"Stimulus"...Love that Word...
GMU economist, Russ Roberts, has some thoughts to share on the idea of "economic stimulus" for the economy.
The audio version aired on NPR and both the audio and written versions can be heard/seen at NPR's website . The audio version is a little over 3 minutes long.
Roberts:
My online dictionary defines stimulus as something that "rouses or incites to activity." Sounds like the perfect prescription for an ailing economy.
But if politicians know how to stimulate the economy, why wait for a recession? If you can make the economy grow, why wait for bad times?
One answer is that a healthy patient doesn't need medicine. But the other possibility is that it's all hot air. Maybe we don't know how to make a $14 trillion economy move very quickly. And if we did, it would take a lot more than an injection of even 125 billion dollars.
There's much more...including some sound, basic principles on real economic growth. Enjoy!
- John's diary
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Comments :
Update: Caplan got in on the matter as well
and was on NPR
to talk about it.
Is GMU taking over NPR? hehehe
Audio-8 minutes.
Question
I understand that this:
Is bad as far as increasing economic growth is concerned, it is not a particularly bad thing in and of itself, correct?
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
bottom line SL
is that it really doesn't make much of a difference, if any, either way.
Follow up
So does that mean that when the public is told to go out and shop to stimulate the economy, we could have just as well been told to go put some money in a savings account? If that is the case, wouldn't it be more responsible of the government to tell us that? And if it's not the case, why not?
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
I'm not saying any of that.
I'm just saying that "spending and saving" is only one part of the equation and not even the crucial part at that when it comes to slow downs.
The economy is like a muddy dog that needs to shake itself off right now. Keeping it from shaking off the mud is not going to solve anything,,,but that seems to be the goal.
I think whole point of telling people to keep spending is dumb advice (mainly for psych effects) and based on the flawed idea that spending is the driver of the economy when it isn't. Productivity is. Higher productivity leads to more consumption and not the other way around...as strange as that sounds.
OK
I didn't mean to imply that I thought you were saying that. It does seem like dumb advice to me, and I am happy to see that you think so too.
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
Not really
our economy is about 70% consumption based - that is, based on consumers (as opposed to businesses or government) spending money. So individuals spending money does give a boost to the economy.
Also, there is a difference to the economy based on what individuals do with their "stimulus" - if they spend it, we're increasing government debt to stimulate the economy, if they save it we're just converting private debt to government debt without any stimulus.
The real question is whether a 1% bump in consumtion (assuming everyone spends it immediately) is enough to offset or mitigate a consumption based recession. My guess is that it isn't, there are too many larger economic problems at play right now. The biggest is the revaluing of assets like real estate - it's too big to be mitigated by a rebate check.
Are you THE famous HankP
from the Forvm?
I thought I remembered reading some of your posts there quite a while back, if you are that HankP and I really enjoyed them.
Anywho nice to meet you. Hope you post more often.
It is the economy, stupid.
Thanks
although the use of the word "famous" anywhere in my vicinity seems a bit excessive.
I stopped by because one blog just doesn't give me enough space to give John an education about economics :)
I'd say an education
and a spanking! :)
It is the economy, stupid.
ha ha ha
nice :)
If you were giving someone
If you were giving someone an education, that would make you a teacher of sorts. Teachers, at least in the old-fashioned picture, are/were sometimes given apples by students. Which means that they probably are/were able to distinguish between apples and oranges. Based on your response to John -- intended as a refutation of his point -- you apparently cannot distinguish between apples and oranges. Therefore I conclude you are probably not a teacher and are not providing John an education on economics.
John was pointing to productivity as the driver of economic growth and, ultimately, higher consumption. I don't think he was saying that current business spending is the primary component in current GDP. If he had been saying that, your reply would have been apples-to-apples and would have been indeed a valid correction. But alas, we don't get to fabricate an argument, attribute it to someone else, and then refute it...or at least we shouldn't. That's called a straw man, as I'm sure you know. Of course, a straw man argument can be annoying in itself, but it's more so when accompanied by completely unjustified snarkiness -- not that snarkiness is necessarily justified if one is making a valid argument, but it certainly is NOT justified if one is making an invalid argument.
As for what I think John WAS saying, it is perfectly sensible. Economists of different schools (Keynesians, Supply-siders, etc.) can certainly debate the question -- the real question related to John's premise, not the one you injected -- but it is far from implausible that productivity gains can have a greater impact on long-term economic growth and on the standard of living of most members of a population than would higher immediate spending.
You're welcome for the education. Please bring me an apple tomorrow, if you've learned by now how to distinguish it from an orange.
(Just a note: the above is meant to be snarky mostly in fun -- only to a lesser extent because your misplaced snarkiness was a little annoying)
:p
Huh
your eyesight is better than mine if you saw snark in the post you're responding to. It was just a pretty straightforward explication of a position. As to the side comment that annoyed you, get a sense of humor. John seemed to get it.
Productivity is a long term driver of economic growth, but will not work as a short term stimulus, which is what this diary is about. Stimulus refers to a short term action that will increase consumption, therefore increasing economic activity. Any moves to increase productivity will not have any effect in the short term. Spending will have an effect in the short term. I didn't say it would be a wise move, but that's the rationale behind it.
Of course I have a sense of
Of course I have a sense of humor. Did you miss my ":p" ? Did you miss my parenthetical note at the bottom?
But yeah, I think setting up and knocking down a straw man and then telling someone you were giving him an education is kind of snarky. Granted, I don't know if you guys know each other or necessarily how it was intended. But yeah, generally that looks like snark to me. Not that I consider that a big deal, but just worthy of a bit back atcha'.
Yeah, what you're saying re: immediate stimulus is correct and yes, the overall issue being discussed here is stimulus, and I'll grant you that it's possible that John may have been asserting that policies to foster productivity gains would provide greater stimulus than immediate consumer spending, but that's not how I read it and I think it's at least unclear that that's what he was saying, which would again probably make the snark -- if that's what it was -- somewhat presumptuous and at best premature. Again, no biggee.
Stimulate the economy by funding public works
That's what has proven to work in the past. It creates temporary jobs in design and construction, and leaves lasting benefits. That's why the Hoover Dam was built during the Great Depression, and Western Europe used public works projects to rebuild stimulate their economy as well as rebuild their infrastructure after World War 2. Now America badly needs more mass transit. The government could stimulate the economy by funding new subway and commuter rail systems. But knowing Bush we're probably going to get a tax cut for the rich instead.
no
not really, no...with the exception of the Hoover Dam and other stuff being built during the great depression...which lasted almost unabated for about the next decade after its construction....not to mention the TVA, the empire state building, canals, raking leaves sweeping sidewalks and on and on....nothing changed.
Oh really?
I suppose the Interstate Highway System also changed nothing.
qui tacet consentire
what on earth are you talking about?
reread the dialogue and get back to me.
some people don't
don abstracts well q.
It is the economy, stupid.
Then maybe you should reread the dialogue as well
because neither one of you seem to have done that.
It's a secret code
I totally get what the q-man is saying. :)
It is the economy, stupid.
It's not a secret code
it's misreading what others say. Not too fancy.
Based on Duffman's post and then my reply, quoar's response makes no sense because he thinks he read something he did not...and perhaps you as well.
I can pretty much guess what quoar thinks he/she read but that doesn't change what's really there.
I understood what he
meant perfectly. That's all.
You certainly don't have to agree, but 'very serious' people have different perspectives. That's okay isn't it?
It is the economy, stupid.
oh really? Well then...do tell!
Go on and share and then tell me what I'm missing with respect to the dialogue.
For starters
Your statement that nothing changed after the TVA is just plain uninformed.
I live in a state that was transformed forever by the TVA.
qui tacet consentire
Like I said,
Go back and read. And check the context of "changed nothing" in relation to what I was responding to.
Duffman cited the Hoover Dam
and other public works projects are being valuable.
You replied "No, not really."
Now you say I misread you. Fine.
So why don't you just explain whether you believe there was value to the public works projects of the Depression so we can skip the back and forth.
qui tacet consentire
I explained elsewhere
see?
I live in a state
that as a beautiful and historic park with a natural amphitheater, known as Red Rocks.
And a nearby town that thankfully has been designated a historic site. Thanks to the FDR and his eternal wisdom of creating jobs with his CCC.
It is the economy, stupid.
Like I said above:
BTW, I am not a he/she
Last time I checked I only had one set of genitalia (thank God).
For the record I am a he. :)
qui tacet consentire
OK
;)
Thank you :)
qui tacet consentire
Oh good...
you're here.
Care to explain?
I feel left out. :(
I'd be glad to
You commented that all those public works projects changed nothing. I mentioned the interstate highway system -- one of the largest public works projects of all time. It certainly changed the face of America.
BTW, the Empire State Building was not built as a public works project to provide jobs. Ground was broken just a few months after the market crash in 1929 and it was finished in 1931. It didn't turn a profit until 1950, but I think you can safely say the New York skyline would be empty without it.
qui tacet consentire
Rubbing my temples----with a grin :)
OK. I give up. Let me explain:
Paraphrasing the exchange for brevity:
Duffman: Stimulate the economy with public works projects like we did during the Great Depression. It works!
John: No it doesn't "work". All those projects during the Great Depression did NOTHING, ZERO, NADA to stimulate the economy during that time. The depression raged on for many years to come. It changed nothing
Quaoar: What do you mean it changed nothing? Look at the Interstates! And TVA changed TN forever!
John: Huh? What are you talking about? Go back and reread. (of course, I knew you meant changed as in "changed the landscape" or changed the area...but that's not what I meant....clearly. And I was waiting for you to acknowledge that.
Quaoar: (See my parentheses in the previous comment)
And here we are.
Say what?
So are you saying that public works projects in general are a waste of time and money and have no effect on the economy?
qui tacet consentire
no. come on.
it's written right there!
well, I'm not gonna wait anymore:
They don't stimulate the economy during slow downs and depressions.
example: all those public works projects during the GD did nothing to improve turn the tide on ( or even put a dent in) the GD.
IOW, they are not solutions AT ALL for economic slow downs.
OK?
If I may offer my interpretation
Since there seems to be a bit of miscommunication going on... John, what you are saying is that public works projects, like TVA for example, can have a positive effect on the economy, but it is a long term effect, not something that would "stimulate" a recovery in any reasonable amount of time. Is that correct?
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
pretty much...sorta
though I was mainly sticking to the latter point and not interested in the former.
But I think it's even stronger. Such projects don't really do anything in terms of stimulation at all...now or later.
But that's not to say they don't have benefits besides overall economic growth. Sure they can.
Then it makes no sense
How is it that the TVA did not stimulate the economy?
qui tacet consentire
Did it lead to recovery in any way
from the GD?
No.
What's not to understand?
Of course it did
It brought electricity to the Tennessee Valley, which attracted industry.
It alleviated many of the problems that were holding back the region -- flooding, soil erosion, depleted soil, deforestation, etc.
You make a flat claim that it had no effect and provide zero evidence other than your opinion.
qui tacet consentire
evidence?
that it didn't stimulate the economy out of depression?
You need evidence for that??
I don't think so. TN was in a severe depression, along with everywhere else, throughout the 30s and into the 40s.
Yes evidence
As in facts, as in something other than something you pulled out of your butt.
qui tacet consentire
Evidence that TN did not recover from the Depression
because of the TVA?
No. I'm not providing that. It's too obvious.
In other words, you've got nothing
LOL
qui tacet consentire
IOW,
it's as obvious as the sky is blue. The laugh's on you.
When did the Depression roughly end again??
My recollection (from
My recollection (from reading, not my life -- not that frickin' old despite my girlfriend's jokes) is that those public works projects didn't bring us out of the Depression; WWII did.
Having said that, government-funded (which is to say, taxpayer-funded, and I wish everyone were always forced to use the latter term) infrastructure spending certainly can be stimulative AND can certainly raise longer term growth potential. Regarding the latter, I sure think the interstate highway system, although built by Ike primarily with national security in mind, has been conducive to economic growth. And ever wonder why Africa doesn't attract labor-intensive manufacturing despite having plenty of poor people, even in fairly stable/secure areas? A big part of it is lack of infrustructure (good roads, ports, reliable electricity, etc.). I'm not saying any and all infrastructure spending has a net positive impact on long-term growth (vs. other ways taxpayers could have spent or invested that money, on their own or via government), just that some of it does.
I know you're trying to be fair :)
But I know you see my basic point. It's very simple and is the only point I've been making from the get-go.
Beyond that...
Any lasting effects or benefits from such projects is another matter. The point of debate here, again, is simple and clear.
Why quaoar, on this matter, insists on believing otherwise is beyond me.
I confess I only read a
I confess I only read a small part of the total upthread exchange (and have read more now, but only scanned part), but I think my points still fit (if not, please let me know).
- Public works did not bring us out of the Great Depression (per my recollection).
- Public works can indeed be stimulative (and generally are), and can help shorten or lessen the severity of a recession/depression, although the magnitude of the stimulus and the efficiency vs. other options obviously can vary and is debatable.
- Infrastructure projects can provide incremental long-term economic growth, although not necessarily, since there is obviously some opportunity cost -- how the funds would otherwise have been utilized and the impact on growth of those other options.
If I haven't addressed your basic point and the point of contention between you guys, please let me know.
You mentionned mine:
"- Public works did not bring us out of the Great Depression "
Boom. There it is. Pretty simple, don't you agree?
The following point you cite is even debatable. Considering how many enormous projects were done during the 30s (TVA, Hoover Dam, Empire State Building, Golden Gate, other skyscrapers and on and on and on...not to mention "busy work" projects from the NRA to rake leaves, sweep sidewalks, clean parks etc.) and the tens of thousands of new bureaucracies jobs all over country, you'd the enormous amounts of "stimulus" would have pushed us toward recovery. By this reckoning, we should have well beyond the GD by the advent of the war but we weren't. In fact, we slumped into a depression within a depression in 1937. Unemployment was always in the upper teens to mid teens at its BEST and country was not rebounding.
If it walks like duck, sounds like a duck... :)
ok. By the way, Stalin, of
ok. By the way, Stalin, of all people, mocked our "make-work" programs at the time. When one American city had a big snowstorm, they didn't use their snowplow vehicles and instead hired hundreds of men to clear the snow with shovels. Stalin joked "Why not give them spoons instead of shovels, and employ THOUSANDS?" Generally not good to be mocked on economic policy by Uncle Joe.
LOL.
Wow, even Stalin can be right sometimes. :)
Hilarious.
Well, you know what they say
Well, you know what they say about a broken clock.
By the way, one of my favorite Seinfeld lines was when George wanted to find out more about a Chinese baldness cure and put a Chinese food delivery guy on the phone with the factory in China (to speak in Mandarin or Cantonese). George was all worked up and told the delivery guy to ask if it really works. The delivery guy asks, then turns to George and says, "They say you grow hair. Look like STALIN!"
At least Stalin is on your side
qui tacet consentire
Oh...LOL...
NOT.
I'm not even in the same Galaxy as Stalin.
On this site, only Ka1igu1a may be further away from him than me. Maybe.
ok, maybe Stalin is not your
ok, maybe Stalin is not your favorite kind of guy...BUT here's the tough hypothetical question (I was looking for that scene I described upthread, but found this one, which fits here even better)
Mocking
and taking examples to the extreme is not that constructive, but quite typical of some political idealogues
Why not raise wages to a thousand dollars an hour.
Why not cut tax rates to zero.
Why not give them spoons to shovel snow.
That's deep.
It is the economy, stupid.
That's exactly why I don't
That's exactly why I don't wear mock turtlenecks. Don't want people to think I'm some ideologue.
Just make sure
you have a spoon in your back pocket, in case you have to dig yourself out of something. :)
It is the economy, stupid.
ok, but I ain't usin' that
ok, but I ain't usin' that spoon to eat no MOCK apple pie. Not the kind of person I am. That's ideologue food.
Pie.... I love pie!
I eat it in my mock up tent.
It is the economy, stupid.
You have been arguing
that these big public works projects had NO effect, which is completely ridiculous.
qui tacet consentire
Too Late, quoaor
no more. It's all written there. My words are pretty clear and written everywhere.
Public works did NOT end or cure the great depression.
Gotta go.....
nice try. :)
You must be a Romney supporter
qui tacet consentire
sure. :)
by that logic, you must be a Huckabee supporter ;)
But you also show my point, SL:
It wasn't that hard to understand if you just READ CHARITABLY.
Correct, public works projects are the wrong medicine
Alan Blinder
, in a paper that otherwise gives at least qualified support to the use of fiscal policy:
Maybe
But they can mitigate the worst effects by redistributing wealth to those who are most desperate.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
LOL.
But it didn't stimulate a recovery!
Why does everyone gotta keep coming back with this..
"But, but, but...." stuff.
unemployment soared throughout these times. The country did not recover because of these public works....AT ALL.
The country recovered when the economy recovered. PERIOD.
Like I said: "maybe"
I don't know enough to say for sure one way or the other.
If your *only* point is that make-work projects are not useful to end a recession/depression then I'm willing to agree simply because it isn't an issue that interests me.
If on the other hand you are saying make-work projects have no use then I have to disagree. They can help people survive until the end of the recession/depression.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
Fair enough
but yes,
My only point that I'm standing behind (over and over again) is the former because it's a simple yes or no answer.
The latter is far more nuanced and open to interpretation and theorizing. I have opinions on various points therein but that's another matter.
Actually
GNP increased and unemployment fell throughout FDR's terms. While the public works didn't cause an economic boom, FDR's actions certainly eased the worst effects of the Great Depression.
indeed
but that doesn't really tell us anything decisive or telling.
We also had nice trade surpluses like almost every year
Homeownership also hits a new high almost every year.
I'd be curious to know how many years I'm the last 100 years that GDP fell from one year to the next. Can't be many.
We were just about at rock bottom when FDR entered. Not much elsewhere to go but up. :)
Regardless, unemployment remained very high and oscillated up and down in the mid to upper teens most the way before sinking again in '37.
You'd be surprised
I counted 23 years just from 1900 - 2006. I was looking at Real GDP per capita, YMMV depending on which column you look at.
I think the value of FDRs public works programs is that they helped those at the bottom, directly, by giving them a job so they could earn a living (it's also a better way of handling the unemployment problem than the welfare model in the latter part of last century or the tax cut method popular in the last 30 years). Like I said, I'm not claiming it cured the Great Depression, I just don't think it's accurate to say that it did nothing.
"throughout FDR's
"throughout FDR's terms"
Leaving aside the dynamic of the economic cycle (FDR started a couple of years into the Great Depression), wasn't there also the tiny little factor of our military buildup (and sales to Britain, etc.) and the war itself? If the buildup started in full force in the late 1930s (just assuming), seems like your analysis should cover years prior to that point, unless you have some way of isolating that factor (something of which I'd be skeptical)
Factors
Ah, but if there is no way of isolating the various factors, then how can it possibly be stated with absolute certainty that any one factor had no effect?
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
Please pay attention to what
Please pay attention to what I said...and to what I didn't say. Did I say anything about "any one factor [having] no effect", let alone express "absolute certainty" about such a thing?
(hint: answer is "no")
I know you didn't
I know you have not claimed this. My comment was more in reference to John saying "All those projects during the Great Depression did NOTHING, ZERO, NADA to stimulate the economy during that time." It wasn't directed at you BR, just followed from your statement.
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
ok
ok
Uh huh
The key is good paying jobs and some reasonable regulations on these predatory loan sharks and insane banking risks.
Tax cuts for the rich so they can invest in overseas markets, helps the US create jobs exactly how,
We seem to have lost our economic sovereignty which some people can't clap loud enough for.
It is the economy, stupid.
MissL,
some reasonable regulations on these predatory loan sharks and insane banking risks.
Well, that's the trick, isn't it. Not sure what that it is and have never ventured too far into imagining what forms those supposed regulations might take. Sticky stuff.
Anyway, speaking of regulations, I thought you might find this
interesting to broaden your perspective a bit.
Makes sense....
I have a voluntary professional designation. It's a well respected designation in the financial industry though it certainly doesn't mean that I'm better at what I do.
However, it is extremely self-serving in that it provides a wonderful barrier to entry into the field itself thus limiting potential employee supply and raising my salary. Additionally, the designation covers 3 intensive examinations and the exams cost upwards of $2000 a pop (if you buy the books.) Of course, my company paid for the examinations so its no biggie for me.
The devil is in the details. I don't know that I've heard any good ideas as far as regulation goes, but I just know we need more of it (sarcasm, of course.)
Going back to the Austan Goolsbee commentary
on subprime.
Investors
must have confidence in their investments.
You learn who you can trust, but nowadays that seems to be very few.
There were suggestions and warnings about these crazy risks in 05. Too bad everyone resisted because of the ideological bent against 'regulations. There needs to be some transparency and some hard paper to show that you are a trustworthy risk manager. Many who brought on this current credit crunch fell off the bus, just to make that deal. A little regulation would have saved a lot of pain.
The risk assessment managers immoral behavior, after they bought the bundled sub-primes, is completely separate from Austin's point. I hope you see that.
It is the economy, stupid.