What Would More Stimulus Look Like?
Paul Krugman and Brad DeLong both had good items yesterday discussing the desirability of additional stimulus. The politics still aren’t there yet, but in the interests of moving the ball forward it’s worth thinking about what additional stimulus might look like.
In an ideal world at this point what I’d like to see is more aid to state and local governments. Probably this should just be done in a very crude way—some flat per capita disbursement that could be implemented very rapidly at the federal level and kick specific decisions to someone else. Some of the money would be wasted or used in bad ways, but it wouldn’t be congress or the executive branch doing the wasting, so it’d be someone else’s problem. That kind of thing would work quickly, would be highly stimulative, and would allow structural shifts in the private sector to proceed apace.
In terms of political reality, though, I think we’d realistically be looking at something heavily shifted toward tax cuts. Which would be okay, I think. At this point I think the concern that money disbursed via tax cuts would be saved rather than spent looks a bit misguided; insofar as people might use tax cut money (in the form of reduced withholdings from their paychecks) to pay down credit card debt, I think that still moves us closer to recovery. In the wake of the asset bust, there’s a lot of need for “household balance sheets” to repair themselves, and to an extent shifting debts off individuals and onto the government is a good thing since the government pays a much lower interest rate.
66 Responses to “What Would More Stimulus Look Like?”
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July 11th, 2009 at 10:10 am
yeah, just what America needs! More tax cuts for the wealthy and more money for Credit Card companies.
No political danger in that!
July 11th, 2009 at 10:13 am
“The politics aren’t there yet”
Yglesias lives in an unreal world. The politics is moving the other way.
July 11th, 2009 at 10:20 am
Another tax break that would done some good is one on capital expenditures with a sunset of six months to one year (Alex Tabarrok’s idea).
Firms would have the prescribed time limit to make new large capital investments in order to get the break. If this does not stimulate new investment, it costs little to nothing. If it does, the costs go directly back into the economy.
For all of the bluster on both sides, good ideas like this are rarely discussed, let alone considered.
July 11th, 2009 at 10:32 am
1) Aid to states to fill budget gaps and retain employees.
2) Expansion of weatherization program, up to every household in America if necessary.
Done. See? Spending money isn’t so hard after all.
July 11th, 2009 at 10:32 am
Oh, and raise taxes on the rich to pay for this stimulus and the previous one. They’re obviously not using their money anyway. If they were we wouldn’t be in this recession.
July 11th, 2009 at 10:44 am
shifting debts off individuals and onto the government
How does this boost aggregate demand?
July 11th, 2009 at 10:46 am
About a third of the first stimulus was tax cuts which is funny because repubs seem to think it all went wasteful gov programs.
I say no to more tax cuts. They always work out to nothing for the little guy and a lot to the rich f**kers
July 11th, 2009 at 10:47 am
Along with Krugman’s 50 lil’ Hoovers we have a million little Reagans. We are so screwed.
Money (tax cut) and no job, or with job insecurity, will not increase aggregate demand. The last two “stimulus” which were largely tax cuts, did very very little, why does MY and so many others think tax cuts will work this time, with unemployment moving toward and past 10%.
We will probably reach 20% U-6 in 2010, and then have no political capital, credibility, or fiscal means for the essential jobs programs because they have been blown on Reaganism. This is just tragic.
July 11th, 2009 at 10:48 am
Insane. Household balance sheets “need to repair themselves”? If a stimulus is desirable at all, in the sense that it will expand GDP or put people back to work, it is because demand is lower than economic capacity. Stimulus works by creating demand, whether that is directly from the government, or indirectly through tax cuts, which leads to increased consumer demand. The more consumers “repair” their balance sheets, the less effective tax cuts are as a stimulus.
July 11th, 2009 at 10:56 am
Does this fall under the weekend post category, where you don’t think about it a lot?
July 11th, 2009 at 10:57 am
Another tax break that would done some good is one on capital expenditures with a sunset of six months to one year (Alex Tabarrok’s idea). * * * For all of the bluster on both sides, good ideas like this are rarely discussed, let alone considered.
That’s just crazy talk! Next you’ll be proposing that, when the economy is booming, the government should implement tax policies that encourage households to save more!
July 11th, 2009 at 11:09 am
Is this part of the chess game BHO is playing?
July 11th, 2009 at 11:10 am
In terms of political reality, though, I think we’d realistically be looking at something heavily shifted toward tax cuts.
It seems to me if the Democrats had just an ounce of intestinal fortitude, though, the money-to-state-and-local-governments concept ought to be politically sellable. After all, you can put real faces behind the people who won’t be laid off if money is provided to states/cities: teachers, cops, firefighters, prison guards, etc. Just let Boehner and McConnell try to demagogue federal action to keep firehouses and prisons from closing. Also, I think it’s likely that not even Republicans in Congress would be immune to lobbying from public officials back home.
Of course, if the idea is never even floated out of fear of the next Drudge headline, then all of this is moot.
July 11th, 2009 at 11:12 am
Out of the mouths of babes… Yes, the wealthy aren’t using their money, because Obama and the left have made it very clear that business is bad, making money is bad, and risky behavior like hiring is bad.
What? Wait. It’s wealthy people that decide when business hires and fires, you ask? Why yes children, they are.
But what difference does it make if business hires or we send money to government to hire?
The difference is that business takes capital and labor, mixes it up and gets something that is more than the sum of it’s parts. It’s called “value added.” It’s something other people are willing to pay for and is self sustaining, like demand for groceries.
Government on the other hand takes money away from people that create value and mostly gives it to people that don’t. Even infrastructure spending is the funneling of money to wealthy people who have companies, but only after skimming a substantial amount off the top for overhead, and in the end producing a net loss on tax money.
But wait, but wait! Wealthy people are all lazy slobs that inherited their money and produce nothing of value!
Oh really? Do you think that’s true of 10%, 25%, half, or all wealthy people? My guess is 10%, leaving 90% to do the work of adding value to the world. Yet those are the people you want to penalize, and ultimately cripple financially. Is that a smart thing to do? Of course not. When was the last time a poor person gave you a job? Never, and that children, is why the recession is getting worse, not better.
July 11th, 2009 at 11:16 am
#1 “yeah, just what America needs! More tax cuts for the wealthy and more money for Credit Card companies”
When every liberal should know that the great solution is inflation (to ruin our parents who saved some money instead of spending it) and huge debts (to ruin our children). Keynes used to say : “In the long run, we will all be dead”.
July 11th, 2009 at 11:19 am
i suppose it’s possible to come up with dumber comment than shooter 242, but i’m hard pressed to think of how.
as for the adults, my own choice for stimulus is a federally funded state sales tax holiday. i would use state sales tax receipts from 2007 and simply reimburse the states on that level. this would be highly consumption-stimulative, since it would effectively put lots of things on sale. i took a quick look recently and it looks like it would amount to $250B or so, which is probably too small an amount overall, but i think it’s a good starter.
July 11th, 2009 at 11:23 am
What kind of fucking moron thinks any of the taxation under discussion (even extending the idea as far as it would go) would “cripple” the people who already have all the money?
The problem with arguing with “conservatives” and “libertarians” is that they are all stupid, crazy, or (like shooter) both. Facts, logic, decency, all of these things hold no sway. The only rational response is mockery.
July 11th, 2009 at 11:25 am
#17 “they are all stupid, crazy, or (like shooter) both. Facts, logic, decency, all of these things hold no sway. The only rational response is mockery”
I think we should send them to the Laogai or a Gulag to reeducate them.
July 11th, 2009 at 11:32 am
@howard.
Heh. You have no explanation why my comment is dumb, so let me use yours as an example of how it’s done.
Interesting so far….
What? Do you think that money is sitting around in a bank account waiting for your valuable input regarding it’s use?
Reimburse? The feds don’t get that money it stays in the state. The feds can’t reimburse something they didn’t have in the first place.
So to recap, your brilliant idea is to use money that was spent long ago provided by an entity that didn’t have it to start with. That sounds like a Harry Potter plotline, and why idiots that have no earthly idea how useful things are made should have blinking lights attached to their comments announcing to one and all that the following is for entertainment purposes only and not to be seriously considered as legitimate thinking by sentient beings.
July 11th, 2009 at 11:36 am
My guess is that a second stimulus would be largely aid to states + a payroll tax cut or holiday.
I like Dean Baker’s proposal to essentially pay companies not to fire people but give people time off.
I also would like to see a series, $100 billion+ commitment to rail. I’d focus on electrifying and upgrading our freight rail system, while also providing semi-HSR passenger rail to most major cities. That could be done quickly and create a constituency for rail that could allow the construction over the next 20 years of serious 220+ mph rail corridors.
July 11th, 2009 at 11:42 am
I believe Mao tried a version of that already. As I recall the Chinese ended up with a country I doubt you would want to live in. Perhaps you should actually think ahead rather than mindlessly spout a party line.
July 11th, 2009 at 11:49 am
well, shooter, i can see that i was accurate in thinking of your comments as dumb.
sheesh, of course i didn’t think the state tax receipts were sitting around somewhere. let me spell it out very slowly, and then, since you asked, we’ll explain what’s dumb about your remarks.
because 2008 was a period of declining state sales tax receipts, i wanted to go back to 2007 as the baseline for a “federally funded state sales tax holiday.” the feds would be reimbursing the states for foregone revenue, since the point here is a state tax holiday. and the federal cost would be in the neighborhood of $250B because that’s roughly the amount of state sales tax receipts that were collected in aggregate in 2007. what’s so hard to understand?
as for dumb: jesus, when you type out drivel like “Obama and the left have made it very clear that business is bad, making money is bad, and risky behavior like hiring is bad,” you don’t really expect to be taken seriously, do you? i mean, that’s a dumb sentence on so many levels it’s hard to know where to begin, but again, since you ask: obama isn’t of the left, so to combine obama and the left is ridiculous to begin with. you do that, of course, because it gives you a chance to combine stereotypes of immature marxism with obama as though they were meaningful, and even those stereotypes of immature marxism are dumb – insofar, for example, as you want to criticize the “left” on hiring people, you should criticize it for believing that no job should ever disappear, not for increasing the disincentives to hiring.
so that was your first graf. your next two paragraphs quite literally make no sense at all. you invent a phony question with a phony choice – business hiring or sending money to the government to hire – which you then analyze in simplistic, nonsensical terms.
the purpose of stimulus spending – that is, the purpose of using countercyclical fiscal policy – is to make up for a collapse in demand in the private sector. normally, we would like to use interest rates to make up for that collapse in demand, but interest rates can’t be cut any lower. as a result, we have two choice: we can, as they did in the 19th century, live with regular recessions and depressions that linger until the market clears at some considerably lower point or we can utilize counter-cyclical tools to replace demand in the near-term and count on the multipliers from that replaced demand to rev up the economy so that we don’t have to wait around for the market to clear at a considerably lower level.
this was the great advance of economics in the 20th century, to figure this out.
let us also note that your two paragraphs live in a fantasy world in which true, competitive markets desperately compete to provide consumers better goods and services while their margin is reduced to next-to-nothing thanks to the miracle of competition. which would be grand, if we had a textbook market economy, but we don’t: we have an oligopoly, and business is nowhere near as efficient as you seem to hypothesize.
then we get to your straw man comments about wealth, which really are too dumb for further discussion.
July 11th, 2009 at 11:56 am
I think America is still too frightened by the horrendous aftermath of all the liberal FDR taxing and spending (with deficits) from the 1930s and 1940s, given the mass starvation and economic collapse we all suffered through in the 1950s and 1960s.
July 11th, 2009 at 12:03 pm
More from the Krug-Man:
July 11th, 2009 at 12:08 pm
McManus has it correct in #8.
And Matt’s suggestions won’t jump start anything other than credit card company CEO bonuses.
The point of any stimulus should be jobs, kept or added. Period. Tax cut trickle down is just weak. There is no incentive to invest unless there is demand which is dependent on people working. Unfortunately the recent blog post by Robert Reich rings too true.
http://robertreich.blogspot.com/2009/07/when-will-recovery-begin-never.html
July 11th, 2009 at 12:53 pm
I think a one time per capita payment to states may have enough political support to move forward, particularly if it is nominally earmarked for some popular programs (e.g., to help avoid police, fire, or education layoffs).
I would prefer it were not actually per capita but was tied to the number of individuals receiving unemployment insurance within each state.
July 11th, 2009 at 1:00 pm
Tax cuts? Holy crap. I thought we had put that one to bed.
What we desperately need to see is that beautifully tragic oxymoron, the jobless recovery. Maybe then people will wake up and realize this country is in deep trouble.
July 11th, 2009 at 1:38 pm
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July 11th, 2009 at 1:56 pm
As many before me have pointed out, individuals using government-borrowed funds to pay down their personal debts may or may not be a good long term economic policy, but it certainly isn’t a stimulus program (to put it in simple terms, no one gets a job just because I lowered by credit card balances).
As, in fact, we are learning right now: the transfer portions of the stimulus have increased personal disposable income, but most of that additional income is going to savings (aka paying down debt). Again, maybe that is going to be good in the long run, but for now that helps explain why the stimulus hasn’t done more to moderate unemployment as of yet–although the good news is that the direct spending portions are just ramping up, and those should be more effective.
July 11th, 2009 at 1:58 pm
You say let’s try for a rerun of the Krugman-Greenspan bubble (”the Fed’s dramatic interest rate cuts helped keep housing strong”). That makes sense, right? You Keynesians need to learn the Austrian Business Cycle Theory and some history.
The entire Keynesian paradigm is a hoax, including the so-called multiplier. Consider the 1920-1922 depression. Between the second quarter of 1920 to the third quarter of 1921, wholesale prices fell 44%. Factory employment and industrial production fell 30%. The Fed raised the discount rate from 4% to 7% and then back to 4%. The Harding government did basically nothing in the way of so called Keynesian stimulus. Harding specifically and intentionally did nothing to interfere with falling wages and prices. Further, Federal spending declined from $6.3 billion in 1920 to $5 billion in 1921 and $3.3 billion in 1922. Tax rates, meanwhile, were slashed—for every income group. And over the course of the 1920s, the national debt was reduced by one third. The crisis was over quickly.
Thomas Woods has an interesting article on this.
There is no evidentiary, historical or logical basis to expect Keynesian “stimulus” to produce anything other than misery, poverty and economic dislocation.
Note the lowered tax rates in the 1920s. Note how the rates rise to ridiculous levels starting in 1932 under Hoover and keep going up. Check the historical tax rates here.
Hoover was responsible for FY 1930–1933 (which started in July). FY 1934 was the first one that we should associate with FDR and the New Deal. Hoover’s budgets for 1932 and 1933 included massive deficit spending. This was the first time such action had ever been tried in the U.S. to cure a downturn. The result was the Great Depression.
No wonder the depression lasted until FDR died and Congress slashed spending by 2/3 after WW II. Check the budget data here.
Not only does the Austrian School eviscerate the Keynesians, but the substance of the Austrian School is that our economic misery is caused by Keynesian polices.
July 11th, 2009 at 2:04 pm
It’s obvious now that, the removal of the funds for condoms, doomed the first “stimulus”
But let’s now “Monday morning quarterback” the making of one inedible sausage when it’s possible to write another unread piece of legislation.
July 11th, 2009 at 3:24 pm
I’d say the optimum stimulus should be a massive jobs program, on the order of 5-10 million jobs, and a big state govt funding boost.
Bob Roddis:
Explain how unemployment dropped from 22-25% in 1933 to 9% in 1937, and how economic growth averaged 9% per year in the same time period if Roosevelt’s Keynesian program made things worse?
Explain why we saw economic decline when FDR balanced the budget by cutting spending in 1937-8, and why we saw economic recovery when FDR returned to deficit spending ‘38-39.
Explain why World War II lead to unemployment of 1% or below, and growth rates averaged 17.5%?
Austrian business cycle theory is a bunch of marsh gas.
July 11th, 2009 at 3:25 pm
What amazes me about people like our friend Bob here is that he believes total nonsense and then insists that everyone take him seriously.
Bob, let us assume that you are correct. What happens when the government spends money? Does it merely vanish into a rat-hole? Or are otherwise unemployed individuals put to work?
See, here’s the problem, the people who want to ensure that nothing is done (beyond giving more money to the wealthy) are the same ones insisting that we do fuck all for the victims of their policies. It is downright sociopathic.
July 11th, 2009 at 4:12 pm
We should do the following:
1) A Sales Tax Holiday, which aids the states and gives an incentive for current spending. You can read about it here:
http://blogs.wsj.com/economics/2009/01/05/state-sales-tax-cuts-get-another-look/
http://econlog.econlib.org/archives/2009/01/smart_stimulus_1.html
2) A Payroll Tax Holiday
3) A Tax Credit for Hiring
All would help.
July 11th, 2009 at 4:25 pm
A payroll tax holiday
July 11th, 2009 at 5:20 pm
Bob:
Look at your own budget data. Hoover’s admin increased outlays by only a billion dollars (1934 is inaccurately labelled as Hoover) – because he was forced into it by Congress. And the result – GDP drops by $40 billion.
Roosevelt more or less doubled outlays from $4.6 to $9.5. Result – GDP increases from $57.6 billion in 1933 to $87.7 billion in 1937, and by 1939 it’s up to $96.8 billion.
According to your Austrian theorists, this shouldn’t be possible.
July 11th, 2009 at 5:21 pm
Actually Bob is correct. But the apparent allure of paying people to dig holes and fill them up again is overwhelming for some here in the comment section.
First we have Steve, who thinks giving someone a dollar is the same as real economic activity. Then we have “stupid as” who thinks spending $2-300,000 of productive people’s money for a $40,000 make work job is a good thing.
But no matter, as Mr. Woods writes in the article Bob cites, the die is cast and the play is written. The only thing left to do is profit from the mistakes of others. And boy, I am making a pile off you people.
Keep up the good work.
July 11th, 2009 at 5:37 pm
Cutting the payroll tax for a time would presumably be acceptable to some Republican yobs.
July 11th, 2009 at 6:33 pm
Q. Explain how unemployment dropped from 22-25% in 1933 to 9% in 1937, and how economic growth averaged 9% per year in the same time period if Roosevelt’s Keynesian program made things worse?
A. Unemployment “dropped” to a still outrageous level of 14.3% in 1937. Your 9% figure is still an outrageous level of unemployment although incorrect. 1937 was the EIGHTH year of the crisis. For the first time in U.S. history, the government instituted a “stimulus” plan which clearly retarded any chance at a return to prosperity.
Compare Canadian and U.S. unemployment during the New Deal. Canada did not have a New Deal. Their unemployment rates fell faster than did the rates in the U.S. Explain that.
PERIOD…..US UNEMPLOYMENT….CANADIAN
1923-1929…….3.3%……………..3.1%
1930……………..8.9………………9.1
1931…………….15.9……………..11.6
1932…………….23.6……………..17.6
1933…………….24.9……………..19.3
1934…………….21.7……………..14.5
1935…………….20.1……………..14.2
1936…………….17.0……………..12.8
1937…………….14.3………………9.1
1938…………….19.0……………..11.4
1939…………….17.2……………..11.4
1940…………….14.6………………9.2
1941……………..9.9………………4.4
Q. Explain why we saw economic decline when FDR balanced the budget by cutting spending in 1937-8, and why we saw economic recovery when FDR returned to deficit spending ‘38-39.
A. Your pitiful pre-1937 recovery was so anemic due to the New Deal drag on it that a single year’s balanced budget blew it down like a literal house of cards. There was no true recovery and your “growth” statistics would last only for as long as the government was blowing its phony stimulus money around. Despite “growth” statistics, there was no return to prosperity in the U.S. until WWII ended. Everyone who lived through this period knows this. Drafting millions of people to kill Germans and Asians does lower unemployment statistics. Having factories build bombers to fire-bomb Tokyo does not cause prosperity, but I grant that it causes your government statistics to boom.
July 11th, 2009 at 6:56 pm
The Porkulus is a train-wreck… these jobs figures are far worse than the ones the White House warned us about if we DIDN’T pass the bill- so it was passed, and then unemployment soars anyway?
Instead of creating jobs, interest rates were bumped up, the dollar slid… and it didn’t help anybody get any work. Much of this is due to the fact that Obama’s agenda has mortified almost every source of job-and-growth creation in the country.
The Dear Leader couldn’t deliver the type of “temporary, targeted, and timely” bill that he promised repeatedly. Regardless of his image in the MSM, Obama simply lacks the the political stature to control Pelosi and Reid… who hit the trough hard, while bickering like children.
And the lack of GOP co-conspirators exposed Obama politically… this legislation now looks to be a HUGE gamble. And when all this pork-n-welfare fails to generate any real economic gains, the Democrats face a bloodbath in 2010.
July 11th, 2009 at 7:32 pm
I don’t know how much it would help to put the TARP over small business, but it’s under discussion right now, and, as I note, Obama has a new PR reason to do something by October.
July 11th, 2009 at 8:13 pm
there’s obviously something about this topic that brings out the clowns: our friend shooter returns, unabashed, and then we have bob’s nonsense, to which there is only one simple response: we’ve been practicing keynesian economics for 70 years now. howcumzit we’re not poorer than we were then?
July 11th, 2009 at 8:53 pm
ya know, reaganite republican, i was just skimming back through your remarks which i hadn’t looked at carefully enough: you belong in the dumbness sweepstakes too! i especially like the way you claim “that Obama’s agenda has mortified almost every source of job-and-growth creation in the country.” you do realize that those words make no sense at all?
July 11th, 2009 at 9:11 pm
The back and forth on this thread has been fascinating. I don’t know much about economics, so I’ll remain mum on the main content, but I would like to highlight one thing.
This: The Dear Leader couldn’t deliver the type of “temporary, targeted, and timely” bill that he promised repeatedly.
was posted by Reaganite Republican
I’ve said it before, but I’ll say it again:
http://en.wikipedia.org/wiki/Psychological_projection
July 11th, 2009 at 9:24 pm
It does not matter what is done for stimulus. The long term prospect of much higher taxes, much more regulation, and the changing demographics of the U.S. make long term private sector investing impossible to manage. The down side risk is so much greater than any possible up side that private sector investor has gone down so much that the stimulus cannot make up for a shrinking private sector.
July 11th, 2009 at 9:31 pm
Of course, whether or not the statistics folk at the time or the right wing revisionists like it, New Deal public works jobs were, of course, jobs, and not unemployment.
July 11th, 2009 at 10:50 pm
Reading this mess of simple-minded bickering is really disappointing.
I apologize to the few commenters who actually discussed potential stimulus policy — the sales and payroll tax holidays look like decent approaches along with the cap ex break, which I still think is worth more discussion.
The rest of you make the US Congress look like a group of discerning statesmen. Sheesh.
July 12th, 2009 at 1:27 am
Bob:
Actually 9% is the correct figure. See Michael Darby, “Three and a Half Million Workers Have Gone Missing.” The 14% number you cite comes from Lebergott’s estimates, which deliberately excluded New Deal jobs programs from counting towards employment. And you’re completely missing the point that FDR was in office only starting in 1933 – 1933, 1934, 1935, 1936, and 1937 were years of economic and employment growth. You have yet to show how this constitutes retarding recovery.
If we use the correct methodology, we see that the Canadians reduced unemployment from a lower upper level by 10 percentage points. The U.S reduced unemployment by 13 percentage points from a higher upper level.
Re: 1937
Describe how growth rates of 17% in in 1934, 11,1% in 1935, 14.3 in 1936 and 9.7% in 1937 constitute “anemic.”
Re WWII:
Please explain why, if Keynesian stimulus through creating public jobs via the WPA and stimulating demand for building materials through the PWA was bad for the economy, how a WWII economic policy that involved hiring 12 million men into the armed forces and issuing $40 billion a year in war orders made things better, not worse?
You can’t have it both ways. Either Keynesian stimulus makes things worse, or the war improved the economy.
Because as it stands, your argument is tautological. First, you deny that economic growth or job growth existed. Then, when shown that they did, you argue that this somehow doesn’t constitute real “prosperity.” Unless you can explain how the manifest physical goods created by the WPA and the PWA don’t constitute economic goods that should be measured in GDP, or why people paid a cash wage to do light construction work shouldn’t be counted as employed, you don’t have a leg to stand on.
July 12th, 2009 at 9:07 am
Actually you CAN have it both ways. A nation full of human beings is not a machine predictably responding to an on-off switch. Consider that Obama is emulating Hoover with stimulus and debt, not Roosevelt. In addition it was Hoover that started increasing tax hikes. Yet the Depression accelerated.
OTOH after the war prosperity reigned even though Government spending declined precipitously and tax on $10,000 went from 6 to 10% under Hoover and skyrocketed to 41% under Roosevelt. Levels that anyone today understands would choke the life out of an economy.
So whats the difference? National attitude. The Depression and today are hallmarked as times of national impotence in the face of overwhelming forces unleashed by our own neighbors.
In WW2 we were united in a fight to the death, and emerged victorious in spite of impossible odds. More importantly employment was low due to casualties, and production was high due to wiping out the rest of the world’s capacity. But “can do” attitude is conducive to success, while being told “can’t and won’t” by one’s Government leads to failure.
It’s not an accident that we had good economies under Reagan and Clinton. Their forte was emphasizing the good qualities of the country and believing in it’s citizens. Having Obama say government is the only solution to our problems is a tacit admission that he believes only he is capable and we aren’t.
In the end, a good or bad economy is determined by the consensus outlook for the future. If it’s positive, the economy will be good, if negative it won’t. Having Obama tell us that the rich are greedy and need to be taxed more, rather than recognized as the engines of growth, is a sure way to encourage class warfare and a house divided. With encouragement like that, the Great Recession will be with us for at least another seven years.
July 12th, 2009 at 9:38 am
I’m one of the 50+ million Social Security recipients that received a $250 stimulus check on May 14. Yes! More stimulus please! Could I have $5,000 next time? Oh, what the hell, make it an even $25,000. That should be enough. Until next year, that is.
July 12th, 2009 at 9:55 am
howard, with all due respects. But, when you start mentioning dumbness sweepstakes and clowns, and then you are unable to find the shift key to make a capital letter, well, you just don’t seem real bright. Or, maybe you’re just lazy.
July 12th, 2009 at 10:32 am
allens, i’ve been posting at matthew’s since he started and i believe it’s possible that i’ve used a shift key 3 or 4 times in all those years. i call it a stylistic tic, but you can call it lazy.
and it doesn’t change my opinion about dumbness:take shooter242, whose intelligence, such as it is, seems to have deteriorated over the course of the thread. shooter’s 9:07 is such a piece of blithering stupidity that it makes his earlier comments look informed in comparison. when you’re down to making stuff up about Obama telling us the “rich” are greedy and need to be taxed more, there’s really no hope for you as an analyst.
July 12th, 2009 at 10:53 am
Tell you what Howard, I’ll rephrase. Obama implies the rich are greedy, while stating they need to be taxed more. For instance…
I’ll happily assign the “wealthy are greedy” meme to others on the left.
July 12th, 2009 at 11:04 am
I will call you lazy. Now, get off your lazy ass and get me some more of that stimulus money. By the way, where is Obama getting this money from?
July 12th, 2009 at 11:24 am
shooter, in other words, obama doesn’t say what you claim he says. thank you for noticing reality.
speaking of reality, i was thinking i should remind you that despite reagan’s forte of believing in the good qualities of americans, he did preside over a 16-month recession despite getting the tax cuts he asked for.
allens, i’m trying to figure out if you’re asking a serious question: presumably you aren’t, but just in case, he’s getting it from the same place george bush funded the iraq war from, he’s getting it from the same place george bush funded medicare d from, he’s getting it from the same place george bush funded deficits during growth years from: domestic and international buyers who are purchasing US government bonds.
and they are so frickin’ concerned about the collapse of the US, the explosion of inflation, or any and all of the boogeymen that the right wingers believe so strongly in, that they are willing to provide hundreds of billions of dollars to the US government for 10 years for under 4% per annum.
July 12th, 2009 at 1:18 pm
Shooter:
I don’t think you’re explaining yourself clearly.
Hoover refused to do major stimulus and raised taxes to try to balance the budget, FDR engaged in deliberate deficit spending on major stimulus projects. Which of the two does Obama more compare to?
Second, actually there was a slowdown of the economy after the war, with 1.5% growth in 1945 and -.4% growth in 1946, and then two years of 10% economic growth, and then another year of negative growth in 1949. And interestingly, this boom and bust cycle did coincide with shrinking Federal outlays. Then the Korean War started, and guess what? Government spending started growing again – and was kept growing throughout the Eisenhower, Kennedy, and Johnson years. Surprise, surprise, the American economy responded with sustained economic growth.
Next, all of this was happening while maintaining basically the same tax structure as we had in WWII – so there you go, high taxes, high spending, economic growth.
Finally, I think you’re overestimating the importance of collective consensus about the economy, and underestimating the degree to which that collective consensus is shaped by whether people have jobs, whether they have increasing wages, and whether the economy is growing.
July 12th, 2009 at 1:22 pm
hey, that’s great, howard. obama is doing the same thing as bush. Dang! Where did that shift key go? Where did that hope and change go? Why are we still in Iraq? Why is Gitmo still open?
July 12th, 2009 at 1:48 pm
Steven Attewell:
1. The unemployment rate discrepancy may very well be caused by not counting make-work employment in the official statistics. I don’t see how that helps your case because it shows a weak economy four years into the FDR regime that still required government make-work projects.
2. I still maintain that your “growth” was artificial and unsustainable. It did not sustain itself. It’s a fact. It collapsed in 1937.
3. I understand when FDR took over. The mainstream view fails to recognize Hoover as our first Keynesian style president. It was the attempt by both Hoover and FDR to KEEP PRICES UP, along with deficits, high taxes and the constant harassment of business that prolonged the depression. Where’s the historical and logical basis of the Keynesian position? What about the 1920 depression? This current decade of mass debt, spending, war and fiat money bubbles should have created Nirvana. It didn’t. And the Austrians have been screaming about it all decade (while being ignored by the pro-government media).
4. Once the government has caused mass unemployment like it did in the Depression, and once it hires millions of the unemployed to plant forests and to build roads and beautiful parks, you better have some nice forests, roads and parks when it’s all done. No surprise there. All that I’m saying is that such activity did not result in a return to general prosperity which did not occur until AFTER WWII.
5. I’m not clear what you are claiming about WWII. I’m vigorously antiwar. Thomas Woods who wrote “Meltown” is antiwar. We are both anti “military Keynesian“. Most people associated with Austrian Economics are antiwar, anti-drug war and line up with people like Glenn Greenwald when it comes to civil liberties (though not on economics).
July 12th, 2009 at 2:47 pm
In fact, yes, the statistics did not include public employment, and I do not care in the slightest whether you or any others consider that “make-work” employment. The point was the people who needed the employment and the economy which needed the workers, not statistics preferences.
And, yes, the fact that the U.S. economy was “still weak” after “four years” of the FDR Presidency was as commonly known then as it was now, and FDR was punished by being re-elected 3 times. Things really, really were bad. Maybe some economist has made an argument that everything could have been fixed in 1 year had FDR spent 10x as much, though I doubt it.
Public employment was needed by people, and thank god the investment in infrastructure helped develop the nation, in particular dragging the American South a long ways out of its sub-colonial, third world, undeveloped, powerless, muddy road, preventable disease, literally starving worker hell. Country mill workers didn’t hang FDR’s picture in their house because some Democrat official told them too.
Is this a real attempt at a point? Really?
July 12th, 2009 at 3:41 pm
1. Given that we’re arguing over whether the New Deal enhanced or retarded economic recovery, and that one of the key measures of this is unemployment, and that one of the major New Deal recovery methods was the creation of public jobs, it matters a great deal. People on WPA jobs did work, produced goods, were paid wages, and went out and spent those wages – this successfully multiplied outwards.
2. How is it any more artificial than economic growth spurred on by rampant speculation on Wall Street? People got jobs, built things, spent wages – the only distinction between the New Deal’s jobs programs and a boom in the construction industry is the hats people were wearing. As for unsustainable, it picked right back up when we stopped trying to do what the Austrians wanted us to do in the middle of a Depression, and we kept it going arguably through the 1970s.
3. Hoover was not a Keynesian, full stop. Hoover was opposed to federal relief and public works, he raised taxes in the middle of a recession, he believed that balanced budgets and maintaining business confidence were the means to achieving economic recovery. The historical basis for the Keynesian position is in the successful track records of the United States and Sweden and any other country that used Keynesian methods, the logical basis is grounded in the core principles of the General Theory (effective demand, marginal propensity to consume, negative equilibrium, animal spirits, etc.) The 1921 recession was a brief correction to the overcapacity caused by WWII, not an extended depression. As for the current situation, when you exacerbate income and wealth inequality with massive regressive tax cuts, restrict most spending increases to military contractors, and does nothing about stagnant wages, yeah, you’re not going to have a very effective stimulus.
4. First of all, you need to back up your assertions that “the government has caused mass unemployment.” Second, you’re definition of general prosperity is too restrictive, if double-digit economic growth and a more than 50% fall in the unemployment rate doesn’t count.
5. Of course Austrians are anti-war, they’re classical liberals. Who cares? The point is that you could have put 12 million people building roads and bridges and spent $40 billion a year on new housing, and the economic effect would have been the same as WWII – jobs are jobs, wages are wages, government orders are government orders.
July 12th, 2009 at 4:19 pm
1920 was a blip on the screen because the correct policies were followed. Why is a change-over from war to peace-time something easy to do? The Great Depression would have started in 1920 if the price drops had been slowed by government freaking out about that bugaboo DEFLATION and if deficit spending had begun. What about 1945-1948? The budget was slashed and went into surplus.
Your NRA and the New Deal was put forth by rich Wall Street pals of FDR. For example, under the NRA, U.S. Steel and Bethlehem Steel effectively controlled the whole industry by virtue of their votes in the industrial codes; of a total of 1428 votes, these two companies alone were allowed a total of 671 votes, or 47.2 per cent, close to outright control and with undoubted ability to find an ally among the smaller but still significant companies. That helped the economy boom, right?
NRA-Voting Strength in the Iron and Steel Industry Code
Company Votes in Code Authority Percentage of Total
U.S. Steel———–511————————36.0
Bethlehem Steel——160————————11.2
Republic Steel——–86————————-6.0
National Steel——–81————————-5.7
Jones and Laughlin—-79————————-5.5
Youngstown Sheet&Tube-74————————-5.1
Wheeling Steel——–73————————-5.1
American Rolling Mill-69————————-4.8
Inland Steel———-51————————-3.6
Crucible Steel——–38————————-2.7
McKeesport Tin Plate–27————————-1.9
Allegheny Steel——-21————————-1.5
Spang-Chalfant——–17————————-1.2
Sharon Steel Hoop—–16————————-1.1
Continental Steel—–16————————-1.1
I’m always amazed by liberals who support policies that mostly benefit the very rich by eliminating their competition.
Read “The Politically Incorrect Guide to the Great Depression and the New Deal” by Robert P. Murphy. He blogs here and surely will gladly accept constructive criticism.
July 12th, 2009 at 4:47 pm
It is indeed true that New Deal policies originated with policy planning groups, academic organizations, and key politicians linked to the U.S. upper classes, particularly the multi-generational corporate elites.
But that’s part of the point — the policy elites and large swathes of the economic upper classes (not all of them, there was the hysterical opposition of the NAM, etc.) were rationally pursuing their own self interests via the long-term development and construction of the United States via economic stability, human development, and infrastructure investment.
This is not an argument against the New Deal etc. as preferable to, say, a continuation of Hoover’s late term policies or a return to Coolidge or McKinley era policies, it’s an argument against seeing it as the product of inhuman, super-moral gods or as the capture of the FDR policy agenda by non-upper class interests, i.e., labor or liberal or socialist policy groups. That isn’t what happened.
July 12th, 2009 at 11:03 pm
How is it any more artificial than economic growth spurred on by rampant speculation on Wall Street? People got jobs, built things, spent wages – the only distinction between the New Deal’s jobs programs and a boom in the construction industry is the hats people were wearing. As for unsustainable, it picked right back up when we stopped trying to do what the Austrians wanted us to do in the middle of a Depression, and we kept it going arguably through the 1970s.
It’s different because business must provide things people actually want. The only way they can make money is trading things through voluntary exchange. Of course, if a business is able to get the government to create a monopoly through patents or other regulations, then this part becomes drastically easier.
Why are the things provided by government’s inherently inferior?
Let’s see what Milton Friedman had to say:
July 13th, 2009 at 11:33 am
Further response to Steve Attewell:
Q. 2. How is it [the New Deal] any more artificial than economic growth spurred on by rampant speculation on Wall Street?
A. It isn’t any different. I submit that both are “artificial” and unsustainable. That’s why we find ourselves in the current catastrophe. All that a central bank can do is dilute and debauch the currency by creating new money out of thin air. That’s the Krugmanite-Keynesian-Greenspan-Bernanke policy of low (non-market) interest rates. Those who get the new money first are, in essence, stealing the purchasing power of those holding the existing money stock. Everyone thinks they are getting richer and (this time around) started buying up real estate with the new money. Everyone thinks they are getting richer when, in fact, the society is getting poorer due to the spending of everyone else’s savings. At some point the artificial boom must end because there really isn’t anyone around who is going to pay you in real goods and services $600,000 for your formerly $200,000 house. So, here we are, at the end of the unsustainable boom full of Fed induced unsustainable “malinvestments”.
What should be done now is a slashing of the budget at least to a balanced budget (no “stimulus“) , much higher interest rates, and big tax cuts (like 1920, unlike 1930-1933). Then audit the Fed and abolish it.
I repeat: There was no return to prosperity in the Great Depression until FDR was dead and the budget was slashed. The fact that the economy puttered along for 60 years thereafter while the Fed diluted the currency and Congress spent us into unsustainable and unpayable debt is not proof that such policy was the engine of any real prosperity we enjoyed. Further, whatever you call him, Hoover wasn’t “laissez faire”. His regime was marked by massive deficits, super low interest rates and tax hikes. His regime was significantly “interventionist” and horrors that followed were completely predictable.
Regardless, we should know very soon whether our current “stimulus” will really stimulate.
July 13th, 2009 at 6:31 pm
[...] Getting my thoughts on economics and politics from a philosophy major, I note that Matthew Yglesias notes that it would be very hard for congress to say no to a tax cut only second [...]
July 14th, 2009 at 12:51 am
Bob Roddis:
Or 1921 was just a recession. We had recessions prior to the invention of central banking (1797, 1807, 1819, 1837, 1857, 1873, 1893); some became recessions, some became depressions.
The NRA is not = to the New Deal; it was one part of the New Deal, but not the whole of it. Yet, for all the bad press about the NRA, the years of its operation (1933-1935) saw economic growth averaging 8%, unemployment falling from 23% in 1933 to 14% in 1935, and a dramatic turnaround from 10% deflation in 1932 to positive price growth by the second half of 1933, 3.5% inflation in 1934, and 2.56% inflation in 1935. The most I think you can say is that the NRA was ineffective, but hardly much evidence of counterproductivity in terms of growth of production, employment, or prices.
And you’re still ignoring the fact that the Federal government and the Federal Reserve held to a tight-money policy in 2929-1933. Hoover stuck to Mellonism and voluntarism from 1929-1932, only then grudgingly accepting the Emergency Relief and Construction Act of 1932. He increased taxes to balance the budget (as was the conservative orthodoxy of the day) in 1932. And he consistently refused to establish Federal relief or go off the gold standard.
As for the Fed, they were so worried about inflation that they reduced the currency by one third. Even an arch-conservative like Milton Friedman recognizes that it was the Fed’s tight money policy in 1929-1933 that deepened the Depression, not a sudden surge of monetary Keynesianism.
And 1945-1949 saw one year of near-recession (’45), one year of actual recession (’46), two years of strong growth (’47, ‘48), and another year of recession (’49). So clearly balancing the budget, even in a time of exploding economic demand, doesn’t guarantee solid economic outcomes.
Re post 64:
You’ve failed to show why economic recovery that lasted from 33-37, and then skipped one year, and then returned to recovery in ‘39 and ‘40 (and then arguably continued in ‘41-45) is unsustainable.
Slashing spending and raising interest rates would make things much much worse – and trying to cut taxes at the same time as you’re trying to balance the budget in a time of falling revenues is economic insanity. Abolishing the Fed is additionally a bad idea – for all that the Fed has been fallible, it is still the case that recessions have become fewer and shorter after the introduction of central banking. Look at that list.
Again, FDR’s first two terms saw one year of turnaround (1933) six years of growth (34, 35, 36, 37, 39, 40), and one recessionary year (38). You have yet to show why this shouldn’t constitute prosperity.
Hoover’s years in office saw a budget outlay increase of $1.1 billion maximum. FDR increased budget outlays by $5 billion per year by 1940, not including the war years (which increased budget outlays by a further $80 billion). As I have shown above, he was not an interventionist.