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Autolykos replied on Wed, Apr 25 2012 11:53 AM

You're kidding me, right?

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mustang19 replied on Wed, Apr 25 2012 11:54 AM

Are you saying that there are people going around breaking windows?

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Autolykos replied on Wed, Apr 25 2012 11:57 AM

Right, so there are three possibilities here: 1) you haven't actually read Bastiat's parable of the broken window; 2) you've read it, but don't understand it; 3) you're trolling.

Just for the record, Bastiat used the specific case of a broken window as an example. The point of his parable is not literally about broken windows. It's about economic effects that are seen versus economic effects that are unseen.

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mustang19 replied on Wed, Apr 25 2012 11:58 AM

Yes. Please give a specific, real life example of these effects.

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Autolykos replied on Wed, Apr 25 2012 11:59 AM

Here's a big, glaring one: any and all taxation.

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mustang19 replied on Wed, Apr 25 2012 12:02 PM

I think taxes are good because basic public services like police and roadways are nice to keep funded. That's all.

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Autolykos replied on Wed, Apr 25 2012 12:04 PM

mustang19:
I think taxes are good because basic public services like police and roadways are nice to keep funded. That's all.

Nice try at sidestepping my point about seen vs. unseen economic effcts - which is also the point of Bastiat's parable of the broken window. How about you actually address it now?

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mustang19 replied on Wed, Apr 25 2012 12:05 PM

How about you actually address it now?

Are you saying that all taxes should be eliminated and police defunded?

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Autolykos replied on Wed, Apr 25 2012 12:06 PM

Also, since the edit function is currently FUBAR, nice try at presenting the false dilemma of "public infrastructure or no infrastructure" yet again. Too bad it didn't work this time, either.

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Autolykos replied on Wed, Apr 25 2012 12:06 PM

mustang19:
Are you saying that all taxes should be eliminated and police defunded?

That doesn't address my point. Try again.

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mustang19 replied on Wed, Apr 25 2012 12:08 PM

I don't know how to address your point. In that sense, you win.

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Autolykos replied on Wed, Apr 25 2012 12:08 PM

I don't believe you at all. Try again.

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I note the pic of Che Guevera..I understand he was a murderous individual who personally killed innocent men and women???

 

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Keynesian scam...

Government Spending and Private Activity. Valerie A. Ramey. University of California, San Diego and NBER.

 

In the 1939-2008 sample, private spending rises slightly on impact, but then falls significantly below zero, troughing at around 0.5 percent of GDP.

In the 1947-2008 sample, private spending rises significantly on impact, to about 0.5 percent of GDP, but then falls below zero within a few quarters. These results are consistent with the effects of anticipations discussed in the theoretical section of Ramey (2009b). As that paper showed, in a simple neoclassical model, news about future increases in government spending lead output to rise immediately, even though government spending does not rise for several quarters.

 

Figure 4 shows the responses based on the Blanchard-Perotti SVAR. In contrast to the EVAR, this specification implies that government spending jumps up immediately in all three samples. Private spending declines significantly in response to a rise in government spending in the first two samples. The declines are sizeable, suggesting multipliers well below one. In the post-Korean War sample, private spending falls slightly below zero, but is not statistically significant. Appendix Figure A1 shows that the results of the augmented SVAR advocated by Perotti (2011) are essentially the same.

 

Figure 14 shows the results from the specification with my defense news variable. In the full sample from 1939:1 – 2008:4, a rise in government spending equal to one percent of GDP leads to a rise in government employment of close to 0.5 percent of total employment. Private employment rises by about 0.2 percent of total employment, but is never significantly different from zero at the 5 percent level. The story for the 1947:1 – 2008:4 sample is the same.

Figure 15 shows the responses based on the Blanchard-Perotti SVAR. Private employment falls in the first two sample periods for this specification. In the third sample period, it rises, but the standard errors bands are very wide.

 

5. Conclusion

For all but one specification, though, it appears that all of the employment increase is from an increase in government employment, not private employment.

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The data covers the entire time period 1939 to 2008, rather than recessionary periods (which is when stimulus is supposed to be used). Just pointing that out.

 

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Really clever. Mustang, you do it on purpose, right ?

By the way...

http://mises.org/Community/forums/p/6825/465677.aspx#465677

Below, three other studies.

Economic performance and government size

We analyse a wide set of 108 countries composed of both developed and emerging and developing countries, using a long time span running from 1970-2008, and employing different proxies for government size

Our results show a significant negative effect of the size of government on growth.

Interestingly, government consumption is consistently detrimental to output growth irrespective of the country sample considered (OECD, emerging and developing countries).

Read the rest of the article. I don't have time to copy-paste.

Do Powerful Politicians Cause Corporate Downsizing?

 

Our main sample focuses on the behavior of 16,734 firms over the past 42 years
(1967-2008). Summary statistics are reported in Table I.
 
Our empirical results support the predictions of the neoclassical model. Focusing on the investment (capital expenditure), employment, R&D, and payout decisions of these firms, we find strong and widespread evidence of corporate retrenchment in response to government spending shocks. In the year that follows a congressman’s ascendency, the average firm in his state cuts back capital expenditures by roughly 15%. These firms also significantly reduce R&D expenditures and increase payouts to their investors.
We find that the cumulative effect of government spending on private consumption (investment) is about 1.9 % (1.8 %), of which about 1.2 % (0.6 %) is captured by the contemporaneous change in the government consumption-GDP ratio and 0.7% (1.2%) by its lags. This result is interpreted as follows: an increase of government consumption by 1% of real GDP immediately reduces consumption (investment) by approximately 1.2% (0.6%), with the decline continuing for about four years when the cumulative decrease in consumption has reached approximately 1.9% (1.8%). The result is broadly robust to both country and time effects, and different econometric specifications.

 

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Keynesian ideal dissolved into thin air...
 
 
"In this POLICY BULLETIN, we examine the effectiveness of government spending on private-sector job growth. Rather than contemplate the average or typical effect of government stimulus on private-sector jobs, we divide the past fifty years of U.S. economic history into low-growth and high-growth periods. We then apply a non-linear, two-regime model to study whether the stimulus effects of government and private investment differ between recessionary and expansionary periods. During periods of economic sluggishness, we find that government spending has zero effect on private-sector job creation. This result is consistent with the apparent impotence of huge federal government spending increases aimed at reducing unemployment. In contrast, when it comes to job growth, expansions in private investment are effective in both regimes, but its efficacy is greatest during economic stagnation. By implication, policies that discourage private investment may have severe jobkilling effects during economic downturns, since it is during the low growth periods that private investment is most effective at creating jobs. In light of these results and the evident failure of government stimulus to restore economic growth, job creation appears best served, under present economic conditions, by policies that encourage efficient private-sector investment such as tax and regulatory relief."
 
 
"We point to the following results as informative. First, the coefficient on government spending is negligible and statistically insignificant at any conventional level in the low growth regime (β LG = -0.001, t = -0.01). When the economy is in the high growth regime, the coefficient on government spending is positive and statistically significant (β HG = 0.072, t = 2.41). [...] More significantly, this result implies that expanding government spending during economic downturns (i.e., recessions) may not help in creating private-sector jobs."
 
"Second, we note that the coefficient on private investment growth is much higher in the low growth regime (β LK = 0.079, t = 8.43) than in the high growth regime (β HK = 0.042, t = 4.71). It should be also noted that the private investment growth is negative more often in the low growth regime (see Appendix A for estimated kernel density functions), which means that a higher coefficient (elasticity) implies greater job losses in the low growth regime."
 
"However, this also implies that policies that help recover investor sentiments (e.g., tax incentive for investment) may help create private-sector jobs substantially. Using these estimates, we can again compute the implied employment multipliers. In the low growth regime, each $1 million in private investment creates 4.8 private-sector jobs. However, spending by the government creates no jobs (the multiplier is essentially zero)."
 
 
"In Table 2, we summarize the employment effects of a hypothetical 5% increase in private investment (about $90 billion in 2005 dollars) and the equivalent dollar increase in government spending."
 
"Based on the computed multipliers, an additional 432,000 jobs would accompany this 5% increase in private investment during the low-growth period. In contrast, an equivalent $90 billion increase in spending by the government would produce no net jobs in the low-growth period. In the high-growth periods, the $90 billion in government spending or private investment both would generate over 200,000 jobs. We note the significant increase in the potency of private investment in the low-growth regime relative to the high-growth regime."
 
And, in conclusion ...
 
"Accordingly, we suggest that the United States consider a change of economic policy course: Regulatory relief, combined with policies that reduce the costs, and raise the returns, to domestic private investment, should be given a serious try, at least before any more additional deficit-funded “stimulus” is authorized."
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Aaaand what if ARRA didn't crowd out private investment?

http://thinkprogress.org/yglesias/2010/02/23/196273/arra-is-not-crowding-out-private-investment/

Brian Riedl attempts to respond to critics of his “stimulus can’t work” argument, by basically doubling-down on the money doesn’t grow on trees theory:

Matt Yglesias argued that, during a recession, government spending can put unused resources to work. The problem is that, even in a recession, the spending must be financed by borrowed dollars that would have otherwise been employed elsewhere in the economy. Congress can borrow $10 million from the residents of Anytown to re-open an idle factory in Flint, Michigan. But this leaves Anytown’s residents with $10 million less to spend, which (by the same logic) will cause the idling of resources there. So rather than create new economic activity and multiplier effects, the stimulus has merely transferred them to a new town (my report covers the case of foreign borrowing as well).

Not really, though. This would be true if both the supply and velocity of money were constant, but they’re not. We can empirically examine the interest rate the government needs to pay to examine whether government borrowing is crowding out private investment. Here’s twenty years’ worth of data:

treasuryyield 1

In the early nineties, high government interest rates—the legacy of Ronald Reagan’s massive deficits—plausibly were crowding out private investment. This is why at the time there was a lot of focus on deficit reduction from sensible policymakers. Given that the government is borrowing a lot of money right now, and also that the baby boomers’ retirement and continued growth in health care costs are going to put a lot of stress on future government spending, it’s very plausible that at some point in the not-too-distant future we’ll be in that situation again. But right now we are not in that situation. Many resources are laying idle throughout the country. In principle, private investors could engage in the spending that would mobilize those resources. But they’re showing very little inclination to do so. So the government both can and should engage in deficit spending to try to ensure that the resources are mobilized.

Brad DeLong observes that in an earlier paragraph Riedl acknowledges the logic of stimulus:

Income, by definition, results from productive activity. When productivity increases (thus increasing employment and eventually wages), income increases and demand increases, all in tandem.

Precisely so. Sitting on your couch checking the classified pages for jobs is not productive activity. Having a “retail space for lease” sign in the window of your building is not productive activity. Idling your factory for two shifts a day is not productive activity. Fiscal stimulus aims at reducing the quantity of idling and increasing the volume of productive activity.

I suspect that conservatives would see the logic of this very clearly if, faced with a giant recession, a conservative president enacted a gigantic, deficit-financed temporary tax cut. In normal times this would be bad policy (though conservative think tanks would defend it anyway, as they did in 2001) since the extra borrowing involved would crowd-out private activity. But in a major downturn, it would be helpful policy (though by no means optimal) since it would encourage idle resources to be put to use.

 

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In fact, what if it actually crowded in private investment- it had a multiplier greater than one?

http://www.washingtonpost.com/blogs/ezra-klein/post/did-the-stimulus-work-a-review-of-the-nine-best-studies-on-the-subject/2011/08/16/gIQAThbibJ_blog.html

If you ask the Obama administration, economists are virtually united in thinking the 2009 stimulus package worked. “I’m absolutely convinced, and the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs or created a whole bunch of jobs,” Obama declared at a press conference last month. Or, to quote NEC chair Gene Sperling from an interview a few weeks ago, “There is no question that the evidence is showing that the type of things the president did to help state and local governments really mattered, were really helpful in pulling us from the brink of depression to a recovery.”

But the stimulus’ critics allege that this evidence isn’t reliable. The studies the administration is relying on depend on models that “substitute assumptions for identification,” Harvard economist Robert Barro writes today in the Wall Street Journal. “To figure out the economic effects of transfers one needs ‘experiments,’” Barro writes, “in which the government changes transfer in an unusual way—while other factors stay the same—but these events are rare.”

The truth is, both studies of the type Barro prefers, and studies using models, which he criticizes, have been conducted to determine the effect of the stimulus on employment and output. Of the nine studies I’ve found, six find that the stimulus had a significant, positive effect on employment and growth, and three find that the effect was either quite small or impossible to detect. Five studies use econometric ”experiments,” which attempt to, as Barro encourages, sort out the effect of the stimulus from other factors using empirical data. Four use modeling instead.

Each approach runs into its own set of problems. The econometric studies have to deal with what social scientists call “endogeneity”: that is, the variable whose effect we’re trying to determine (the stimulus) could itself be affected by what we’re trying to study its effect on (the state of the economy). In this specific case, this means that econometric studies sometimes have to correct for the fact that harder-hit areas tend to get more stimulus spending. This says nothing about the stimulus’ effectiveness, but it can confuse attempts to evaluate that effectiveness statistically.

All of these studies have their own methods of overcoming the endogeneity problem, some of which are more effective than others. Whichever corrections one uses, however, one cannot run a perfect experiment with messy, real-world data, which necessarily limits what these studies can say. Of the five econometric studies detailed here, three conclude the stimulus had a significant positive effect, and two conclude it did not have much of an effect at all.

The modeling studies use an equation or series of equations meant to model the economy to compare the results of a certain policy change (like the stimulus bill) against the results of a baseline in which the change was not enacted. This avoids the messiness of econometric evaluation, as it allows the creation of a ready, stimulus-less counterfactual with which one can compare the results of the stimulus bill. But it also doesn’t take into account the actual changes in employment and output that occurred after the stimulus was passed. Further, there is considerable disagreement within the economics profession about macroeconomic modeling, and for any of these studies, one could find economists who dispute the value of the model used. Of the four modeling studies, three conclude the stimulus had a significant positive effect, while one suggests it had a positive, but mild, effect.

 

One more technical thing to clear up before we delve into the studies. Many of these studies provide estimates of the “multiplier” of a particular kind of stimulus measure. The “multiplier” of a given program is the amount GDP is increased by one dollar of that type of spending. For example, one of the econometric studies estimates that the multiplier for the Medicaid aid to states included in the stimulus is 2. This means that for every dollar the stimulus spent on Medicaid, GDP increased by $2. Any positive multiplier indicates the program is stimulative, but the higher the multiplier, the more cost-effective the measure is.

Here are the nine studies, organized by the conclusion and method used. Click on each one to see my summary of the study, how it reached its conclusions, and potential problems with its approach.

It worked (econometric):

Feyrer and Sacerdote.Chodorow-Reich, Feiveson, Liscow, and Woolston.Wilson.

 

It worked (modeling):

Congressional Budget Office.Council of Economic Advisors.Zandi and Blinder.

It worked a little bit (modeling):

Oh and Reis.

It didn’t work (econometric):

Conley and Dupor.Taylor.

 

===

 

 

Study: ”Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act.”

Who did it: James Feyrer and Bruce Sacerdote, Dartmouth College.

What it says: The stimulus had a positive, statistically significant effect on employment. The effects varied by type of spending. Aid to states for education and law enforcement didn’t have a significant effect, but aid to low-income people and infrastructure spending showed very positive impacts. The multiplier was between 1.96 to 2.31 for low-income spending, 1.85 for infrastructure spending, and between 0.47 and 1.06 for the stimulus overall.

How it got there: Feyrer and Sacerdote used three broad approaches. The first was to compare employment growth in each state to the amount of stimulus funds spent in that state over the 20 months after the stimulus was passed in February 2009. The second was to conduct that same comparison on a county level. The third was to compare month-by-month employment and spending data in states, to see how employment responds to sudden changes in stimulus spending.

Each approach controls for a different source of bad results. The overall state data controls for national employment shocks, and the county data controls for shocks particular to states. If those controls weren’t included, unrelated increases or decreases in employment at the national or state level could obscure any increases or decreases resulting from stimulus spending, making it hard to determine that spending’s effect. Similarly, the time-series data makes it easier to pinpoint the direct effect of spending, by seeing what happens to employment at the moment spending is introduced.

Potential Problems:

a) Spillover: The study misses “spillover” effects. Thus, it likely underestimates the stimulative impact of the bill slightly.

b) Endogeneity: Some states received more stimulus money, per capita, than others because they were harder hit, which would complicate the study’s interstate comparisons of that spending’s effects. To correct for this, Feyrer and Sacerdote use the average seniority level of states’ House delegations as an “instrumental variable”. That seniority level is highly correlated with the level of per-capita stimulus spending in a state. By including this in their calculations, the study has a way of estimating to what extent states are getting disproportionate funds due to actual economic need as opposed to political patronage, and can thus control for that effect.

Back to the list.

 

===

 

 

Study: “Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act.”

Who did it: Gabriel Chodorow-Reich (Berkeley), Laura Feiveson (MIT), Zachary Liscow (Berkeley), and William Gui Woolston (Stanford).

What it says: The state fiscal aid portion of the stimulus, which specifically increased federal Medicaid matching funds, had significant positive effects on employment. The additional matching funds increased employment by 3.5 job-years per $100,000 spent, and the multiplier for the funds is around 2.

How it got there: Out of the $787 billion stimulus bill, about $250 billion went in direct aid to state and local governments to prevent them from hurting the economy by cutting spending. Of that, $88 billion went to shore up Medicaid, and of that, $61.2 billion had been spent by the end of June 2010. The per-capita size of the Medicare aid varied widely by state. Utah got $103 per over-16 resident, whereas D.C. got $507. The authors used this variation to calculate the effect of the program by comparing changes in employment per capita in states with high levels of aid to that in states with low levels.

Potential Problems:

a) Spillover: Because it uses state-by-state data, the study does not take into account spillover spending between states.Thus, the stimulative impact of the spending is likely underestimated slightly.

b) Endogeneity: Harder-hit states are likely to get disproportionate funding. To control for this, the authors look at the formula the stimulus bill used in doling out Medicaid funds. The bill increased federal Medicaid aid by 6.2 percent to all states, and by more to states that were particularly hard hit. Thus, the authors surmise, the aid a state received depended on four things: its pre-recession Medicaid spending, the change in its number of beneficiaries during the recession, the change in spending per beneficiary during the recession, and its unemployment rate (which determined whether it would receive aid above the 6.2 percent figure). The authors thus only looked at aid attributed to the first factor, pre-recession Medicaid spending, as this metric is not affected at all by the size of the downturn in a given state.

Back to the list.

 

===

 

 

Study: ”Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act.”

Who did it: Daniel J. Wilson of the Federal Reserve Bank of San Francisco.

What it says: The stimulus created 2 million jobs in its first year, and 3.2 million by March 2011. The jobs multiplier varies widely based on whether one studies stimulus spending that has been announced to go to certain recipients, is obligated to those recipients, or has actually been paid out to those recipients. Estimates vary from 4.8, for one measure based on announced spending, to 25.2, for another measure based on actual payments. Private sector, state and local government and construction sectors all showed consistently significant positive effects, whereas whether the effect on manufacturing, education and health was positive depends on whether one looks at announcements, obligations or payments.

How it got there: Wilson compares stimulus spending and change in employment across states. The spending data comes from the federal government’s reports on stimulus money that has been announced, obligated, and actually paid out to its recipients. The employment data comes from the Bureau of Labor Statistics.

Potential Problems:

a) Spillover: Because it compares between states, Wilson’s study cannot take into account spillover effects. Wilson acknowledges this, but defends by noting that he is calculating the “local multiplier”, as opposed to the national one, and that the local figure is also of interest.

b) Endogeneity: As with any cross-state comparison, the problem arises that harder-hit states are likely to get disproportionate stimulus funds, which can distort results. To take this into account, Wilson looks at three factors that affect the amount of stimulus aid states received, but which were not related to how hard-hit each state was. Specifically, he considers states’ pre-stimulus Medicaid spending, their school-age population (which should help determine how much education aid they receive), and the factors used to determine the amount of highway aid each state received in the stimulus (factors which are unrelated to underlying economic conditions).

However, the latter two factors are only weakly correlated with how much spending each state received, which limits their usefulness to the study. While pre-stimulus Medicaid spending is better correlated, the fact that Wilson uses it to study overall stimulus spending, rather than stimulus spending on Medicaid, limits its usefulness as well.

 

Back to the list.

 

===

 

 

Study: ”Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011 Through March 2011.” (and studies of previous periods)

Who did it: Benjamin Page and Felix Reichling of the Congressional Budget Office.

What it says: Through the first quarter of 2011, the stimulus created between 1.6 million and 4.6 million jobs, increased real GDP by between 1.1 and 3.1 percent, and reduced unemployment by between 0.6 and 1.8 percentage points.

How it got there: The CBO calculated multipliers to estimate the effect on output of various kinds of stimulative programs, and then applied them to the amount of money spent in the stimulus on each type of program. For example, payments to state and local governments for infrastructure were estimated to have a multiplier of between 1 and 2.5, whereas the multiplier for transfer payments (unemployment benefits, food stamps, etc.) to individuals was between 0.8 and 2.1.

The multipliers are based on two effects: direct and indirect. Direct effects are the immediate results of stimulus spending, and determined by reviewing the empirical economic literature on the way households, state governments, and so on respond to tax cuts or transfer payments. For example, there is evidence that low-income households increase spending more due to tax cuts than high-income households, so the direct effects of low-income tax cuts are greater than those of high-income tax cuts. The indirect effects include things like increased consumption from new government jobs, which are not an initial result of the government’s spending in creating a job but nonetheless have an impact on the economy. These are determined by using macroeconomic forecasting models.

Potential Problems:

a) Modeling disagreement: As the CBO acknowledges, there is considerable disagreement within economics about the macroeconomic forecasting models upon which its stimulus studies depend. Different models would provide different estimates of indirect effects, and thus produce different conclusions. In addition, the empirical studies used to estimate direct effects are subject to endogeneity problems, as it is possible that the effects shown in those papers are not due to spending or tax cuts but other spending. To account for this, the CBO includes a range of estimates that it thinks encompasses the views of most economists.

b) Prediction versus evaluation: Some critics have discounted the CBO’s studies on the stimulus as, in Reason writer Peter Suderman’s words, “pre-cooked”, because the multiplier estimates are based on evidence known before the stimulus was passed, and thus are sure to produce similar results before and after the stimulus was enacted. However, this is arguably a strength of the CBO approach. Attempts to determine the effect of the stimulus by comparing spending and employment data have to control for other factors are affecting employment, which can be tricky. A modeling approach avoids these pitfalls.

Back to the list.

===

Study:   ”The Economic Impact of the American Recovery and Reinvestment Act of 2009.”

Who did it: The President’s Council of Economic Advisers.

What it says: The stimulus created or saved 2.7 million to 3.7 million jobs by the third quarter of 2010.

How it got there: The study, along with similar past CEA studies, takes two approaches. The first estimates multipliers for different types of stimulative programs, and then applies these to the amount of money the stimulus devotes to each type of program. The multipliers are an average of those used in the Federal Reserve’s FRB/US macroeconomic forecasting model, and those used in the model of “a leading private forecasting firm.” (see Appendix here). The second method compares the actual course of GDP and employment after the stimulus was passed to a statistical baseline forecast of what would have occurred had the stimulus not been passed. This baseline is determined by studying GDP and employment patterns from 1990 to 2007, and then forecasting based on these from the second quarter of 2009 and onward based on GDP and employment in the first quarter of 2009.

Potential Problems:

a) Confounding factors: By the CEA’s own admission, the statistical baseline estimates reflect both the effect of the stimulus and that of other policies being pursued when it was passed, such as the Fed’s quantitative easing, TARP, etc. These mean this approach does not estimate the impact of stimulus of itself, but rather of the whole battery of government interventions undertaken to combat the recession.

b) Unusual circumstances: The statistical baseline approach depends on data from 1990 to 2007, which includes two recessions (1990-91, 2001), neither of which were nearly of the same magnitude as the 2007 to 2009 recession, nor of the same variety. As the CEA concedes, “At any given time, the economy is subject to many influences that are not reflected in the past behavior of GDP and employment. These influences may be particularly large in a period as turbulent as the past two years.” If, as Carmen Reinhardt and Kenneth Rogoff have argued, recessions following financial crises are of a fundamentally different kind, then extrapolating from the 1990-2007 data is problematic.

c) Modeling disagreement: There is considerable disagreement among economists about the assumptions of macroeconomic forecasting models, including the Fed and private forecaster models that form the basis of the CEA modeling approach. If these models’ assumptions are flawed, then the multipliers it produces will be wrong, and the CEA estimate will be off.

d) Prediction versus evaluation: The CEA uses the same basic modeling approach it did to predict the stimulus’ impact before it was passed. This can be seen as an advantage of the modeling approach. Econometric approaches require one to control for various factors which could affect employment and growth besides the stimulus, which can be tricky, whereas models, by providing a baseline, avoid this problem.

Back to the list.

 

===

 

Study:   ”How the Great Recession Was Brought to an End.”

Who did it: Mark Zandi (Moody’s) and Alan Blinder (Princeton).

What it says: The stimulus raised real GDP in 2010 by 3.4 percent, reduced unemployment by 1.5 percentage points, and created almost 2.7 million jobs.

How it got there go there: Zandi and Blinder used the Moody’s Analytic model of the US economy to simulate four scenarios: a baseline including the actual policies pursued after the onset of the recession, a counterfactual where only financial policies (TARP, the Fed’s quantitative easing, etc.) were implemented but the stimulus was not, another counterfactual without financial policies but with the stimulus, and a final counterfactual where neither financial policies nor the stimulus was passed. By comparing the outcomes of the baseline and the counterfactual where the stimulus was not pursued by financial policies, one can determine the impact of the stimulus on growth and employment.

The Moody’s model works, broadly, by modeling short-term economic fluctuations as determined by changes in aggregate demand, and long-term fluctuations as determined by changes in aggregate supply. Federal spending is treated as exogenous because “legislative and administrative decisions do not respond predictably to economic conditions,” whereas state and local spending is treated as a product of tax revenue (which is itself determined by the economy-dependent size of state tax bases) and federal aid, which is treated as exogenous. Thus, both federal and state and local spending due to the stimulus bill is treated as exogenous.

Potential Problems:

a) Endogeneity: It is possible that federal stimulus spending was affected by economic factors. In particular, federal aid to states could vary based on how hard hit a given state is. If this is true, treating that aid to states as exogenous, as the Moody’s model does, could distort results.

b) Modeling disagreement: There is considerable disagreement among economists about the assumptions of macroeconomic forecasting models, and Moody’s model is no exception. If the model’s assumptions are flawed, then its results are suspect as well.

c) Prediction versus evaluation: The Moody’s model did not change substantially before and after the stimulus was enacted, and thus Zandi and Blinder’s results here are very similar to those Zandi predicted using the model before the stimulus passed. This can be seen as an advantage of the modeling approach. Econometric approaches require one to control for various factors which could affect employment and growth besides the stimulus, which can be tricky, whereas models, by providing a baseline, avoid this problem.

Back to the list.

 

===

 

Study: ”Targeted Transfers and the Fiscal Response to the Great Recession.”

Who did it: Hyunseung Oh and Ricardo Reis of Columbia.

What It Says: Both tax transfers and government purchases have very mild positive effects on growth. The multiplier for tax transfers is estimated to be between 0.02 and 0.06, and the multiplier for government purchases is around 0.06, though Oh and Reis emphasize that a more detailed look suggest transfers are slightly more stimulative than purchases.

How it got there: Oh and Reis develop a macroeconomic model that can simulate the effects of both tax transfer and government purchase programs. Under models that assume Ricardian equivalence, such policies are assumed to have no effect, because consumers will know that any unfunded tax decreases or spending increases will lead to debt that will have to be paid for through increased taxation in the future. Consumers will thus simply save the money to pay for those future taxes, meaning aggregate demand is not affected at all.

Oh and Reis’ model assumes Ricardian equivalence but includes two effects that suggest a positive impact from stimulative measures. The first or “neoclassical” effect is that because the taxes that will eventually be used to pay off the stimulus will be paid in large extent by people on the margin between working and not working, and will cause a decrease in those peoples’ wealth, they will be more motivated to stay employed. The second or “Keynesian effect” is that tax transfers and government purchases tend to move money from people who are less likely to spend it to people who are more likely to do so, increasing demand, growth, and employment.

Potential Problems:

a) Empirical contradiction: By Oh and Reis’ own admission, some of the variable estimates produced by their model run afoul of empirical evidence. For example, the model suggests that the increased debt from stimulus spending will crowd out private investment, leading it to fall sharply, but the data does not indicate that this actually happens. Additionally, the theory estimates that a smaller percentage of tax transfers will be spent, as opposed to saved (a metric known as “marginal propensity to consume” or MPC) than econometric studies suggest actually happens. Changing their model to not include a “crowding out” effect, and to include a higher MPC, results in estimates of the stimulative effect of tax transfers and government purchases on output and employment that are two to three times as large as those without these changes to the model.

b) Modeling disagreement: There is considerable disagreement among economists on macroeconomic modeling, and the assumptions that Oh and Reis make are by no means uncontroversial. Both the “new classical” and “Keynesian” effects are disputable, as is the central premise of Ricardian equivalence, which requires one to assume, in Paul Krugman’s words, that “consumers have perfect foresight, live forever, have perfect access to capital markets” and so forth.

c) Prediction vs. evaluation: Since it’s based on a model, the results of Oh and Reis’ study do not depend at all on the actual changes in employment and growth that occurred after the stimulus was passed. As always, this can be seen as an advantage, as it avoids econometric studies’ problems of having to control for a variety of other factors that could affect output and growth.

Back to the list.

===

Study: ”The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled.”

Who did it: Timothy Conley (Western Ontario) and Bill Dupor (Ohio State).

What it says: The stimulus did not have a statistically significant effect on employment. It created and/or saved an estimated 450,000 government jobs and destroyed or prevented an estimated 1 million private sector jobs.

How it got there: Conley and Dupor compare state-by-state growth in employment over eighteen months (from the stimulus’ passage to September 2010) to the amount of stimulus spending received relative to the size of state governments, as well as “budget loss” from 2009 to March 2010. They scale the stimulus spending based on the size of state governments, rather than the size of their populations, both because of the wide variation in state government size and because stimulus funds were distributed largely by state and local governments.

The “budget loss” statistic compares the change in the difference between a state’s tax revenue and its Medicaid spending. It allows Conley and Dupor to calculate how much the stimulus offset that budget loss, and see what effect this offset had on employment. Rather than overall employment, Conley and Dupor look at the effect of the stimulus on employment in four sectors -- state and local government, goods-producing, health/education/hospitality/professional services, and other services -- because of the wide variation in employment data by sector.

Potential Problems:

a) Statistical significance: The biggest problem with the Conley and Dupor study is that their estimates are not statistically significant. Their study indicates that there’s a 90 percent chance that between -35,000 and 920,000 government jobs were created, and between -1.5 million and 2.7 million non-government jobs were lost. Put another way: according to the study, anything between 35,000 governments job being lost and 920,000 being created, and 1.5 million non-government jobs being lost and 1.5 million being created, is consistent with the study. The estimates at the start of this post are just the midpoints in those intervals. As Noah Smith noted, “Bluntly, what they have found is nothing. Formally, if we use their model to test the hypothesis that the stimulus caused a net increase in private-sector jobs, we will not be able to reject the hypothesis.”

b) Spillover: Conley and Dupor acknowledge that, like any cross-state comparison, their study cannot take into account spillover effects.

c) Endogeneity: As a cross-state comparison, the study must deal with the fact that harder-hit states are likely to get a disproportionate amount of stimulus spending, which can distort results. Conley and Dupor account for this by including five instrumental variables: the factors that determine a state’s level of federal highway spending, the degree to which each state relies on sales taxes (sales tax intense states, all else being equal, see bigger revenue drops), the ratio of federal spending in each state to the amount in taxes residents of that state pay, whether the state has strict balanced budget rules, and whether the governor is a Democrat. All these are factors that Conley and Dupor argue influence the amount of stimulus a state received, or the size of its budget hole, and thus they all also influence the degree to which the stimulus offset a state’s budget shortfall.

An economist I talked to alleged that highway spending factors are too weakly correlated with stimulus spending to be of much use as instrumental variables, and as the sales tax intensity statistics show an even lower correlation, there is reason to be doubtful of that variable’s usefulness as well.

Back to the list.

===

Study: ”An Empirical Analysis of the Revival of Fiscal Activism in the 2000s.”

Who did it:  John B. Taylor, Stanford.

What it says: The tax transfer provisions of the stimulus package, and previous stimulus packages in the 2000s, did not lead to a significant increase in consumption, and the spending provisions, notably including aid to state and local governments, did not lead to a noticeable increase in government purchases. Taylor concludes the stimulus failed.

How it got there: First, Taylor calculates the change in personal disposable income caused by the tax provisions of the stimulus, and compares the timing of these changes with changes in consumption. He concludes that there is no meaningful relationship between the changes in disposable income and consumption. Second, he calculates the amount of the stimulus devoted to state and local or federal spending, and concludes the federal spending provisions are too strong to have had a meaningful effect. Third, he compares the timing of increases in state and local aid from the stimulus with the size of state and local government purchases, and concludes there was no meaningful relationship, but that the introduction of the stimulus was associated with declining borrowing by those governments.

Potential Problems:

a) Endogeneity: It is possible that other factors than the stimulus led consumption to increase or decrease over the given time period, which could distort Taylor’s regression of consumption against increases in personal disposable income due to the stimulus. To account for this, he includes oil prices and personal net worth, both of which should have effects on consumption independent of the effect of the stimulus, as control variables. The same problem applies to the state and local purchases regression, as those purchases could rise or fall due to factors independent of the stimulus. Taylor thus includes non-stimulus revenues and states’ budget constraints as control variables, figuring they are unrelated to the size of the stimulus but would have an effect on purchases.

b) Conclusion: Some critics of Taylor, such as Noah Smith, have argued that his results suggest the stimulus was too small, not too large. Taylor’s data shows that not much of the stimulus went to actual government purchases but in doing so suggests that a larger bill or one that more effectively increased such purchases would have been more stimulative.

 

Back to the list.

===

 

As the descriptions above make clear, none of the studies are flawless. But while the optimistic studies do, in fact, support the conclusion that the stimulus worked, there is some reason to doubt that the pessimistic studies support the conclusion that it failed. Conley and Dupor found a negative effect on employment and output but, as they concede and critics of the study have emphasized, their results are not statistically significant. Taylor found that the stimulus did not increase government purchases significantly but, as Noah Smith argued, this result could be consistent with the stimulus increasing employment and output. Oh and Reis found a small multiplier for tax transfers of the kind found in the stimulus package, but as they concede, their model produces estimates for key figures that are empirically implausible. Using more plausible figures produces a significantly larger multiplier, meaning the package was more effective than the model initially suggested. Due to these issues, I’m inclined to believe that the preponderance of evidence indicates the stimulus worked.

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In my last post, I talk about "private jobs". Government spending does not create private jobs. And please, re-read my post on ARRA. The ARRA program is a failure.

 

<a href="http://mercatus.org/sites/default/files/publication/Did_Stimulus_Dollars_Hire_The_Unemployed_Jones_Rothschild_WP34.pdf" rel="nofollow">Did stimulus dollars hire the unemployed? Answers to questions about the American Recovery and Reinvestment Act</a>
 
We asked organizations whether, before they received their ARRA-funded contracts, “things had been slow,” “things had been busy,” which caused them to turn work down, or “things had been busy,” and ARRA funding just made them work harder. Only 14 organizations indicated that they turned down other work in order to take on ARRA projects; but by a 2:1 ratio, respondents indicated that they had “been busy” before ARRA and so “worked harder” with ARRA funding rather than indicating that “things had been slow” before receiving ARRA funding (305 organizations chose the former response, 152 the latter).
Probit results indicate that firms who said things had been slow (with a 1-0 indicator; there was no natural ordering for an ordered probit) were not more likely to be in the best-funded tiers.
Further, only in the univariate regression was the ARRA fraction of a firm’s revenue a reliable predictor of past slowness (Tables 6-8); this result fell to insignificance after including the most cursory controls. Again, one must interpret voluntary survey responses with due caution, but it appears that for the majority of organizations, ARRA was not a lifeline during a time of deep economic trouble: it was a new burden to carry. Once again, ARRA did poorly under Summers’ “targeted” test.
 
Did stimulus-funded projects hire the unemployed or the already employed? Our surveys indicate a near-tie on this question. Of the 277 respondents hired after January 31, 2009, 42.1 percent had been unemployed immediately beforehand and 47.3 percent had come directly from another job. Of the rest, 4.1 percent had been out of the labor force, and 6.5 percent had been in school. Thus, the weight of the evidence suggests that ARRA did an enormous amount of “job shifting” rather than “job creating.” There is evidence of the latter, but, under Keynesian reasoning, every worker hired away from another job reflects some weakening of the stimulus.
 
<a href="http://menghusblog.files.wordpress.com/2012/04/no-such-thing-as-shovel-ready-the-supply-side-of-the-recovery-act.pdf" rel="nofollow">No Such Thing as Shovel Ready: The Supply Side of the Recovery Act</a>
"The organizations we interviewed often didn’t reveal or didn’t know if their new hires were unemployed beforehand; but in some cases, they pointed out that they either hired workers from the private sector or brought retirees back into the labor force. More often, firms just told us they hadn’t created that many jobs — they just used their own workers more (15) and just hired some temps for a few days or weeks.
 
(15) If stimulus-funded firms produce their extra output largely by using their own full-time workers harder — a common theme in interviews — then as a matter of accounting stimulus funds would largely accrue to owners as higher profits. When firms hold onto little-used workers during a recession, Keynesians refer to this as “labor hoarding.”
 
As mentioned above, we also found evidence that ARRA often created work without creating jobs: we heard many versions of, “Things were slow until the stimulus money came along; ARRA gave our employees something to do.” In Keynesian terms, these organizations were labor hoarding, holding onto workers through the slowdown even though they didn’t have much work to do. In these cases, ARRA funds boosted profits by plugging a hole in the company’s revenue stream; whether or not ARRA actually saved jobs at labor-hoarding firms is still a matter of speculation. To summarize our job creation findings: job switching: yes; giving a company’s current workers more to do: certainly. But hiring people from unemployment was more the exception than the rule in our interviews."
The Tradeoff between Speed and Quality
At least 12 of the respondents brought up concerns about the quality of stimulus-funded projects relative to other public projects. Some said that the federal government’s push to spend money was hurting the project’s quality; several said stimulus dollars were funding projects that were far down the list of needs, and a few voiced a general worry that while they were doing good work, they thought the government workers overseeing ARRA were so overworked that it was bound to hurt quality. To some extent the tradeoff was a result of the ill-defined goal of being “shovel-ready.”
Several respondents suggested that this was not a meaningful phrase for the large infrastructure projects that the popular imagination considered ARRA to be funding. For instance, one state transportation manager suggested that “shovel ready” was an arbitrary distinction that did not comport with the realities of infrastructure building, saying, “It takes years of permitting work, environmental analysis, et cetera, to get to the shovel ready stage, and millions of dollars. Who’s going to get that far and then stop on a project that’s really important? It doesn’t make sense.”
As Barack Obama himself acknowledged “there’s no such thing as shovel-ready projects” :
When the president campaigned for the stimulus package at the start of his presidency, he and others in his administration repeatedly insisted the investments would go to “shovel-ready” projects — projects that would put people to work right away. As recently as August, however, local governments were still facing delays spending the money they were allocated from the stimulus, CBS News Correspondent Nancy Cordes reported.
Furthermore, the spending wasn’t timely: Three years after the law was adopted, some programs still have managed to spend only 60 percent of the appropriated funds. Not only was the spending poorly timed, it also wasn’t targeted. The data show that stimulus money wasn’t targeted to those areas with the highest rate of unemployment.
Your last post is a copy-paste. I'm already aware of the original article. It does not refute my statement.
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Even assuming public sector jobs in education, healthcare, infrastructure and policing are unproductive, if we are to look at private employment, there appears to be similar results.

Abstract: The American Recovery and Reinvestment Act (ARRA) of 2009 included $88 billion of aid to state governments administered through the Medicaid reimbursement process. We examine the effect of these transfers on states‘ employment. Because state fiscal relief outlays are endogenous to a state‘s economic environment, OLS results are biased downward. We address this problem by using a state‘s pre-recession Medicaid spending level to instrument for ARRA state fiscal relief. In our preferred specification, a state‘s receipt of a marginal $100,000 in Medicaid outlays results in an additional 3.5 job-years, 1.6 of which are in the government, health, and education sectors.

The slowing of both public and private employment growth in early 2012 as the stimulus is withdrawn is another indication of employment effects of the stimulus.

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In my last post, I talk about "private jobs". Government spending does not create private jobs. And please, re-read my post on ARRA. The ARRA program is a failure.

My response is immediately after the post you linked to.

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The slowing of both public and private employment growth in early 2012 as the stimulus is withdrawn is another indication of employment effects of the stimulus.

So the stimulus only works as long as money keeps getting pumped in. What kind of stimulus is that?

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So the stimulus only works as long as money keeps getting pumped in. What kind of stimulus is that?

One that creates zillions of jobs and prevents people from sitting on the couch unemployed deteriorating their job skills. What kind of argument is that? cheeky

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But those zillions of jobs [which is an absurd exaggeration] only last as long as the stimulus lasts, by your own admission. So that basically we are talking about charity, to people whose so called "jobs" are not productive enough to pay for themselves.

I mean, if someone offered me a "job", paid for by taxpayer money, to read comic books, that is not a job at all, as you will be the first to agree. It is a free ride. And you are saying that all the stimulus jobs are of that nature.

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But those zillions of jobs [which is an absurd exaggeration] only last as long as the stimulus lasts, by your own admission. So that basically we are talking about charity, to people whose so called "jobs" are not productive enough to pay for themselves.

Actually, Brad DeLong, looking at the long term effects of unemployment on skill deterioration, argued that the stimulus will easily pay for itself in tax revenue alone. The worse the recession and unemployment gets, the worse job skills and competitiveness atrophy- that's not an argument for withdrawing policies which reduce unemployment.

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It is impossible for a stimulus to "pay for itself" in tax revenue. Let's say $100,000.00 was spent getting one "job" to one person. The person will give back part, but not all, of that money in taxes. Say he gives back a third. So 100 grand was taken away from the taxpayers, and 35 grand is given back. Net loss to the taxpayer, 65 grand.

But wait! It gets worse. As you have freely confessed, that so called "job" is a one off thing. The moment the so called stimulus money stops rolling in, that job disappears.

Not only that, but this 100 grand could have been used by the people it was taken from by force to "stimulate the economy" on their own, hiring people for productive jobs. We know these alternate jobs would be productive, because people are actually willing to voluntarily pay for them.

Worse still, the problems you introduced, atrophying skill set and competetiveness, are being aggravated by that mis-spent 100 grand, by your own admission. For you have told us that those phony stimulus "jobs" are not viable. Meaning the guy getting that stimulus money was wasting his time doing something nobody is willing to pay for [unless forced to by having money taken away by the govt]. Instead of actually getting a useful productive job, and learning the skills to hold it down, he has learned how to something nobody will pay for.

Brad Delong is a misguided soul who endorsed Barak Hussein Obama for president.

He is also intellectually dishonest, as shown here: http://wiki.mises.org/wiki/Brad_DeLong

Do you work for thr govt, mustang? Have you been "educated" in govt schools?

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mustang19 replied on Tue, May 8 2012 10:36 PM

You don't have to read the paper, Dave. But the fact that jobs disspear when the stimulus is withdrawn doesn't indicate that those jobs are unproductive, only that those resources could only be put back into use through stimulus and lay idle otherwise.

 

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mustang19 replied on Tue, May 8 2012 10:41 PM

Worse still, the problems you introduced, atrophying skill set and competetiveness, are being aggravated by that mis-spent 100 grand, by your own admission. For you have told us that those phony stimulus "jobs" are not viable. Meaning the guy getting that stimulus money was wasting his time doing something nobody is willing to pay for [unless forced to by having money taken away by the govt]. Instead of actually getting a useful productive job, and learning the skills to hold it down, he has learned how to something nobody will pay for.

Actually, a large part of the stimulus consisted of tax rebates and direct transfers to low income individuals to allow them to spend money. For instance, the medicaid transfers simply allowed more people to purchase healthcare.

The reason why people aren't paying for these things is that cash is hoarded during a liquidity trap, as businesses stop investing due to self-fulfilling economic expectations. Stimulus gets the economy going again, allows people to spend, and provides many unemployed with at least some employment opportunities.

 

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gotlucky replied on Tue, May 8 2012 10:46 PM

Gosh, with the way this mustang19 troll goes on about the stagnation of the free market, it's a miracle we even made it to electricity.

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I dunno mustang, your assumptions are so far removed from mine that I doubt we can see eye to eye.

For instance, you really think people are hoarding cash? Who has cash to hoard? Everyone is broke, including the banks who are sitting on a trillion dollars of cash because they owe 3 trillion in debt.

Anyway, don't bother answering, because it will be way over my head, or rather way to the side in a parralel universe.

I do appreciate the civility of the discussion, and ty for that.

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mustang19 replied on Tue, May 8 2012 11:03 PM

You're welcome, and I enjoyed the discussion too.

Some evidence on cash hoarding. It's possible for banks to literally "hoard cash", or stash a bunch of dollar bills in a safe, but it's basically an issue of liquidity preference, or the degree to which banks prefer to hold positions they can easily withdraw from. During the crisis, banks moved assets out of high-returning investments and into low-returning but liquid ones because they expected the economy to tank.

Figure 7 shows the number of liquidity-hoarding banks in each quarter of the sample. The number of liquidity hoarders grows steadily from about 200 in 2007:Q3 to about 1200 at the end of the crisis period in 2009:Q2. Notice that the number of liquidity hoarders increases significantly in 2008:Q1 (when almost 330 banks decided to start hoarding liquidity) and in 2009:Q1 (when about 170 additional banks switched to hoard liquid assets). The rise in the number of banks switching to hoarding liquidity during those two dates suggests some clustering that could be the result of common factors affecting the decision to hoard liquidity such as interconnectedness (e.g., contagion within interbank markets, consistent with the notion of network structures).

As monetary and fiscal stimulus improved the economic outlook during late 2009- early 2010, banks began to put money back into investments, and economic growth returned.

Now, however, it's slowing up again as the deficit gets cut. Deficit reduction may reduce debt in the short term, but in the long term it slows the recovery and imposes substantial cost on the economy by prolonging the recession. At least there is enough monetary stimulus to improve expectations somewhat, otherwise investment could still be falling.

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The reason why government jobs doesn't work is that the government must force taxes upon the people to create those jobs. Money taken away from people and put into another program is pointless, isn't it easier to just leave the people alone and let them spend their money however they want? More taxes means less money in people's hands, and that money is often misallocated by the government for it is not competitive as a private entity.  Less taxes means more money into people's hands, which can be used more efficiently than the bureaucracies in government. How do you know that some men in washington know where to put these government jobs in better than the free market?

They don't and that is why economic planning by the government and its allocation of government jobs fails.

The economy is too complex for a group of men to plan, we are the economy, the economy is not like an engine in which you can fine tune, one cant simply use an equation, put in numbers, then get out the plan for the next year, it is more organic.

Our actions and what we think a good is worth, and how we trade with each other is what drives the economy. How can anyone think that a group of men in the government can plan an economy, yes human action can be predictable sometimes, but a group of men in government can't predict EVERYONE's desires to be able to plan an economy.

This is why when the government creates a boom by manipulating money, it is unsustainable (ex- alot of people invest and build houses, just to find out that no one really can pay for them anyway) and thus creates a bust (the market is trying to correct the artificial errors created by the government, which lured the people into malinvesting).

“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence."
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Examples of "broken windows" is war, the government destroys people and in turn needs to tax its own people to make more weapons to destroy more people. Its pointless since if the government didnt destroy people (war) in the first place, it would have much more resources without going to war.

Ex- I spend 10 bucks repairing a computer i purposefully broke. Now im down 10 dollars. If i didnt break the computer, wouldnt i have 10 dollars to spend? Buy some food or upgrade my computer?

Same can be applied to wars, and government programs/taxes

“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence."
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z1235 replied on Wed, May 9 2012 6:50 AM

Perhaps those skills/jobs were meant to deteriorate during the purging of malinvestments that is the recession.  

Studies showing that handouts pay for themselves in tax revenue later are merely reflection of the Ponzi scheme of paying old liabilities with new debt (money) -- kicking the proverbial can down the road. I'm sure handing me out my Ferrari, Porsche, and 100ft sailing boat would also prove to 'pay for themselves' later, too. Let's do it for purely patriotic and charitable reasons -- to end the recession and put people who will build them back to work so they can buy even more stuff and pay taxes on their wages!

Keynes rocks!

 

 

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I always like reading your posts, Z. Medicaid and foodstamps is not much of a Ferrari. And I don't think skill deterioration is ever a good thing. But, like you said, maybe everything will just blow the fuck up one day *if* Ron Paul is not elected president.

 

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What is the negative multiplier to represent government confiscation (taxation)???

 

IF there is a positive multiplier to government spending (dollars being introduced) in the economy, reason dictates that there be a negative multiplier applied to taxation (dollars being removed).

 

I know that my question assumes a Keynesian fallacy. BUT, how can I believe in a positive multiplier for spending, if I don't also believe in a negative multiplier for taxation.

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z1235 replied on Wed, May 9 2012 5:53 PM

Mustang, read this testimony (pdf) given by Prof. Herbener in Congress yesterday on the subject of money. Very powerful. 

 

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I know that my question assumes a Keynesian fallacy. BUT, how can I believe in a positive multiplier for spending, if I don't also believe in a negative multiplier for taxation.

That's exactly the case, and that's why Obama wants the payroll tax cut. The positive multiplier on spending items, though, is generally a lot more than the negative multiplier on taxes used to pay it back.

Thanks for the link, z1235. This stuff has been talked about in the other thread (like the time preference thing). But wow, he actually spoke to congress. I think that's pretty rare for an Austrian. That's like a Marxist making a speech at the Fed.

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Clayton replied on Wed, May 9 2012 8:55 PM

Frank Shostak on the "multiplier". As he concludes, stimulus is just a euphemism for depletion of the capital stock, nothing more. The Keynesians keep trying to pull the rabbit out of the hat but, at the end of the day, it's always just a guise for either credit expansion or depletion of the capital stock - ABCT shows why both always occur together.

Clayton -

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