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This is the week that the U.S. presidential race got serious.
The joke candidacy of Donald Trump has crashed and burned. The early assumption that Barack Obama would enjoy an easy “morning in America” re-elect has also crashed and burned. After the market turmoil this week and after Texas Governor Rick Perry’s expected entry into the GOP race Saturday, here’s where we stand.
On the Republican side, Mitt Romney looks like the weakest major-party front-runner since Michael Dukakis in 1988. To date, he has raised more money than any other Republican, but at a pace nowhere near George W. Bush’s fundraising in 1999. Romney’s record as governor of Massachusetts haunts him. Republicans do not respect his greatest achievement: Extending health coverage to his state’s uninsured, and they cannot forgive his pragmatic compromises, including increases in state business taxes. And Republicans remember that Romney not only used to be passionately pro-choice on abortion, but that he promised in 1994 to outdo Ted Kennedy as a champion of gay rights.
Disenchanted Republicans have shopped for a credible alternative to Romney.
Ron Paul, Sarah Palin, Herman Cain and Michele Bachmann obviously do not qualify. Minnesota Governor Tim Pawlenty and former House Speaker Newt Gingrich looked more plausible, but have not made the sale. Texas Governor Rick Perry, on the other hand, may have what it takes. A three-term governor of the country’s second-biggest state, Perry has raised a career total of $100-million in campaign donations. While a favorite of Texas business leaders, Perry has also created a profile acceptable to religious conservatives. Last weekend, Perry presided over a prayer event in Houston that explicitly excluded non-Christians, and that just happened not to include any Mormons or very many Catholics.
Perry has weaknesses: Brains-wise, he is not exactly the sharpest pencil in the packet. Past Perry campaigns have been dogged by whispering campaigns about the candidate’s personal life. Will Republicans, let alone Americans, really nominate another Christian conservative from Texas so soon after George W. Bush? But with Romney unable to exceed 25% in Republican presidential preference polls, Perry may well be able to surge past him if the race narrows to a two-person contest.
Especially since President Obama’s political position is crumbling by the minute.
U.S. economic output has still not caught up to its level of 2007, and is now threatening to stall, if not slip back into outright recession. The U.S. job situation continues to be dismal.
Between the summer of 2008 and the spring of 2009, almost 9 million Americans lost their jobs. Since the summer of 2009, the U.S. economy has produced a net total of two million new jobs.
Even if the U.S. economy started tomorrow producing jobs at the best rate of the booming 1990s, it would still take almost two years to reduce unemployment to pre-crisis levels. At the current rate of job creation, a little over 100,000 per month, the U.S. economy won’t return to full employment for more than half a decade. As is, six million Americans have been out of work for six months or longer.
Unemployment hits hardest exactly those social groups who put their trust in Barack Obama in 2008: the young and racial minorities. They may not vote against him in 2012, but they cannot be relied upon to turn out to vote for him.
For presidential re-election, what matters is not the level of the economy, but the trend. Ronald Reagan scored re-election with unemployment over 7%. But unemployment had dropped by two points in 1983 and another 1.5 points in 1984. Even those still out of work on voting day could feel confident that conditions would improve soon.
In 2011, the trend is not President Obama’s friend. Obama supporters complain that many of the weaknesses of the U.S. economy can be traced to Republican obstructionism. The Federal Reserve has failed to act decisively to expand the money supply because Senate Republicans have blocked the president’s Fed appointments.
The Republican threat to prevent a rise in the debt ceiling frightened bond investors. Republicans now threaten to tighten federal fiscal policy by cutting spending and refusing to extend the one-year payroll tax holiday when it expires at the end of 2011.
Those Obama supporters have a point, but not the point they want. True, Republicans have not played a helpful role in this economic crisis. But it’s also true that Barack Obama is not the first president in U.S. history to have faced unhelpful opponents. Other presidents have had to overcome opposition to achieve results. If President Obama could not do so, he is unlikely to win many sympathy votes. The electorate will likely instead say: “The job was too tough? Go find a job you can do, and let us find somebody else to deliver the prosperity that eluded you.”
“Given that nothing has happened to cause a huge drop in the President’s poll numbers in the last three days, if there’s a variance of 39 – 47% I’d say that this makes Gallop’s polling pretty suspect due to unusually large source or error.”
LOLOL!
Don’t you love reading comments? They’re better (not mine, necessarily) than some of the articles!
But the Internet, as someone is whispering to me right now, is the best place to waste precious time and pretend community exists where it doesn’t.
And on that note and good advice, Buona Sera.
I checked around. Gallop is the outlier with 39%. The average at RCP of the pollsters is 43.4, with the high outlier at 45%.
http://www.realclearpolitics.com/epolls/other/president_obama_job_approval-1044.html
Quibbling.
Your Messiah is toast, and you know it. His reparations-by-another-name garbage has been exposed.
Next.
Reparations = Social programs, for those who don’t speak Smeggy – hard to do, as his lips are often wrapped around a pole.
“I checked around. Gallop is the outlier with 39%. The average at RCP of the pollsters is 43.4, with the high outlier at 45%.”
That’s better than your last post. And while it’s not bitter, it still seems clingy.
Take care, Xunzi.
Last Man,
Are you bothered by facts? If so, don’t fret – there are a few people around here with the same problem.
Uh, if you break down those approval numbers by state, Obama wins 300+ EVs based on states with a positive or neutral approval number. He has 231 EVs in 50%+ territory. It hardly matters if Utah and Oklahoma have him at 10% approval but it does bring down the overall number.
People who come around and claim it will be a landslide for the R crack me up.
Really David? Rick Perry? LOL Have you checked his stance on immigration? Have you studied the stats on all these jobs he created? If so then you KNOW that ALL the jobs he created were ones for the immigrants and do not pay a living wage which is why the State of Texas is considering bankruptcy… or it was before Perry’s announcement LOL I am sure they will back off that now and just cut more programs. Tell us all David how many teachers in the State of Texas lost their jobs over the last 2 years? While the State may not charge State income tax they have one of the 3 highest property taxes in the United States. A 2000 sq ft. home in Texas? 6000 a year or higher depending on the MUD tax there. One minute the man wants to take Texas away from the United States and now he wants to run the United States? Sorry but your flogging for another straw man, and a stupid one at that, who is more interested in fostering his personal gain (with money and young women) than actually helping this country though the illegals will vote for him since he allows them FREE Tuttion in Texas.
“But the Internet, as someone is whispering to me right now, is the best place to waste precious time and pretend community exists where it doesn’t.”
“That’s better than your last post. And while it’s not bitter, it still seems clingy….
Take care, Xunzi.”
In the immortal words of Andy Rooney “have ever noticed” how the authors of vague, airy, and often ill founded and illogical generalisations invariably retreat into rodomontades like this when challenged on their vagaries?
rodomontades….
My coffee now tastes just a little better.
You like coffee, I like correct usage.
Definition of RODOMONTADE
1: a bragging speech
2: vain boasting or bluster : rant
Me too, and I am admiring a nice word well-used. Tip ‘o cup to that and your generally exemplary and pellucid commentary on this board.
I said …
“So we can increase spending and expect to decrease the deficit? This is as ludicrous as the idea that tax rate cuts would result in lowering the deficit.”
Tommybones replied …
“Of course you can. I explained how it works in the simplest terms. Try reading it once more. It’s all there. Additionally, look at our history. It’s been proven repeatedly.
Another example: for every $1 paid out in unemployment benefits, $1.65 is created in the economy.”
Tell me where I get this wrong…
Suppose the government borrows $100 at a 2 year rate of 0.25% interest and immediately spends it through stimulus. When all is said and done $265 of economic activity occurs. So we have an additional $165 of economic activity that gets to be taxed. Unless the government taxes this $165 at a rate upwards of 60.7% the deficit is going to increase.
Nobody said the deficit doesn’t go up in the near term. I made it clear that the deficit goes up in the near term. The point you ignored is the fact that this injected demand creates a domino effect, which lowers unemployment (and subsequently the U.I. benefits paid out) exponentially. This is the relevant portion:
“Give them adequate unemployment benefits or a job and suddenly he sees a rise in customer base. He then has to hire another two workers to cover demand. He orders more food and supplies to cover the increased demand. The companies who provide food and supplies see increased demand also. They hire more people. More truck drivers are needed. Etc. These new hires now spend money in their own communities, at the local supermarket, movie theater, restaurants, clothing stores. All of these businesses see an increase in demand and have to hire more people. Eventually the employment rate rises. That 10% unemployment number in that town drops. These newly employed people are now working in the private sector, due to the increased demand for products and services. The middle class emerges once again. The unemployment rate nationally is reduced dramatically. Tax receipts spike. The deficit drops.”
It’s an arc. Short term deficit spending to increase demand, leads to private sector growth, lowers unemployment numbers and eventually increases revenues, which lowers the deficit. This is how it’s worked numerous times throughout our history.
THE CYCLE LOOKS SOMETHING LIKE THIS (world’s largest run-on sentence):
less government regulation and oversight of markets leads to exploitation of the working class, reduced wages and benefits, out-sourced jobs to 3rd world countries which causes a spike in corporate growth, but this growth is concentrated into the coffers of the wealthy classes and the nations wealth distribution becomes increasingly unbalanced in favor of the wealthiest as real, inflation-adjusted wages and benefits stagnate and in most cases drop for the masses (aka – the consumer class) while the spike in corporate growth masks the fact that the masses are struggling until the system reaches a point of no return when the masses (aka – the consumer class) have spent all their money and have maxed-out their borrowing capabilities, which had them living beyond their means, until they reach the end game and stop purchasing anything besides bare essentials, while cutting back on spending even for those essentials like food and health care, and also begin to default on loans (credit cards, mortgages, car loans, student loans) which combined, leads to a recession, which causes those corporations to cut jobs, wages and benefits even further, which exacerbates the problems for the working class (aka – the consumer class), causing an official death spiral, which forces the government to step in and “save” capitalism with massive deficit spending on infrastructure, public works as well as renewed emphasis on social safety nets and regulation of the markets which gets the masses (aka – the consumer class) back to work again earning money which enables them to return to functioning consumers yet again, which leads to a revitalized economy across the board as incomes and wealth rise across all income levels until the wealthy corporate class uses their wealth and access advantage to once again push for less government regulation and oversight of the markets which repeats the above listed cycle
The issue right now is we are refusing to take the necessary steps in the usual cycle, by injecting demand into the system. It’s a recipe for long term suffering.
The massive stimulus program known as WWII led to decades of economic growth and prosperity for the entire country. As employment and wages rose, the deficit fell.
The goverment can cause a domino effect in demand? When the stimulus ends aggregate demand won’t drop with it? The short term deficit increase won’t be a drag on the economy later?
It’s all explained above. The stimulus, if large enough and targeted correctly, increases private sector demand within the community which leads to private sector job creation. As public sector stimulus jobs end, those workers now have jobs available in the private sector. At the moment, there are not enough private sector jobs available. We need to inject demand into the economy, which creates jobs. As these private sector jobs increase, unemployment decreases and tax revenue increases, eventually paying off the initial stimulus bill and over time reversing the deficit trend.
Short term deficit spending leading to long term growth and deficit reduction.
“Tell me where I get this wrong…”
Your two year timeframe is ridiculous. The purpose of any economic stimulus program is to create a virtuous circle of ongoing economic activity extending into the indefinite future during which time any deficit spending (which in any case is going to be eroded by inflation) will be recouped by increased revenue. In fact, as I’ve already out to you, taking into account inflation the US govt can effectively borrow for zero at present. You might want to go into Borders and buy one of those Economics for Dummies books which will explain the concepts involved much more elegantly than I ever could.
Your hostility towards any person not immediately agreeing with you is noted.
For what it is worth – I have spent a great deal of time studying economics, but never has anybody explained to me that government spending could create a “circle of ongoing economic activity extending into the indefinite future.” I am well aware that government spending can increase aggregate demand (which is increased by multiplier effect), but this is the first time I have ever read about the governments ability to cause a dominio effect on aggregate demand.
This new learning amazes me, Sir Bedemir. Explain again how sheeps’ bladders may be employed to prevent earthquakes.
I don’t understand what you don’t understand. I laid out an example of how it works in very simple, practical terms. And I showed you the cycle and how it has worked historically.
“The stimulus, if large enough and targeted correctly, increases private sector demand within the community which leads to private sector job creation.”
This is the multiplier effect.
“As public sector stimulus jobs end, those workers now have jobs available in the private sector.”
When the stimulus ends, aggregate demand decreases in the same amount that it increased by. If these workers found jobs because of increased demand, why would they retain their jobs when the demand cause by the stimulus is removed?
Y = C + I + G + NX. G increases and Y increases. We agree. You seem to be arguing that G decreases and Y stays the same? The up and down change in G have somehow caused the other factors to increase long term?
Take one unemployed worker. He’s unemployed because there is no job available to him. Government fills in the gap by providing a job, say in infrastructure. He is now earning money and spending it in his community at private sector businesses. These businesses now need to hire more workers. At a certain point, when the infrastructure job ends, those private sector job openings now exist and he’s effectively transfered from public to private employment. The stimulative effect of the initial investment in public works leads to an increase in private sector job openings. Therefore, he remains employed, only now in the public sector. That increase in demand remains constant. If I understand you correctly, you are counting the end of the infrastructure job as a decrease in demand, when in actuality it simply results in a transfer from public work to private work. The key is this worker remains employed once the stimulus ends.
During WWII public sector jobs went through the roof. When the war ended, there was an enormous increase in private sector job openings due to the enormous increase in demand and these workers simply moved into the private sector, maintaining the increased productivity, but in private business as opposed to public.
“Your hostility”
No hostility intended or implied. Just answering your own question that as a matter of fact, the two year window for your scenario was absurd. And also modestly pointing you in the direction of a source that would explain why much more effectively than I could. The same source will probably also explain how expansion of economic activity in one sector commonly overlaps into others. If you don’t want answers to questions you shouldn’t pose them…should you?
Let /\ denote change.
/\Y= /\C + /\I + /\G + /\NX.
Under our scenario /\G = 100
From before, /\Y = 265. Thus we have /\C + /\I + /\NX = 165. The spillover effect you describe.
Now when the stimulus ends /\G = -100.
Now somewhere going forward must be where I’m getting this wrong, because by my math I get the following.
/\Y = -265. Thus /\C + /\I + /\NX = -165 and the total /\Y = 165 – 165 = 0.
However I must have done something wrong because this number should be positive if the government creates a “circle of ongoing economic activity extending into the indefinite future.”
2 months ago I was arguing that ’12 was going to be a walkover for Obama. Now, I am not so sure. Most of the polling that shows the situation really isn’t that bad for Obama is a joke and about as reliable as Fox and Rasmussen.
- DSP
“2 months ago I was arguing that ‘12 was going to be a walkover for Obama. Now, I am not so sure…..polling that shows shows the situation really isn’t that bad for Obama is a joke ”
Ok you’re erratic, what else is new?
“Take one unemployed worker. He’s unemployed because there is no job available to him. Government fills in the gap by providing a job, say in infrastructure. He is now earning money and spending it in his community at private sector businesses. These businesses now need to hire more workers. At a certain point, when the infrastructure job ends, those private sector job openings now exist and he’s effectively transfered from public to private employment.”
Why is he able to successfully find a job in the private market now, when he wasn’t before? The government has somehow caused demand to increase more than it has caused it to decrease? Any long term change in aggregate demand is credited towards the government stimulus?
“The stimulative effect of the initial investment in public works leads to an increase in private sector job openings. Therefore, he remains employed, only now in the public sector. That increase in demand remains constant. If I understand you correctly, you are counting the end of the infrastructure job as a decrease in demand, when in actuality it simply results in a transfer from public work to private work.”
When the stimulus ends all of the jobs associated with it and the increase in demand it caused will continue to exist?
“During WWII public sector jobs went through the roof. When the war ended, there was an enormous increase in private sector job openings due to the enormous increase in demand and these workers simply moved into the private sector, maintaining the increased productivity, but in private business as opposed to public.”
When WWII ended the soldeirs came home. How could demand not increase?
“Why is he able to successfully find a job in the private market now, when he wasn’t before?”
I don’t know how to explain it any simpler. The initial jobs program jumpstarts the economy. It infuses demand into a stagnant system. That demand is increased in the private sector, where it “wasn’t before.” This creates private sector job openings where there were none before. It results in a simple transfer of jobs from public to a newly robust private sector economy. The unemployed worker REMAINS EMPLOYED, only now in the private sector, which leads to government recouping on its initial investment in a the jobs program.
“The government has somehow caused demand to increase more than it has caused it to decrease?”
There is no decrease in demand. Those workers continue to work.
No job openings.
Jobs created publicly.
Demand increases in private sector.
Jobs available in private sector.
Public worker now simply moves into open private sector job.
He remains employed, only now in the private sector.
“This when the stimulus ends all of the jobs associated with it and the increase in demand it caused will continue to exist?”
Yes, as long as the stimulus is strong enough to create the excess demand. The “stimulus” bill we’ve already seen was not nearly strong enough to create excess demand. It was only strong enough to fill in the gaps and tread water. It didn’t stimulate the economy. It merely covered the losses due to the economic collapse. That’s why it hasn’t led to long term growth. Perhaps that is the key you were missing. The stimulus needs to not only cover the loss of demand from the economic collapse, but also significantly increase is above and beyond that level. The stimulus bill created enough demand to tread water but not enough to increase private sector demand/job openings for the “transfer” to occur.
“When WWII ended the soldiers came home. How could demand not increase?”
Demand increased prior to the soldiers coming home, which meant those soldiers had jobs waiting fro them.
“There is no decrease in demand. Those workers continue to work. ”
So the stimulus ends, but demand doesn’t decrease. When the government increases spending, demand increases, but when the government decreases spending, demand stays the same. If this were true, why would the government ever not increase spending. The benefits never go away!
“Demand increased prior to the soldiers coming home, which meant those soldiers had jobs waiting fro them.”
Of course it happened before the soldiers got home. Everybody knew that the soldiers were coming home. The soldiers made plans, the people at home made plans. Are you arguing that the increase in demand following WWII happened independently of a huge influx of population?
“So the stimulus ends, but demand doesn’t decrease. When the government increases spending, demand increases, but when the government decreases spending, demand stays the same. ”
I’ve explained this more times than I can count at this point… don’t know how to make it any easier to understand.
“Are you arguing that the increase in demand following WWII happened independently of a huge influx of population?”
You realize if every soldier in the U.S. armed forces who are overseas came home tomorrow, it wouldn’t increase demand in this economy, but instead be a drag on the economy? There aren’t enough job openings. Those soldiers need jobs when they get home in order to be responsible for an increase in demand. If they come home and have no jobs, they will not have money to spend and demand sinks further. In WWII, the extremely low unemployment rate, led to a population with cash to spend, which went to private businesses, who then needed employees. Soldiers came home to an economy full of available jobs. Why? Government stimulus. There were more job openings than people to fill them. The soldiers came home and filled them. Additionally, union membership was high, which meant those employed generally got a better wage, thus increasing demand further. If our soldiers came home now, they wouldn’t have jobs waiting for them.
“If this were true, why would the government ever not increase spending. The benefits never go away!”
This ignores inflation. Low interest rates, low demand, makes government spending productive. When we have a robust economy, government spending is less necessary and less productive. So no, it doesn’t work in every scenario. When the economy is healthy, that’s the time to cut government spending, not when the economy is in the tank.
“You realize if every soldier in the U.S. armed forces who are overseas came home tomorrow, it wouldn’t increase demand in this economy, but instead be a drag on the economy? There aren’t enough job openings.”
I think if you were to poll economists on the question, “Yes or No. Do you think an influx of productive 20-40 year old people in a population would increase aggregate demand?” The response would be unanimously – YES.
Tommy, I appreciate your willingness and patience to answer my questions. However if your logic is correct, than the government could decrease spending and aggregate demand would not change. This, to me, seems to be a very illogical result.
Maybe I have it wrong though. Perhaps the government can only decrease stimulus spending without impacting aggregate demand? Are some types of government spending excluded from this result?
“The response would be unanimously – YES.”
No, it wouldn’t. Warm bodies don’t = demand increase. The increase in demand occurs when those warm bodies have money to spend on goods and services.
Add 100 people to the population, but give them no money to spend, does Apple see an increase in the demand for their Ipad? No. Add those same 100 people and give them jobs, then the answer is yes.
The causes of the postwar expansion were numerous. For example.: pent up demand (notably for housing and autos); substantial increases in real incomes; continued high expenditures on defense because of the cold war; Keynesian govt policies aimed at expanding education and home ownership, and improving the infrastructure; many more two income families; export opportunities in a world where most countries had lost massive manufacturing capacity. It was next to impossible for the US not to boom in the postwar period. Once this spurt was over (say 1945-50) the econony did not relapse but continued on a basically upward trajectory until the oil shocks and inflation of the seventies which had to be choked off by tight money policies. In fact it’s probably fair to say most if not all of the recessions since the war have been tight money recessions whereas the one we’re emerging from is a balance sheet recession hence it’s duration and the liquidity trap we’ve found ourselves in.
“No, it wouldn’t. Warm bodies don’t = demand increase. The increase in demand occurs when those warm bodies have money to spend on goods and services. ”
Do you really think that the number of jobs in an economy is independent of it’s population size? If you were to list countries in order by their population size and then list countries in order of the number of jobs in their respective economies, the two lists would probably be identical.
“Do you really think that the number of jobs in an economy is independent of it’s population size?”
Did I say that??? You realize employment numbers don’t rise and fall equally with the size of the population, right???? That’s why we sometimes have times of low unemployment numbers and other times of high unemployment, relevant to population size. Businesses hire people when they have a demand for their product or service and not out of the kindness of their hearts. They don’t simply count the population and add jobs based on the increase. Absent a population with money to spend, they have no reason to hire anyone. The missing element right now is a lack of money in the hands of consumers, brought on largely by stagnant wages and high unemployment. I don’t understand, once again, what you are not comprehending.
Like I said, add 100 people to the population, but give them no job, and Apple will not see an increase in the demand for the Ipad. Take the same population increase, but give them jobs at wages above inflation, and Apple will see an increase in demand for the Ipad. This increase in demand will cause Apple to produce more Ipads (unfortunately in China), but also lead to an increase in domestic employment for those who ship, sell, advertise the added orders of Ipads. Orders for other products related to the Ipad will also increase. It’s all about a population having money to spend.
Simple question:
What’s better for Apple? 100 added penniless people in the population? Or 100 added people with jobs and money to spend?
Look again at that massive run-on sentence I posted a little ways back. It lays out the cycle pretty clearly.
I’m not saying that population is an absolute determinant of job opportunities. That would be silly. I am saying that an influx of population would increase demand. And you told me that increases in demand cause job opportunities to increase. However, maybe it is only demand caused by government stimulus spending that increases demand – you have me confused on the matter.
“What’s better for Apple? 100 added penniless people in the population? Or 100 added people with jobs and money to spend?”
This is a straw man argument.
1. Returning soldiers would not be penniless. They weren’t after WWII, and gauging by the limited number of soldiers that I know – they aren’t today.
2. There is no comparison between a penniless, jobless, warm body and a returning United States service man/woman. By your diction you make them out to be zombies who must be provided for.
Ugh… ok.
Returning soldiers right now don’t have job openings available to them. They did after WWII. Better???
Soldiers today come home, get discharged and are then looking for work. There aren’t enough jobs available now. If they aren’t penniless when they arrive, they will be broke fairly quickly when they can’t find a job.
After WWII, soldiers came home and found numerous jobs awaiting them. The difference is enormous.
Official U.S. statistics:
“Young male veterans (those ages 18 to 24) who served during Gulf War era II had an unemployment rate of 21.9 percent in 2010, not statistically different from the jobless rate of young male nonveterans (19.7 percent)”
That rate sucks.
And your 2nd point is getting a bit dramatic. That obviously wasn’t the point. Jesus.
Honestly, at this point I am completely at a loss at what’s confusing you. It’s the most basic logic I can come up with.
Tommy. Lets end this in agreement.
I think it would be a good for our economy if soldiers were able to come back from the wars we are engaged in overseas. You think we need to have jobs for them first, otherwise things will be worse for the economy. So we can agree that if we were to take all of the money our nation spends keeping our soldiers overseas, and instead use it to keep serviceman employed peacefully in the states; then our economy would benefit.
“Do you really think that the number of jobs in an economy is independent of it’s population size?….the two lists would probably be identical.”
Of course size of population is very relevant to a country’s potential GDP but whether that potential is realised is dependant on numerous other factors (notably education, investment and productivity) and au contraire the two lists wouldn’t be completely identical as a brief perusal of this list would show.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Obviously the bodies are much warmer in Sweden than in the Phillipines. Although it doesn’t exist any longer the most potent example was surely the Soviet Union which had a larger and probably better educated population than the US but an economy in the intensive care ward.
Yes, I would happily agree to that.
That’s government spending on a jobs program, fyi.
I’ll give Krugman the last word:
“When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn’t booming — again, there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work — but they can’t take jobs that aren’t there.
Wait: there’s more. One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months.”
I don’t disagree with anything in Krugman’s quote. Nor am I strictly against government job programs. What I disagree with is the idea that government spending is somehow going to decrease the deficit (short or long term). To me this sounds the same as supply siders trying to say that lowering tax rates will decrease the deficit. It is simply illogical.
“It is simply illogical”
Au contraire, when a country is in a recessionary environment it’s entirely logical. It may be counter intuitive when one’s frame of reference is kitchen table economics but that’s something very different.
And here comes otto with his lack of anything substantive and brash complimenting style .
When you find a response to my kitchen table economics that has any substance, I will gladly agree with you. In case you missed it before, here is my earlier response that you never responded to.
“Let /\ denote change.
/\Y= /\C + /\I + /\G + /\NX.
Under our scenario /\G = 100
From before, /\Y = 265. Thus we have /\C + /\I + /\NX = 165. The spillover effect you describe.
Now when the stimulus ends /\G = -100.
Now somewhere going forward must be where I’m getting this wrong, because by my math I get the following.
/\Y = -265. Thus /\C + /\I + /\NX = -165 and the total /\Y = 165 – 165 = 0.
However I must have done something wrong because this number should be positive if the government creates a “circle of ongoing economic activity extending into the indefinite future.””
You maybe able to string together lengthy formulae, but don’t seem able to grasp fairly simple economic concepts for which there’s plenty of empirical evidence. I’m unimpressed with your attempt to prove your mathematical genius, probably because I have a relation who is a physicist who has problems organizing his financial affairs.
Here is a simple question: is the government better off after ten years if it spends $1 today at essentially 0% interest, incurs a debt of $1, but grows the economy due to increased spending a fraction of a % faster than it would have otherwise, assuming constant revenues of some % of GDP?
When you say “is the government better off” I interpret you to mean “is the economy/society better off”
Theoretically? Yes.
Practically? Maybe. My confidence in the government spending money effectively dilutes the strength of my answer. The last go around for stimulus (while everything was controlled by democrats) didn’t really inspire a whole lot of confidence. And since I seem to be the only person not jumping on the “government can spend money to decrease the deficit” bandwagon, I am of the opinion that if we are going to incur debt, then wasteful spending does nothing but hurt us in the long run.
“controlled by Democrats…. ”
One seriously must be living under a rock to believe the failure of the stimulus was due to Democrats and not the GOP compromises which made 40% of the bill into tax cuts and lowered the overall size of the bill by hundreds of billions, thereby making it less a stimulus and more a tread-water bill.
WE’VE NEVER TRIED A REAL STIMULUS YET.
“The last go around for stimulus (while everything was controlled by democrats) didn’t really inspire a whole lot of confidence.”
Since when has anyone said this was a perfect science?….there’s actually a raft of studies out there demonstrating that the stimulus while maybe not large enough was wholly positive in its results.
Actually, I meant, is the government in better or worse financial shape? If the economy grows just a little faster than it would have otherwise, then the government will have made a great investment, because it recoups taxes on that little bit of growth FOREVER and it snowballs, all for a fixed lump sum. The government would be in much better financial shape, since you could pay off what you borrowed and continue to reap the benefits of a larger economy.
However, if you believe the effect of a $1 spent today has no impact whatsoever on either the depth or breadth of a recession and is entirely temporary, then I understand your point of view.
Unfortunately, this isn’t physics, with alternate testable theories. There is one economy and no view into alternate time lines where we took some other action. So I’m always amused at people who sit around pretending they have the answers. Mostly, it’s guesswork, and you can never be vindicated nor can you ever be blamed. I personally believe the stimulus helped and in a way that will easily recoup the investment but again, it’s mostly guesswork but with a fairly firm foundation of analysis by some pretty smart people.
“What I disagree with is the idea that government spending is somehow going to decrease the deficit (short or long term).”
I’m struggling to find a simpler way to explain it, but am coming up blank.
Not only have I shown you in simple, practical terms, but the historical record proves this as well. What are you basing your differing opinion on? I don’t understand.
“What are you basing your differing opinion on?”
Actual or feigned ignorance?
““controlled by Democrats…. ”
One seriously must be living under a rock to believe the failure of the stimulus was due to Democrats and not the GOP compromises which made 40% of the bill into tax cuts and lowered the overall size of the bill by hundreds of billions, thereby making it less a stimulus and more a tread-water bill.
WE’VE NEVER TRIED A REAL STIMULUS YET.”
I did not note who controlled the government when the first stimulus went through to cast blame on them. This is often done. Personally I think it is an incredibily weak form of argument, and a sign that anything you read further should be taken with a grain of salt.
I noted it because if I don’t have confidence that the government can get the stimulus right when the democrats control almost everything, why should I have confidence that the government will get the stimulus right when they share control of congress with the republicans?
Krugman broke down the “stimulus” bill:
Tax cuts and refundable tax credits: $151 billion
Aid to individuals (mainly unemployment insurance and food stamps): $70 billion
Aid to state and local governments: $103 billion
Everything else: $33 billion
“Note that the aid to individuals was basically safety net, and the aid to state and local was about mitigating spending cuts rather than spending expansion. Basically, this was at best an attempt to beef up automatic stabilizers. So much for ‘we tried Keynesian policies and they didn’t work’.”
As far as your rebuttal goes, I’m confused as to what your answer is. It seems you are saying, “the GOP will destroy any chance of doing the right thing, so why attempt to do the right thing.”
But at the same time, you are not simply placing blame on politicians, but on the IDEA of an effective stimulus program. Which is it? An effective government stimulus package is possible, but the current members of Congress will never allow it? Or an effective stimulus isn’t possible in theory?
The American Spectator : AmSpecBlog : "Frumming" Down the GOP Field // Aug 15, 2011 at 3:34 pm
[...] if one reads through Frum's piece, Bachmann isn't the only one who he deems unfit to be President. He writes, "Disenchanted [...]
“However, if you believe the effect of a $1 spent today has no impact whatsoever on either the depth or breadth of a recession and is entirely temporary, then I understand your point of view.
Unfortunately, this isn’t physics, with alternate testable theories. There is one economy and no view into alternate time lines where we took some other action. So I’m always amused at people who sit around pretending they have the answers.”
Indy nailed it.
On the other hand, I’m not a fan of people who want to sit around and do nothing because we can’t possibly know all the answers.
. Step up to the plate and swing.
“But at the same time, you are not simply placing blame on politicians, but on the concept itself.”
Oh I give all blame to politicians. That doesn’t mean I can change anything though. I get one vote. Nor am I attacking the concept of stimulus spending. All I am saying is that I don’t think government spending is free right now, but rather that there is a discount on spending right now.
If you go to a store, you don’t buy something just because it is offered at a discount. You buy it because it is a product that you want. Ineffective and wasteful government spending that exaggerates our debt problem isn’t a product that I want at any discounted price.
Again, on the other hand, these are unemployment benefits we were talking about, not items in a store. You know, where real families end up on the streets.
It was an analogy to describe my reasoning which tommy is having a hard time following. Nice job using it to make me sound like an jerk.
Talk about a strawman.
We have an enormous problem with the economy right now. The solution REQUIRES targeted government spending. It’s not some impulse buy at the local Walmart. It’s a dire need to infuse money into a stagnant system. To create demand. To create jobs. To stimulate a faltering economy. It’s a NECESSARY purchase. A better analogy is this:
You need to borrow $50 to buy medicine to cure the illness which is stopping you from working and earning much more than $50 at your job. Do you borrow the $50? Or do you say no thanks, and continue to make nothing, while laying in bed with your illness?
The initial “stimulus” bill was the equivalent of purchasing cheap cold compresses, to make you more comfortable while you lay there, but offering nothing in the way of a cure. Meanwhile, the actual medicine is sitting on the shelf gathering dust.
“Ineffective and wasteful government spending… ”
There’s the problem. Nobody here is calling for “ineffective or wasteful spending,” we’re calling for necessary and highly effective targeted spending.
I am not of the mind that government spending is the only thing that could improve our economic woes.
http://www.frumforum.com/fed-hawks-turn-on-the-unemployed
Mr. Krugman likes to describe a liquidity trap as a state in which monetary policy is ineffective. What stops us from using unconventional monetary policy?
“What stops us from using unconventional monetary policy?”
Like?
In any case, it may not be the “only” way, but it’s the best and most effective way, by far.
Mr Krugman also points out that the only real way out of a liquidity trap is by fiscal mechanisms. The best unconventional monetary policy that the monetarists like Rogoff can come up with is huge quantitative easing and inflation. In fact this entire recession has left the monetarists floundering. They can’t embrace austerity because they know it’s contractionary and likely to bring on a deflationary spiral but are desperate to avoid out and out Keynesianism. Quite funny watching them really. There are one or two that have faced reality but it must have hurt.
ohhh otto. One second I think you are trolling me, and then you say something that could possibly be intelligent. Do I respond? Do I ignore you? When you figure out a response to my “lengthy formulae” (/\Y= /\C + /\I + /\G + /\NX…. 5 variables… oooh baby… watch out!) I’ll start taking your input on economic issues more seriously.
What about supporting low income tax cuts. How about reverse taxes for the most impoverished? A minimum annual income. Anything dressed in a tax cut will get support from both sides. We just need to make sure it is of the progressive type.
Curiosity // Aug 15, 2011 at 6:14 pm
“I’ll start taking your input on economic issues more seriously.”
That would be unfortunate, since I’m never going to take your input on economic issues seriously because you apparently have little idea of what you’re talking about (as the comments at 6.13 demonstrate). All the initiatives you suggest are fiscal remedies not monetary ones!! I forbear to comment on their appropriateness or likely efficacy.
Yup. Definitely just trolling me.
Curiosity,
It isn’t trolling when there is serious discussion extending over many posts. Otto could be a little less dyspeptic and acerbic in his replies, but that seems to be his modus operandi. I have been the butt of it several times myself. So while Otto (and others including me) might disagree with your conclusions, his cutting responses don’t mean that he is trolling. Frankly, I appreciate getting some (any) sort of reasoned discussion from your side of the aisle without slogans, and you do a decent job of it without resorting to facile canards.
We have plenty of real trolls here and you both are about as far from that as anyone.