Our Crazy Electorate
Steve Benen observes that according to the latest NBC/WSJ poll voters are weirdly averse to budget deficits:
Which of the following two statements comes closer to your point of view?
Statement A: The President and the Congress should worry more about boosting the economy even though it may mean larger budget deficits now and in the future.
Statement B: The President and the Congress should worry more about keeping the budget deficit down, even though it may mean it will take longer for the economy to recover.
Thinking about it rationally, the reason to worry about large deficits is that they can impede economic growth. That makes it generally worthwhile to try to run balanced budgets over the course of the business cycle. But under circumstances when running a larger deficit doesn’t hurt growth, there’s no real reason to try to avoid deficits. It’s not like the Gods of budgetary balance have some other way to punish countries for large deficits other than reduced growth.
I assume the real issue here is that many people are explicitly rejecting the premise of the question and just think that deficit spending aimed at boosting the economy won’t actually boost the economy. They’re wrong about that, but lots of folks are out they saying fiscal policy can’t boost growth so it shouldn’t be shocking that some people believe them.
80 Responses to “Our Crazy Electorate”
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September 23rd, 2009 at 12:31 pm
“people are explicitly rejecting the premise of the question and just think that deficit spending aimed at boosting the economy won’t actually boost the economy.”
Oh I doubt that very much. I think people just buy the bullshit line that “at a time when we are all tightening our belts blah blah blah, the government should be tightening its belt too blah blah blah.”
September 23rd, 2009 at 12:31 pm
No, I think it’s much simpler than that. It’s just lazy moralism about debt. Most people seem to take the nation-as-a-person or nation-as-a-household metaphor seriously, and just don’t like the idea of the nation racking up very much debt.
September 23rd, 2009 at 12:34 pm
Surprise: people don’t understand Keynesian policy if it hasn’t been used in 30 years, and has been roundly denounced in the media.
I’d also guess that wording would change the answer to this question. “it may mean it will take longer for the economy to recover” is different from “it will prolong the recession.”
September 23rd, 2009 at 12:36 pm
I think the real thing to ask would have been:
Statement A: The President and the Congress should worry more about winning the WAR against recession even though it may mean larger budget deficits now and in the future.
Statement B: The President and the Congress should worry more about keeping the budget deficit down, even though it may mean losing the WAR on the recession.
September 23rd, 2009 at 12:39 pm
I think it’s more likely that people see that while the deficit spending is purported to be aimed at boosting the economy, it’s actually aimed at paying off supporters of those currently in power. Trading government debt in order to get bigger payoffs for lobbying and electioneering isn’t seen as a good deal by those on the hook for paying the debt, despite how much the beneficiaries like it.
September 23rd, 2009 at 12:44 pm
echoing above, but also ‘think of the children’ sentiment.
September 23rd, 2009 at 12:45 pm
People are stupid, no surprise. Just look at the polls showing most of Medicare recipients don’t even realize it is government health insurance. Is it really blog worthy?
September 23rd, 2009 at 12:51 pm
Welp, _there’s_ yer problem.
To the degree that anyone is thinking about it rationally, I think the knee jerks differently: people link present deficits to future tax increases, because “Somebody’s gonna hafta pay for this.” “Reduce the deficit” in many people’s minds means “protect against future tax increases.”
September 23rd, 2009 at 12:51 pm
[They] just think that deficit spending aimed at boosting the economy won’t actually boost the economy.
Thank goodness for some sense in the populace. There is some hope for our civilization after all.
Keynesianism is and has always been a massive hoax. Special thanks go out to Krugman, Yglesias and all the other Keynesian noodle-brains for being so explicit this time around about what was always intended as incomprehensible prima facie absurd double-talk and jive. We may soon be able to bury Keynesianism once and for all (with Kennedy and socialized medicine?).
DEFICIT SPENDING WON’T BOOST THE ECONOMY! IT WILL ONLY WASTE RECOURSES AND MAKE US POORER!
I’ll say it again:
DEFICIT SPENDING WON’T BOOST THE ECONOMY! IT WILL ONLY WASTE RECOURSES AND MAKE US POORER!
September 23rd, 2009 at 12:59 pm
I’d sort of agree with a lot of people above: dislike of debt stems, I expect, from a failure to really understand (or think about) the difference between individual debt and national debt. People who aren’t wonks just don’t spend that much time thinking about that sort of thing, and if you think of national deficits in terms of individual, household deficits, they seem scary–of course you shouldn’t spend beyond your means, ever, but particularly not in bad times.
Sadly, I don’t really see much hope for that perception changing, because a deeper understanding just requires too much time and thought for your average busy, half-paying-attention citizen.
September 23rd, 2009 at 1:02 pm
I think people intuitively realize the folly of trying to “boost” an economy by borrowing money to pay off political supporters, give people temporary make-work jobs, and erect giant signs to advertise your temporary make-work jobs. Stimulus measures have never been shown to work. Should we again point to the White House’s projection of unemployment with the stimulus, and actual unemployment with the stimulus?
September 23rd, 2009 at 1:05 pm
Brad,
That’s not what was said in 2002. You know that. That’s why you are a liar.
September 23rd, 2009 at 1:06 pm
The public also says they want a public option, but not a government run option (see Steve’s post). Obviously, most of the population has as few brain cells as Mr Roddis.
September 23rd, 2009 at 1:09 pm
My guess would be that not actually understanding either position particularly well is the problem. We’re talking about a public poll asking people their opinions on two itner-related macro-economic positions that few will understand well. And in that situation, no more debt just seems more intuitive.
Anti-deficit moralism is powerful simply because it makes more sense to people on a personal level. After all, if you’re in trouble financially is it more important that you don’t increase your debt or that you somehow raise your income? Most people think the latter is much harder for them than the former. So they think the same about the broader economy. Unfortunately, the analogy doesn’t hold for the national economy.
In other words, I don’t think people respond to questions like this with considered and informed views – they respond from the gut. And, as has been pointed out, that means many simply respond to the strongest prevailing meme.
September 23rd, 2009 at 1:11 pm
I would suppose it’s that they think this is a short term/long term tradeoff. They’re implicitly making the assumption that deficit spending increases growth in the short term and decreases growth in the long term. This doesn’t contradict any of the premises here, it’s just a different interpretation.
I mean, c’mon. People are being castigated in newspapers all the time about all the personal debt they’ve wracked up and how that’s bad for them in the long term (although in the short term they get shiny new toys!). Presumably, they’re applying that reasoning to the government – it’s always easier to be ‘responsible’ when it’s someone else.
September 23rd, 2009 at 1:14 pm
I don’t think people respond to questions like this with considered and informed views – they respond from the gut.
And their gut is right. Keynesianism doesn’t seem to make any sense. Because it doesn’t make any sense.
PUT IT ON GIANT BILLBOARDS: Keynesianism is a hoax and a fraud. And has always been.
September 23rd, 2009 at 1:15 pm
The wisdom of crowds. Once again, the American public comes to the wiser point of view than the average left-wing blogger.
I note that I beat both Matthew and Benen to the story, in the comments to the post on Germany’s ecnomy and inflation.
September 23rd, 2009 at 1:19 pm
I assume the real issue here is that many people are explicitly rejecting the premise of the question and just think that deficit spending aimed at boosting the economy won’t actually boost the economy.
I think you’re wrong about this: they’re not explicitly doing anything, they just either don’t know in the first place, or don’t connect the dots. To the extent that people have good knowledge about politics, and sound beliefs, polls can be a very imprecise way of getting at them. The litany of ways that responses can be moved (different wordings, different question orders, different frames) tells us that (at least at the micro level) you’re not going to come away from polls with a renewed sense of civic pride.
September 23rd, 2009 at 1:23 pm
I think the comments above about “lazy moralism” and the trashing of Keynes but tv airheads who don’t understanding Keynes is true. But I also wonder if part of this might stem from the impact of Perot. I realize that was years ago, but he had millions of followers, and being anti-deficit was one of the most prominent parts of his platform – certainly moreso than it usually is among the two major parties.
September 23rd, 2009 at 1:23 pm
Re Matthew’s comment “Thinking about it rationally, the reason to worry about large deficits is that they can impede economic growth. ”
————–
I find it hilarious that Matthew can say something this stupid and so many posters here support him.
The reason for Americans to worry about large deficits is because Americans are ON THE FUCKING HOOK TO pay off the federal debt!!
Why don’t you brainiacs compute what an American earning $60,000 a year OWES on the federal debt? What HIS share of that debt is. It’s not that hard — or can none of you liberal arts graduates do simple arithmetic?
And don’t say the working class citizen doesn’t pay. That’s bullshit. A large chunk of middle class taxes every year is taken just to pay the fucking INTEREST on the federal debt.
September 23rd, 2009 at 1:31 pm
Sometimes deficits are necessary. Spending to defend the country from nuclear attack by Stalin — or fighting a global war against Hitler.
Spending to protect the poor, the sick and the elderly –especially during a recession — is consumption but is an obligation of the government.
Government spending on scientific R&D usually pays off in better technology that raises our standard of living. It is an investment, not consumption.
But any idiot who argues in favor of large deficits when they aren’t necessary should be exiled to Zimbabwe to learn first hand where that leads.
September 23rd, 2009 at 1:31 pm
even though it may mean larger budget deficits now and in the future.
The premise of this question is false. Deficits in the future are likely to be less with stimulus now. The whole point is to increase demand now so jobs (and tax receipts) increase later.
September 23rd, 2009 at 1:33 pm
The wisdom of crowds.
No, the madness of crowds. Idiot.
September 23rd, 2009 at 1:33 pm
Perhaps people fear existential catastrophe. A flight from dollars could completely destroy the United States. I know people aren’t particularly economically literate, but that doesn’t mean they don’t know scary, and the US debt level is scary.
Also, its obviously a red/blue tribal thing.
September 23rd, 2009 at 1:39 pm
Re: The madness of crowds.
Hmmm. I thought there so many Keynesians because The Fed had bought off the economics profession. I suppose that the madness theory has some validity too. One would have to be certifiably nuts to believe in mystical things that don’t actually exist like AGGREGATE DEMAND.
September 23rd, 2009 at 1:44 pm
Well, there has been at least a half-century of demogagues on the Right talking about how “the gummit should have to balance its budgets just like YOU balance your checkbook every month!”
Which is a great point, other than the fact that people take out mortgages on houses, loans on cars and college degrees, and other investments for the future.
Oh, wait. I guess it’s not such a great point.
September 23rd, 2009 at 1:44 pm
I thought there so many Keynesians because The Fed had bought off the economics profession.
If you are so stupid as to be unable to tell the difference between Keynesian economics, neo-Keynesian economics, and neo-classical economics, then there isn’t much hope for you is there? If you think Alan Greenspan, a libertarian, is a Keynesian then this is probably the last time I’ll acknowledge you.
September 23rd, 2009 at 1:48 pm
I think that people think simplistically that large deficits are the same for individuals as they are for nations which is false for a number of reasons, not the least of which is that nations don’t get old and die (in the human sense) or get sick or disabled, and thus are able to keep on “earning” and gaining wealth. (at the very least if you disagree with the above, you would at least agree that they are subject to very different rules and conditions). Nations don’t need to save for illness or disability in the same way.
People certainly seem to think it is reasonable to go into debt (as individuals) to get an education, or to purchase a business that would help them earn money for years to come. Yet these same people view government stimulus (yes, KEYNES) as borrowing money for that bigger large screeen tv then these other more comparable investments. If the government relies on the earnings of its citizens for tax revenue, virtually anything they can do to keep their citizens working adds to their abilities to collect future revenues, even if there is a debt associated with it. Even the “budget busting” deficits of the new deal and wwII were quickly absorbed by the growth of the 1950s, growth that could not have occurred without those deficit expenditures! (note: I am not proselytizing for any specific stimus, nor the bank bailouts. The more valuable the stimulus, as the more valuable the education, the better the stimulus is.)
The choice here is not “to stimulus or not”, but rather to stimulus and increase the deficit versus to not increase the deficit leading to have depressed wealth for many years that will ultimately lead to revenue shortflls that will far exceed the current deficits.
Everyone knows the phrase “sometimes you have to spend money to make money”, and this is never so true as when an economy faces a threat of recession/depression with significant unemployment and threat of deflation. The worst outcome would be significant (not run away) inflation, that would benefit most americans at the expense of those with the most saved assets. And the positives would include having the economy working earlier. In pro sports, we know that the first round draft choice who sits out a year because he doesn’t like the contract offerred NEVER makes up the money he lost that first year, no matterhow much better the next years contract offer might be. The same applies here. Losing billions/trillions of todays dollars in lost revenues/gdp will be almost impossible to make up in any other way.
Having said all of this, the moral issue of making sure our neighbors can work and eat should also come into play somewhere along the line here.
September 23rd, 2009 at 1:49 pm
Keynesianism is and has always been a massive hoax. Special thanks go out to Krugman, Yglesias and all the other Keynesian noodle-brains for being so explicit this time around
And from those of us who prefer an unfounded assertion over a reasoned argument, I’d like to thank you Rob Boddis for clearing that up.
I’ll put it on a T-Shirt: THANKS FOR THE UNSUPPORTED BLATHER ROD BLADDIS
September 23rd, 2009 at 1:52 pm
Don,
Your problem is you think it is a matter of arithmetic, when it really requires differential equations – easy ones, though. When interest rates are low enough, it is possible for government to borrow, create growth and tax that growth. It is made easier during a recession, because significant means of production are laying idle. Preventing or reversing idleness is a bargain.
That guy earning $60,000 a year and paying off his share of the national debt is doing better than a guy earning $0 per year.
September 23rd, 2009 at 1:54 pm
alan, I’m afraid your last line relies on the discredited moral argument for government policy. Having values isn’t a value suitable to our capitalist system.
September 23rd, 2009 at 1:57 pm
Hey Benny Lava, smart guy:
I’m well aware of all the various sub-species of the Fed based money dilutionist/spendthrift mentality. All of which share a common fraudulent basis: Trying to trick the masses into being robbed without them realizing it either through money dilution or deficit spending (which has to be paid back in taxes or dilution). The public correctly senses that they are being robbed, but then they are reassured by the Fed Frauds that the whole charade is really too complex for them to understand.
That jig is up.
The madness of hip “progressive” crowds is one good explanation for the survival of the fraud. The Fed having bought off the economics profession is another.
September 23rd, 2009 at 2:00 pm
DEFICIT SPENDING WON’T BOOST THE ECONOMY! IT WILL ONLY WASTE RECOURSES AND MAKE US POORER!
I’m sorry, I didn’t quite get that. Would you mind using a larger size font? I think it will help you get your point across more persuasively.
September 23rd, 2009 at 2:06 pm
When I see a poll question like this I always wonder what other technical questions we could settle this way.
q.) The field of physics has seen intense debate on the subject of string theory. Which of the following two statements comes closer to your point of view?
a) String theory provides an intuitive and mathematically consistent model so compelling that the subject should be seen as a major contribution to the field.
b) Until a plausible strategy for falsification through real world experimentation is proposed, string theory should not be viewed as a major contribution to the field.
Despite what Bob Roddis and George Bush may think, I am not sure trusting your ‘gut’ is always the definitive way to resolve an issue…
September 23rd, 2009 at 2:08 pm
I’m sorry, I didn’t quite get that. Would you mind using a larger size font? I think it will help you get your point across more persuasively.
I see that in an attempt to undermine the strength of the OP’s argument, you conveniently left off the <b> tags. Very sneaky; you should be ashamed of yourself.
September 23rd, 2009 at 2:11 pm
These numbers would be different if there were a Republican in the WH. And the party breakdowns would be different as well. Amusing to see Al become a deficit hawk, though. Classic case of the impact of tribalism in party identification on a better than average mind.
September 23rd, 2009 at 2:12 pm
1. Bob Roddis and George Bush?
I’ve been an anti-war guy since about 1969. Impeach Nixon and all that.
I support trying and shooting Bush and Cheney as war criminals. What’s my alleged connection with that criminal Dubya?
2. The Emperor’s New Clothes: Another good explanation for the survival of the Keynesian Fraud among hipster “progressives”. As the unsophisticated child says, “Hey, the Emperor isn’t wearing any clothes!”
September 23rd, 2009 at 2:13 pm
Confusion a la Bob Roddis:
$5 PER DAY WAS ONCE A GREAT WAGE.
NOW $5 WON’T EVEN BUY A TANK OF GAS.
WHY HAVE WE ALLOWED OURSELVES TO BECOME SO MUCH POORER?
September 23rd, 2009 at 2:18 pm
Even when he writes in boldface, Bob Roddis is still wrong!
September 23rd, 2009 at 2:18 pm
For a more nuanced view on these matters from Mr Roddis:
http://bobroddis.blogspot.com/2008/11/legal-money-is-claim-on-resources.html
September 23rd, 2009 at 2:22 pm
I’m sorry, I didn’t quite get that. Would you mind using a larger size font? I think it will help you get your point across more persuasively.
He already put it in all caps and bold text, both of which have the effect of making his statements exponentially more true than they otherwise would have been. If he uses another truth enhancer, he runs the risk of using up all the truth in the known universe. Right-wing blogs would, of course, remain unaffected.
September 23rd, 2009 at 2:23 pm
Well said, alan. People take on “good debt” _routinely_. But still there’s this moral force that kicks in and scrambles our thinking. Think of the connotations of the phrase “mortgage your future.” Would anyone take out a mortgage if it felt as cognitively tragic as that sounds?
(OK, mortgages are more cognitively tragic now than they used to be, but still I think the larger point holds.)
September 23rd, 2009 at 2:29 pm
Re Njorl at 30: “Don,…
Preventing or reversing idleness is a bargain.
That guy earning $60,000 a year and paying off his share of the national debt is doing better than a guy earning $0 per year.”
———————-
Well, but the question is whether the government is currently investing or wasting money.
If you spend money educating a guy for a career which he pursues for 40 years, then you and he have made a profitable investment.
On the other hand, you also have “Training Institutes” which consume a lot of a worker’s time in “education” which is NOT good enough to qualify the worker for a job. And which saddle the impoverished workers with high education loans. Which are, IMO, scams.
In such a case, you have not improved the worker’s lot — you’ve just added to his misery and made it harder for him to get out of the hole he is in.
Ancient governments had Keyesian plans. Look at the Tombs of the Egyptian Pharoahs. But when the money runs out, what are the prospects for an unemployed worker whose skills consist of cutting two ton blocks of stone and hauling them up a ramp?
Ask Timothy McVeigh how easy it is to transition from a government program to long term employment in the commercial sector. Oh wait –you can’t.
The Athenians had their Keynesian program — building the Partheon. To pay for it , they had to raise taxes on their allies and kicked off the Peloponnesian War. Which fixed the unemployment problem for a while but how did it work out in the long term?
So –how much of this stimulus money is going to train engineers who will make electrical generators that run on nuclear fusion?
September 23rd, 2009 at 3:05 pm
Am I the first to notice that Matt’s graph has time going backwards?
September 23rd, 2009 at 3:18 pm
As the great Friedrich Hayek told the exasperated media dolts on “Meet the Press” in 1975, “the slower the recovery, the better”.
It’s wonderful to know that the public is so far ahead of the deluded “progressives”. There is HOPE!
September 23rd, 2009 at 3:32 pm
don
“So –how much of this stimulus money is going to train engineers who will make electrical generators that run on nuclear fusion?”
None of us know the answer to that, but whatever the answer it needs to be compared to is not 0, but to the answer of what would happen if the stimulus was NOT spent. Think of all the unemployed with nothing to do, their children unable to afford college, even computers to learn, with no jobs on the horizon. How does THAT improve the country’s future? Think of them unemployed unable to buy products causing more businesses to go bust, and the result to their employees and owners (and tax revenues).Think of the effect on house values of all the foreclosures such a crisis would create. Where would we regain all that lost weaalth? Just because we didn’t want to build another bridge that maybe wasn’t the absolute best use of public money? Really?
September 23rd, 2009 at 3:42 pm
Bobbis is an Austrotologist, waiting for the Second Coming of Zombie Mises and Zombie Hayek. He has pamphlets.
September 23rd, 2009 at 4:17 pm
Ah, the timeless and laughable tradition of libertarians observing poll results that favor “smaller government” and concluding that Libertopia must be close at hand.
Unfortunately, when those same “small government” voters are asked whether they’d like to see spending cuts in Medicare, Social Security, the military, and veterans benefits, they typically call for continued or increased spending on all those programs. Most of the supposed public preference for small government is founded on ignorance about where the government spends its money.
Most Republican politicians have figured this out, and fully understand that claiming to be in favor of smaller government while not actually cutting spending is an effective way to appeal to independent voters who are too clueless to tell the difference. Most libertarians haven’t quite caught on, and thus have trouble accounting for their complete political irrelevance.
September 23rd, 2009 at 4:37 pm
412 billion of taxpayers dollars went to service national debt in 2008. On our present course that figure will reach $1 trillion by 2018. Obviously, our national debt and interest payments on that debt will become an increasingly crushing weight. There is no greater waste of money, outside of burning it in a bonfire, than paying interest. And the United States is and will be wasting money at a rate unprecedented in the history of nation-states.
We have three choices as a Nation. We can substantially raise the marginal tax rate on the rich -say, from 35% to 45%. Or, like a Banana Republic, we can stay the course and eventually default on our debt to the Chinese and/or the IMF. Or, we can sell Alaska.
As we ALL know, we cannot raise taxes. The Constitution apparently doesn’t allow it. So that is out. National pride will not allow us to default to anyone, especially considering we have spent, since 1947, $27 trillion on our military. We will nuke the IMF before we default them. So that is out.
What is left? We are going to have to sell Alaska. Yeah, yeah, I know it sounds crazy, but that will soon be our only choice. I don’t know what Alaska is worth, but I suspect we could get 4 or 5 trillion dollars for it. We could easily get $100,000 for the former governer’s eyewear alone.
Countries buying and selling real estate is a time honored tradition. Hell, it is how the United States was built. We bought half the country from the French, for peanuts, and we bought Alaska from the Russians dirt cheap -for $7.2 million.
Think of the positives! If we sell Alaska to Chinese for $5 trillion, it would be, without a doubt, the greatest property flip ever.
September 23rd, 2009 at 4:57 pm
Matt Y is completely wrong on this one. As Max424 states above, there’s interest on the debt piling up at a depressing rate. Long term, the answer isn’t to sell off Alaska but instead high interest rates, drastic cut backs in government services, social security insolvency and, high inflation.
Basically Matt is saying it’s okay to impoverish future generations of American if it means a short term boost in employment now – basically the reverse of his argument for cap & trade. The only consistent outcome is that America gets screwed.
One last point lost on most ‘deficits don’t matter’ people . When the US runs high current account deficits, it squeezes credit for poor countries. Not only are deficits here immoral and burdensome in the long run, they further impoverish people in poor countries.
September 23rd, 2009 at 5:10 pm
Call me crazy, but I suspect that if we did not have $12 Trillion in federal debt, we would not have Max Baucus stealing $400 Billion or so out of Medicare to provide basic healthcare to the 45 million without it.
I still say we soak the rich — with fucking bayonets if need be. Make them pay off the debt run up by the last three Republican Presidents that they installed.
But it is not use advocating for government intervention if you are not going to insist that that government be well run and well managed. How many people here can tell me what that $12 Trillion in federal debt was INVESTED in?
September 23rd, 2009 at 5:42 pm
To Previous N:
I generally have no hope for the future. I still don’t. Heck, I thought at least the left would force Obama to end our stupid wars against the Muslims by now. How naive was I on that one?
The fact that the masses sense that Keynesianism makes no sense coupled with the fact that explicitly explained Keynesian policies are about to further impoverish us all gives me some very limited hope that Keynesianism will go the way of Marxism, the hip progressive philosophy of the 1970s. However, it is very sad that we have to endure this present catastrophe to get people to understand the fiendish evil of Keynesianism. It would have been much better if they could have understood it in the abstract before getting whacked hard with the business end of it.
Frankly, I find it bizarre the M.Y. (DOB 1981) finds it necessary presently to use market jargon to promote his knuckle-headed schemes. In the 1970s, his ramblings would have been pure Marxist nonsense. I guess that’s progress of a sort.
I also note that NO ONE here has offered a substantive defense of the Keynesian and/or modey dilution model. Just a lot name calling (the default mode of the M.Y. commenter). It’s also clear that none of you has the slightest familiarity with Austrian School theory, but you are sure ready to denounce it. That by itself gives me hope for the future. But not much.
Just a thought: Why shouldn’t the people who advocate employing SWAT teams here, there and everywhere to promote their various spending, looting, war-mongering and money diluting schemes have the burden of proof to show not only that those schemes make sense and work but that they do not have any adverse effects? Why should the person saying you should do nothing and you should leave people alone have that burden?
September 23rd, 2009 at 6:13 pm
Bob Roddis is a fucking genius. Paying millions of people to put up billboards and paint sings that read Keynesianism is a hoax and a fraud is a much more elegant solution than burying the money and paying people to dig it up.
September 23rd, 2009 at 6:23 pm
The fact that the masses sense that Libertarianism makes no sense coupled with the fact that explicitly explained Libertarian policies are about to further impoverish us all gives me some very limited hope that Libertarianism will go the way of Marxism, the hip progressive philosophy of the 1970s. However, it is very sad that we have to endure this present catastrophe to get people to understand the fiendish evil of Libertarianism. It would have been much better if they could have understood it in the abstract before getting whacked hard with the business end of it.
I also note that NO ONE here has offered a substantive defense of the Libertarian and/or debt increasion model. Just a lot name calling (the default mode of the M.Y. troll). It’s also clear that none of you has the slightest familiarity with economics, but you are sure ready to denounce it. That by itself gives me hope for the future. But not much.
September 23rd, 2009 at 7:02 pm
Federal tax receipts were down almost 25% YOY in August. You might recall that we were in recession last August. Let me suggest that the economy is still shrinking. The economy has not been boosted. Then again precious little money has gone into boosting the economy. However trillions have gone into boosting bank balance sheets, financial asset prices, and stocks.
The questions exist somewhere in outerspace. Having little to do with any reality that can be seen by citizens. A poll about feelings about the rings of Saturn would be just as probative.
September 23rd, 2009 at 7:30 pm
Bob Roddis,
Man, you need to lay off the extra pot of coffee. I agree that deficits are bad in many, many ways and am totally not in agreement with MY’s post. But buck up, little camper – the grass is always greener on the other side of a recession.
I wish people would stop beating the Keanesian horse, or strawman, or what-have-you. It’s neither a practical model for dealing with recessions or completely discredited. The economy is bigger than any school of economic thought. As they say, if you put all the economists end to end they still wouldn’t reach a conclusion.
This recession has exposed gaping holes in our assumptions about the economy. Long term, that’s a good thing. And assuming we won’t be bailing out Wall Street again in 2010, the budget should return to a more reasonable deficit, somewhere in the 350-500 billion dollar range. Still depressingly bad, but not the catastrophe it is now.
September 23rd, 2009 at 7:44 pm
Al and Bob,
If there is any part of this algebra you don’t understand let us know:
Y + T = C + I + G + NX
Y + T is the gross domestic production (national income plus taxes), C is
private domestic consumption, I is private domestic investment, G is government
expenditures and NX is net exports (exports – imports)
first substract T from both sides
Y = C + I + (G – T) + NX
or
Y = C + I + DEF + NX
with DEF the government deficit. Then substract C from both sides
Y – C = I + DEF + NX
Y-C is national saving (S):
S = I + DEF + NX
Rearrange to get the identity
(S – I) + SURP – NX = 0
S-I is the PDFB (net saving by the private sector), SURP (government surplus, or
net saving by the government) is GFB and -NX is the RWFB (the net saving of the
rest of the world):
PDFB + GFB + RWFB = 0
This is a national accounting identity.
This identity can be obtain from Table 5.1 at the BEA (bea.gov) where S, I,
Government net saving (i.e. surplus or deficit) and capital and current account
position are provided (RWFB is more than just the opposite of net exports)
September 23rd, 2009 at 8:00 pm
I agree with folks at the top of the thread–Matt is over-thinking this: it is the lazy-debt-moralism, which I have to say, I find incredibly depressing.
September 23rd, 2009 at 9:09 pm
Re Mike S at 57: “If there is any part of this algebra you don’t understand let us know:
Y + T = C + I + G + NX”
—————–
Except that these equations — and your derivations — overlook many things:
a) If private Investment I drops below $1 Trillion a year, C, Y and T will start heading downward as well in the future. These are NOT independent variables.
b) NX (net exports-imports) fails to record that our biggest import is CASH.
c) Where is the part where the Fed prints a shitload of paper money? Or pumps up G by changing some numbers in a computer account.
September 23rd, 2009 at 9:11 pm
Short term gdp maximisation is just not everyones priority. Those opinions are completly legitimate for someone that does understand keynisan economics unless of course you spent toomuch time reading hyperkeynsians economists like Brad de Long or Krugman.
Actually when you think about it, a hardcore rational expectation guy should be merly indifferent about tax rates.
September 23rd, 2009 at 9:12 pm
arg, debt level not tax rate.
September 23rd, 2009 at 9:14 pm
I don’t agree with your (MY’s) explanation. The reason is that there is another case in which people declare their faith that “the Gods of budgetary balance have some other way to punish countries for large deficits other than reduced growth.” Supply side tax cuts.
I’m sure the views of the public will be even more alien to me, but just sticking to journalists and pundits and such, the consensus seems to be that Kemp-Roth/Bush II type tax cuts will cause some increase in economic growth but not enough to pay for themselves. Many pundits conclude that they are therefore a bad idea. Yes more growth is good, but higher deficits are bad so we should let them sunset.
The ideology is opposite, but the illogic is the same. A rational argument against Kemp-Roth/Bush II (which I find entirely convincing) is that the tax cuts will slow growth as the small benefits due to changed incentives will be dwarfed by the huge costs due to public debt crowding out private investment. (Oh and by the way the incentive effects of low taxes on capital income now and high taxes in the future are bad — the standard models say that taxes on capital income should eventually decline to zero not that they should be low now and via taxes or default high in the future http://tinyurl.com/3mg6zr)
September 23rd, 2009 at 9:15 pm
Bob, I am not certain you understood the HuffPost article which you linked to above. The article argues that the influence of the Federal Reserve has been to move the profession of economics too far towards libertarianism. The meat of the article is a series of quotes by James Galbraith, a leading Keynesian, criticizing Alan Greenspan, a libertarian. I entirely fail to understand how this article supports your thesis.
I understand that you have done some reading about the Austrian School and therefore hate the Federal Reserve System. What is unclear to me is whether you understand the Keynesian economics you so easily criticize.
September 23rd, 2009 at 9:38 pm
Sven:
The idea that the Fed can be “libertarian” is absurd. I’m always searching for explanations as to why no establishment type will ever get within 20 feet of the Austrian theory, if only to disprove it (Hayek did win the Nobel Prize in 1974 after all). Until perhaps recently, being an Austrian was certainly a career killer. But it makes sense that with more than half the profession indebted to the Fed, those folks wouldn’t think too highly of someone claiming not only that the Fed should be abolished, but that it’s unconstitutional (and thus illegal) and a mechanism of institutionalized theft, plunder, economic depression and war-monger funding. Of course the HuffPost people wouldn’t get that angle.
How can Greenspan’s blowing the roof off monetary dilution be considered “libertarian”?
The core of Keynes is found in two consecutive sentences in the foreword to his Nazi German version of the General Theory:
What is it exactly that I don’t appear to understand about Herr Keynes?
September 23rd, 2009 at 9:55 pm
Don, a couple of points,
a) I am not certain where you get the figure for $1T but remember also that investment takes two parts: replacement and contribution to future growth.
b) I’m sure you understand that we don’t literally import cash but rather foreign sources lend us money for purchase our assets. If you look at the end of the post by Mike S.(who quite frankly wins the thread) you can see how that can be shown.
c) Please expand on this point. When you say the Fed “pumped up G by changing some numbers in a computer” what do you mean, be specific.
September 23rd, 2009 at 10:07 pm
Don,
The top line is the definition of GDP.
http://en.wikipedia.org/wiki/Gross_domestic_product
Since this is not a multiple linear regression, nobody cares that these may not be independent variables.
As for an answer to c), I will first assume you are asking it in good faith and not just to be a jerk.
We are not printing a shitload of money. In fact, looking at the numbers, our national debt/total available savings is well under 1 year of economic activity. This is not printing a shitload of money.
September 23rd, 2009 at 10:19 pm
I need a ruling:
do we now have a Godwin’s law violation?
The core of Keynes is found in two consecutive sentences in the foreword to his Nazi German version of the General Theory:
and
What is it exactly that I don’t appear to understand about Herr Keynes?
It is well documented that Hitler liked puppies which is why Bob kicks them whenever he is given the chance.
Again Bob, you have shown that you like the Austrian School and they don’t like Keynes so you don’t like him either. How very 5th grade of you. Give me an argument that you understand Keynesian Economic thought. How can you object to something you so clearly don’t understand?
September 23rd, 2009 at 10:31 pm
What ronsays said.
Worried about big deficits. Think about what happens to deficits when 10% of us are sitting home for a year, not producing anything, but still consuming the necessities. Talk about larger deficits in the future.
It would have been more honest, and accurate, for WSJ/NBC to have asked ‘even though it may mean larger budget deficits FOR A WHILE.’
September 23rd, 2009 at 10:39 pm
We are not printing a shitload of money
Really???
September 23rd, 2009 at 10:57 pm
Understanding Keynes.
According to the NEW SCHOOL, the highlights of Keynes are as follows (which, Keynes said, work best in a totalitarian environment):
Keynes seemed concerned with the alleged problem of sticky wages. Wages didn’t seem to come down fast enough in a recession to cure unemployment. So, the solution was to dilute the money supply and trick the workers into accepting lower real wages without them quite knowing what hit them. This is The Essence of Keynesianism as told to his friend Hayek.
September 23rd, 2009 at 11:39 pm
Bob,
I know you don’t get the algebra, because you’ve never seen this formulation of money before today. That’s ok – it is difficult to abandon prior beliefs. The algebra provided says that the monetary base as measured by the fed is incorrect. So yes, I am saying the fed is wrong. And not just a bit wrong – but spectacularly, woefully misguided and heading-for-California-and-ending-up-in-Russia wrong. The money supply as measured by the fed has nothing to do with how much money is available for savings. That is why the relationship between money supply growth and inflation is so unreliable – they are not measuring the right money supply.
“So, the solution was to dilute the money supply and trick the workers into accepting lower real wages without them quite knowing what hit them. ”
If the end result is to end a recession or depression more rapidly, then what is the problem? The Austrian solution seems to be to lower wages by destroying economic activity until wages fall a lot. Plus the anecdote is in an inflationary environment – which we are not even close to facing at this point.
September 23rd, 2009 at 11:50 pm
Yeah, people are really wierd, hunh? They actually look ahead, a few years down the road. The unfathomably deluded twits pay attention to the CBO’s judgement that, on current policies, the US fiscal position is on a unsustainable trajectory. They observe Matt and his thinktank pals start to lay the intellectual groundwork for a burst of high inflation as a way out of the looming public insolvency crisis. Jeez, you’d think they have something real to worry about … go figure …
September 24th, 2009 at 12:08 am
Asuming for a second the fed would be unconstitutional. The only thing that would imply is that the US constitution sucks and has should be changed imidiantly (and that the US didnt fall appar so far because peole ignored a stupid constitution) , just like every other “its illegal according to the constitution” about basic stuff that makes a society work conspiracy theory.
September 24th, 2009 at 1:06 am
Bob, I don’t mean this as an insult but nothing you have written shows a real familiarity with Keynesian Economics.
Your evidence to the contrary is part of a biography you cut and paste from another website and an anecdote Hayek told 30 years after the death of Keynes. Even if it were true, the anecdote isn’t even saying what you think it does! Hayek is talking about post-WWII Britain not the Great Depression. I think I can see where some of the confusion is.
Neo-Classical economics argued that with high unemployment wages would fall which would allow the labor market to clear. Keynes believed that workers and employers negotiate in nominal wages leading to an informational problem and sticky wages. Further, Keynes argued that if real wages fall it does not clear the market because falling wages in turn decrease demand leading to higher unemployment and a further decline in wages.
In a contraction, Keynes argued that declining real wages are part of the problem and not the cure.
Again, I don’t know where you are getting your information about Keynesian Economics but a fair amount of it is incorrect and that should give you pause.
It’s great that you are a fan of the Austrian School. I thought Hayek’s work on the self-organization of the economy was fascinating and truly enlightening. (The Use of Knowledge in Society is an absolute classic) Even if you don’t accept anything Keynes had to say, working through the basic theoretical foundations of Keynesian Economics might be an enjoyable intellectual exercise.
September 24th, 2009 at 9:22 am
Sven:
I intend to respond further in the next few days. I have a long road trip planned and cannot write a decent response at the moment. I quickly grabbed this:
Dean Baker is a Keynesian, right? He had a few chapters in the Nation’s “Meltdown” book.
From the bottom of page 129, he writes:
Isn’t that basically how Hayek described Keynesianism?
I appreciate just being called “wrong” as opposed to “Paultard” etc…
This is Baker’s blog. I generally disagree with him on almost everything. Maybe you don’t think he’s a Keynesian.
September 24th, 2009 at 11:23 am
[...] response to public opposition to deficit spending he expresses the Keynesian argument perfectly Thinking about it rationally, the reason to worry about large deficits is that they can impede [...]
September 24th, 2009 at 4:07 pm
Again Bob, I don’t think you understand what your own excerpt is talking about.
Hayek’s critique of Keynesian Economics is that it will have specific unintended consequences. Because you have read the critique and not the original argument you have conflated the unintended consequences with the intended consequences.
Let’s take a step back, this is the basic debate:
Keynes: In a recession falling aggregate demand will lead to unemployment. When unemployment rises workers lose bargaining power and real wages decline. Rising unemployment and falling real wages further depress aggregate demand leading to a downward spiral in the economy. The only entity not constrained by its budget during a recession is the federal government. Expansionist fiscal and monetary policy directed by the government during an economic contraction can boost aggregate demand which will reduce unemployment and stem the resulting decline in real wages.
Hayek: I know that is what you would like to believe, but the real effect is the dilution of the money supply and ongoing distortions of the credit markets. If unemployment goes down it is only because government-led inflation might trick workers into accepting lower real wages.
If dilution of the money supply is an unintended consequence of a Keynesian stimulus, why would Dean Baker be proposing it directly as a strategy to combat falling demand? He isn’t.
Look carefully at the Dean Baker excerpt. The lede is an absolutely standard Keynesian response to falling aggregate demand. Baker proposes tax cuts for lower and middle class workers and increased spending on infrastructure. A keynesian will argue that these steps will reduce unemployment and therefore prop up real wages.
In the second half of the paragraph Dean Baker changes gears,
Notice the presence of the word also. Dean Baker is sending a signal that he does not believe the following statement is a direct continuation of the preceding thought. In addition to reduced aggregate demand, the economy also faces a structural issue related to balance of trade. Baker believes the value of the dollar is artificially high vis-a-vis other currencies. He is arguing that the only way resolve this imbalance is to allow the relative value of the dollar to fall, whether we like it or not.
Different problems, different solutions…
September 24th, 2009 at 5:33 pm
Maybe people just want to rip off the bandaid. They know it may hurt more now, but thats better than undefined hurt in the future, especially if the future hurt requires a responsible decision from our government (ie raise taxes to pay of spending) in order to stop the SAME thing from happening forever.
September 25th, 2009 at 9:24 am
Bob,
When Dean is talking about pushing down the value of a dollar, he is clearly talking about exchange rates.
You have mis-intrepreted his statement.
September 29th, 2009 at 10:48 am
Sven:
Do we agree with Krugman on what it is exactly that Keynesians claim:
I agree with Krugman as to what it is that Keynesian economics concerns. I totally dispute the allegation that market economies remain persistently depressed absent government interference and I dispute the allegation that Keynesian policies cure depressions. Keynesian policies cause the depression and prolong the depression.
Economic panics and recessions are caused by artificial credit expansion caused either by fractional reserve banking and/or central banking.
See Chapter 2, “End the Fed” for an outline of this topic.
See chapters 1, 2 and 3 of “Money, Bank Credit and Economic Cycles”
by Jesus Huerta de Soto for the full account.
Thus, the banking cartel created the Fed so that it could create legal counterfeit money to bail out its inherently risky fractional reserve banking. It was also handy to have the Fed around to help fund the unnecessary entrance of the U.S. in WWI.
The inflationary dislocations caused by the Fed and the War resulted in the depression of 1920, the one you never hear about (because it totally disproves the Keynesians). No Keynesian type solutions were tried and the crisis was over quickly.
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 and excellent video on this topic.
The 1920 depression demonstrates that even after a horrible inflationary dislocation caused by the Fed, prices and wages can and do readjust fairly quickly without the need of government interference.
The Fed then increased the money supply by 2/3, causing the 1929 crash.
Hoover wasn’t a Hooverite. Hoover behaved as a textbook Keynesian after the stock-market crash. He immediately cut income tax rates by one percentage point (applicable to the 1929 tax year) and began ratcheting up federal spending, increasing it 42 percent from fiscal year (FY) 1930 to FY 1932. In 1931, the New York fed had lowered interest rates to 1.5 %.
Look at his last two budgets. In 1932, receipts were $1.9 billion and expenditures were $4.7 billion. In 1933, receipts were $2 billion and expenditures were $2.6 billion. He urged business to keep wages high which helped cause the unprecedented unemployment.
Hoover then decided to raise tax rates. Check the historical tax rates here. Note how the rates rise to ridiculous levels starting in 1932 under Hoover and keep going up. No wonder the depression lasted until FDR died and Congress slashed spending by 2/3 after WW II.
So along comes Keynes in 1936. The 1920 depression showed that the market can and will readjust all by itself to rid itself of malinvestment and dislocations caused by Fed monetary dilution. The 1929 depression showed that intervention prolongs depressions. Keynes writes in his “General Theory” (without any historical reference or proof whatsoever) that the market cannot self adjust from a depressions (Keynes ignores the fact that it was the central bank’s monetary diliution that caused the problem in the first place). He then states that it would be better if the central bank would simply just dilute the money supply so that there might be UNIFORM wage reductions to cure unemployment:
Keynes himself sounds exactly like Prof. Hayek describing Keynesianism.