Attn:SS Economists

[ColoWayno]

http://nationalaffairs.com/publications/detail/crisis-economics


This is a simple point, but one that is easy to forget. As Milton Friedman once put it: "The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible' and then to recommend it."

Tax Cuts vs Govt. Spending:
It seems to me to boil down to the power of millions of individuals each making economic choices in their own best interest vs. the power of a central government pulling the strings and rewarding who they will.

What do our SS Economists think?

[rdp]

At the moment, the question is what is the most likely to get the economy moving and unemployment down. The answer is different today than it would be when the economy is booming.

You want the most bang for your govt buck. That means sending out money that will go for hiring (including direct hiring) and that will circulate rather than being saved. People, especially wealthy or higher income people, tend to save some of the money sent to as tax cuts. Hiring someone to build a bridge puts that person to work and gives them money they will spend rather than save.

Economists talk about multipliers - how much will GDP increase for each dollar spent. General tax cuts have low multipliers, there are many examples of spending that have higher multipliers.

There are roads that need repair, police and fireman that need to be working, etc. These require govt spending (I realize there's the odd exception).

When the economy is not in recession, govt borrowing and spending might crowd out private activity often by raising interest rates, which can be a bad thing. We don't have that problem at the moment.

An often overlooked point is that there has been no net govt stimulus spending. Stimulus spending by the feds has been more than offset by budget cuts at the state level.

[ColoWayno]

The article linked does what appears to be a pretty fair analysis of the assumptions regarding multipliers... and how little we can really know given the side effects and incentives (or disincentives) created by any govt. action.
The conclusion I saw was that many of the assumptions being made are likely to be significantly wrong and a case is made for why tax cuts should be considered as possibly more effective.
It seems like common sense to me, but I'm not an economist.

The author, though, is a Harvard economist for people who think that's important.

[TrackJunkie]

I hardly think building up our nation's infrastructure is equivalent to two neighbors paying eachother $100 to dig and fill up a hole in the backyard.

[ColoWayno]

I hardly think building up our nation's infrastructure is equivalent to two neighbors paying eachother $100 to dig and fill up a hole in the backyard.

There's a question as to how much of that has been done or even started.
I think he was trying to illustrate the point below in answer to the question of whether the government is capable of spending money fast enough to impact the economy, and spend it on things of value.


Chief among these considerations is whether government can spend money both quickly and wisely.

I would contend that (as stupid as a lot of us consumers are) we can, individually make better choices with money we earn than an enormous bureaucracy.

[SeanL]

I hesitate to stick my toes into these waters, but...

Our government was designed to facilitate economic growth and personal freedom/responsibility. It should be much like a sports officiating crew, i.e, "if you notice them, they're not doing their job right". Over the past 100 years the US gubment has been about as subtle as a 3 ring circus.

It doesn't really matter, according to our Constitution, who can spend the money more efficiently. The monies are "ours" and are being taken by force and largely used to fund projects that the founders of our nation specifically warned against.

Personally, as a man who wants to open a small business, I have no faith that the "rules" apply anymore. Over the past 2 years I've seen them arbitrarily changed, and not in ways that encourage me to start my business. So I'm sitting on my capital, rather than investing it in said business.

All that being said, we do get the government we deserve. Perhaps if our people "fixed" their own economic policies, we could vote in representation that would repair the nation's?

[TomC]

I would contend that (as stupid as a lot of us consumers are) we can, individually make better choices with money we earn than an enormous bureaucracy.

I think you can find many examples of just that. However, the idea that the government can never do anything correctly is not true either.

[foosion]

The author, though, is a Harvard economist for people who think that's important.
The author was head of Bush's council of economics advisers, for those who think that's important.

He's one of the less crazy of those with a highly political agenda, but he has a definite political agenda. His economics textbooks aren't all that bad, but many of his recent writings and op-ed pieces are rather tenditious.

[foosion]

I would contend that (as stupid as a lot of us consumers are) we can, individually make better choices with money we earn than an enormous bureaucracy.
If it was up to consumer spending, how would we have roads, bridges or an army?

[SeanL]

If it was up to consumer spending, how would we have roads, bridges or an army?

You're right. As provided for by the Constitution, to facilitate trade and provide for the national defense. Where does forgein aid, welfare, social security, WIC, food stamps, neverending unemployment, tax refunds greater than tax paid, etc. fit in?

[foosion]

You're right. As provided for by the Constitution, to facilitate trade and provide for the national defense. Where does forgein aid, welfare, social security, WIC, food stamps, neverending unemployment, tax refunds greater than tax paid, etc. fit in?
The usual source is Article I, Section 8, which begins:


Section 8. [1] The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

[2] To borrow money on the credit of the United States;

[3] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

[SeanL]

The usual source is Article I, Section 8, which begins:

Yeah, that whole "general welfare" gets pretty broadly interpreted doesn't it?

[SeanL]

I knew better than to get into this discussion, but couldn't help myself. No one's mind is going to get changed, and we're all entitled to our opinions, so I'll back away slowly :-)

[foosion]

Yeah, that whole "general welfare" gets pretty broadly interpreted doesn't it?
Yes. "general" is a rather general term.

[skadefryd]

It doesn't really matter, according to our Constitution, who can spend the money more efficiently. The monies are "ours" and are being taken by force and largely used to fund projects that the founders of our nation specifically warned against.

I am wondering which "founders" you are referring to. After all, the founders of this country were a very diverse group of individuals who seldom saw eye-to-eye on many matters. Certainly you are not referring to Thomas Paine, for example, who advocated public works projects funded by (among other things) a steep estate tax. I am reasonably sure some of these founders were influenced by Adam Smith, the father of capitalism who advocated progressive taxation.


Personally, as a man who wants to open a small business, I have no faith that the "rules" apply anymore. Over the past 2 years I've seen them arbitrarily changed, and not in ways that encourage me to start my business. So I'm sitting on my capital, rather than investing it in said business.

All that being said, we do get the government we deserve. Perhaps if our people "fixed" their own economic policies, we could vote in representation that would repair the nation's?

Both liberal- and libertarian-minded people should agree that something is very fucked in the system. We are collectively the victims of an ongoing government-aided transfer of wealth away from the lower classes and toward the super-rich, and we have been for a long time.

[rdp]

The spending-heavy fiscal stimulus, they argue, was the right approach and did some good; if the stimulus bill had not been enacted, unemployment today would be even higher. The reason the stimulus failed to cure the economy's woes is not that it was the wrong course of treatment: It simply wasn't a big enough dose. (Hence the repeated calls for a "second stimulus.")
This is about as far as I read.

As I said earlier: there has been NO net stimulus by government in the US - increased fed spending has been offset by decreased state spending. The net effect is approximately zero (slightly negative, actually).

In other words, we have not really tried stimulus spending. All we've done is prevent that state level contraction from having a worse effect on the economy and unemployment. Hard to argue that stimulus is ineffective if there hasn't been any stimulus.

[xzcion]

I hardly think building up our nation's infrastructure is equivalent to two neighbors paying eachother $100 to dig and fill up a hole in the backyard.


This reminded me of an article about how NOT spending money on improvement and maintenance increased GDP. The argument being that more money will be spent on repair than the savings made by decreasing spending on improvement and maintenance. It was in the context of national welfare metrics as well as national economic metrics being used to determine the 'health' of the ecomony. I.e. not 'are we richer?' but 'are we living better?'.

Which reminds me of another site: www.gapminder.org
Asking gapminder to plot some of the 'living better' stuff against the 'richer' stuff reveals some very interesting correlations.

[ColoWayno]

This is about as far as I read.

As I said earlier: there has been NO net stimulus by government in the US - increased fed spending has been offset by decreased state spending. The net effect is approximately zero (slightly negative, actually).

In other words, we have not really tried stimulus spending. All we've done is prevent that state level contraction from having a worse effect on the economy and unemployment. Hard to argue that stimulus is ineffective if there hasn't been any stimulus.

So basically, the analogy of filling a hole created by another fits pretty well in this case.
This all could be used to bolster the point of how ineffective the govt is at spending to create stimulus. They have spent, and as you have pointed out the multiplier is < 1!
And how much has politics been used to decide where the money we've given to the states goes? No one knows the whole answer because states have their own political machines to begin with.
This all seems rather bad.

[gordonrumble]

I understand that this is very much a free-market/libertarian board, but I think that people in this thread might be interested in viewing things from the other side. Check this link out, specifically:

http://www.huppi.com/kangaroo/LiberalFAQ.htm

It has a pretty solid argument on how big a government might ideally be, and addresses a lot of myths I hear every day. I don't totally agree with everything that's said, but it definitely has opened my mind a bit.

[ColoWayno]

From the above link:


Mass education: This is probably the most remarkable example where the government overcame a market failure. Prior to the 1840s, the vast majority of Americans were illiterate. What few schools existed were private schools that educated boys only from the richest families.

We are quickly getting back to that illiterate state due to an imbalance of forces at work, even though the government basically runs schools.
Here's Governor Christie trying to deal with part of the problem:
http://www.realclearpolitics.com/vid...unch_you_.html



Finally, government is useful for correcting market failures. Economists define market failure as "an imperfection in the price system that prevents the efficient allocation of resources."

Hopefully no one really thinks perfection should be the standard here. Imperfections in price systems can be bad and sometimes we need laws and enforcers to bring things back in line. That said, does anyone think the imperfections in our governments power structure are less harmful? And even though I might make a mistake buying a car I'm able to start applying that lesson to my next purchase in a straightforward way.

Also, if we are comparing market forces to government forces, one thing I do when the market keeps screwing me is to stop buying from the screwer, reducing their presence. Reducing the size and role of government seems like a rational response to a profligate, negligent and irresponsible government.

[Patrick]

Meh, this thread reads like most other gov't/econ/religion threads: you found something you like and you're now arguing the viewpoint you started with. It's trading comments rather than discussing.

As for me, I don't know the best option. What I do know is that the article you linked as well as most of the civic dialogue on economic policy, is far, far too facile. One thing that behavioral economics has shown, without any doubt, in the last couple of decades is that Homo economicus -- that perfectly rational individual actor that all of the free-marketeers would have us imagine is making decisions on the household level -- is a fiction. We act emotionally in romantic transactions just as we do in economic transactions and a viewpoint that doesn't acknowledge that is, to me, inherently flawed. So to me, it's a useful question to ask: is a government with a rationally justified economic policy -- one that is divorced from the impulse of transient urges -- better than an economy that is driven by the activity agents who are, some of the time, irrational? We find an organized military to be helpful after all, and it's a pretty huge and vital aspect of our state. So clearly top-down organization can work in some instances. Why not here... why is total freedom the only answer when it comes to economics?

The problem is that this is a holy war now and it's a question of Red Team versus Blue Team; no one gives any ground or admits it doesn't know the answer to tough questions.

So yeah, to you it comes down to whether government or people can best spend a person's money, and it seems rational and obvious that reducing government is the way to go... but you thought that before you read the article. Probably the same with the last ten articles. My question is, why bother reading anymore?

[xzcion]

My question is, why bother reading anymore?

Because it's fun to feed the trolls?

And by reading the extremes of various ideologies, or any other propaganda that rewrites/ignores history, you can learn to scoff at both sides and nod your head when a valid point is made amougnst the silly bullshit. This can be fun.

We have seen what happens when there is too much regulation, and we have seen what happens when there is too little. What our opinions on where the balance is found will vary. And that's good. Debate will roil on to various degrees, threads will come, have a brief spurt of life and then die.

Who knows, all this *gestures at the past 3 pages* may actually lead someone to forming their own opinion instead of parrotting! gasp! shock! horror!

[ColoWayno]

One thing that behavioral economics has shown, without any doubt, in the last couple of decades is that Homo economicus -- that perfectly rational individual actor that all of the free-marketeers would have us imagine is making decisions on the household level -- is a fiction. We act emotionally in romantic transactions just as we do in economic transactions and a viewpoint that doesn't acknowledge that is, to me, inherently flawed.

I think everyone acknowledges this... part of it is an issue of individual freedom. Is it rational to buy a sweet vintage guitar just because you like it? If you can afford it then who is to say? What if you are struggling to put food on the table for your kids? Well, our government "improves" the situation by allowing you to make this purchase while taking other peoples money to feed your kids (I have witnessed this myself). How can we expect rational consumers when we've removed the need to be rational?

Do you really think that all free market advocates use perfect consumers as a standard in their assumptions? Do you really think that all free market advocates want no government and no laws?

Sorry you don't think this is a good discussion. Thanks for dipping your toe in.

[ColoWayno]

Because it's fun to feed the trolls?
*Making nummy tummy sounds*



Who knows, all this *gestures at the past 3 pages* may actually lead someone to forming their own opinion instead of parrotting! gasp! shock! horror!

Could happen.

[ColoWayno]

So to me, it's a useful question to ask: is a government with a rationally justified economic policy -- one that is divorced from the impulse of transient urges -- better than an economy that is driven by the activity agents who are, some of the time, irrational?

I think this kind of government is as much of a unicorn as a rational consumer.

At least irrational consumers have fun for a while.

[rdp]

So basically, the analogy of filling a hole created by another fits pretty well in this case.
This all could be used to bolster the point of how ineffective the govt is at spending to create stimulus. They have spent, and as you have pointed out the multiplier is < 1!
Huh? How could the fact that there is no increase in govt spending be used to show that increased govt spending is ineffective or be used to draw any conclusions on multipliers?


And how much has politics been used to decide where the money we've given to the states goes? No one knows the whole answer because states have their own political machines to begin with.
This all seems rather bad.
I hate to be the first to break this to you, but actions by politicians are political. The question is not whether an action is political; the question is whether it's good or bad.

[ColoWayno]

Huh? How could the fact that there is no increase in govt spending be used to show that increased govt spending is ineffective or be used to draw any conclusions on multipliers?

They chose to spend it fixing state budget problems. That was supposed to stimulate the economy, right? I remember them saying you could spend the money on just about anything.



I hate to be the first to break this to you, but actions by politicians are political. The question is not whether an action is political; the question is whether it's good or bad.

So, which do you think it is?

[rdp]

They chose to spend it fixing state budget problems. That was supposed to stimulate the economy, right? I remember them saying you could spend the money on just about anything.
They have not spent it fixing state budget problems. This specific issue has been in the news in the last week or two.

Let's try this: I say that increased govt spending will do X. Govt part A then spends $1 billion more. Govt part B then spends $1 billion less. X does not happen.

My claim is that X did not happen because the govt did not increase spending. Your claim is that part A increased spending, so it show I was wrong.
.

[ColoWayno]

They have not spent it fixing state budget problems. This specific issue has been in the news in the last week or two.

Let's try this: I say that increased govt spending will do X. Govt part A then spends $1 billion more. Govt part B then spends $1 billion less. X does not happen.

My claim is that X did not happen because the govt did not increase spending. Your claim is that part A increased spending, so it show I was wrong.
.

I'm not saying you are wrong, and I guess I'm not up on the particular issue you alluded to. We agree that the plan outlined above is ineffective, right? Like filling in a hole created by another. It nets nothing.
So what is the govt. doing then? And what about the original argument that tax cuts could very well be more effective (Doesn't it seem they would have been more effective by now than the plan you described, which apparently is our current plan?).

[rdp]

What is the govt doing? Pretending that current deficit spending is more important than jobs. In other words, nothing. Part A was pouring water into the bucket, part B continues to empty the bucket. I'd recommend filling the bucket.

The fed stimulus was 40% tax cuts. What does that tell you?

If the choice is between tax cuts and nothing, I'd go for tax cuts, so long as they are properly designed. The key would be targeting those who are more likely to spend (generally low income), because we don't really need increased saving at the moment. We need more people buying stuff.

As an example of the wrong way to cut taxes, I wouldn't do what NJ just did:
According to the nonpartisan Office of Legislative Services, a retired couple living on a fixed income of $40,000 would see an increase of $1,320 in taxes under the governor's plan while a family making $1.2 million would receive a tax cut of $11,598.http://www.reuters.com/article/idUSTRE65J1NQ20100620

BTW, do you have a good handle on basic macro, say on the intro college textbook level? A good handle on economic history over the last 80-100 years, including current events?

EDIT: here's the first thing I found on state cuts offsetting fed increases:
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/18/AR2010061803289.html

[strengthstarter]

We are quickly getting back to that illiterate state due to an imbalance of forces at work, even though the government basically runs schools.

Really? Our literacy rate is 99%. Looking at some data, literacy rates look pretty stable, too: http://nces.ed.gov/programs/digest/d09/tables/dt09_386.asp

Reading scores of 4th, 8th, and 12th graders look pretty stable too: http://nces.ed.gov/programs/digest/d09/tables/dt09_123.asp?referrer=report

[ColoWayno]

Really? Our literacy rate is 99%. Looking at some data, literacy rates look pretty stable, too: http://nces.ed.gov/programs/digest/d09/tables/dt09_386.asp

Reading scores of 4th, 8th, and 12th graders look pretty stable too: http://nces.ed.gov/programs/digest/d09/tables/dt09_123.asp?referrer=report

Hmmm, I'm getting (104) Connection reset by peer on both of those links. Certain things are blocked from where I'm at.

Thanks though.

[ColoWayno]

What is the govt doing? Pretending that current deficit spending is more important than jobs. In other words, nothing. Part A was pouring water into the bucket, part B continues to empty the bucket. I'd recommend filling the bucket.

The fed stimulus was 40% tax cuts. What does that tell you?

If the choice is between tax cuts and nothing, I'd go for tax cuts, so long as they are properly designed. The key would be targeting those who are more likely to spend (generally low income), because we don't really need increased saving at the moment. We need more people buying stuff.

As an example of the wrong way to cut taxes, I wouldn't do what NJ just did: http://www.reuters.com/article/idUSTRE65J1NQ20100620

BTW, do you have a good handle on basic macro, say on the intro college textbook level? A good handle on economic history over the last 80-100 years, including current events?

EDIT: here's the first thing I found on state cuts offsetting fed increases:
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/18/AR2010061803289.html
Thanks. I'll check out your links.
As far as my knowledge, I've never studied economics.
I did just read quite a bit of this the other day. If you think I'm insane, it will probably explain why.
http://econfaculty.gmu.edu/wew/misc/EconomicsForTheCitizen.pdf

It generally fits in with my world view and the guy has a sense of humor.
Just for example: He doesn't believe Keynesian policies helped during the great depression. He believes they extended it if anything.

[ColoWayno]

At least that article recommends state spending over federal spending. The closer to the represented the better in my mind.

What do you think about the part of the original article I linked that suggested that in order to spend both quickly and wisely, the individual tax payer could do better than the Federal Government?

Could the government spend 700 billion fast enough and have it be worthwhile spending. There was a lot of talk back when they were doing all of this about how it didn't matter what we spent the money on. What do you think of that idea?

[ColoWayno]

http://www.youtube.com/watch?v=vjH4QBSwWlg&feature=related

Milton Friedman explaining capitalism