The Stimulus Seems to have failed

[BobTheDonkey]

Parts of the New Deal did indeed provide jobs; other parts destroyed them. The other thing to keep in mind is what the jobs provided actually did. Simply providing jobs, is not in and of itself, going to improve the economy. The government could hire 5 million people right now to dig holes and immediately fill them again, and it would not improve the economy. That Which is Seen, and That Which is Not Seen: The Disbanding of Troops.

Some of the infrastructure improvements undoubtedly did contribute to economic growth, but many of the jobs were essentially make-work. The CCC essentially created what was to eventually become the state and national park system (which was a substantial gift to later generations), but it really didn't do much to provide for economic growth. Things like the TVA and the various dams built around the country certainly led to economic growth. The problem is that not all infrastructure expenditures create economic growth. If a perfectly serviceable road is torn up and repaved simply to provide temporary jobs, it has no benefit. If a giant rail siding is built in a location that has no use for it, it provides no economic benefit. I'm not sure how the construction of the Timberline Lodge^WP provided any economic benefit, at least not until The Shining was filmed.

I would argue that even make work jobs do provide economic benefit. They might not be producing goods, but they're increasing the amount of money flowing through the economy. Look, if there are 30 million unemployed, that's 30mil people that aren't spending. Less demand for goods, so now factories start ramping down production, thus increasing unemployment as they let go of employees they aren't using to save a few bucks.

On the other hand, when people have a job, even if it's digging a hole and filling it back in, they have money to spend - and not only that, they have/had (some kind of) confidence that they will/would be employed for some length of time to come. That's the basis of an economy. Unemployment numbers are important as a marker for the economy in that they represent not just how contracted the economy is, but also how many people have money to spend.

You're presenting the New Deal projects as being of no economic benefit merely because the products weren't all economically able to be sold - but the truth of the matter is, the New Deal product was jobs. In that, it was quite successful.

 

[MikeMangum]

this would suggest that it isn't spending that stimulates the economy, but logical investment/spending. Is this right?

Spending money on things that are good investments improves the economy. Spending money on make-work that doesn't actually produce anything of value doesn't.

an advantage of the war time spending wasn't simply in manufacturing capacity, but I'd also wager technological capacity. The know-how that resulted in the war time effort for better/faster machines resulted in engineering concepts that drove industry forward by leaps and bounds.

This might very well be true, but I would not want to be the one to try and quantity how much each of those two things played in later economic growth, beyond 'some'.

 

[MikeMangum]

I would argue that even make work jobs do provide economic benefit. They might not be producing goods, but they're increasing the amount of money flowing through the economy. Look, if there are 30 million unemployed, that's 30mil people that aren't spending. Less demand for goods, so now factories start ramping down production, thus increasing unemployment as they let go of employees they aren't using to save a few bucks.

You clearly didn't read the link to Bastiat.

 

[BobTheDonkey]

You clearly didn't read the link to Bastiat.

No, I read it. However, I fail to see how that concept applies to a depression where there is no work.

Gov't employment, surely, is better than no employment. And while your link does attempt to explain how that can be a negative approach - what is not explained is what happens to that soldier when he's released and there are no other jobs for him to work.

 

[joobz]

Spending money on things that are good investments improves the economy. Spending money on make-work that doesn't actually produce anything of value doesn't.

So, then, would you say that spending, in itself, isn't a bad strategy. Rather, a logical and concerted effort to spend on investments?

I must admit, I have a general understanding of what you mean by limiting consumption, but am having a hard time making a practical distinction.

Where does the line get drawn?
Is building a new addition to a house consumption or investment?

This might very well be true, but I would not want to be the one to try and quantity how much each of those two things played in later economic growth, beyond 'some'.

Fair enough. But in terms of investments, the technical capability is as important as the physical plant.

 

[joobz]

No, I read it. However, I fail to see how that concept applies to a depression where there is no work.

Gov't employment, surely, is better than no employment. And while your link does attempt to explain how that can be a negative approach - what is not explained is what happens to that soldier when he's released and there are no other jobs for him to work.

I think it a bad comparison to draw between "any work/no work"
It really should be
"Any work/no work/useful work"
If I understand Mike, The "any work" mentality provides short term gains, but no long term benefit (real benefit needed for economic growth) is developed.
Productive work, work that results in investment into the economy, is beneficial because it allows both the benefit of "any work" and the added benefit of the investment. In this way, you reap twice the benefits.

Since the cost of "Any work" and "useful work" is theoretically identical, it never makes sense to simply do a "any work" strategy.

Now, and here is the rub that I see, it isn't always clear what "good investment" actually is. We could invest all our efforts into manufacturing affordable electric cars. However, if nobody actually buys these cars (here and arround the world), that investment would be wasted and would be identical to digging a whole and filling it back in.

On the flip side, if we invested all our effort into nipple rings manufacturing, it would be a worthwhile investment if the entire world decided that nipple rings were the requirement for a peaceful society and bought from us in truck loads.

 

[BobTheDonkey]

I think it a bad comparison to draw between "any work/no work"
It really should be
"Any work/no work/useful work"
If I understand Mike, The "any work" mentality provides short term gains, but no long term benefit (real benefit needed for economic growth) is developed.
Productive work, work that results in investment into the economy, is beneficial because it allows both the benefit of "any work" and the added benefit of the investment. In this way, you reap twice the benefits.

Since the cost of "Any work" and "useful work" is theoretically identical, it never makes sense to simply do a "any work" strategy.

Now, and here is the rub that I see, it isn't always clear what "good investment" actually is. We could invest all our efforts into manufacturing affordable electric cars. However, if nobody actually buys these cars (here and arround the world), that investment would be wasted and would be identical to digging a whole and filling it back in.

On the flip side, if we invested all our effort into nipple rings manufacturing, it would be a worthwhile investment if the entire world decided that nipple rings were the requirement for a peaceful society.

Ok, I'll agree with that.

However, that doesn't support the argument that the New Deal hindered recovery. To this day, the US uses much of the infrastructure built by New Deal projects - including those parks (tourism industry). Therefore, these weren't simply "make work" projects.

Or is the only work that counts work that produces a product that can be sold?

 

[The Charnel Expanse]

Has anyone considered that the non-effectiveness of the Stimulus might simply be symptomatic of a political calculation on the part of major players in the private sector [many of whom are to the right of Genghis Khan] to basically freeze hiring until the next election cycle in order to forestall what they perceive as a harmful legislative agenda by a Democratic Administration?
I work for GE Healthcare. My office alone has hired at least a dozen new employees in the past quarter. And GE was among Obama's top corporate contributors during the '08 campaign [in the top-5 among non-banks according to OpenSecrets]. They have a vested interest in seeing Obama's agenda succeed. Other large corps... not so much. It's well documented that a lot of employers during this recession have been content with a smaller, more efficient workforce wherein the work of the absent 10-15% is done by the other 85-90%.

Seems to me like the only time in the past 40 years or so that we've seen significant growth during a Democratic administration was the Clinton era, which was bolstered by the dot-com revolution [bubble] and aided by "pro-business" economic policies engineered by the Rubin team.

Of course, many other factors are at play, a lot of which vary from region to region and state to state [Nebraska's unemployment rate, for instance, is only 4.7% thanks to an economy that's driven by the agricultural sector and the insurance industry]. But if you view big business as the engine of the American economy, then you have to consider the possibility that trickle-down becomes a self-fulfilling prophecy to business owners who are hostile to Democratic policies.

 

[MikeMangum]

I must admit, I have a general understanding of what you mean by limiting consumption, but am having a hard time making a practical distinction.

Think of corn. You are a farmer who just harvested corn. How much do you eat, and how much do you use as seed corn for next year? Or, in a modern context, how much of the proceeds of the sale of the corn goes to buy fertilizer, seed, labor, and gas for your equipment (and possibly additional land to farm) and how much goes to buying a flat panel TV, food, or a psychologist for your dog? Well, theoretically, if the dog is a working dog, and the pet psychologist helps you get more/better sheep herding out of the dog, that's an investment.

Where does the line get drawn?
Is building a new addition to a house consumption or investment?

That is generally going to be consumption, but it depends upon how the addition is to be used. If it used as a home office for actual work, it is an investment - if it used as extra space to store Start Trek collectibles, it is consumption (unless you run a Star Trek collectibles business!). Investment is something that helps you create more wealth. A tool is an investment; you purchase (or create) it to allow you to do work you could not do before, or to do more work in less time. Buying a big, beefy truck for your landscaping business is not the same as buying a big, beefy truck to compensate for a small penis. The same item is being used as a tool in the first case, and used by a tool in the second case.

Fair enough. But in terms of investments, the technical capability is as important as the physical plant.

Sure.

 

[BeAChooser]

I'd like to hear stimulus critics respond to this. Japan went into deficit spending right away, recovery was swift and profound, transforming the Japanese economy in a positive way.

See post #375. And I'm a little shocked that you would call gearing up to invade an innocent neighboring country for economic gain "positive".

The Netherlands insisted against deficit spending and was hit brutally by a long depression.

Once again, you are missing the forest due to ideological trees.

As pointed out here,

http://en.wikipedia.org/wiki/Great_Depression_in_the_Netherlands

the Netherland's refusal to drop the gold standard "plays a central role" in the length of their depression. As it states:

This subjected the Dutch economy to fierce foreign competition, forcing Dutch firms to strongly cut their costs in order to survive this situation. In the process wages and employment were cut, and the depression deepened. While the economic situation gradually improved in most industrialised countries around 1933-1934, the Great Depression was still getting worse in the Netherlands.

… snip …

When France finally decided to accept devaluation in 1936 the Netherlands had no choice but to follow. While the Netherlands had been so reluctant to drop the Gold Standard, it quickly brought an economic boost after years of decline. In 1936 the Dutch stock market started climbing again, trade slowly recovered and unemployment stopped growing [1].

http://www.econbrowser.com/archives/2005/12/the_gold_standa.html

Ben Bernanke and Harold James, in a paper called "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison" published in 1991 … snip … noted that 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth.

So you see, maybe it had very little to do with stimulus spending. Maybe recovery had more to do with eliminating the gold standard? But how does that help us now? We aren't on a gold standard now, so why aren't we seeing any improvement in our economy after over a trillion dollars in porkulus? Could it be wrong headed and misguided Keynesian, socialist spending? Do you think?

Chile attempted austerity measures and is veiwed as one of the countries hardest hit by the depression.

Yes, Chile got hit hard by the depression. Because it's markets dried up. About 80 percent of government revenue came from exports of copper and nitrates, which simply weren't in demand during the recession. In fact, nitrate and copper production fell to about 12% of the 1929 levels. And no amount of stimulus spending was going to fix that so why bother trying it? Nor is any amount of devaluation of currency going to fix that (so even though Chile went off the gold standard in 1931, that didn't help).

A second reason it got hit hard by the Great Depression are the protectionist policies the government enacted during the depression. According to http://www.scielo.cl/scielo.php?pid=S0717-68212003012100053&script=sci_arttext , the government, instead of letting the market work freely, intervened to a large and significant way. It created a rationing system for the limited availability of foreign exchange that became "a very inefficient and discretionary form of protectionism." As that source puts it, "These new instruments eventually acquired a life of their own, raising without consistency of any kind, effective protection and de-protection rates to extremely high levels and thereby distorting relative prices completely. As a result, the country was not able to take advantage of the significant exchange opportunities offered by the rest of the world … ."

And since you've decided to bring Chile into this debate, here's what a Chilean researcher has to say:

http://www.minneapolisfed.org/research/sr/SR421.pdf

The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century?

… snip …

Studying the experience of countries that have experienced great depressions during the twentieth century teaches us that massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression. Those who try to justify the sorts of Keynesian policies implemented by the Mexican government in the 1980s and the Japanese government in the 1990s often quote Keynes’s dictum from A Tract on Monetary Reform: “The long run is a misleading guide to current affairs. In the long run we are all dead.” Studying past great depressions turns this dictum on its head: “If we do not consider the consequences of policy for productivity, in the long run we could all be in a great depression.”

Look at Australia and New Zealand. Australia chucked out the strongest proponents of stimulus spending and had an agonizingly slow recovery.

Australia was another country that was extremely dependent on exports, so it's recovery was highly dependent on the rest of the world recovering first. That's again why going off the gold standard in 1931 didn't help whereas it helped other countries. Neither were the cuts in government spending that they tried in 1930 going to help because the root problem was no markets. But neither would increased government spending and debt really help. The country was already on the verge of defaulting on it's foreign debt. Even Obama is not recommending we stimulate to the point we default. Much of 1931 and 1932 in fact was spent in political chaos as various political factions vied for dominance. Being highly dependent on exports of wool, wheat and meat, and the government creating an uncertain climate internally, is the root reason why Australia didn't recover sooner than it did. Not lack of a stimulus. In fact, it began to recover (in 1933) as soon as the export market also began to recover and no sooner.

New Zealand voted in a labor Government in 1935 that heavily increased spending and raced to recovery while Australia still stagnated.

Finally, New Zealand, like Australia was also dependant on exports. And like Australia, it's economy also began to recover in 1933 as exports increased. There is nothing necessarily to suggest that a stimulus applied in 1935 speeded up that recovery. One could just as easily claim that it hindered what would have been and even better recovery.

Here, I'll let some New Zealanders speak:

http://www.teara.govt.nz/en/economic-history/7

During the depression there was much criticism of economic policy, which restricted government spending, devalued the currency, cut nominal wages and reduced interest rates and the value of mortgages. Subsequent assessments view these measures as broadly necessary, but suggest that the burden of adjustment could have been more fairly shared. The government was unable to prime the economy through deficit financing because monetary conditions were determined offshore.

… snip …

While the Labour government elected in 1935 was thought to have saved New Zealand from the great depression, the domestic and world recovery was under way before it took office.

See?

 

[BeAChooser]

Anyone tries to claim that other policies ended the GD, ignoring that the New Deal provided jobs for millions of workers that otherwise would have remained unemployed, while providing the infrastructure that was so beneficial to the war production/growth is just sticking one's fingers in their ears and screaming "I can't hear you" over and over.

LOL! This is the same silly argument that proponents of stimulus on this thread are using to claim it's success. That because it created *some* jobs, it must be viewed a success. Just ignore the possibility that without the stimulus there would have been far more jobs created. And based on the exchange I've had on this thread, I think it is clear that *someone* does have fingers in his ear and is screaming "I can't hear you". You, Bob. You, Cavemonster. You, lomiller. Shall I go on?

 

[BeAChooser]

The government could hire 5 million people right now to dig holes and immediately fill them again, and it would not improve the economy.

Or repave roads that really didn't need them, as I've witnessed them doing a time or two recently.

Some of the infrastructure improvements undoubtedly did contribute to economic growth, but many of the jobs were essentially make-work.

And some of the infrastructure improvements are actually job destroying. A lot of this green job nonsense being pushed with stimulus money certainly qualifies. The experience of countries like Spain is that in net terms their venture into green jobs actually cost several jobs for every one created (http://www.heritage.org/research/energyandenvironment/wm2795.cfm ).

 

[joobz]

Or repave roads that really didn't need them, as I've witnessed them doing a time or two recently.

This is a rather subjective view.
Roads require repaving. The only question is on what time cycle do you conduct the repaving? Do you do it when it's falling apart, posing a risk to the people driving on it, or do you do it before that happens?

Obviously, there's a sweet spot, but are you qualified to state when that is?

And some of the infrastructure improvements are actually job destroying. A lot of this green job nonsense being pushed with stimulus money certainly qualifies. The experience of countries like Spain is that in net terms their venture into green jobs actually cost several jobs for every one created (http://www.heritage.org/research/energyandenvironment/wm2795.cfm ).

that requires a very narrow definition of what a green job is.

green jobs also include sustainable manufacturing/Lean manufacturing, which is in line with cost savings. GREEN Jobs can also include solvent flexibility in pharmaceutical production, allowing a company to switch solvent use based upon cost and environmental impact. These abilities all result in jobs as they actually increase company profits.

 

[BeAChooser]

I would argue that even make work jobs do provide economic benefit.

You must still have your fingers in your ears, Bob, because you are not listening to what we are saying. For example ...

On the other hand, when people have a job, even if it's digging a hole and filling it back in, they have money to spend

As has been noted, for every dollar the government hands those people to spend, at least a dollar must be taken away from someone else, who then can't spend it. Net gain. ZERO, NADA, ZIP.

You're presenting the New Deal projects as being of no economic benefit

No, MM (and I) are presenting the New Deal (and Obama's Stimulus) projects as being of LESS economic benefit than just letting people keep their money and spend it themselves. I (and MM) are saying just let the free market fix the problem using it's tools instead of having the government intervene ... because the market has been demonstrably more successful over the last 100 years or more than the government at doing that (as I've demonstrated with repeated examples that you apparently haven't heard because you have your fingers in your ears and you're screaming "I can't hear you" ).

 

[BeAChooser]

Has anyone considered that the non-effectiveness of the Stimulus might simply be symptomatic of a political calculation on the part of major players in the private sector [many of whom are to the right of Genghis Khan] to basically freeze hiring until the next election cycle in order to forestall what they perceive as a harmful legislative agenda by a Democratic Administration?

Take it to the conspiracy section because that's where it belongs. That comment just shows you REALLY don't understand business and the free market.

Seems to me like the only time in the past 40 years or so that we've seen significant growth during a Democratic administration was the Clinton era, which was bolstered by the dot-com revolution [bubble] and aided by "pro-business" economic policies engineered by the Rubin team.

LOL!

 

[The Charnel Expanse]

It's not a conspiracy theory because there's no conspiracy mentioned.
Here are the definitions of a conspiracy:

con·spir·a·cy
   /kənˈspɪrəsi/ Show Spelled[kuhn-spir-uh-see] Show IPA
–noun, plural -cies.
1.
the act of conspiring.
2.
an evil, unlawful, treacherous, or surreptitious plan formulated in secret by two or more persons; plot.
3.
a combination of persons for a secret, unlawful, or evil purpose: He joined the conspiracy to overthrow the government.
4.
Law . an agreement by two or more persons to commit a crime, fraud, or other wrongful act.
5.
any concurrence in action; combination in bringing about a given result.

Individuals making self-interested decisions is the basis of a free market, and is the opposite of a conspiracy. You of all people should understand that.

And frankly, your cherry-picking of paragraphs to respond to speaks very poorly of you.

 

[joobz]

It's not a conspiracy theory because there's no conspiracy mentioned.
Here are the definitions of a conspiracy:

Individuals making self-interested decisions is the basis of a free market, and is the opposite of a conspiracy. You of all people should understand that.

And frankly, your cherry-picking of paragraphs to respond to speaks very poorly of you.

Yes, but you are also assuming that these people will place political ideology over profit. For someone in business, that's not bloody likely.
I see no reason to think lack of job growth is because of bizarrely motivated hiring freezes.

 

[joobz]

No, MM (and I) are presenting the New Deal (and Obama's Stimulus) projects as being of LESS economic benefit than just letting people keep their money and spend it themselves. I (and MM) are saying just let the free market fix the problem using it's tools instead of having the government intervene ...

Are you sure that's what the data shows?
How does "Massive new expenditures [by the government to support a war] on infrastructure and capital plant and concomitant massive reductions in expenditures on consumption - remember, there was substantial rationing during the war" equate into "letting the free market fix the problem"?

 

[ServiceSoon]

Take it to the conspiracy section because that's where it belongs. That comment just shows you REALLY don't understand business and the free market.

I've actually wondered the same thing. I've reasons for this. I'm not crazy.

On a different note, you've shown examples, but would you care to explain WHY you think gov stimulus stifles recover?

 

[ServiceSoon]

Yes, but you are also assuming that these people will place political ideology over profit. For someone in business, that's not bloody likely.
I see no reason to think lack of job growth is because of bizarrely motivated hiring freezes.

I wonder if the political ideology helps them pocket more money? See where I'm going? Do you want to go there with me?