Stimulus? Still a failure.

[badlydrawnjeff.livejournal.com]

The failure of the stimulus isn't exactly news, and hasn't been for some time. Thankfully, more and more people are getting on board.

For instance, it looks like we might not have needed it to begin with. Granted, since stimulus of this nature doesn't work, we never need it, but the justification for it isn't so strong anymore:

"We had to hit the ground running and do everything we could to prevent a second Great Depression," Obama told supporters last week.

...

IBD reviewed records of economic forecasts made just before Obama signed the stimulus bill into law, as well as economic data and monthly stimulus spending data from around that time, and reviews of the stimulus bill itself.

The conclusion is that in claiming to have staved off a Depression, the White House and its supporters seem to be engaging in a bit of historical revisionism.

...

The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.

Stanford's John Taylor showed us that tax credits and directed spending was fairly worthless:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers.

Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

Even Harvard's Robert Barro is on board to an extent. While he has yet to come around on the fact that stimulus has not ever been shown to work, he's at least noting that the merits of spending need to be more important than the stimulating impact:

"In the long run you have got to pay for it. The medium and long-run effect is definitely negative. You can't just keep borrowing forever. Eventually taxes are going to be higher, and that has a negative effect," he said.

"The lesson is you want government spending only if the programmes are really worth it in terms of the usual rate of return calculations. The usual kind of calculation, not some Keynesian thing. The fact that it really is worth it to have highways and education. Classic public finance, that's not macroeconomics."

With murmurings that we may need a second stimulus, the question remains as to why we'd pursue such a thing given the track record of the first. At this point, if you're still a proponent of Keynesian-style stimulus, why? What will it take to convince you that it will not succeed?

Comments

[nevermind6794.livejournal.com]

You don't understand the articles you're citing.

a.) The chart does not show that GDP had stopped free-falling, it shows that there was a small bounce in January - as there had been in November. The trend levels out after the stimulus is passed. The author also does not account for expectations of stimulus spending.

b.) "Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April." Yes, after the stimulus had passed.

c.) "When the recession officially ended in June 2009, just 15% of the stimulus money had gone out the door." Yes, but more money than that had been promised in the forms of contracts and grants and tax credits. Companies were already doing work and collecting bits of the money right on schedule. States were still doing their budgets, and hadn't spent the money yet.

d.) The Taylor part has been addressed. (http://noahpinionblog.blogspot.com/2011/07/taylor-seems-to-agree-with-keynesians.html) He does not reject the idea of stimulative government spending, he said people did not spend tax credits and that government spending did not increase enough. Those were both key complaints about the stimulus from Keynesians.

e.) Did you notice Taylor's repeated use of "simulation?" That's because it's an economic model being compared to data to see how accurate it is. You have repeatedly decried that approach with regard to pretty much everything else stimulus-related.

f.) The Barro article says, "He acknowledged, however, that there are times when stimulus programmes are needed – such as in the recent recession. But he said they should be delivered through necessary capital projects and tax cuts, to deliver required services and make the economy more efficient." Oh look, that's exactly what Keynesians advocate for. A stronger safety net, tax cuts (don't give me the "no tax cuts" crap, it's a distinction without a difference), and infrastructure.

g.) Barro's view on the long-term multiplier has already been established, and his WSJ op-eds on the topic have been thoroughly demolished. You're not presenting anything new.

h.) So, where are your studies on the effect of stimulus? Taylor's has already been covered; do you have anything empirical, ideally something with a consensus?

[nevermind6794.livejournal.com]

Whoops, html fail. Oh well.

[telemann.livejournal.com]

Ha, I love this comment on the Taylor link:

So the tax cuts, which Taylor supported, where ineffectual, the government spending, which Taylor opposed, was not sufficient, and the effectiveness of the Keynesian position is politically unfeasible because of the obstructionism of the Republican party to which Taylor gives economic and political cover.

So, according to John Taylor, John Taylor is responsible for the failure of the stimulus to work. Sweet.

[nevermind6794.livejournal.com]

Yeah, it's kind of an odd paper. Wouldn't be so bad on its own if people weren't using it like they are.

[badlydrawnjeff.livejournal.com]

a) The article merely notes that the economy had stopped falling.

b) And before any stimulus money was spent, which shouldn't have happened.

c) Which is only part of the overall point.

d) Not that the spending wasn't enough, but that it was poorly targeted, which was a complaint of the anti-Keynesians. I did note this in my OP.

e) Indeed. You'll note I focused on his historical data points.

f) As I noted in the OP.

g) Which demolition do you speak of?

h) I have history on my side, same as always.

[underlankers.livejournal.com]

H) No, you've yet to have history on your side on *any* argument, Mr. "FDR and Stalin did the exact same things." I seem to have missed when FDR killed millions of US citizens to impose collectivized agriculture and formed a secret police agency that slaughtered its way through the government hierarchy.

[xforge.livejournal.com]

I hope you don't think he's ever going to address that.

[badlydrawnjeff.livejournal.com]

I've gone down that road with lankers before. I'm loathe to do it again.

[underlankers.livejournal.com]

No, you said that Manzanar was equal to the Gulag. I wasn't aware that the USA's NVKD had prisoners of Manzanar shot. Nor was I aware that FDR regularly shot his entire officer corps the way Stalin did.

[badlydrawnjeff.livejournal.com]

Since I never claimed any of those things, now everyone knows why I'm loathe to enter this with you again. This is the thread (http://talk-politics.livejournal.com/1061509.html?thread=84774021#t84774021). This is not a good habit for you.

[underlankers.livejournal.com]

Yes, you did.

My quotes, then yours, in sequential order:

And just to be clear-is this stating that FDR and the New Deal was Stalinist, meaning the forcible collectivization of US farms, a massive military build-up, a secret police empowered to murder its way through everything it wanted to, a gigantic set of slave-labor camps that were the biggest employer in the system, and a system of centralized economic planning with mandated state quotas, and NKVD-led enforcement of said quotas. You are saying that this was the FDR Administration, am I correct?

Pretty much. The only parts that aren't 100% accurate are the secret police and the slave-labor camps. I'm not sure the internment camps actually involved slave labor.

One more time-you are saying that FDR and Josef Stalin's leadership of the USA and USSR, respectively, were exactly the same?

Not exactly, but more similar than you're willing to admit.

So this again is another lie. You did claim that they were the same. I mentioned mass murder, but you said the only thing that was not accurate was the slave labor camps and secret police. Indicating that yes, you did say that FDR was a mass murderer on par with Stalin.

[gunslnger.livejournal.com]

So, pretty obviously, we can conclude that you make sweeping generalizations from specific claims and believe that they apply, and you don't understand how this isn't logical, nor factual.

[underlankers.livejournal.com]

So pretty obviously Jeff lies and when he said "the only parts that aren't 100% accurate are the slave labor camps and secret police" he really means that George C. Marshall was the moral equal of Georgi Zhukov and the director of OSS was Lavrenti Beria.

[gunslnger.livejournal.com]

See, there you go again. You take a simple statement, expand it hyperbolically and then create a new claim that you attribute to the other person, and then claim they're lying when they try to explain to you that that isn't what they said. So, you're either delusional and don't understand that you're doing this, which can be fixed and you can interact productively, or you're doing it intentionally, which makes it pointless to respond to you.

[underlankers.livejournal.com]

Not exactly, but more similar than you're willing to admit.
________

In my reality, Stalin was a member of the Politburo who during the Russian Civil War had already proven he was a treacherous, murderous sonofabitch who became ruler of the Soviet Union by being a master politician, relative to a Politburo filled with idiots. Stalinism began with collectivization, and at its height Stalinism's murderous assuming complete power over Russia and the rise of the NKVD gave it clear and nearly-identical natures to Hitler's party-state.

FDR, by contrast, won four terms in regular elections, embarked on rather limited social-welfare programs, and led the USA to victory in the largest war in US history. His Administration is rather narrowly "government" based and he was too much the New England aristocrat, moreso than Theodore in fact, to make it so. This to me is the difference: FDR was democratically elected and represented a 1930s democracy. Stalin's dictatorship only lacked Treblinkas and Sobibors, but otherwise every atrocity done by Hitler has a Stalinist counterpart.

Claiming that Ioseb Besarionvich Jugashvili and Franklin Delano Roosevelt were at all similar in terms of the political systems both steered is a ludicrous, idiotic idea of a crank who's read too much Rand.

[badlydrawnjeff.livejournal.com]

No, not at all. The secret police part was about murder, and the labor camps. Jesus, dude. I really thought that I was getting a fair shake with you all this time.

[underlankers.livejournal.com]

See, I though you were referring to the OSS. That comment was not clear and I've had this go-round with you before where you've claimed that fascism, anarchism, and communism are the same and that FDR was both fascist and communist at the same time. So yeah, I actually do tend to think when you say fascist and communist you mean the actual murderous ideologies of the time period in question. But of course this is all your inability to own up to what the hell you actually say.

[nevermind6794.livejournal.com]

a.) Actually, the article says, "Monthly GDP, for example, stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. (See nearby chart.)"

b.) Your article clearly shows that stimulus money was spent starting in April. And even if it hadn't been spent, it had been promised in the form of contracts.

c.) No, it is indicative of the point. The author doesn't know what he's talking about, or he's attempting to mislead with the "no money was spent yet" line. And you fell for it.

d.) Taylor says that the failure of various stimulus to increase purchases and expenditures is a flaw: "The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers."

e.) You quoted his line that "Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view." His results are based on a model.

f.) Eh, sort of. I'll concede this one.

g.) He estimated fiscal multipliers using WWII spending, in which people were blown up and resources were actively withheld from the private sector, among other things. (http://online.wsj.com/article/SB123258618204604599.html) He used shoddy estimations to make bold claims about unemployment benefits. (http://www.fool.com/investing/general/2010/08/31/the-popular-lunacy-of-blaming-those-lazy-unemploye.aspx)

h.) No, you have unsubstantiated claims about history. You have no data.

[badlydrawnjeff.livejournal.com]

a) So what's your protest?

c) We disagree, then. You seem to think unspent money has a bigger impact than I do.

d) Okay. And what's the protest here, then?

e) Then I've made an error here.

h) If you say so. The Forgotten Man is still worth a read for you on this.

[nevermind6794.livejournal.com]

a.) My protest is that his claim, which is one of the underpinnings of the overall theme that the stimulus didn't really help, is incorrect.

c.) That's because next to money, a claim to money is the best thing a business can have. Perhaps an example will clarify:

When my company got a $500k contract to design a highway from TxDOT, we didn't get a check for $500k. Instead, we worked on it and billed TxDOT every month based on how much we had completed. So people were employed, getting paid, spending money, just the same as if my company had already received $500k, but TxDOT had not actually spent that much.

d.) The protest is that Taylor's criticism about poorly targeted spending is about it not increasing overall government spending enough; the federal government spent more money, but it was offset by spending at the state and local levels. Government spending hardly increased. The tax cuts didn't increase consumer spending either, because they were used to save or pay down debt.

e.) For what it's worth, I don't think it's an error to use an expert's estimate in an argument; it's just an inconsistency.

h.) I don't think The Forgotten Man is worth a read anymore than Bowling for Columbine is worth watching. I haven't seen/read either, but I know enough about the information contained therein to know that they probably aren't worth the time. If there's any specific data in there worth sharing, feel free, but I already know that the unemployment statistics were chosen to be skewed and that Shlaes ignores the cut in spending before the economy worsened in 1937.

[nevermind6794.livejournal.com]

Actually, b.) should say "February," not April.

[johnny9fingers.livejournal.com]

That could be because the papers linked to are quite long and needed thorough reading. Even so, nevermind has nailed it. Jeff has misrepresented small parts of these papers or, more generously, been selective about the bits he's quoted in the OP, probably due to confirmation bias.

Nevertheless, Taylor's analysis is interesting.

He does seem to come out against tax rebates. His conclusion that tax rebates were largely saved by individuals and families, and that federal government increased purchases by "an immaterial amount" and "State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers" rather re-inforces my view that this spending should have been on infrastructure and capital projects, rather than acquiring more financial assets, or giving tax cuts/rebates/credits which were then saved or used to reduce levels of debt.

I quote his penultimate paragraph:

Others argue that the stimulus was too small, but the results do not lend support to that view either. Using the estimated equations, a counterfactual simulation of a larger stimulus package—with the proportions going to state and local grants, federal purchases, and transfers to individual the same as in ARRA—would show little change in government purchases or consumption, as the temporary funds would be largely saved. Of course, the story would be different for a stimulus program designed more effectively to increase purchases, but it is not clear that such a program would be politically or operationally feasible.

When I have time I shall read around this particular area rather more: as I am of the opinion that this debate ain't over yet by a long way. I'm sure Joe the Stig has an opinion. :)

[nevermind6794.livejournal.com]

Thanks. I always wonder whether people think I provide substantive responses or I'm just annoying.

[badlydrawnjeff.livejournal.com]

No, please keep it up, seriously.