We're going to need a bigger boat

[DaShi]

What would those be? As far as I can tell, various macro models yield hugely divergent estimates of fiscal multipliers. And the net fiscal stimulus during the Great Depression was only ~3% of GDP, which pales in comparison to the 40% or 50% output gap seen at the time. So no reasonable fiscal multiplier can credit government spending of the New Deal with getting the US out of the Depression. Even fiscal stimulus proponents like Krugman and Delong do not dispute that.

This is not a matter which you're going to be able to decipher by listening to "arguments". Actual data is extremely noisy on this subject, and the estimates are hugely model-dependent.

I agree, that the data seems to allow either side to make its case. Also, I doubt that a single policy (such as the stimulus) can really turn the economy around. However, I am curious about the extreme dislike for the stimulus. The "it failed" argument is rather weak. Now I can understand wasting money on pork, but a plan designed specifically to create jobs should bring some relief.

[KrazyHorse]

Now I can understand wasting money on pork, but a plan designed specifically to create jobs should bring some relief.

a) There's not much difference between "pork" and "designed to create jobs", as far as I can tell

b) The "it failed" argument is no weaker than the "it works" argument. Neither is particularly good. That's a function of missing evidence

c) The burden of proof is on those who claim that spending close to (or more than) a trillion dollars of public funds will significantly reduce the recovery time/depth of the recession. That's a lot of money to be putting on the credit card.

[DaShi]

Well, there appears to be only 2 rational solutions:

1. Obama must serve for four terms

2. We must go to war with China and Germany (sorry China)

[DaShi]

Now I can understand wasting money on pork, but a plan designed specifically to create jobs should bring some relief.

a) There's not much difference between "pork" and "designed to create jobs", as far as I can tell

Fair enough. I wasn't too excited when most of my professors were applying for stimulus funds for their research because I knew that they wouldn't likely spend it on much more hiring (maybe a postdoc or an RA). Spending it on "investments" that would create jobs is wiser, imo. For example, if the health care plan could save money as promised, it would be an ideal expenditure. But whether it will actually cut costs is another debate.

b) The "it failed" argument is no weaker than the "it works" argument. Neither is particularly good. That's a function of missing evidence

I agree. It's too soon to tell from either perspective.

c) The burden of proof is on those who claim that spending close to (or more than) a trillion dollars of public funds will significantly reduce the recovery time/depth of the recession. That's a lot of money to be putting on the credit card.

Indeed. I believe that debt from the war only makes it harder to swallow. Unfortunately, the Iraqi war was paid for heavily through borrowing from China than the sweat of the American workforce. Hence, my above suggestions.

[Straybow]

You fool! You fell victim to one of the classic blunders! The most famous is never get involved in a land war in Asia...

[asleepathewheel]

Fair enough. I wasn't too excited when most of my professors were applying for stimulus funds for their research because I knew that they wouldn't likely spend it on much more hiring (maybe a postdoc or an RA).

That is nice isn't it? I'm not sure how, for example, an anthropology prof is stimulating anything other than himself. That said, my wife, who is an R1 professor has brought in a fair amount of grant cashe in her 2 years, but to my knowledge, didn't/hasn't applied for stimulus money-maybe it will be a nice surprise.

[Jon Miller]

Yeah, there is a lot of stimulus money out there for research. However, states are poor.

So it will be spent on some Post Docs/RAs/Apparatus.

JM

[Jon Miller]

What makes you so sure that the New Deal had such a huge effect during the Depression?

My hypothesis is that expectations/confidence/etc are a large part of any capitalist economy. The New Deal helped recover confidence in the economy.

JM

[KrazyHorse]

Jon, expectations are a part of any reasonable macro model. They do not find huge fiscal multipliers for the Great depression (not even the high-end ones). And since the amount of stimulus was so low, this cannot explain the majority of recovery.

[KrazyHorse]

Positive funding shocks to research generally do nothing more than to increase the salary of researchers while not increasing the volume of research significantly. This is because in the short run the supply of researchers is basically inelastic. Over the longer term, funding increases leads to higher amounts of research, of course.

[Jon Miller]

But it wouldn't be fiscal multipliers, since it would be somewhat independent of the actual money spent, more it would be dependent on people beginning to trust society and the government again based on the idea that the government was acting to help them.

JM

[KrazyHorse]

But it wouldn't be fiscal multipliers, since it would be somewhat independent of the actual money spent, more it would be dependent on people beginning to trust society and the government again based on the idea that the government was acting to help them.

JM

a) This objection doesn't make any sense. People react as strongly to the gov't spending a billion dollars as a trillion?

b) Time series analysis doesn't care WHY people react to government spending. Simply that they do.

[KrazyHorse]

If objection (a) is what you're claiming then why don't we simply announce a massive stimulus of a billion dollars? Certainly, throwing a huge amount of money down the hole is a bad idea if a much smaller amount of money will do.

[Dinner]

What would you say is difference between the stimulus now and the one from the Depression? Was their a greater emphasis on job creation in Roosevelt's?

FDR placed a lot more emphasis on construction of infrastructure which provided long term benefits to the country such as dams for flood control and hydroelectric power, new roads, new canals, rural electrification projects, etc... To compare Republicans demanded and got almost 50% of the stimulus in the form of tax cuts. Tax cuts do have some stimulatory effect but largely they've been saved and not spent so they haven't provided much in the way of stimulus... Which was most economists pointed out as the problem with tax cuts to begin with.

We need a stimulus bill which funds actual infrastructure because 1) it creates a lot of jobs 2) it means makers of steel, concrete, lumber, electrical equipment, trains, earth moving equipment, etc... all get big boosts in orders and so hire more people and 3) building this infrastructure means creating long term assets which help fuel economic growth for decades to come. We need to be building lots of light rail, bullet trains, new dams, solar power plants, nuclear power plants, aquaducts, new reservoirs, expand existing highways, repair existing schools & build new schools, etc... These will create tons of jobs and provide taxpayers with long term benefits which will help fuel growth for decades to come.

[zakubandit]

DaShi, if we went to war with China the global economy would crumble immediately. Being that a fair majority of global corporations currently have operations in China. American hits China, China releases all the bonds they hold and floods the US with bad money turning the US bankrupt. China closes the borders to Americans, cutting off corporations and stifles the global market. Before we even attack them with troops we are out of the game, no soldier is going to invade a foreign country far from home when there isn't a pay check coming in.

Actually, in contrast, war is good for business. But we are too far into a war now for it to benefit anyone. At least WWII had a lot of tanks and planes being built, now we just dont get that manufacturing boost.