The Stimulus Is A Failure

[Felch]

Similarly, a FICA holiday would only benefit those people with jobs, an increasingly small sector of the economy, who unfortunately have recently shown a tendency to pay down debt instead of spending money on goods or services.

What's wrong with paying down debt? Wasn't the whole problem caused by people borrowing money they couldn't afford and spending it like retards on imported cheeses and big screen TVs?

It seems to me like the problem is an economy that only functions if people spend more than they earn. It's like patching holes in the Titanic. You're still running into an iceberg no matter how much repair work you do.

[Aeson]

It seems to me like the problem is an economy that only functions if people spend more than they earn. It's like patching holes in the Titanic. You're still running into an iceberg no matter how much repair work you do.

If we're to use the Titanic analogy, it's not so much repair work as hoping to build more floors as it sinks into the ocean.

[Arrian]

It seems to me like the problem is an economy that only functions if people spend more than they earn

That's the thing that scares me too.

The question is how to properly soften the landing/adjustment period without slipping right back into the old bad habits.

-Arrian

[KrazyHorse]

I think you guys need to be careful about the way you think about things.

The reason that a quick change in savings rates is often a symptom/precursor of a recession is not that saving (as opposed to spending on consumption goods) leads to a reduced aggregate demand. In fact, saving (as long as the savings are not simply stored in currency, gold etc) leads directly to increased investment spending...in equilibrium. And that's the killer. A quick increase in the savings rate along with a drop in business confidence and a liquidity preference means that aggregate demand drops. In normal times higher savings rates would lead to increased investment and would not necessarily negatively affect aggregate demand.

When households borrow money to spend on consumer goods they reduce the amount of money available to lend to companies to spend on investment goods. To a first approximation there is a one to one tradeoff between the two.

[Arrian]

I think you guys need to be careful about the way you think about things.

Shorter KH: I FIND YOUR LACK OF FAITH [in basic macroeconomic principles] DISTURBING.



-Arrian

[KrazyHorse]

Unlike others I could name you two are not impervious to reason, so I tend to be slightly more polite when dealing with you.

[Felch]

I think you guys need to be careful about the way you think about things.

The reason that a quick change in savings rates is often a symptom/precursor of a recession is not that saving (as opposed to spending on consumption goods) leads to a reduced aggregate demand. In fact, saving (as long as the savings are not simply stored in currency, gold etc) leads directly to increased investment spending...in equilibrium. And that's the killer. A quick increase in the savings rate along with a drop in business confidence and a liquidity preference means that aggregate demand drops. In normal times higher savings rates would lead to increased investment and would not necessarily negatively affect aggregate demand.

When households borrow money to spend on consumer goods they reduce the amount of money available to lend to companies to spend on investment goods. To a first approximation there is a one to one tradeoff between the two.

Okay so we've got Alice who likes to spend and Bob who likes to save. Under normal circumstances, Alice buys new shoes, and Bob puts his money in a bank which loans money to Charles the shoe maker. End result is Bob becoming increasing wealthy, and Alice who just gets old and poor. Once her withered ovaries quit on her, and she gets haggard and ugly, Bob divorces her for Diane, and lives happily ever after.

But instead we have Alice not buying any shoes and instead watching Fox News and becoming increasingly worried about the possibility that she'll be murdered in Aruba. Bob puts his money in the bank, but Earnest the banker is socking that money away to cover his potential losses from loaning money to Frank the unemployed real estate speculator. Charles never gets to expand his business, Alice never gets any shoes, Bob's money never produces any returns, and Diane becomes a *** dumpster for Frank's loan shark Gary.

Did I get that right?

[KrazyHorse]

I saw the words "*** dumpster" in it, so it must have at least a kernel of truth.

[Felch]

I should major in econ and use that phrase in every paper I right.

[Vanguard]

Significant figures by definition represent the amount of confidence in the result. If we know that we can't know a result with more than a certain amount of confidence, additional sig figs are completely meaningless. The fact that you are using 3 sig figs for a number whose measured value varies by up to an order of magnitude depending on the study shows that you're either intellectually dishonest or clueless.

No, it shows that the authors of some of the studies are intellectually dishonest. Or clueless.

Clearly, issuing a dollar of food stamps increases economic activity, on average, by some amount, whether that amount is $1 or $1.73 dollars. And that amount is presumably measurable by following the food stamp dollar as it works its way through the economy.

The fact that certain economists say (based on no measurements) that in the long run the increase in economic activity can be no more than 1:1 does not in any way affect the precision of actual measurements. Non-measurements don't count against precision.

Nor do wrong measurements. If there actually are studies which calculate multipliers that differ by "an order of magnitude", that does not mean that the multiplier ranges from $.17 to $1.73. It means that one of the studies is wrong.

Just like your post.

[Jon Miller]

There can sometimes be systematic errors that you don't understand. Then you publish your data with the correct significant figures for the uncertainty that you present, but you mention (if you can) what other possible systematic uncertainty exists and try to estimate it's size.

We have this all the time in experimental science.

JM

[Kuciwalker]

No, it shows that the authors of some of the studies are intellectually dishonest. Or clueless.

No, because the study authors publish their methodologies and state that the number is the one produced by their model. In that context many sig figs are appropriate.

A study like the one Moody's cites is going to have as it's conclusion "if all of the assumptions underlying the model we've presented is true and all of our sample data is good, the fiscal multiplier under these conditions is X." That's very very different from "the fiscal multiplier is X."

Clearly, issuing a dollar of food stamps increases economic activity, on average, by some amount, whether that amount is $1 or $1.73 dollars.

It could be less than $1, too.

And that amount is presumably measurable by following the food stamp dollar as it works its way through the economy.

And how do you measure that? What is the One True Methodology that produces the right answer.

Nor do wrong measurements. If there actually are studies which calculate multipliers that differ by "an order of magnitude", that does not mean that the multiplier ranges from $1.17 to $1.73. It means that one of the studies is wrong.

Duh. (In fact, they could both be wrong!) But since you have no qualifications whatsoever to judge which, if either, is correct, your uncertainty is substantially higher than 3 sig figs. And since professional economists don't even know which, if any, of these studies are correct, no one is justified in saying "the fiscal multiplier is X" to 3 sig figs.

[Vanguard]

Your last paragraph contradicts your first one.

[KrazyHorse]

No it doesn't. ****.

[Kuciwalker]

No.

Studies do not claim "the fiscal mutliplier is X.XX". As I said, they claim "given this whole host of assumptions, our data predict that the fiscal mutliplier is X.XX".

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