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Jon Chait defends waste in the stimulus package
Read him here, commentary from Matt Yglesias. I know all about Keynesian ditch-digging but we should keep a few points in mind:
1. Some of these expenditures will end up being permanent or at least long-term.
2. Government expenditure does increase monetary velocity in a way that boosts aggregate nominal demand. But these higher velocity effects may not last for more than a single round of spending, which is to say they won't last long at all.
3. The second- and third-round stimulative effects of productive investments are much greater. Production begets further production through the complementarity of the capital structure and through its ability to create profitable, sustainable jobs.
4. A lot of the stimulus will shift people from one job to another, rather than simply employing the current unemployed. We really don't want to take people from producing something useful to producing something wasteful.
5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight. Somehow those old narratives are being forgotten, I wonder why.
Posted by Tyler Cowen on February 12, 2009 at 02:02 PM in Economics | Permalink
Comments
"Somehow those old narratives are being forgotten, I wonder why."
As Lenin said, the essential question is always "Who? Whom?"
Posted by: Steve Sailer at Feb 12, 2009 2:40:50 PM
"Somehow those old narratives are being forgotten, I wonder why."
Wonder no more, Tyler. They aren't being forgotten, they are being IGNORED.
The first rule of economics is everything is scare. THe first rule of politics is to ignore
the first rule of economics. An adjunct is conspicious benefits and hidden costs.
Keynes made fiscal imprudence not only acceptable, but virtuous.
Posted by: Superheater at Feb 12, 2009 2:53:24 PM
An issue that I haven't seen mentioned is the amount of effort by individuals and corporations that will be committed to maintaining or increasing the flow of government funds, efforts diverted from normal productive free market activity.
Posted by: Jim Gannon at Feb 12, 2009 3:36:53 PM
"A lot of the stimulus will shift people from one job to another, rather than simply employing the current unemployed."
I think much would be learned from unemployed construction workers doing health care IT, and unemployed IT workers replacing bridges that are decaying. Sure, the IT workers will need to go back and replace the systems setup by construction workers, and construction workers replace the badly built bridges the IT workers did, but both groups will have a greater appreciation for the work of the others.
"Many on the left are boasting that the U.S. government could borrow lots more...."
Vice-President Dick Cheney said "Reagan proved deficits don't matter."
And conservatives complain that liberals never learn anything from conservatives.
I suppose the frustration is the theory that when conservatives plan deficits funding the Keynesian wasteful spending like destroying a civil society and building $40M prisons and such the Iraqis don't want, this is virtuous. But when liberals propose rebuilding crumbling bridges and schools, this is wasteful because private corporations are denied the opportunity to do this work without cost to the taxpayers. Unfortunately, the corporations and individuals in Minnesota didn't get the message they needed to spend their tax cuts on things that matter to them, like the I-35W bridge, and in the end Congress earmarked borrowed money to replace the bridge that failed because taxpayers didn't wisely spend their tax cuts.
Posted by: mulp at Feb 12, 2009 3:36:53 PM
Shouldn't we be focusing on how to help workers move from bubble industries to someplace where they can perform work of value? As long as workers are employed to do unsustainable tasks (i.e, stim pork) we can never find the new balance that will signal the end of the crisis.
Posted by: Larry at Feb 12, 2009 4:03:12 PM
isn't this the same guy who wrote a book dismissing supply-side economics as a crackpot theory? if believing that cutting taxes, without regard to what is happening on the expenditure side and without regard to who is benefiting from those cuts, has the magical ability to solve economic problems makes one a crackpot, then how is chait not a crackpot for believing in the magical power of government deficit spening, without regard to where that money is going and whether it's effective or not?
Posted by: jr at Feb 12, 2009 4:19:16 PM
Yglesias is a smart guy. But this is ludicrous stuff. If you pay people to do something that has no value (let's use the ditch digging) then you've converted something valuable (their labor) into something not valuable (a ditch that has been refilled). That is value destruction, kinda not what you want in a recession. Even unemployed, they surely were doing something -- watching tv, playing with their kids, fixing up their homes. Now we prevent them doing that to achieve a non-ditch. The complete lack of awareness that what matters isn't money is amazing.
If we take Yglesias' last line:
"The efficacy of stimulus as stimulus just has to do with how quickly the funds cycle into private hands and then out into the wider economy and has relatively little to do with “efficiency” in an ordinary sense."
Then surely simply cutting people checks and mailing them would be vastly superior to any system of public works or whatever the stimulus contains.
And, according to that logic, what would have been even better stimulus would've been leaving the money in their hands to begin with, so that whatever multiplier associated with "then out into the wider economy" would've been working since last April 15th. "The velocity of money?" This would be time-traveling money. It would've been moving so fast it would have been stimulating the economy in the past!
This is all crazy talk. Keynes' ditch digging metaphor is the touchstone for the cluelessness of thinking about "money" instead of the things money represents. It's for us to stand back and look at, thinking: "how could such a smart guy believe something so obviously crazy to even a three year old?" Not, "gee, maybe he was onto something there - go get me a shovel and a hundred dollar bill."
Posted by: Brian Moore at Feb 12, 2009 4:32:45 PM
fiscal conservatives don't like the stimulus plan because it's risky to spend this much money this quickly without knowing exactly what we're going to get in return; this should be expected, because conservatives generally don't like government spending. liberals defend the stimulus plan, because they claim the risk in doing nothing outweighs any efficiency concerns; this should also be expected, because liberals generally do like government spending.
this seems like a time that we should really be paying attention to those people employing counter-cyclical ideology, that is conservatives who favor the stimulus and liberals who don't. are there people like this out there? is alice rivlin one? who else?
Posted by: jr at Feb 12, 2009 4:58:37 PM
Let me get this straight. Now Mulp, oozing leftist poppycock tells us Saddam's Iraq was a "civil
society? Whatever one's opinion of the advisablity or execution of the war, what kind of brain damaged
idiot would make that claim.
Of course, the rest of the post reads like he feeds every morning like a bird, imbibing whatever
the left-wing regurgitant is force fed down his gullet, so maybe he's brain dead.
Posted by: Superheater at Feb 12, 2009 5:21:02 PM
Chait:
World War II was an effective stimulus that, economically speaking, consisted of 100 percent waste. If war hadn’t broken out, we could have enjoyed the same economic benefit by building all those tanks and planes and dumping them into the ocean.
It’s not that cut and dry at all. Some other major differences were:
-An enormous chunk of the normal workforce (young men) was overseas fighting a war. While “employed” in a manner of speaking, they were not counted as part of the workforce. This is the main reason employment dropped so low.
-price and wage controls along with rationing of goods
-people were not really consuming at normal time rates because of the rationing and controls.
All of this created a great deal of pent up demand and a barrage of consumption after the war as wages and prices moved more freely once the controls were lifted.
Add in that that most of the industrialized was in ruin after the war and you have a perfect storm. None of these factors by themselves would have had the end effect that was seen. It was compounding effect of all of them.
Posted by: John V at Feb 12, 2009 5:27:00 PM
1. I haven't seen government change much as a percentage of gdp. I doubt we will.
2. Granted, and it will take time for the economy to transition, but helping the transition is positive. 3. Expenditures that save money in the future are very desirable as those that increase our productive capacity. These are not necessarily all private.
4. Keeping them employed as opposed to unemployed. If those were really productive jobs with a need, they would keep or replace them.
5. And many on the right ignored imbalances for years considering them a free lunch. Well it wasn't free, and proclaiming poverty when the bill arrives isn't going to wash with management. You already incurred the cost.
Posted by: Lord at Feb 12, 2009 5:52:30 PM
Since almost all the jobs created by this bill are designed to aid "families" like Nadya Suleman's, this bill needs a name.
The Octomom Stimulus Bill of 2009
Posted by: Sweating Through Fog at Feb 12, 2009 6:36:40 PM
Every economic theory has its good points and bad points, and you'll find plenty of "Nobel Prize Winners" with very divergent theories on what works best. I'd be interested to know what if any difference there is in economic terms for the following scenarios:
1. GOP president/Dem congress (such as Reagan)
2. GOP president/GOP congress (GW Bush, mostly)
3. Dem president/GOP congress (Clinton, mostly)
4. Dem president/Dem congress (Carter, et. al.)
With regard to this "stimulus" -- it's in reality just special project and program spending geared toward benefiting the Democratic voter base as a whole. Any jobs it creates would be targeted to traditionally Dem-leaning sectors and districts...or those which are seen as battlegrounds/important strategic pickups in the next major election cycles (2010, 2012). Tell me how the GOP base benefits in tangible terms for this expenditure?
Posted by: Mark Turner at Feb 12, 2009 7:57:24 PM
this is psychobabble, I admit, but only a man who never had or wanted children could say "in the long run we are all dead" and make intergenerational servitude a feature instead of a bug in his economic theory
Posted by: bababooey at Feb 12, 2009 9:43:40 PM
Look at the stimulus in terms of its impact on sectoral unemployment. Take a simple example. A massive sum is being spent on Health Care. But what is the level of unemployment in Health Care - 3.8%. What do the Democrats want? That it should be 1%? Education will get a gusher of money: are there thouands of teachers on the streets? And if there are people being laid off in the public sector why should they be targeted for special protection.
The current 8% unemployment ratio is an aggregate, and aggregates do not clarify they obfuscate. Look at sectors. Management & professional 4.1% - that presumably covers some of the public sector. Business and financial 4.6%. Professional and related 3.7%.
Then the sufferers. Services 9.1%. Sales 7.5%. Construction & maintenance 15.5%. Farming & fishery 23.3%. Construction & extraction 19.2%. Production 13.7% and Transportation 12.1%. This grotesque gap between occupations is going to get worse going forward.
So where are these people to find work? Where are all those hundreds of firms involved in energy efficiency (they don’t exist) where they can apply for a job? Can they do R&D on renewable energy? Perhaps they can gain expertise in weatherizing homes. But does the US economy want umpteen people weatherizing homes? The marketplace longer-term, even medium-term, might need these people to be elsewhere but government decrees that renewable energy is the place to be because the government knows better than the market what is needed.
In a word this Democrat stimulus promises to be a disaster for the US economy. It will be a disaster in general because it will misallocate resources that are already out of kilter because of the debt binge. And it will be a disaster because it will increase the trade deficit which impinges on US sovereign risk and the dollar, and Moodys now rates the US a vulnerable "AAA".
Posted by: Donald Last at Feb 12, 2009 10:27:40 PM
Mulp - you get it all wrong. Those corporations and the political pressure was to built out to the west of Mpls and to work on the 212/494 mess. I worked for the DOT back in the day and we were always short money but were pressured for "congestion relief" not repair. Unfortunately the idiots don't realize that land - ie space is finite to build highways and so did not take into account the need for more efficient use of space and corridors. Why is build-out more expensive? It's call condemnation proceedings or the cost of purchasing that finite real estate to widen to 5 lanes or whatnot. MN has one of the lowest, in the nation, rates of condemnation related to land aquisition by our DOT. Why? Because we're efficient and negotiate a reasonable payment. So maybe our money was misallocated but there were a lot of factors involved in that misallocation the primary one being that the top management at the DOT did not bring in the bridge reports to the legislature and SCREAM for additional repair funds. They knew and know how bad our bridges are/were.
Donald Last - there are a number of companies that are involved in energy efficiency. They just aren't advertised as such. They're called "insulation" in the construction section of the phone book. Or if they are doing R&D on renewable energy they are considered to be a part of the Semiconductor industry. Remember them? Just a few billion in revenue a year and fighting Intel for enough silicon to run their equipment. Oh and if you maybe had priced out the cost of renewable energy installation you might have heard rumor (reality when you order) that there is a SHORTAGE of solar panels and shipping delays and price increases because of it.
But then again you seem to be stuck in the dark ages.
Posted by: Minnesotan at Feb 13, 2009 2:33:22 PM
And all the wasteful spending you discussed! Yes, it's terrible. What was wasteful again? Lots of commenters talking about ditches to dig and undig. How much of the timulus is for that? How much is for hiring IT people to build train and auto bridges and construction workers to build processor bridges? Where's that in the bill?
Or is this commentary itself a sort of postmodern performance of wasted expenditure?
Posted by: KM, Texas at Feb 13, 2009 7:28:03 PM
The problem with Keynesian ditch-digging is that there is very little evidence that we're experiencing a "Keynesian Episode". One of the precursor assumptions to blind-spending-as-stimulus is the notion that savings is greater than investment. Yet we've just been through a period were the savings-rate was negative and far exceeded by the rate of investment.
Anyone advocating ditch-digging or other Keynesian demand stimulus approaches has the burden of justifying their policy. The General Theory offers them little refuge given the assumptions on which it is based.
Posted by: Jon at Feb 16, 2009 8:51:40 PM
Thanks for the article ~
I was curious that there were very few technology preventative measures such as investing in advanced digital security.
I guess that will come next time ~
http://www.justaskgemalto.com
Posted by: Andrew Merrick at Feb 18, 2009 3:15:00 PM
I dont understand or agree with this stimulus package because we are already billions of dollars in debt but now to add 787 billion dollars to the debt to bail out bigger companies when we need to be helping the little guy. I dont really think we need this package because if we can find jobs for the current unemployed and lowered the percentage to the normal level our production would go up 6% which would help out our economy while also having more people with money to spend. The stimulus package is also a bad idea to me because if you look at how its broke down for spending you will see that 144 billion dollars will go to over seeing the package which to me is a waste of money which we could be using in another way.
Posted by: Cory chomic at Feb 19, 2009 1:44:44 AM
