Canada's Opposition Parties Vow to Bring Down Government, 1 month into its term...

[KrazyHorse]

the money spent would be employing people in useful jobs who would otherwise be unemployed, and the product of their labour is useful to the broader community.

There are a few issues here. While the idea seems attractive on its face:

1) Again, people might well change their spending behaviour in expectation of higher future taxes. And we'd rather have people spending money than the government

2) The people hired by the government will not necessarily be the same people who are having difficulty finding jobs. See, for example, the fascination with construction jobs despite the tight construction labour market

3) Government spending programs tend to have all sorts of nonsense attached to them which have virtually nothing to do with which projects are worthwhile nor which ones would actually reduce unemployment.

[CrONoS]

Originally posted by KrazyHorse
There are all sorts of distributional, intertemporal and intergenerational effects which muck up pure Ricardian equivalence. Not to mention that disaggregating it is a difficult task. I'm simply offering it as a fairly compelling hypothesis for why you can't trust a naive analysis like "if the government spends more than it takes in there is a net macro stimulus"

I have my answer, I looked over Wikipedia and I didn't have the right definition of this concept in my mind.

[Victor Galis]

Originally posted by KrazyHorse

If tax cuts shrink GDP, and spending increases shrink GDP, the conventional wisdom is turned completely on its head. I can see one or the other not working for certain values of spending and taxation.

???

Do you not understand that these are increases in government expenditures/decreases in revenues without concommitant changes on the other side of the balance sheet?

It say nothing about what would happen if you BOTH decreased spending and taxation OR increased both. In fact you could approximate the change due to such a change by the DIFFERENCE between the two multipliers.

You're completely missing my point. The point is that the paper completely contradicts all economic wisdom. You seem assume that you cannot independently change one without the other because of your faith in Ricardian equivalence.

It's called intergenerational charity. If people leave a higher tax burden to their children they will attempt to leave higher inheritances to them as well.

I see you're quite familiar with a wide variety incredibly unrealistic neoclassical assumptions.

No, it implies that the government should attempt to maintain consistent levels of taxation. Please think before posting.

Ok, so is the claim now that there's a cost inherent to changing the tax burden? I can maybe see this, but it's by no means an obvious conclusion.

Nobody's claiming that it holds exactly. Government spending and tax cuts DO have some effect. It's just that the effect is NOT NECESSARILY what your naive Keynsianism (much different than real Keynsianism) would predict.

Did you even look at the numbers? They're all over the place. Some are even significantly negative.

KrazyHorse you seems to think that we have demonstrated the existence of this concept. But, I remember one of my teacher having said that study were non conclusive, or at least, the effect existed but was weak.

I believe the word my professor used to describe Ricardian equivalence is: nonsense. The same applies to the vast majority of assumptions that involve people being rational.

I can see how rising public debt no matter the circumstances could encourage people to modify behaviour to guard against the state presenting them with the bill they are unprepared for.

In US the response to the government running massive deficits in the last few years was running massive private deficits.

[Victor Galis]

There are all sorts of distributional, intertemporal and intergenerational effects which muck up pure Ricardian equivalence. Not to mention that disaggregating it is a difficult task. I'm simply offering it as a fairly compelling hypothesis for why you can't trust a naive analysis like "if the government spends more than it takes in there is a net macro stimulus"

I don't think compelling is the word I'd use.

1) Again, people might well change their spending behaviour in expectation of higher future taxes. And we'd rather have people spending money than the government

How many people honestly look at the government budget, then think wow, I should save some money for when the government hikes my taxes. People do react to being given money or jobs.

2) The people hired by the government will not necessarily be the same people who are having difficulty finding jobs. See, for example, the fascination with construction jobs despite the tight construction labour market

Fair criticism.

3) Government spending programs tend to have all sorts of nonsense attached to them which have virtually nothing to do with which projects are worthwhile nor which ones would actually reduce unemployment.

Equally fair criticism, but the same could be said of tax cuts.

[KrazyHorse]

You're completely missing my point. The point is that the paper completely contradicts all economic wisdom.

I'd like you to explain exactly what "economic wisdom" it contradicts. Because I haven't seen anything from you which explains this in any way which makes sense whatsoever.

[KrazyHorse]

I see you're quite familiar with a wide variety incredibly unrealistic neoclassical assumptions.

I see you're only familiar with a public distillation of Keynes which is beginning to move you towards **** status.

[KrazyHorse]

Ok, so is the claim now that there's a cost inherent to changing the tax burden? I can maybe see this, but it's by no means an obvious conclusion.

WTF? How is it NOT obvious? I've described to you the "quadratic approximation" and why this means that consistent levels of taxation are better than varying levels (even independent of intertemporal distortions introduced by such changes)

[KrazyHorse]

Did you even look at the numbers? They're all over the place. Some are even significantly negative.

Are you ****ing stupid? How is this different than what I said?

[notyoueither]

Originally posted by Victor Galis
Harper cancels opposition day!

http://www.cbc.ca/canada/ottawa/story/2008/11/28/fed-govt.html

Old news.

If he follows Martin's example he can put them off indefinitely.

[KrazyHorse]

I believe the word my professor used to describe Ricardian equivalence is: nonsense. The same applies to the vast majority of assumptions that involve people being rational.

???

Dude, you're just in left field now.

a) Firstly it does not require that individuals are rational
b) It doesn't need to HOLD EXACTLY. It is there as an extremely important confounding effect. There will be a TENDENCY to reduce private spending as public spending increases. The MAGNITUDE of this effect can vary from place to place and time to time.

[KrazyHorse]

How many people honestly look at the government budget, then think wow, I should save some money for when the government hikes my taxes. People do react to being given money or jobs.

You are confusing rationality with effective rationality. And individuals with aggregates.

[KrazyHorse]

Equally fair criticism, but the same could be said of tax cuts.

It is generally easier to issue tax cuts than spending programs in a fairly straightforward way. As long as you don't hang too many tax credits on there. The US stimulus package would be a good model for Canada if it needed to do something. Though, as I've previously stated, the US does NOT demonstrate the same sort of positive response to tax cuts in recent history that Canada does.

[Kuciwalker]

This whole thing about government spending in Canada reducing GDP is fascinating.

[notyoueither]

Originally posted by KrazyHorse

the money spent would be employing people in useful jobs who would otherwise be unemployed, and the product of their labour is useful to the broader community.

There are a few issues here. While the idea seems attractive on its face:

1) Again, people might well change their spending behaviour in expectation of higher future taxes. And we'd rather have people spending money than the government

2) The people hired by the government will not necessarily be the same people who are having difficulty finding jobs. See, for example, the fascination with construction jobs despite the tight construction labour market

3) Government spending programs tend to have all sorts of nonsense attached to them which have virtually nothing to do with which projects are worthwhile nor which ones would actually reduce unemployment.

1. I'm not buying your first premise. It is nowhere near something I would accept without a good case that it is so. It flies in the face of my observations of consumer behaviour.

2. You should have included the line following

I don't think we are there yet, but temporary deficits for public works could be a useful measure if things get serious enough.

I certainly do not want repeats of the $250 million highway interchange that I recently discussed in another thread. In short, because the City of Edmonton pressed on with a project at the urging of the Province in the face of a lack of labour and with high material costs, a minor project ballooned into a quarter of a billion dollar boondoggle.

It's close to what I would call criminal.

3. I am saying we should commit federal funds to provincial and municipal projects when the time is right. I agree the time is not right when there are few if any contractors eager for work. The time is not right in advance of a downturn.

Perhaps you will be correct. Because our banks were run well and our governments were effective custodians, and maybe some sheer blind luck will result in Canada feeling no significant bite from the current situation.

However, if the crap does hit the feces blower, I beleive the federal government can play an important role in lessening the impact and spurring activity by judicious use of the deficit.

We'd have no choice over the deficits in any case, as should the situation grow dire government revenues would be in serious trouble.

[Victor Galis]

Originally posted by KrazyHorse

You're completely missing my point. The point is that the paper completely contradicts all economic wisdom.

I'd like you to explain exactly what "economic wisdom" it contradicts. Because I haven't seen anything from you which explains this in any way which makes sense whatsoever.

Some economists claim that the best way to stimulate the economy is to cut taxes, others claim that the best way is to spend more money. I don't think any of them suggest that both those actions actually shrink the economy. Yet this paper does so. You take all its claims to be perfectly true, I express doubt in them and you call me naive.

I see you're only familiar with a public distillation of Keynes which is beginning to move you towards **** status.

I'm familiar with a wide range of economic literature. Some of it is more reliable than others.

Are you ****ing stupid? How is this different than what I said?

You said:

Nobody's claiming that it holds exactly. Government spending and tax cuts DO have some effect. It's just that the effect is NOT NECESSARILY what your naive Keynsianism (much different than real Keynsianism) would predict.

First of all, from your response it isn't even clear that you understood which section of the table I was quoting. That table is the effect of spending upon taxation. If Ricardian equivalence held perfectly, those numbers would all be 1.00. If it held approximately, they'd be somewhere near 1. Instead they're all over the place. That is exactly what I would predict because I don't believe in Ricardian equivalence.

a) Firstly it does not require that individuals are rational

It evolved from the assumption that individuals are rational. Perhaps you can justify it without everyone being rational.

b) It doesn't need to HOLD EXACTLY. It is there as an extremely important confounding effect. There will be a TENDENCY to reduce private spending and public spending increases. The MAGNITUDE of this effect can vary from place to place and time to time.

I'm looking for papers on the subject, finding a great deal that reject Ricardian Equivalence. I'm sure there's some that accept it as well.

http://www.cluteinstitute-onlinejournals.com/PDFs/1025.pdf

http://www.ihs.ac.at/publications/ihsfo/fo241.pdf

I was hoping to find one that had a good survey of the literature because I'm somewhat tired of arguing this point.

You are confusing rationality with effective rationality. And individuals with aggregates.

Yes, but in the absence of rationality on behalf of individuals, there's no reason to believe that RE will hold in the aggregate. It's not like I'm arguing that some people will cut their spending too much and some too little. I'm arguing that the vast majority of people will completely ignore the signal.