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Shhh................
Robin Hanson writes:
From now on...Markets in Everything! All day, every day...
Posted by Tyler Cowen on February 3, 2009 at 02:12 PM in Education | Permalink
Comments
Sorry, I can't get beyond "a stimuli".
Posted by: Pheo at Feb 3, 2009 2:27:08 PM
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Posted by: Björn at Feb 3, 2009 2:28:20 PM
Like here? http://marketsineverything.com/
Posted by: IWantCookieNow at Feb 3, 2009 2:28:31 PM
Robin apparently didn't read or didn't understand Paul Krugman's correction of Tyler's claim that stimulus spending is based on fooling people.
It's not.
It's much, much simpler than that.
Stimulus spending creates goods and services. Those goods and services have non-zero value and are counted as part of GDP. When trillions of dollars of resources are idle, gov't creating goods and services does NOT fully crowd out the private sector creating goods and services. Hence, GDP rises.
All this happens BEFORE any additional multipliers, which according to standard textbook theory, probably amplify the initial GDP boost.
Posted by: a student of economics at Feb 3, 2009 2:33:04 PM
Tyler,
Every time I read this line from your tete-a-tete against Krugman I get stuck:
Let's say government can spend $100 billion today or spend the present expected value of $100 billion, stretched out over time so it is a commitment in perpetuity. Both spending programs are financed by bonds
Specifically, I'm having trouble picturing what it means for the government to have a perpetual spending stream that they finance with bonds.
E.g. at 5% interest, a perpetual stream of $5 billion in government spending has a current PDV of $100 billion, right?
OK, so you want the government to commit right now to spending $5 billion a year, for the rest of time.
Now how do we finance that? I think you have in mind something like, "The government borrows $100 billion today, which it then invests at 5% interest, so it has $5 billion to spend year after year after year."
But to borrow that initial $100 billion, the government has to make $5 billion interest payments in perpetuity. So are we counting the interest payment on the loan, as the $5 billion in extra government spending in perpetuity? I don't think that does what you want it to, unless you originally borrowed the $100 billion from bridge and road owners.
I apologize in advance if I'm messing up what you are trying to say. I am just as confused on this as Krugman. :/
Posted by: Bob Murphy at Feb 3, 2009 2:37:16 PM
student: I'm not an idle resource and I don't anticipate being for the duration of the recession (I have good reason to believe so). Deficit spending will happen and I will have to pay the taxes to pay for it. Don't Robin's comments apply to me? The stimulus will be much more effective if it fools people like me into spending.
Posted by: pushmedia1 at Feb 3, 2009 2:39:14 PM
Bob, you are describing the steady state, try doing the short run where $100 billion is borrowed and spent in the first year (and later years), and taxes rise in staggered fashion through time...taxes in year two do not have to be $100 billion, especially not if you are a Keynesian.
Posted by: Tyler Cowen at Feb 3, 2009 2:40:23 PM
A student of economics,
A stimulus from taxation adds nothing to real GDP in time because of the direct opportunity cost of the taxed money. Sure GDP is increased at an instant, but economies exist in constant time motion, there is no such thing as an economy at rest . Over time the stimulus is ballanced negative by the opportunity cost of the taxed money in savings in banks and direct investment. This factor has a negative multiplier , and is why economic stagnation follows high tax rates in general.
If the stimulus comes from devaluing the currency, it is ballanced by the opportunity cost of saved currency, both in bank savings and direct investment. This too has a negative multiplier and is why stagflation happened, the Lost Decade didn't work out and why Zimbabwe isn't the richest country in the world.
Taking stimulus by printing money does not
Posted by: brannigan at Feb 3, 2009 2:50:46 PM
I'm about to utter an abomination, a statement so insane & without merit that to assume that anybody could think it is itself, heresy:
Our infrastructure is fine. All of our bridges aren't a stiff breeze short of collapsing. Washington could largely get out of the infrastructure business for some time & we'd barely notice their absence.
OK. I'm clearly insane. Please tell the authorities to be gentle when they come to take me away.
Posted by: kebko at Feb 3, 2009 2:50:59 PM
Stimulus spending creates goods and services. Those goods and services have non-zero value and are counted as part of GDP.
There's the rub. While the goods and services produced by the stimulus will hopefully have some non-zero value, there is reason to doubt that they will have anything close to the nominal value of the spending used to produce them. If the government spends a billion dollars in stimulus money building a giant statute of Paul Krugman, this would presumably have *some* non-zero amount of value. Claiming that the statute added a billion dollar's in real value to the economy, however, does not seem credible. Yet the project will be counted as being worth a billion dollars when calculating GDP.
As such, any empirical estimates of the stimulative effect of government spending are liable to be overstated, and this is going to be especially true insofar as the governments purpose is just to spend, rather than trying to get the best value for its money.
Posted by: Blackadder at Feb 3, 2009 2:55:45 PM
Precisely, also think of the non zero value of the Great Pyramids versus their spending costs...
Posted by: brannigan at Feb 3, 2009 3:36:13 PM
kebko said this:
Our infrastructure is fine. All of our bridges aren't a stiff breeze short of collapsing. Washington could largely get out of the infrastructure business for some time & we'd barely notice their absence.
Rephrase it some to this:
Our computer systems are fine. They are not all in danger of collapsing. Business could largely get out of the computer business for some time & we'd barely notice.
Is there any difference in these two statements?
Posted by: spencer at Feb 3, 2009 3:45:34 PM
kebko said this:
Our infrastructure is fine. All of our bridges aren't a stiff breeze short of collapsing. Washington could largely get out of the infrastructure business for some time & we'd barely notice their absence.
Rephrase it some to this:
Our computer systems are fine. They are not all in danger of collapsing. Business could largely get out of the computer business for some time & we'd barely notice.
Is there any difference in these two statements?
Posted by: spencer at Feb 3, 2009 3:46:10 PM
Spencer:
Yes
Posted by: kebko at Feb 3, 2009 3:56:48 PM
There is, because while computer systems are developed by and for private industry, roads are a public good paid for by taxation, not price.
If Washington got out of the road business some other jurisdiction would make roads, say local governments. This would fluctuate with political pressures for more roads and willingness of the taxpayers to fund them.
If computer businesses got out of making computers by definition there would be no more computer businesses, as any new competing enterprise would be a computer business.
There is thus a semantic difference, though broadly I think you missed his point that the roads are paved and bridge collapses almost never happen.
Posted by: brannigan at Feb 3, 2009 4:04:54 PM
Obama expects the Senate to roll over and play dead like the City Council in Chicago does for the Mayor. And pass his pork er...stimulus bill. We shall see.
Posted by: jorod at Feb 3, 2009 4:23:53 PM
"the roads are paved"
Clearly you haven't seen the roads in Michigan. With the exception of the stretch of interstate from the airport to downtown Detroit that was rebuilt for the Superbowl, most of our roads are in pretty bad condition. A result of harsh winters and limited local tax money for maintenance.
Posted by: Sol at Feb 3, 2009 4:51:40 PM
I think Robin is basically saying the same thing as Krugman and Obama: If enough of us just BELIEVE, we'll all be saved.
Doesn't this set up us non-believers as the ones to blame if the economy doesn't perk up? I think I've read about that somewhere...
Posted by: MHodak at Feb 3, 2009 5:04:15 PM
Ignorance may be bliss, but is it really the most desirable state and for how long?
Posted by: Lord at Feb 3, 2009 6:16:46 PM
Robin Hanson's quote reads like a Republican strategy memo:
1. let the dems pass the stimulus
2. hog the media outlets and scare the bejezus out of the population
3. watch Ricardian equivalence magically become true
4. destroy the dems in the midterms
5. ... figure out what we want to do when we're in power...
Posted by: Obey at Feb 3, 2009 6:50:01 PM
Sol,
Ever consider whether for profit toll roads would be better maintained?
Posted by: brannigan at Feb 3, 2009 6:56:59 PM
@Obey
I don't think it would be correct to try to assign Robin Hanson any "standard" political position. Really. It's not helpful to even try. . .
Posted by: StreetWalker at Feb 3, 2009 8:07:04 PM
A student, I think that is what Tyler is talking about when he refers to the "fetishization" of measured GDP. A rise in GDP will not get us out of this mess. A fall in GDP was not the problem.
There is almost no consideration of the value of the projects, only the price, and the extent to which they spur activity. The activity, i.e. aggregate demand, is completely separate from the ultimate value of the project. In most cases, the value of a project is how much customers want the result, not how much workers want the work. In this particular case, the value IS the cost!
Will people feel safe to spend and borrow when their laid-off neighbors get make-work employment from the government? Will banks feel safe to lend to people with temporary employment?
Posted by: Andrew at Feb 4, 2009 4:32:30 AM
A question: If the government is capable of seeing all these idle resources and seeing them as an opportunity to invest, why aren't private sector investors willing or capable of doing this?
I suppose the answer is that private sector investors aren't doing it, so "who cares why"?
However, if private investors need to see a wide margin of idle resources before they are willing to get off the fence and invest, then why doesn't the government use of these idle resources crowd out?
Lastly, in a democracy, how can the government have a significantly different risk tolerance than the general public? I suppose one rests on the general tendency of the government towards wasteful spending. It becomes a feature.
Posted by: Andrew at Feb 4, 2009 5:59:41 AM
Lastly, in a democracy, how can the government have a significantly different risk tolerance than the general public?
Even in a democracy, the government is only sort-of accountable.
Posted by: Cyrus at Feb 4, 2009 7:01:37 AM
