arguing for is that we should have a more effective stimulus (a smaller hammer that is more likely to hit the nail and not the entire drywall), then we're not really in disagreement. Of course, this also is what "the left" has been arguing for some time. The simple fact is that tax cuts aren't very effective as a Keynesian stimulus under these circumstances.

 

[YoPopa]

Well, that's certainly an opinion, but I'd want to see some better evidence than simply the desire to declare "a pox on both your houses" before I agreed.

From a standpoint of economic theory, "money supply" can only go in two ways -- up or down. The idea that there's a third alternative is ludicrous.

Is money supply the only thing needing remedy here? If you believe that then I can understand your perpetual insistence on its' increase by any means, including the manufacture of it.

 

[drkitten]

Is money supply the only thing needing remedy here?

Of course not, but it's a big part of it. If you're going to try to fix the economy without touching the money supply, you'll find it an "interesting" problem.

 

[YoPopa]

Of course not, but it's a big part of it. If you're going to try to fix the economy without touching the money supply, you'll find it an "interesting" problem.

We have already seen it to be an interesting problem despite touching it repeatedly, yet you remain convinced that touching it some more is called for.

I remain on the side that we've had too much touching in completely inappropriate places. We need new tools.

 

[BobTheDonkey]

We have already seen it to be an interesting problem despite touching it repeatedly, yet you remain convinced that touching it some more is called for.

I remain on the side that we've had too much touching in completely inappropriate places. We need new tools.

Such as?

 

[drkitten]

We have already seen it to be an interesting problem despite touching it repeatedly,

Actually, we haven't. Economists as early as late 2008 were pointing out that the problem appeared to be largely a repeat of the Great Depression and that the same technical fix (increase the money supply) would work. They also pointed out that the proposed stimulus was too small and and much of it was misdirected (for example, the third that was simply tax cuts); without doing a lot more demand-side stimulus to put dollars in the hands of people who would turn around and spend it on necessities to keep money circulating, we'd see deflation and economic stagnation.

Guess what? We saw deflation and economic stagnation!

I don't consider this to be particularly "interesting" at all. The economists nailed the problem, the likely outcome, and the appropriate solution two years ago. They were right.

From my perspective, this is no more "interesting" than when someone goes to a doctor with some kind of bacterial infection, and then refuses (on ideological grounds) to take the antibiotic the doctor prescribes. There's no real reason to go looking for "another tool" or some highly experimental treatment to treat a simple case of strep throat.

 

[YoPopa]

..... the proposed stimulus was too small.....

The hammer was too small. Gotcha.

 

[YoPopa]

Such as?

This is the important question. The answers will depend on what you understand the other problems in need of remedy to be.

Confidence is probably one we can agree on. I can only answer for myself as to what would increase my confidence in my ability to provide for myself. I've started one successful (very small) business and believe I could do it again except that the hurdles placed on me by governments from my local town all the way up the national level have made it not worth the trouble. I'd like to see some action that would make it easier for an individual to set up in business.

A paring knife is the new tool in this case.

BTW..I don't think there need to be any new tools invented. Just some old ones dusted off and put to good use.

 

[joobz]

We have already seen it to be an interesting problem despite touching it repeatedly, yet you remain convinced that touching it some more is called for.

I remain on the side that we've had too much touching in completely inappropriate places. We need new tools.

You seem to be in agreement with the catholic church, who also believes many problems arise from touching it too often.

 

[L The Detective]

LTD, I believe you are sincere in wishing to have this type of adult discussion but I caution that you are not going to get very far with it if you insist on vilifying BAC while siding with the likes of drtKitten. In the field of arrogant dogmatics drtKitten is at least the equal of BAC.

I don't insist on vilifying him. I just think he's unreasonable and hard to have a real conversation with, and his approach of spamming articles is terrible. DrKitten seems perfectly reasonable to me, opinionated maybe, but so many of us are. You also seem like a reasonable person.

In fact, it's refreshing to respond to anyone in this thread who is not BAC, because I suddenly feel like I'm actually talking to someone and not fighting against an attack robot. I'm pretty sure BAC would never say the words "I see your point..."

I see your point about never being able to be absolutely sure when it comes to politics but only in the sense of distinguishing between moral choices. Choices such as those posed by the questions "Am I my brother's keeper?" "Should people be free to fail?" "Are you responsible for your own choices?" Once you have decided on the answers to such questions then the relative effectiveness of one political action over another become much easier to assess.

Right. People's politics are based on their own personal values. Personally, I think that capitalism and socialism are both equally valid types of governments, both with their own strengths and weaknesses. My preferred type of government is one that mixes both ideas together, which is basically what our government does now.

 

[joobz]

The hammer was too small. Gotcha.

To be fair, Drkitten described a different hammer.

... the proposed stimulus was too small and and much of it was misdirected (for example, the third that was simply tax cuts); without doing a lot more demand-side stimulus to put dollars in the hands of people who would turn around and spend it on necessities to keep money circulating,...

Not just that it was too small.

 

[drkitten]

The hammer was too small. Gotcha.

Just because you don't like the answer -- which seems to be what your objection boils down to -- doesn't mean that it's not true.

Generally, I consider it to be a sign that someone knows what they're talking about when they can accurately predict the consequences of something. E.g., if my mechanic said "your fuel pump looks like it's going; if you don't get it fixed soon, the car's likely to overheat and start breaking down," and two months later, my car starts overheating and breaking down, I'm inclined to believe that the problem is in the fuel pump.

If my handyman said "it looks like you've got some leaves blocking your gutter; if you don't get rid of them, your roof will start leaking" and a few months later, my roof starts leaking, that suggest to me that my handyman knew what he was talking about.

So why is it different when a professional economist (or a group of them) says "if we don't use a bigger stimulus, we'll get stagnation and deflation" and then -- surprise, surprise -- we get stagnation and deflation?

 

[L The Detective]

Well, I think that's a bit over the top. If an idea appears to work worse, I have no problem saying that it's "wrong," especially if it works worse in a sufficiently strong sense that it provides negative value.

It probably is over the top. I didn't mean to imply that all political views are equal, or that we can't have meaningful discussions about who's ideas are better. Just pointing out that there is no objective wrong when it comes to political views, although of course someone can be wrong about facts.

If an idea appears to work worse, I think that the most you can say is that a person appears to be wrong... but that's semantics and not really important. I don't mind you or anyone in a political discussion calling someone "wrong."
Just so long as everyone recognizes the subjectivity in these views. It's like when I call you wrong for thinking the movie Magnolia is a bad movie... "wrong" is just a word that emphasizes my disagreement with you, I don't actually think that your taste in movies can be objectively wrong.

Well, the professionals have done that experiment. A temporary tax cut would generate about $1.03 in stimulus effect for every dollar "invested." By contrast, a long-term corporate tax cut would generate about $0.30 in growth per dollar, and making the Bush tax cuts permanent would generate even less. By contrast, every dollar spent on food stamps generates about $1.73 in stimulus, and every dollar spend on extending unemployment generates about $1.64. Of course, the numbers are a little dated now (2008), but newer numbers could easily be made available if anyone wanted to see them.

That's interesting. Yeah, I think I get why stimulus spending should in theory stimulate the economy more than tax cuts, because tax cuts are likely to be saved rather than spent. So basically stimulus is the government forcing money to circulate, as opposed to trusting people to circulate it on their own, which is not likely in a climate of "recession." Do I have that right?

 

[YoPopa]

To be fair, Drkitten described a different hammer.

Not just that it was too small.

Too small is the operative phrase. The fact that he also argues that "it was misdirected" while suggesting that more money and greater accuracy in it's direction is possible is incoherent. The only way such nonsense could be achieved would be if the nation was ruled by an elite aristocracy of wise and benevolent dictators. More money could only mean more misdirection.

 

[drkitten]

To be fair, Drkitten described a different hammer.

Not just that it was too small.

Thanks, but I'll own this one. The primary problem with the stimulus was indeed simply that it was too small. Even with the misdirected monies and the inefficiencies, a "bigger hammer" would still have had a larger effect, enough to pull the economy out of the deflationary slump that was the actual predicted effect of too small a stimulus.

YoPopa suggests that what is really needed is "some action that would make it easier for an individual to set up in business." I'd like to submit that that's exactly what he did see, but he didn't see enough of it.

What does he actually need in order to set up in business? Customers, and startup funding. Well, he's not going to get any startup funding if the banks aren't lending -- and the whole purpose of TARP was to break the credit crunch of late 2008 and get the banks lending again instead of just sitting on cash. And that bit of the stimulus largely worked, in that banks are now lending again (at all), but they're still being very cagey with their money. Putting more money into circulation -- creating moderate inflation -- would force banks to lend out more of their money because "just sitting on it" would actually lose them money. That's an argument not for a different stimulus, just for a larger one.

Similarly, customers : you can't sell things to people who don't have money to spend. People who don't have jobs and don't have income can't spend stuff. Giving people who don't have jobs a compensatory income -- whether that be through food stamps, or through unemployment benefits -- gives them money to spend, so they can afford to be YP's customers. The more money that gets put into circulation that way, the more money YP can tap into. Again, that's an argument simply for more stimulus, not for a different one.

And, of course, if more customers means more businesses created, it also means more jobs, and the unemployment problem fixes itself. The reverse is also true; the more people aren't working, the fewer customers existing firms have, and the more likely they are to have to continue cutting staff. Again, this is an argument simply for a larger stimulus....

Of course, we can tune the existing stimulus to make it more effective; raising the amount spent on food stamps and eliminating the tax cuts would have given a lot more bang for buck. (Rich people don't spend tax cuts, they bank them.... and banks aren't lending out much today. Poor people, by contrast, spend their food stamps.)

 

[drkitten]

Too small is the operative phrase. The fact that he also argues that "it was misdirected" while suggesting that more money and greater accuracy in it's direction is possible is incoherent. The only way such nonsense could be achieved would be if the nation was ruled by an elite aristocracy of wise and benevolent dictators. More money could only mean more misdirection.

Piffle. "Such nonsense" could easily have been achieved if a few Senate votes had gone the other way. For example, if the various bills to extend unemployment benefits had passed more smoothly (and in some cases, at all). Remember the numbers I cited? Every dollar of unemployment produces a buck-and-three-quarters of stimulus?

Similarly, we could simply double the amount of funding to WIC and produce a tremendous stimulus effect.

That doesn't requires "wise and benevolent dictators," but a simple one page funding bill.