Jan 24th, 2009 at 3:11 pm
Best Anti-Stimulus Argument I’ve Seen
Comes from Kevin Murphy’s slides here. I think he overstates the deadweight loss effect and is working with the wrong conception of “efficiency” for these purposes when he claims that government is inefficient, so the odds of a stimulus being successful therefore aren’t as bad as he indicates. And this doesn’t change the fact that I haven’t heard any better ideas than doing a big stimulus. But this is a sobering reminder that a big stimulus doesn’t guarantee success—very hard work needs to be done on making sure that stimulus funds target genuinely idle resources rather than diverting non-idle resources while leaving the idle ones as idle as ever.
51 Responses to “Best Anti-Stimulus Argument I’ve Seen”
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January 24th, 2009 at 3:22 pm
Pondering the likely success of any “stimulus” plan with what we’re facing is like pondering the meaning of life. We are in, or nearly in a negative feedback loop, with good ole fashioned fear being the coin of realm driving backwards the economy. The only thing that seems comparable in recent times, is the stagflation days of the late 70’s and early 80’s. Though today seems more ominous to me. It won’t be over until it penetrates into the national consciousness that living by credit alone makes John Doe a poor boy when the creditors run scared. That may take awhile, we being AMerican’s who like to chargy stuff.
January 24th, 2009 at 3:46 pm
“1-α= value of a dollar of government spending (α measures the inefficiency of government)”
Inefficiency relative to what? I think government spending is extremely efficient relative to corporate spending because we don’t have executives making $20 million per year and getting $1.2 mill office remodels. Furthermore there is the whole concept of a public good – Government can serve as a facilitator of public goods by pooling collective resources which can go toward building public goods that would have otherwise not been built, therefore α α+d
Since d = 0, f(1-λ) > α+d is equivalent to state f(1-λ) > α.
Because of the concept of public goods, and assuming that Obama is a better manager of public funds then Bush, then α 0 for Government funding to be effective.
Unless you are using idle resources to destroy stuff, i.e. start a war, by definition f >= 0, therefore need (1-λ) > 0.
Since λ is a relative value λ >= 1, which is equivalent to 0 >= 1 – λ, which by the transitive property is equivalent to (1-λ) >= 0.
q.e.d..
January 24th, 2009 at 3:55 pm
Have to agree with DMontheith. There’s nothing new here – it is simply the same old Gary Becker Greg Mankiew idea that government spending crowds out private investment. Of course, crowing out is a transitive term – and we’ve just seen decades of private investment crowding out public investment. Case in point might be the conservative move to replace a sufficiently funded government social insurance program – social security with real costs of living icreases – with private plans, like 401(k)s, which are given special tax treatment. It is turning out that this was a terrible idea, and we are going to be burdened with much higher social insurance costs in the long run.
Moreover, because the crowding out language doesn’t distinguish between short time horizon and long time horizon investment, but compacts them together, it is a useless heuristic. The crowding out of an investment in, say, the latest male pattern baldness drug in favor of an investment in a university’s biochemical program might happen – but the latter investment could, for instance, come up with a cure for malaria. Not, actually, a profitable venture – after all, malaria mostly afflicts poor people – but a net gain of social welfare. The same is true of many of the goods and services government produces.
I’m rather surprised this slide show impresses you, Matt.
January 24th, 2009 at 4:02 pm
Sorry for the typo … the last few lines should read:
Since λ is a relative value λ <= 1, which is equivalent to 0 = 0.
January 24th, 2009 at 4:03 pm
No surprise, it comes from the intellectually bankrupt U of C faculty. Have those people ever been right, and will they ever be able to attract top graduate students in their Eco program?
January 24th, 2009 at 4:03 pm
Aparently this blog deletes parts of comments, it should be:
Since λ is a relative value λ <= 1, which is equivalent to 0 = 0.
January 24th, 2009 at 4:05 pm
Mother fucking auto editor,
Since λ is a relative value so λ <= 1
That is equilvalent to 0 = 0
January 24th, 2009 at 4:06 pm
Lets type this out word by word since this blog is fucked up editing.
Zero is less than or equal to 1 minus lambda, and by the transitive property 1 minus lambda is greater than or equal to Zero.
January 24th, 2009 at 4:19 pm
Actually, thinking about this, Murphy’s slides are actually much worse than just the crowding out drivel. In the past eight years, we’ve had the lowest taxes on the rich and their sources of income, like dividends, and the least regulation on investment decisions, in regard to the shadow finance sector, since the twenties. The result of this was more freedom was given to the circulation of capital by the private sector than we have seen in 80 years. And the result of that was the near collapse of the financial system and the shedding of conservatively 10 trillion dollars in wealth last year, which could have easily been double if it were not for government actions of not only the u.s. but the E.U., the U.K, etc. So, Murphey is claiming that these events were the most efficient investments and the best results that could be made at this time? This is cloud cuckoo land stuff. I can’t blame him too much – just as the savants in Galileo’s time knew he was wrong, because he was violating Ptolomy 101, so, too, economists are trained like Pavlov’s dogs to return to the models they were taught, no matter how absurd the assumptions of the model.
Look at our efficient private sector, man. It is a beautiful sight. Check out the mcmansions. The hummers. And get a load of those SIVs! Ingenius!
I can understand, MY, that at one point in time, in order to be a noncomformist and revolt against your liberal upbringing, you enjoyed libertarian opinions. And about many social issues, you still should. But avoid their crackpot economics, cause it will do you no good.
January 24th, 2009 at 4:20 pm
Don’t sweat it, DMonteith – we get you. Thanks for taking the time to counter formula w/ formula.
I’m also struck by Murphy’s casual throwig around of a concept like “relative inefficiency of government” – which he basically concedes is just a made-up number he plugged in to make the math come out the way he wanted. I’m fascinated by economics, but data-free crapola like this stuff really chafes me.
January 24th, 2009 at 4:23 pm
Let us hear a defense of the efficiency of the capital markets after the New Deal legal and regulatory structures were eliminated. Or if you want to strip out any political reference, the last 8 years.
Efficiency is not an ultimate good. Reliability and stability are just as important. I can alter the air/fuel ratio delivered to my car engine to make it burn less gas. It will get higher MPG. Until the valve seats are destroyed and my compression drops. Then my MPG and power will drop and drop and drop some more. That’s the good probability. I might burn a hole in my piston and wreck the engine totally and be stuck on the side of the road. I know Matt hates arguments by analogy but efficiency is such term of engineering I think the analogy stands.
Here is an efficiency argument for you. It has been calculated that in the post WWII period every dollar borrowed increased GDP by $8. By 2008 it was each dollar of credit was calculated to boost GDP by $1.15. I’m not going to stand by those numbers but look at that chart in the preceding post of Debt/GDP and who can doubt the general correctness of the direction towards ‘inefficiency’ of credit to grow the economy.
Murphy’s argument that starts with assumption of “deadweight loss” is so dishonest that it’s useless. I am an opponent of the SP. Partly because of the delays and ‘inefficiency’ you might say. I am all for the spending that will probably soon have to come which will fall under the general term welfare. Putting money directly into households and local governments and local financial institutions. The SP is stealing from that. Which is something Murphy should applaud, and soon will as he mans the barricades against giving money to people.
The SP is now a monstrosity. To the extent it is funded by Treasury borrowing it will have little systematic positive effects. Taking credit away from someone else to give it to the Treasury. This crowding out argument is going to be the biggest story of the spring, after the SP passes, which it will.
It’s would be one thing to defend the spending if people are going to see it plainly in front of their eyes. However the SP insures they won’t. In coming weeks, unless the Fed decides to directly monetize the SP debt, the markets are going to crack again under the weight of the huge Treasury borrowings. And the Pete Peterson’s and conservatives will crow and dance on the grave of the US Treasury and say i told you so. They will be going down too but will not be able to resist the pure pleasure they get from seeing Uncle Sam go broke.
January 24th, 2009 at 4:39 pm
Re Matthew’s comment “very hard work needs to be done on making sure that stimulus funds target genuinely idle resources rather than diverting non-idle resources while leaving the idle ones as idle as ever.”
————
You mean like that $1 Trillion that Congress dropped into the black hole of bankrupt financial firms. Not only was the money NOT loaned out to Real Businesses to sustain the economy, but the banks don’t want to tell COngress what they did with the money.
January 24th, 2009 at 4:40 pm
Hey, I know. We can ask former Goldman Sachs CEO and current Treasury Secretary Hank Paulson where the money went.
No , wait…
January 24th, 2009 at 4:49 pm
There’s nothing new here – it is simply the same old Gary Becker Greg Mankiew idea that government spending crowds out private investment.
Where do you get the idea that the “deficit spending crowds out investment” theory originated with those guys? In fact, Clinton’s economic team believed it, and their predictions of massive economic growth resulting from budget balancing came true (despite the claims of liberal AND conservative neo-Keynesians).
Personally, I think desperate times call for desperate measures, so I have no problem with a big-time short-term deficit. But deficit spending IS a bad idea in the long term, and the reason some liberals don’t want to believe this is the same reason that many conservatives claim tax cuts pay for themselves– they would like a free lunch.
January 24th, 2009 at 4:53 pm
The problem with his framework becomes obvious if you set f=0. Under his framework governemnt has to produce 1.8 dollars of value for every dollar it spends under normal circumstances. That doesn’t sound right to me. Still even under his equations if government has projects in consideration that are almost worthwhile, then according to his equations we should do those marginal projects during a recession when crowding out is less of a concern. Its not really an argument against stimulus, but an argument that there are no marginal projects that can be pursued in a reasonable amount of time.
January 24th, 2009 at 4:54 pm
I think SPURIOUS makes my point better than me. Still it is interesting that marginal projects would still be a good idea according to this analysis.
January 24th, 2009 at 4:54 pm
The lack of a preview function is just wrong. Also, if you forget the required fields, it simply erases whatever you had typed before. Good show MY’s blog!
January 24th, 2009 at 4:56 pm
What this boils down to is the evaporation of $x trillion in values (of real estate, corporate stocks, other financial instruments), which is partly revaluation to conform with reality (the popped bubble) and partly panic and/or anticipation of the consequences of revaluation (e.g., consumer fear).
You can’t fill the popped-bubble void — if the house you bought at $500k for is really worth $250k, sorry, you’re out $250k (plus interest) — but you can compensate for the panic/anticipation void. So the question is, will the stimulus fill the void that can be filled?
January 24th, 2009 at 4:57 pm
Yep, good question. Where did the money go? And you could add on the several trillion in taxcuts for rich people since 2001, all that non collected tax from Cayman based PO Box Corps, the billions poured into Iraq, especially that which simply went poof, and all other sorts of wingnut welfare. Somebody somewhere has it.
January 24th, 2009 at 5:11 pm
70% of the US economy is consumption, not investment. We just got done investing several tens of trillions of dollars in financial instruments of fictitious value and homes with inflated prices, among other stupid things. Things which while called investment were not meant to provide a positive cash flow which is the absolute core of capitalistic theory. They were speculation or the products of speculation, ie. credit default swaps.
There should be no question that over consumption and under investment were key drivers of this dilemma. Add in how much of the investment was malinvestment and the reason for the scale of the problem comes into better focus.
For better or for worse what citizens need now and much more so later will be money to consume so they can eat and stay warm, to put it in the starkest terms. And by consuming they will keep their local economies running. This whole ‘investment’ thing has a big kernel of truth but is used dishonestly. The economy is now shrinking. Nobody is going to invest in new plant and equipment when there is no growth. Well by nobody I mean on a systematic basis investment will be low.
Then of course is the age old argument that government spending is not investment. Roads bridges damns and schools, none of it is considered investment by conservatives and Libertarians. The subject often ending up as an exercise in semantics.
It is difficult to impossible for conservatives and libertarians to see government spending in any way as investment because there is no mechanism for the government to capitalize that investment. (This is a rather abstract point that I hope a few get)
January 24th, 2009 at 5:15 pm
DMonteith,
just guessing, but the problem might be that the comment editor expects angle brackets to have something to do with HTML tags.
January 24th, 2009 at 6:11 pm
I don’t fully understand why chicago accepts as fact that government is inefficient. First of all, haven’t the last decade proven that the private sector is bad at both responsibly handling money and dispersing it fairly. Also, the government handles the IRS, Social Security and the biggest workforce in the country. They correctly take my money each month. My dad (an ex cop) gets his Social Security check on time every month for the correct amount. I don’t know a single state employee who doesn’t get paid on time. The fact of the matter is Social Security is an immense and complicated program…and it’s immeasurably successful. How is that inefficient?
January 24th, 2009 at 6:33 pm
Craig,
I don’t see why that figure doesn’t seem right. The truth is, our current tax structure is heavily distortionary, and there have been some studies showing that $1.8 is taken out of the economy for every dollar raised in taxes. This means that any public goods we fund need to be *really* important.
It’s possible to design more efficient tax structures that are still progressive(I’m a big fan of the “put everything in an IRA-like vehicle and tax withdrawals progressively” myself), but there doesn’t seem to be much interest in the subject on either side(Other than right-wing flat-tax nutjobs).
January 24th, 2009 at 7:00 pm
David:
I have a friend, Manuel, he used to be a carpenter. He worked with wood, the stuff he made was very durable, he made a lot of conference tables, desks, and chairs. The stuff he did with his hands had lasting economic impact, and he was paid about $50K/yr.
Manuel now works as a masseuse, he rubs men’s backs all day. Rich men, general white, who like the feeling of a strong Hispanic man’s hands on their back. Sure they tell their wife their not gay, but we really know whats up with that. For an extra $100 Manuel will throw in a happy ending for them. He still makes about $50K/yr.
If we increase the marginal tax rate on those rich men they will no longer be able to afford Manuel’s “services”, instead the government could hire him to build desks, chair, and tables. Same $50K/yr, but instead of Manuel giving handjobs to rich white guys he now would be building things with tangible value.
Tell me, which is better for the economy – rich white guys using their cash to get handjobs from their Hispanic Masseuses, or rich white guys paying taxes which the government uses to pay Hispanic carpenters building new desks and chairs for schools?
January 24th, 2009 at 7:29 pm
TharMcClintok,
Thank you, that was quite funny. But to be serious:
You’ve probably heard about wealth effects before. Basically, that without the handjobs as potential compensation, the rich men won’t work as hard.
The problem with that argument is that a) It’s not obvious that it’s true and b) Even if it is true, it’s not clear how bad that would be(We’d have been a lot better off if Wall Street Quants hadn’t worked 22 hour days).
So, I’ll retreat to my main concern: Our tax code mucks up incentives and distorts our economy far more then it needs to, given the amount of revenue it’s raising.
For example, a rich dude replaces his corporate fleet with SUV’s, then utilizes a tax credit, saving him enough money to cover Manuel’s services.
Worse, the rich dude hires a smart person, who could have easily been an engineer with his math skills, to go ahead and search for tax loopholes year-round.
Now, Manuel isn’t making tables, GM made more SUV’s than was bright, the country is using more gasoline, and we’ve got smart people spending all their time studying tax law.
This isn’t related to progressive taxation. By replacing our cruddy tax system with some clear formula(Say, your marginal tax rate is proportional to your income, or something similar), you could have a progressive system with less deadweight loss for the economy.
January 24th, 2009 at 7:58 pm
Dilan, I don’t know where you got the idea I’m for permanent deficits – I’m not a Republican, for God’s sakes! On the other hand, if I wanted a quick icon to show how inefficiently the private sector allocates investments, a screen shot of, say, the Nasdaq board in January, 2000 would do quite nicely. Clinton did well trying to create a progressive space within the confines of a neo-liberal paradigm. But the paradigm was still based on horse shit. And though we ended up with lower increases in health care costs under Clinton than the skyrocket under Bush, he still failed to make one of the major change of socialized medicine, which is just the kind of expansive government program the libertarians choke at. Plus, of course, our current round of waking up to the neglect of our public infrastructure is about a process that can easily be traced back to Clinton’s time, where the concern with budget balancing, after 98, was exaggerated and counter-productive. What did we get out of it? If we had made some timid adjustments and grown some necessary state programs – say healthcare for children, or pre-K – or if we had an energy policy, if we had poured R and D into alternative energies, if we had more trains and buses, etc., etc. we would be better off, and who knows – mmaybe that would have done just what the libertarians fear, and taken money out of the hands of private investors. On the other hand, we wouldn’t have had whatever, the 500 billion surplus in 2001. Wasn’t that great? What did it do for you? It definitely made me feel proud.
I can’t respect any economic theory that doesn’t comprehend the need for public spending in tandem with the private sphere, and certainly one that produces a bogus terminology of efficiency to disguise a Manichean theology – guv’mint magic bad, Randian entrepreneur good! 20 million people, or so I’ve read in U.S.A. today, work for federal, state and local governments. Somehow, I think they might produce services that are equal to or better than the million people who work in the financial services sector. And they never got up collectively and asked for a special month in which they could get a trillion dollar loan and maybe four trillion dollars put down on all their credit cards – we’ll pay ya back, honest!
That the libertarian crowd don’t even bother to look at the system that blew up from under them – just seven years from the last time the system blew up under them – makes me suspicious that maybe, just maybe, they aren’t going to be much help in “finding a solution”.
January 24th, 2009 at 8:42 pm
Professor Murphy doesn’t claim that his model is comprehensive or complete. He proposes it as a simple framework with which to think about the stimulus. The value of the model, as he notes, is that it forces us to make implicit assumptions explicit.
For example, DMonteith up there at the top of the comments – makes several explicit assumptions before beginning a fight to the death with the text editor. He assumes that the deadweight loss associated with taxation is zero and that government is perfectly efficient (produces one dollar of value for every dollar of spending). Ta-da! The stimulus literally cannot fail!
Of course, those are ridiculous assumptions. The beauty is that his ridiculous assumptions are exposed by the model. I, for one, think it’s the single most useful contribution to the larger debate so far. Particularly so for us non-economists trying to determine the wisdom, or lack thereof, of massive rapid federal spending.
January 24th, 2009 at 8:57 pm
DTM got the dead weight issue correct. The point is to push that cost out into the recovery. And it would seem to me that the value of the inefficiency of government is actually a negative number in a significant number of circumstances, this being one of them. Private enterprise seems to be in the ditch.
January 24th, 2009 at 9:08 pm
Seriously, given that Obama and to some extent McCain were both promising lots of new spending initiatives before the financial collapse (military spending is still spending), you’d think there would be consensus that at least some gov’t spending has α less than zero, where the opportunity cost of spending that dollar is an additional dollar of private spending.
January 25th, 2009 at 12:00 am
It would be interesting to see the models of the efficiency gains that would be accrued by deregulating the financial markets. I’m sure they were pretty. In fact, since the measurements are models that are created in order to make them pretty, I’m sure that they were so pretty that economists far and wide were in awe of the genius of unleashing the financial markets.
In fact, here’s some beautiful Greenspan talk in favor of the Commodity Futures Modernization Act of 2000. That act that took removed the onerous government from overregulating mortgage transactions, for instance. So silly to have that government interfering!
“In its November 1999 report, Over-the-Counter Derivatives and the Commodity Exchange Act, the President’s Working Group on Financial Markets (PWG) concluded that OTC derivatives transactions should be subject to the CEA only if necessary to achieve the public policy objectives of the act–deterring market manipulation and protecting investors against fraud and other unfair practices. In the case of financial derivatives transactions involving professional counterparties, the PWG concluded that regulation was unnecessary for these purposes because financial derivatives generally are not readily susceptible to manipulation and because professional counterparties can protect themselves against fraud and unfair practices. Consequently, the PWG recommended that financial OTC derivatives transactions between professional counterparties be excluded from coverage of the CEA. Furthermore, it recommended that these transactions between professional counterparties be excluded even if they are executed through electronic trading systems. Finally, the PWG recommended that transactions that were otherwise excluded from the CEA should not fall within the ambit of the act simply because they are cleared. The PWG concluded that clearing should be subject to government oversight but that such oversight need not be provided by the CFTC. Instead, for many types of derivatives, oversight could be provided by the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency, the Federal Reserve, or a foreign financial regulator that the appropriate U.S. regulator determines to have satisfied its standards.
The provisions of S. 2697 that address OTC derivatives are generally consistent with the PWG’s conclusions and recommendations. The Federal Reserve Board is troubled, however, by a provision that might leave uncertainty about whether some electronic trading systems for financial contracts between professional counterparties were subject to the CEA. Specifically, restricting exclusions for transactions conducted on electronic trading facilities to “Abona fide” principal-to-principal transactions is unnecessary and undesirable. This restriction could be construed to preclude a counterparty from entering into “back-to-back” principal-to-principal transactions, that is, from using an excluded electronic trading system to hedge transactions executed outside the trading system. We can identify no public policy reason for precluding such back-to-back transactions. Doing so would discourage the use of electronic trading systems and thereby inhibit realization of the improvements in market efficiency and transparency that such systems promise to deliver.”
So lovely.
U. of Chi economists talking down the stimulus package are sorta like Jim Cramer making the Bear Stearns call. It takes a lot of balls to cheerlead the policy that led to the financial meltdown, the idiocy of the U;. of C. no regulations stance, and then try to cheerlead the opposition to doing anything about the disaster they enabled – except use the very same models. It is rich!
January 25th, 2009 at 4:14 am
Ricardian equivalence?? Are you kidding me?? Yeah, because in the last eight years, people really reduced private spending to pay for future taxes!!!
January 25th, 2009 at 10:29 am
There is quite a bit of self-fulfilling prophecy in the Chicago school approach to government real investment that is complementary to private real investment … by simply assuming at the outset that there never is any possibility of crowding in by any possible government spending program, the Chicago School discourages forward looking government investment … so we end up with a lot less crowding in than we have been achieving in the 1790 to 1970 period when the US pursued active industrial development policy.
At the heart of that is, of course, the core premise that there is nothing that the private sector ever has any difficulty accomplishing, so all of the things that government can do more effectively are simply assumed away. Then inside the model, the maximum effectiveness of government doing something is 100% of the effectiveness of the private sector, less some offset for politically inspired inefficiencies.
For the 7% to 18% of the Stimulus Bill that is actual infrastructure spending, most of those projects are more effective when done by government and if completed will increase the effectiveness of private real investment.
January 25th, 2009 at 3:45 pm
I wasn’t impressed with Murphy at all. It was just a re-statement of the crowding out argument with a huge, huge, dollop of future taxation thrown in and deployed as a net present liability–all served up using formulaic notation. English prose would have been sufficient to make his case.
Repeat: there is NO intellectual leadership on the Anti-Keynesian side. It’s like they’ve been demolished and left naked by the situation. And I know why: when you get a collapse of the banking system, the transmission mechanism for typical free-market remedies no longer exists.
Gregor
January 25th, 2009 at 6:08 pm
I thought the model was great, and in these comments, obviously, each of us puts in his own value judgments regarding the parameters.
Take junior college. In a downturn, their enrollment goes up, they have less than zero idle resources. From a stimulus point of view it makes no sense to invest in junior colleges, right?
But, the government can transform junior colleges to adapt to the new ear, which is not stimulus, it is transformation.
See the difference? Murphy did his job, he kept to the stimulus. It is others, mostly on these comments, who are mixing transformation investment with stimulus.
For a progressive, wanting greater transformation and expansion of government participation, I suggest separate transformation from stimulus, otherwise you are going to a bad result.
January 25th, 2009 at 6:10 pm
OK, make that “adapt to a new era” (our ears are just fine)
January 25th, 2009 at 10:14 pm
The Murphy criterion is not pro or con fiscal policy, just a useful construct to examine the issue. It highlights where the points of disagreement are.
The key parameter is “d” the deadweight loss which Murphy cites work by Feldstein implying to be 0.8. That says 80% of the taxes imposed to finance fiscal policy are deadweight loss. This imposes a very high hurdle for fiscal policy to be net positive.
However if one assumes that fiscal policy will be financed by money creation, and that money creation (the seignorage tax) has no cost in a deflationary liquidity trap, then fiscal policy has an easy hurdle to pass to be effective. In fact, money creation in the face of a deflationary liquidity death spiral (a la Irving Fisher) could have positive social benefit; in this case “d” could be negative.
If d is negative, then explicitly wasteful government spending could in fact be socially positive, in that it is a mechanism for money creation in an environment where the normal money creation function of banks is short circuited. Bernanke endorsed this in his famous 2002 speech where he advocates money creation financed tax cuts as an “unconventional” monetary policy to combat an unanticipated deflation.
January 26th, 2009 at 12:06 pm
overall, a flawed model with skewed assumptions.
Is there a single parameter assumption from Murphy that is defensible?
For alpha, any assumption of more than .1 is not defensible. These are people who until recently, expressed their preference between work and not working by working.
For f, he states that 93% of resources are being used. We are already off 10% in industrial production, so his estimate is probably low by 30% or so. Snd as pointed out, ricardian equivalence is not even wrong, just a comical assumption.
The assumptions about government spending being “inefficient” are hilarious. I particularly like the first one, as we had to give our banking system more money than their profits for the last 10 years to prop them up.
January 26th, 2009 at 3:08 pm
If Murphey was only consistent, he would insist that we can improve efficiency all the way around by firing 16-17 percent of the workforce – these being the deadweight loss that work for the government on the local, state and federal level. In fact, from the end of WWII – when the no. was 13 percent – to now, the government has been the largest employer in the country. To ignore this fact when writing about the effects of the government stimulus – as if the government would be crowing oout the 100 percent employed by the private sector – shows either blindness or idiocy. But after all, he’s a U. of Chicago chimp.
January 26th, 2009 at 3:31 pm
roger:
The crowded out investment theory isn’t an indictment of all government spending, but deficit spending.
There are other theories that argue (wrongly, in my view), that all government spending is inefficient or less efficient than private sector spending. But that isn’t the crowded out investment theory.
Clinton’s fiscal policies aren’t really fit for the current moment, because we face a real crisis. But they are exactly what we should have been doing the past 8 years. In fat times, government should run a surplus, both to create space for private sector investments AND to save for a rainy day.
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