In Defense of Stimulus Waste
Some time ago, I remarked that one problem with Kevin Murphy’s argument against the idea of fiscal stimulus was that he was working with the wrong conception of “efficiency” when alleging that government is inefficient. That probably could have used more explanation. Fortunately, Jon Chait’s article on what’s wrong with conservative allegations of waste in the stimulus cashes the idea out brilliantly:
Second, by emphasizing the worthiness of his spending proposals, Obama has allowed the debate to revolve around the merits of each project. Normal spending is judged on those terms–whether the goods or services justify their cost. The point of stimulus spending, by contrast, is simply to spend money–on something useful if possible, wasteful if necessary. Keynes proposed burying money in mineshafts, so that workers would be hired to dig it out. (Imagine what the GOP could do with material like that.) 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.
In other words, when the primary point of spending money on something is to get the thing you need to worry a lot about efficiency. You don’t want “wasteful” procurement wherein you overpay for stuff, or spending on stuff that doesn’t work. For the purposes of fiscal stimulus, however, while it’s better to spend the money in an efficient way on useful items, it’s not essential to do so. Which doesn’t mean we should totally throw caution to the wind and pay people to dig holes. But it does mean that it makes perfect sense to relax our criteria for what counts as useful and what counts as efficient. 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.
69 Responses to “In Defense of Stimulus Waste”
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February 12th, 2009 at 11:21 am
That’s what is ridiculous about tax cuts as stimulus: there’s no economic basis for them at all, only an ideological basis (”it’s not the government’s money!”). Money from tax cuts is vanishingly unlikely to be spend in any macro-rational way from a stimulus perspective, and will almost surely be spent in a diffuse way (if it’s spent at all, rather than hoarded or sent abroad) that incrementally increases production with the existing labor force rather than producing any new jobs.
The debate about spending vs. tax cuts as stimulus is as foolish as the debate between evolution and creationism: one side has all rational arguments on its side, while the other has only dogma that doesn’t withstand even casual scrutiny. So of course, in our political discourse, they’re basically tied.
February 12th, 2009 at 11:26 am
Re Matthew’s comment “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.”
——————-
This is just flat out wrong.
World War II succeeded –whereas the New Deal did NOT — because we destroyed all of our economic competitors and grabbed the fucking spoils.
Simple really — the USA couldn’t get a decent job so it robbed the liquor store.
February 12th, 2009 at 11:29 am
Re that Trillion dollars of US Debt the Chinese are holding, note that if you nuke your creditor, you don’t have to pay off the loan.
February 12th, 2009 at 11:31 am
I think it’d be fairer to say that an economist wouldn’t be the one judging whether building cars as opposed to tanks is wasteful, not that WWII’s spending was a total waste. Indeed, sadly or not, weaponry generally is put to use.
February 12th, 2009 at 11:36 am
Yeah, you really do want to avoid waste as much as possible. Sarah Palin’s bridge to nowhere was stupid because it connected a small town with an island of 40 people who already had a ferry to get to town. Once the bridge was built and the construction jobs dried up, it’s not like there was going to be a huge flood of people between Ketchikan and Gravina Island spending zillions of dollars and having a big multiplier effect; most of the time you could probably have a picnic on the bridge because it would be empty. You would have had a microscopic stimulus effect and would have blown $400 million to get it.
But the Twin Spans bridge section of I-10 coming out of New Orleans that collapsed during Katrina? Rebuilding that bridge re-connected a major artery, allowed traffic between NO and MS/Slidell, allowed workers and shoppers on one side of the bridge to get to the other, etc. The bridge is being re-done to make it less vulnerable to getting knocked down by storms in the future. This is super awesome stimulus even after the construction jobs go away.
It’s not that waste is OK, it’s that the GOPers and Blue Dogs labeling different stuff as waste are idiots. Anyone saying aid to state governments is waste shouldn’t be given the time of day at this point.
February 12th, 2009 at 11:39 am
Keep in mind the same GOPers/Blue Doggies labelling useful stuff as wasteful all got boners whenever Bush showed them some totally irresponsible budget with massive deficits that accomplished nothing. So whenever they complain about waste they deserve to be given a wedgie.
February 12th, 2009 at 11:47 am
Re dubois’s comment “Don Williams is demonstrably wrong since we couldn’t have grabbed “the spoils” until after 1945 and the economy had picked up long before that.”
—————
What part of investment do you not understand?
US federal debt was 120 PERCENT of GDP in 1945 — how do you think that got paid off?
By Paying high prices for petroleum from the Middle East?
February 12th, 2009 at 11:47 am
duBois said:
If you disagree with the idea, fine, but where’s the 6-10 trillion that was keeping us buoyant before supposed to come from?
Well you and the “progressives” apparently think we should steal the money from our children.
And I fail to see how that is morally superior or more reasonable than the maddest of the Republicans’ mad schemes for starving the beast.
February 12th, 2009 at 11:47 am
wow, using Jon Chait and brilliant in the same sentence puts you in unexplored territory even for a log roller like you.
February 12th, 2009 at 11:48 am
Re the great financial shape the USA was in during WWII, see
http://en.wikipedia.org/wiki/File:USDebt.png
You can’t sit on bayonets.
February 12th, 2009 at 11:52 am
From his fellow lumberjack on the Plank:
“Yesterday morning, Matthew Yglesias had a fairly devastating critique of former Bush Council of Economic Advisors chairman, and current Harvard economics professor, Greg Mankiw:
you guys need to deflate your egos
February 12th, 2009 at 11:53 am
You draft-dodging virgins evidently don’t understand how the US government works. Let an old Marine named Smedley Butler explain it:
http://en.wikipedia.org/wiki/War_Is_a_Racket
“War is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives. A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.”
February 12th, 2009 at 11:58 am
Don Williams, please explain what spoils the US grabbed. And her economic competitors destroyed themselves, and received American funds. So no, war doesn’t help economically: see the USSR in Afghanistan, or the US in Iraq and… Afghanistan.
Usually the same people who say war is great and beneficial economically rant in the next seconds about those countries who live the good life because the US wage war “on their behalf” and “protect” them.
February 12th, 2009 at 12:01 pm
former Bush Council of Economic Advisors chairman, and current Harvard economics professor, Greg Mankiw
That’s a mark of infamy and the sign that the guy is either an idiot or has no clue how to influence the government he is working for; not something that puts him on a higher level than Matt.
February 12th, 2009 at 12:08 pm
The concern for efficiency in government spending during normal circumstances is precisely why OMB guidance (specifically Circular A-94, in the context of Executive Order 12866) does not permit the use of multiplier effects on jobs, incomes or taxes in estimates of the benefits or value of proposed federal investments. Rather (says the circular), it should be assumed that resources are fully employed.
Today’s, of course, are not normal circumstances, and resources are not fully employed.
February 12th, 2009 at 12:11 pm
I don’t think we necessarily grabbed the spoils after the war. We just slowly sucked them out of Europe leading up to our war. Europe paid a premium for war supplies for many years, knowing their was a conflict coming, and the US economy was finally pulled out of the great depression because of it.
Building tanks makes sense economically if someone is willing to pay tons of money for them, be it food, patents, minerals, etc. Building tanks and dumping them into the ocean is just dumb nonsense you would expect Keynesians and Krgumanites to spout.
February 12th, 2009 at 12:17 pm
Agree with Matt.
Also, glad that we don’t have McCain. He’s been screaming that the stimulus is putting future generations in debt.
I guess his plan would be to let schools crumble, let highways crumble, etc. The point is that intelligent infrastructure spending is essential spending for future generations. It is necessary and has been ignored. At some point between now and the accession of future generations, these things must be paid for. This will cost dollars and come out of the tax till. Now is a great time to begin because we not only need to build infrastructure, but we also need stimulus.
Tax cuts, on the other hand, increase government debt without conditioning the world for future generations. I don’t hear McCain and republicans complaining about tax income shortfalls due to tax cuts.
February 12th, 2009 at 12:22 pm
If 1% of the total is wasted by being skimmed off the top by crooked contractors who then use the spoils to donate to corrupt politicians who then enable future skimming, would that be real waste? Would that have a far greater cost?
The good thing about MattY’s economic bloviating is that even non-economists can see what’s wrong with it.
February 12th, 2009 at 12:22 pm
Building tanks and dumping them into the ocean is just dumb nonsense you would expect Keynesians and Krgumanites to spout.
No, actually, this was a view shared by most economists in times of recession until the Washington Consensus freezed the debate in the 90’s… but not anymore, since it is clear the Friedman/Reagan free-market econo-theology has failed, badly.
There are many worse economists to follow than Keynes (one of the most influential thinkers of all times) or Krugman. It is telling that not one famous economist is willing to get his name used by Republicans these days in their continuing struggle against reality.
February 12th, 2009 at 12:25 pm
Dear future generations,
You’ll be happy to know that we’ve decided not to steal your money. I realize you won’t be reading this until you reinvent the computer, but I feel confident that you will acknowledge our wondrous morality.
Signed
Great-great-great-great grandad.
February 12th, 2009 at 12:28 pm
Don Williams is demonstrably wrong since we couldn’t have grabbed “the spoils” until after 1945 and the economy had picked up long before that. In fact there was a mild recession immediately after the war, when we were supposed to be grabbing the spoils, because war production wound down and world trade was shot to hell.
Idiotic. So Don Williams basically nailed it on its head. The SPENDING during WWII did not create growth. It meant we destroyed our competitors. GROWTH didn’t occur until the 1950s. The “economy picked up in the 1940s” HAH! Widespread rationing, reallocation of production away from consumer goods and into war making. This is not GROWTH. This is reallocation.
Similarly, Chait is so full of crap, I don’t even know where to begin, except to say SPENDING is not WEALTH CREATION. Spending is reallocation of stuff across a society. If you want to do that, fine. Just give everyone a check for $25,000 for the next year or something, and take that money from another part of the economy. But don’t call it GROWTH.
February 12th, 2009 at 12:43 pm
I hate to say it, but I agree with Don Williams.
We got more benefit by using those planes and tanks to blow up Europe. After the war we loan Europe billions of dollars so they could buy US industry. Where do you think all their steel came from? Who bought all those cars rolling off the assembly lines? It isn’t like they were buying BMWs in 1946.
February 12th, 2009 at 12:44 pm
I would like to see monuments and other works of art dedicated to FDR, labor unions, brown and yellow people, war heroes, teachers, people who don’t cheat on their taxes, civil rights advocates, scientists, etc. built/created all over the country. The endeavor could very well be useful and efficient.
I would start with a giant bronze of FDR in front of every building/airport/hospital that contains the name Reagan
February 12th, 2009 at 12:49 pm
We got more benefit by using those planes and tanks to blow up Europe. After the war we loan Europe billions of dollars so they could buy US industry.
And that’s why the American economy is doing so well right now! Iraq and Afghanistan depend on American contractors and companies right now, and it benefits our economy greatly!
February 12th, 2009 at 12:56 pm
As was just stated, we gain when OTHER COUNTRIES fight wars and we supply them. When we instigate wars and pay billions of dollars for goods that are only good at blowing up other goods it is not wealth creation no matter what GDP numbers seem to show.
February 12th, 2009 at 1:06 pm
Re why oh why’s question: “Don Williams, please explain what spoils the US grabbed. ”
——————
A shitload of intellectual capital for one. Our nuclear power industry and communications satellites could have taken decades longer to deploy if not for immigrant scientists like Warner von Bruan.
Before the War, German Universities were tops in the world — look at the source of all the advances in 20th Century physics that underlaid much of US economic growth from 1950 on. After WWII, many of those professors came here. (The Jewish ones came earlier , of course.)
Today, most of the top universities in the world are in the United States. Some in the UK. The ones in Germany are a greatly diminished residue of their pre-WWII selves.
In the 1930s, by contrast, Robert Oppenheimer went to Germany for his graduate studies. Look at the Manhattan Project staff and see what you would have had if you had taken away all the European Scientists.
Before the War, Germany was tops in the world in Chemical engineering. After the war: Dupont.
Before the war, Great Britain ruled the Middle Eastern petroleum deposits — ESSENTIAL to modern industry as the Texas oil fields ran out. After the war, The US ruled the region and its essential resources.
Before the war, Great Britain controlled the vast natural resources of Canada, Australia, and India. After the war, the UK was very much our junior partner.
February 12th, 2009 at 1:06 pm
Imagine that whatever you do for your current job became a huge national discussion. Now imagine that people who read a book once about what you do on a daily basis were constantly screaming at the top of their lungs about how this and that is obviously true or false. That should give you a good idea of what it feels like to be an academic economist these days.
I saw a post somewhere about how only 5% of people on TV discussing the stimulus were economists. The hypothesis was that TV prefers political strategists to economists discussing the stimulus. But given how exasperated I feel about the whole “debate,” I wonder if economists are just unwilling to go on TV and get shouted at by economically illiterate folks who are certain they have the answer. I imagine it would be like trying to discuss quantum physics with someone screaming about the Newtonian mechanics they vaguely remember from 10th grade physics.
The stimulus question is ultimately a question of dynamic demand and consumption, and anyone who doesn’t grasp that fundamental point should think twice before opining (or owning a credit card, of having a car loan, or having a home mortgage…)
February 12th, 2009 at 1:14 pm
Re why oh why’s comment “And that’s why the American economy is doing so well right now! Iraq and Afghanistan depend on American contractors and companies right now, and it benefits our economy greatly!”
————–
Iraq is a great prize as Peak Oil hits — second largest oil deposits in the world. Plus China needs oil and if we keep control of Iraq, we can squeeze Beijing by the nuts. Which is why Beijing is playing footsie with the Iranians.
I myself think it would be far more profitable to develop advanced energy technologies. But Cheney ’s gameplan has been profitable for 50 years: Install a puppet –like the Saudis. Then continually sell a shitload of US Advanced weapons for a shitload of oil.
Dick Cheney’s wife Lynne was not on Lockheed Martin’s Board of Directors from 1994- 2001 as a public service, you know. F16 sales to the Middle East feed a lot of hungary mouths in Fort Worth Texas.
February 12th, 2009 at 1:15 pm
Now imagine that your job basically is to study how the best to tell other people what to do, and then you hypocritically tell them they have no place in telling you how to tell them what to do.
February 12th, 2009 at 1:22 pm
The problem with Empire, of course, is what Great Britain experienced. Technology leaks. Initially, you machine gun the wogs and plunder their country. Rate of return drops, so you find it cheaper to hire some wogs to fill out you army. Wog learn how to operate the machine guns. Eventually, they learn how to make the machine guns. Then they kick your ass out.
A young officer named Winston Churchill machine gunned about 50,000 Dervishes at Omdurman. More recently, Al Qaeda blew up buildings in London.
February 12th, 2009 at 1:23 pm
The people of the USA are getting screwed because their leaders forgot that you run war for a profit, not for ego. Just as Britain lost North America in 1776 when their George forgot that.
February 12th, 2009 at 1:26 pm
Dick Cheney’s wife Lynne was not on Lockheed Martin’s Board of Directors from 1994- 2001 as a public service, you know. F16 sales to the Middle East feed a lot of hungary mouths in Fort Worth Texas.
But why would building F16 benefit those hungry mouths more than, say, bridges or schools?
The only benefit I can see in all this Middle-Eastern warmongering is that the oil barrel is still sold for dollars instead of euros. Still, the costs are huge and the advantages smaller by the day. Over 4000 dead and 3 trillions wasted in Iraq, for what?
February 12th, 2009 at 1:44 pm
Re why oh why’s comment “Still, the costs are huge and the advantages smaller by the day. Over 4000 dead and 3 trillions wasted in Iraq, for what?”
————–
For a rise in Exxon’s stock price from $40 per share (2001) to $93 per share (Dec 2007). And a $400 Million windfall for the retiring Exxon CEO.
Hey, if you don’t like it, you can cough up $4 Million for the Republican Party and they’ll listen to your alternative.
February 12th, 2009 at 1:55 pm
It’s too bad Marine General Smedley Butler’s not here to yell at you for not paying attention to his explanation.
Again: “It[war] is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.”
The REAL question is why did the US middle class get a share of the loot in the 1950s and 1960s. Short answer: Our plutocrats were scared shitless of the Commies and figured they needed some Patriotic cannon fodder.
Of course, that particular “Social Contract” fell by the wayside after the common herd was stupid enough to win the Cold War for Ronald Reagan. That’s when the massive corporate layoffs and employment at will /Robber Baron management came back into fashion.
You guys don’t get out much, do you?
February 12th, 2009 at 1:57 pm
PS The Rosenbergs , bless their hearts, also showed our Plutocrats just how badly a discontented group of US citizens could fuck them if we put our minds to it. After the Black Panthers burned down a few cities, Lyndon Johnson developed a sudden feeling of benevolence for the Negros as well.
February 12th, 2009 at 3:33 pm
There is a very intelligent debate going on in the economic community regarding the efficacy of deficit financed Keynesian stimulus. Jonathon Chait’s article is not part of that debate. He’s just throwing a tantrum.
Build tanks and throw them in the ocean? I’m sorry but that is just asinine. If the Keynesian argument is that the deliberate waste of resources is okay in the pursuit of economic growth, I think they need to refine their argument.
I love the way Chait (and some others arguing for this) always leave themselves an out. If it doesn’t work its because it wasn’t big enough. I submit that if running a deficit somewhere north of 10% of GDP doesn’t produce the desired result, there is a hole in your theory somewhere.
February 12th, 2009 at 3:41 pm
I submit that if running a deficit somewhere north of 10% of GDP doesn’t produce the desired result, there is a hole in your theory somewhere.
What frakking theory? I submit that if your party is in control of all branches of government for 6 years, and they cut taxes on the rich, and they give up on regulating the private sector, and they increase spending in the defense/war industry, then your whole ideology has been discredited. A big whole not somewhere, but all over the Republican credo.
February 12th, 2009 at 4:08 pm
We got more benefit by using those planes and tanks to blow up Europe. After the war we loan Europe billions of dollars so they could buy US industry. Where do you think all their steel came from? Who bought all those cars rolling off the assembly lines? It isn’t like they were buying BMWs in 1946.
Right, but if you think the answer is to go blow shit up and kill people so that we can be relatively wealthier, then you’re GETTING the point of a very bizarre form of Keynesianism, but MISSING the point of economic growth.
Economic growth is about putting resources – i.e., savings – to their highest productive use. This is not perfect, hence business failures and bankruptcies in an economy. But if you don’t allow bankruptcies, and business failures, then there is no profit incentive!
And if the government simply takes some of that crap and spends it on things Matt Yglesias likes, well then that may produce a lot of stuff Matt Yglesias likes, but that’s kind of beside the point since there’s been no pricing to get us to that point.
February 12th, 2009 at 5:01 pm
Maybe I’m missing something…
A lot of people are concerned about “wasteful spending.” I’m not saying that waste is a good thing, but even if 1% is taken right off the top, what will that contractor do with it? My guess would be to spend it. So even if I’m employed in a wasteful updating of the Mall’s infrastructure, I still have a job and will continue to spend. If I’m a construction worker near DC and I have to wait on the currently-non-investing private sector to update their buildings, I might just declare bankruptcy. Or pray for an extra tax cut, because that makes everything better…
February 12th, 2009 at 5:05 pm
Not my party why oh why. I’m an independent and frankly don’t like either party. The Republican party (certainly the one of the Bush years) has no ideology other than what keeps them in power. Funnily enough its the same ideology of the Democratic party.
You should try reading the post before you just show yourself as some knee jerk…well jerk.
I said there is an intelligent debate going on about the Keynesian plans. Romer and Bernstein produced a paper that puts the multiplier at about 1.5 for what they called a prototypical plan. Barro thinks its a lot less. I happen to think Barro is probably closer to right with this package since it isn’t the prototypical package that Romer and Bernstein modeled. I also don’t think Barro was right way back when about Ricardian equivalence. I fall somewhere in the middle of the two extremes. The multiplier is probably a lot less than 1.5 (even for a prototypical plan) but probably more than 0.
Having said all that, Chait’s article is an infantile retching of what he believes to be Keynesian theory. He either hasn’t read General Theory or doesn’t understand it or more likely takes his talking points from the party. Frankly, understanding GT is not an easy task. It’s poorly written and riddled with logical errors.
The problem with economics, unlike other sciences, is that there isn’t a lab where we can conduct true experiments. If the economy recovers in the coming months, the politicians will be beating a path to the microphones to take credit. But how do you seperate the influence of monetary policy? What if most of the spending hasn’t happened yet? Will we be anymore enlightened about the effectiveness of Keynesian stimulus? No.
What if growth next year is 2%. Would it have been higher or lower without the stimulus? There is no way to know.
I tend to think that borrowing and spending is an illogical response to a problem caused by too much borrowing and spending. Our problem is that a whole bunch of our available capital was invested in the banking sector where it got destroyed. Doubling down on that bet doesn’t seem all that smart. The banking sector needs to shrink as a percent of the economy. All the government action is designed to prevent that. Its counterproductive. We need a plan that allows us to accelerate the capital accumulation phase of the recovery. What we’re getting is a plan that destroys more.
February 12th, 2009 at 5:23 pm
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.
February 12th, 2009 at 7:16 pm
The point of stimulus spending, by contrast, is simply to spend money–on something useful if possible, wasteful if necessary.
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.
This is why Keynesian theory is so stupid. I cannot believe that people think that such a stupid idea, that is so obviously ridiculous, is “settled” just because a lot of economists were taught that at government-run universities.
How can anyone say with a straight face that wasting resources helps us get a higher standard of living (which is ultimately what the economy is) and that the people who find the idea stupid are the “flat-earthers?”
What people forget about World War II is that we actually saved money to fund the war. Rationing, buying liberty stamps and bonds, etc. were all ways of getting people to forego consumption. And we also had to build a lot of infrastructure, funded by actual savings, to make those tanks and planes and bombs. If we had simply increased military production without decreasing civilian consumption to fund it, we would have run otu of resources to fund the war pretty darn quick.
People believe Keynesianism not because it makes sense, but because the idea that we can cure ourselves by consuming more is a very attractive idea. It’s like telling an alcoholic that the way to get over alcohol addiction is to give in to it, and to then drink twice as much. It’s crap, but it’s popular because it appeals to his desires.
February 12th, 2009 at 7:40 pm
Glaivester,
What people forget about World War II is that we actually saved money to fund the war. Rationing, buying liberty stamps and bonds, etc. were all ways of getting people to forego consumption.
Absolutely 100% correct. People were tightening their belts and not spending beyond basics…and even then, it was very frugal. the war years were full of employment and deprivation for workers/consumers. That savings is what set off the post-war boom.
People forget that Keynesian-minded people worried that the economy would sink back into recession after the war…but that didn’t happen.
The “paradox of thrift” may be true in the short run or in controlled theory but it obviously doesn’t matter in the long run. Savings is good…regardless of any short term worries on consumption.
February 12th, 2009 at 8:10 pm
The last two comments are beyond ignorant. Public debt after WWII was above 100% of GDP, a miracle of savings indeed!
February 12th, 2009 at 8:10 pm
And I meant Glaivester and John V.
February 12th, 2009 at 9:27 pm
The last two comments are beyond ignorant. Public debt after WWII was above 100% of GDP, a miracle of savings indeed!
100% of GDP. Wow. That’s a lot of money. Where did the government borrow all that money from? Oh, yeah, the American people. Where did they get teh money? Oh, yeah, THROUGH SAVING IT.
What you are ignoring is that the public debt was funded by people buying war bonds and stamps. And all of the consumption that was brought on by the ar was funded by reducing civilian consumption – which is ultimately what savings is.
For the people who don’t get this: the reason a relatively wasteful stimulus spending can work is that is only round one of spending. The people who receive the money spent on the project then spend some of it on something else, and some of those people then spend it on something else, and so on.
The problem is that ecnomic strength is not determined by the number of trades you do. The fact that you can shuffle a lot of money from one hand to another does not actually produce anything. (The problem in modern economic discourse is that all mainstream people on both the left and the right seem to feel that “helping the economy” means getting more economic transactions to occur – which is why most plans for stimulus, whether they involve spending increases or tax cuts, are explained in terms of giving people money which they will spend) The issue is how many resources do we have, what goods and services can we produce with them, and how can we increase our access to resources or our efficiency at producing goods and services with them.
Certainly the person who receives the money can spend some of it on something else, and the person they spend it on can spend some of it on something else, etc., but none of these transactions produce anything. The ultimate question is, what did the spending actually produce? The issue of creating jobs only deals with how the benefits are to be distributed; it does not create benefits in and of itself.
In that sense, relatively wasteful stimulus spending is actually no worse than a tax cut.
Tax cuts and for that matter, welfare benefits, do not waste resources per se, they just determine the distribution. Welfare may be criticized on the grounds that it encourages dependency , or you may argue that it is wasteul because of what welfar recipients spend it on, but while taking mopney from Peter the taxpayer to give to Paul on welfare does reduce Peter’s wealth and increase Paul’s, it does not actually destroy any resources. Likewise, tax cuts are stimulative to the extent that they alter the behavior of taxpayers in a beneficial way (encourage them to work harder) or to the extent that what they invest their surplus cash in is mor beneficial than what the government would do with it, but they do not actually destroy any wealth or create any wealth, they just alter its distribution.
However, building tanks and planes only to throw them into the ocean wastes lots of things. It wastes the time of all of the people who are involved in production (bulding planes that are not to be used is no more productive than sitting in front of one’s TV all day). It wastes all of the materials that go into making the vehicles. It wastes all of the energy that is needed to produce the planes. It wastes all of the factory space that might be put to better use (hell, even if the factory were to sit idle, it would be no less productive than one that builds lots of stuff that is going to be thrown into the ocean).
I fail to see how this benefits the economy.
This is not to say that you cannot make an argument that a stimulus package will help the economy. But the argument has to be based on the idea that the stimulus spending will cause beneficial economic production (e.g. building a useful road or transportation system, or doing research that will likely yield improved technologies to meet various needs) that would not be produced in the absence of a stimulus, and that is more beneficial than what the resources would have been used for absent the stimulus.
February 12th, 2009 at 9:33 pm
Re why oh why’s comment “The last two comments[John and Glaivester] are beyond ignorant. Public debt after WWII was above 100% of GDP, a miracle of savings indeed!”
———————
No, John and Glaivester were correct re the deprivation and austere living of WWII resulting in pent up consumer demand (not just psychology — old cars needing replacement,etc.)
Plus Congress was anxious to reward the middle class/working class GIs who had risked their lives in defending the country — so they redistributed some income. GI bill ,etc.
But I think what really scared the living shit out of our elites was that the Rosenberg/Cohen spy rings showed how our ruling oligarchy was fucked if the Commies made headway with the common citizens.
A lot more Russians died fighting the Nazis than did Americans — and during WWII Ronald Reagan’s Hollywood had made a lot of now-forgotten propaganda movies extolling our glorious Russian Allies.
And a lot of union workers weren’t all that happy with American Capitalism after being fucked by the Great Depression.
Plus there were all those Garand rifles lying around.
February 12th, 2009 at 9:39 pm
If the stupid fuck Keynesians had been in power the last 3000 years, we would still be chipping flint rocks to make arrowheads. Because the Keynesians would argue that that is just as good a stimulus as more advanced technologies.
Actually , primitive societies had Keynesians –google potlatch. That’s why they remained primitive.
We shouldn’t bury bottles of money in a mine shaft and pay people to dig them up. We should bury Keynes and his dumbshit acolytes in the shaft — and fucking leave them there.
February 12th, 2009 at 9:45 pm
Re Potlatch, see http://en.wikipedia.org/wiki/Potlatch
Kinda hilarious that Christian missionaries pressured the US and Canadian governments to ban the practice on the grounds that it obstructed the spread of their Christian religion.
But then a lot of ministers have always made their living by being whores for the Rich –and just can’t accept that Jesus Christ was a Commie.
February 12th, 2009 at 11:02 pm
Sheesh.
Is this blog always so mean and nasty in the comment section?
February 12th, 2009 at 11:33 pm
No, John and Glaivester were correct re the deprivation and austere living of WWII resulting in pent up consumer demand
Actually the austere living of World War II resulted in an increase in investment in the means of production, which is what caused the boom. The increased demand would not have stimukated the economy without increased capacity to supply, which is the real foundation of economic growth. So I partly agree with you, Mr. Williams, but I think that you are still thinking too much like a Keynesian on that issue.
The general difference between DTM and I can be summed up as DTM appears to believe that circulating money through the economy by increasing the number of transactions is the foundation of economic growth. Therefore, give someone money to spend on something, and the economy gains every time that money is spent. I believe that transactions themselves do not create growth, and that the important thing to look at is resources and their utilization (i.e. what is available, what goods and services can we make with them, and what can we do with them to get even more resources or to find ways to use our resources to meet our needs more efficiently? So therefore growth in my opinion can only be funded by investment, which can only be funded by people putting aside some percentage of resources to be used for investment rather than consumption for immediate gratification (i.e. saving).
February 12th, 2009 at 11:47 pm
John V, Glaivester, Don Williams,
During WWII the government was spending and borrowing like a madman. Nothing in the history of the United States even compares to this spending spree. So it doesn’t matter if regular citizens were “tightening their belts”. Crowding out, generational theft, tax-and-spend, whatever you want to call it, it was the zenith of Big Government and Central Planning.
Yet the economy survived, and in fact thrived the following decades. So: you are very wrong, this fact is easily proven, and this “tight belt” theory makes no sense at all if you actually look at the data. It doesn’t matter if private savings increase, if government spending explodes.
February 13th, 2009 at 12:05 am
So it doesn’t matter if regular citizens were “tightening their belts”. Crowding out, generational theft, tax-and-spend, whatever you want to call it, it was the zenith of Big Government and Central Planning.
Yet the economy survived, and in fact thrived the following decades. So: you are very wrong, this fact is easily proven, and this “tight belt” theory makes no sense at all if you actually look at the data. It doesn’t matter if private savings increase, if government spending explodes.
Sure it matters. The whole point of keynesian logic is increase consumption. People were working for fixed, low and controlled wages while 15% of the labor force was fighting a war and those workers were really not spending much. That “not spending” part is key. Where’s the multiplier?
The zenith of Central Planning? SO what. It wasn’t a normal economy. Almost of GDP was going to the war effort…a very suspect GDP number since it was based on arbitrary values for the supplies and munitions. How would a normal economy ever price those? It wouldn’t.
**Remember these same economists predicted another recession after the war. They were wrong because the methodology of the spending was wrong. The pent up savings and demand unleashed new investment and consumption in an exaggerated way…like a shaken up bottle of champagne.
So yes, the economy survived. And no, therefore I’m not wrong.
What fact did you easily prove?
Besides, I said above that it was a perfect storm of events under extreme circumstances. It could never and should never be duplicated…unless you want to take 15% of the workforce and put them in the military while establishing wage and price controls for the unemployed to take their places so everyone works for frozen wages and cannot buy much beyond skimpy rations. Then, we re-introduce that 15% of workers after we’ve destroyed half of China’s and Europe’s production capacity and lift the controls so wages shoot up to maket levels and finally allow everyone to replace worn out durables and set off a consumption explosion.
THAT’S exactly what worked. And No, it couldn’t work again.
February 13th, 2009 at 12:13 am
During WWII the government was spending and borrowing like a madman. Nothing in the history of the United States even compares to this spending spree. So it doesn’t matter if regular citizens were “tightening their belts”.
But WHO WERE THEY BORROWING FROM? And where did those people get the money? If the U.S. government were financing the war through borrowing from foreign investors, or by printing out the money, you might have a point, but the U.S. government was borrowing from U.S. citizens, which means that whatever the government borrowed, THE CITIZENS WERE SAVING.
Unless the government was borrowing mostly from some other country, the people of the U.S. had to be saving about as much as the government was borrowing or the war could not have been funded.
February 13th, 2009 at 12:14 am
Technically, there is some utility in an increased number of trades. Artificially increasing the number of trades may not increase the raw number of goods produced, but it can allocate them more efficiently, improving the standard of living. At the same time, it’s not feasibly possible to “artificially” increase the number of voluntary trades beyond charging 0 taxes for them.
February 13th, 2009 at 10:48 am
spokeytown Says:
February 12th, 2009 at 11:36 am
Yeah, you really do want to avoid waste as much as possible. Sarah Palin’s bridge to nowhere was stupid because it connected a small town with an island of 40 people who already had a ferry to get to town. Once the bridge was built and the construction jobs dried up, it’s not like there was going to be a huge flood of people between Ketchikan and Gravina Island spending zillions of dollars and having a big multiplier effect; most of the time you could probably have a picnic on the bridge because it would be empty.
Some critical information missing.
1/ The residents of Gravina (the “small island”) take tiny, private boats to the city, not the island shuttle. Miles of impenetrable forest and muskeg (swamp) bar access from the scattered, isolated beach residents from the shuttle.
2/ The shuttle connects a major international airport located on Gravina. By the way, Gravina is 21 miles long and 9 plus miles wide. The international airport brings tons of freight for Ketchikan (the “small town”) and for several other cities located on other islands. Add to that several hundred thousand tourists and sports enthusiasts, seasonal workers, and millions of tons of fresh Alaska seafood shipped out every year – so no, the bridge would not be empty. Not even in the winter.
3/ Another missing fact … According to the SE Alaska Comprehensive Economic Development Strategy (2007) Land ownership in SE is 95 percent federal, 2.4 percent Native corporations, 0.9 percent State of Alaska, and 0.05 percent other private.
A bridge to Gravina would have opened a great amount of private land so that Gravina would have more than a few residents. (Can you say, “New home construction?”)
So yes, a bridge would have a multiplier effect and would be a long term investment in the growth of the entire Southern SE Alaska region.
Not that all the facts are likely to change an opinion with an agenda which is so far from the truth.
February 14th, 2009 at 4:03 am
That John Chait passage is just moronic. Let’s compare two stimulus plans:
Chait plan: Government pays people to build tanks and then dump them into the water.
Phil plan: Government pays hose same people, but let’s them do nothing.
Clearly the second plan is better. The lesson is that if we’re going to stimulate the economy we should at least ensure that the projects we buy aren’t worse than useless. And in fact the burden is much higher, since a lot of stimulus money will just shift people from one job to another, rather than creating entirely new jobs. It’s not as though all those newly unemployed bankers are going to go work in the underwater armored vehicle industry.
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