5 ms·

It would be better if you explained in a neutral way what you thought was the source of the misunderstanding.

by pg 17y ago

jbooth 17y ago
Ok, although IANASS (not a social scientist) (edited to add: and sorry anamax for the uncivil tone, long day): Economic activity has benefits for society at large -- we get stuff out of it, and there's a feedback loop where more people with money in their pocket means more demand, which means more people employed, which means money in their pocket, etc. Recessions are when the economy gets out of balance (historically inventory oversupply, more recently it tends to be financial meltdowns) and that feedback loop goes negative -- less money in pocket, so less spending, so less production. Counter-cyclical spending is, according to economic theory, the one point in the cycle where the government should be encouraged to spend money like they're in vegas, up 50k and hanging at the strip club. Breaking this negative feedback loop is priority #1 -- debt can be paid back later, and if you've been breaking out your counter-cyclical toolkit, you've already lowered interest rates to near-zero so this is really cheap debt, 1% interest or lower -- if you produce any return at all, you've got a win in addition to the counter-cyclical effects. Once you've decided to spend, you've got to decide how. Giving money to people in lump sums (which was in fact about 40% of the bill, the bill was 40% tax cuts) is fast and simple, so it certainly has a place, but keeping people in a job is far more effective because you create externalities. That job is producing something of value to the economy, that person is gaining skills/experience leading to future employability, and assuming that business is ok, their labor might lead to additional job openings at the same company later. These are all sustainable improvements that build on themselves and contribute back towards that positive feedback loop. Just spewing money out to people without any targeting whatsoever can only be a brake on recession -- it doesn't really help lay the foundations for the bounceback.
- deleted 17y ago
  [deleted]
- mos1 17y ago
  Frankly, I don't think there's a need to complicate this discussion with mentions of Keynes or interest rates. Their error starts far earlier, at the basic measurement of value. Joe works at WidgetCo and makes $60,000/yr. His loaded costs are a little over $100,00/yr. WidgetCo pays this because his skills are worth about $125,000/yr to them, so it's a great deal. At this point, if you are a well-meaning, but rational cherub, what is the highest rational price to pay to get Joe working again? I'm guessing anything up to $125,000. ---- But that's not the end of our grossly simplified model. We also have the fact that Joe spends his paycheck on niggles. He fucking loves the shit out of niggles. As he consumes $60,000/yr of niggles, he personally pays for 1/2 of an employee at the niggle factory (and that guy spends his money on something too...) So now we have to recognize that if Joe loses his job, there's going to be a negative ripple effect, and if Joe gets a job, there's a positive ripple effect. So now, as a well-meaning, but rational cherub, what's my highest rational price? Well.. at this point I'd probably call in an economist to help me figure it out, but it's clearly more than $125,000/yr... it's likely close to $200,000/yr. ---- And now somebody hands me a "stimulus" proposal, and it turns out that I could create a job for Joe for about $150,000/yr. So let's see... $200,000/yr of value for $150,000/yr... sounds like a great investment to me! Very good value for money, even if it does lead to an annoying headline indicating "$60,000/yr jobs cost silly cherub $150,000!" ---- Obviously this is grossly glossed over (I didn't even mention the obvious fact that if people are buying widgets, they must provide value), and actual models of costs and benefits of various scenarios are quite complex, but I simply meant to demonstrate that simply dividing the total cost of a package by the number of jobs is silly, and misses the point widely.
  - hga 17y ago
    Isn't that an example of the "multiplier effect" ... which has never really been seen in the wild (or so I understand)? E.g. because on the other side of the ledger the government crowds out private borrowing (see my comment in this thread to byrneseyeview) and/or taxes others to get this money, plus this almost always is accompanied by attacks on businesses of all sorts, on Main Street as well as Wall Street. Extreme examples include 1937, when capital in the US went on strike and we had the Recession of 1937–1938 and didn't really recover until WWII changed the game. In serious times of trouble, can you point out examples where this has worked in more than the short term? It didn't for the US in the Great Depression, and Japan is now nearing the end of it's second lost decade (we through they were pulling out of it, but that turned out to be a side effect of the world wide bubble that popped a little later this decade).
- byrneseyeview 17y ago
  This model seems flawed: 1. The government can increase spending, but they can't create money. Either they get it from taxes, or they get it from devaluing the currency (i.e. taxing holders of currency, or currency-denominated assets). How would it help to take $1 away from an employer building widgets, and use it to hire a Diversity Coordinator at the DMV? 2. What's the long-term effect on business decisions if the only two modes the economy is in are a) growth, or b) near-zero interest rates? It looks like this would lead to lots of leverage. 3. You're assuming that it's always better for someone to have a job than to lose it. So you'd end up subsidizing candlestick makers (probably by taxing light bulb factory owners). At best, this philosophy merely gives everyone a reason to misbehave. At worst, it fines the productive, growing parts of the economy, in order to reward the unproductive, shrinking parts of the economy. America in the 1930's. Japan in the 1990's. How many lost decades will it take to discredit this stuff?
  - hga 17y ago
    WRT to #1, before you get to the "or" items, government borrowing crowds out private, since a national government (or at least ours) is viewed as a much safer creditor in the earlier periods of economic trouble. In the longer term, sovereign debt defaults, explicit or implicit (your "or" items, including the inflation tax), inevitably follow this type of counter-cyclical spending (statistically, since this tends to be a regional or world-wide thing).
    - jbooth 17y ago
      Government debt is an entirely different product than private debt. Different interest rate and all of that. Regarding the sovereign debt defaults, did we have one of those after the great depression? Sovereign debt defaults are associated with financial panics. Don't bind up intermediate (correct or incorrect) steps with the root cause.
      - hga 17y ago
        It may be a different product but it's still in the same market for people who want to lend out their money. The different interest rates are because of different perceived levels of risk; normally a government can offer less because they're viewed as more likely to return the money. If they aren't in the market or to the degree they are less so, investors have no choice but to put their money elsewhere. As for your question, I don't think we can easily say. E.g. the BLS says the dollar lost 28% of its (CPI) value from 1940 to 1946 ... but I'm not willing to assign blame due to the discontinuity of WWII. If Japan defaults in its 3rd Lost Decade, will that be the cause of the initial '80s panic or decades of the wrong medicine to deal with it?
- anamax 17y ago
  > Economic activity has benefits for society at large -- we get stuff out of it, and there's a feedback loop where more people with money in their pocket means more demand, which means more people employed, which means money in their pocket, etc. Yes, there is. However, the amount of feedback, which economists call the "multiplier" is a matter of considerable dispute. Obama's current point-woman on this has published research showing that the multiplier for much govt activity is typically less than 1. (She's saying something different now.) > Giving money to people in lump sums (which was in fact about 40% of the bill, the bill was 40% tax cuts) is fast and simple, so it certainly has a place, but keeping people in a job is far more effective because you create externalities. You're assuming that the person is producing something of value and at a reasonable cost.. More to the point, the original poster asserted that a job which cost $200k was worth more than just giving the person $70k/year even if we ignore such factors. (Numbers made up.) Note that Krugman recently wrote that just giving money to unemployed people doesn't cause problems. This is in contrast to his statement in "Macroeconomics" that unemployment payments encourage people to stay unemployed longer than they would otherwise. > That job is producing something of value to the economy, that person is gaining skills/experience leading to future employability I'd agree, but this flies in the face of the arguments used to justify higher minimum wages. > Counter-cyclical spending is, according to economic theory, the one point in the cycle where the government should be encouraged to spend money like they're in vegas, up 50k and hanging at the strip club. Breaking this negative feedback loop is priority #1 -- debt can be paid back later, I know the theory. However, it assumes that govt does something that the US govt doesn't do, namely save during the other part of the cycle. Given that, it's unclear that the spending during the down part makes sense. To put things in terms of another HN argument, it's unhealthy to eat the calories that you'd need to train for the Ironman if you're not actually training for the Ironman.

It would be better if you explained in a neutral way what you thought was the source of the misunderstanding.

by pg 17y ago

It would be better if you explained in a neutral way what you thought was the source of the misunderstanding.

Ok, although IANASS (not a social scientist) (edited to add: and sorry anamax for the uncivil tone, long day): Economic activity has benefits for society at large -- we get stuff out of it, and there's a feedback loop where more people with money in their pocket means more demand, which means more people employed, which means money in their pocket, etc. Recessions are when the economy gets out of balance (historically inventory oversupply, more recently it tends to be financial meltdowns) and that feedback loop goes negative -- less money in pocket, so less spending, so less production. Counter-cyclical spending is, according to economic theory, the one point in the cycle where the government should be encouraged to spend money like they're in vegas, up 50k and hanging at the strip club. Breaking this negative feedback loop is priority #1 -- debt can be paid back later, and if you've been breaking out your counter-cyclical toolkit, you've already lowered interest rates to near-zero so this is really cheap debt, 1% interest or lower -- if you produce any return at all, you've got a win in addition to the counter-cyclical effects. Once you've decided to spend, you've got to decide how. Giving money to people in lump sums (which was in fact about 40% of the bill, the bill was 40% tax cuts) is fast and simple, so it certainly has a place, but keeping people in a job is far more effective because you create externalities. That job is producing something of value to the economy, that person is gaining skills/experience leading to future employability, and assuming that business is ok, their labor might lead to additional job openings at the same company later. These are all sustainable improvements that build on themselves and contribute back towards that positive feedback loop. Just spewing money out to people without any targeting whatsoever can only be a brake on recession -- it doesn't really help lay the foundations for the bounceback.

deleted 17y ago
[deleted]
mos1 17y ago
Frankly, I don't think there's a need to complicate this discussion with mentions of Keynes or interest rates. Their error starts far earlier, at the basic measurement of value. Joe works at WidgetCo and makes $60,000/yr. His loaded costs are a little over $100,00/yr. WidgetCo pays this because his skills are worth about $125,000/yr to them, so it's a great deal. At this point, if you are a well-meaning, but rational cherub, what is the highest rational price to pay to get Joe working again? I'm guessing anything up to $125,000. ---- But that's not the end of our grossly simplified model. We also have the fact that Joe spends his paycheck on niggles. He fucking loves the shit out of niggles. As he consumes $60,000/yr of niggles, he personally pays for 1/2 of an employee at the niggle factory (and that guy spends his money on something too...) So now we have to recognize that if Joe loses his job, there's going to be a negative ripple effect, and if Joe gets a job, there's a positive ripple effect. So now, as a well-meaning, but rational cherub, what's my highest rational price? Well.. at this point I'd probably call in an economist to help me figure it out, but it's clearly more than $125,000/yr... it's likely close to $200,000/yr. ---- And now somebody hands me a "stimulus" proposal, and it turns out that I could create a job for Joe for about $150,000/yr. So let's see... $200,000/yr of value for $150,000/yr... sounds like a great investment to me! Very good value for money, even if it does lead to an annoying headline indicating "$60,000/yr jobs cost silly cherub $150,000!" ---- Obviously this is grossly glossed over (I didn't even mention the obvious fact that if people are buying widgets, they must provide value), and actual models of costs and benefits of various scenarios are quite complex, but I simply meant to demonstrate that simply dividing the total cost of a package by the number of jobs is silly, and misses the point widely.
- hga 17y ago
  Isn't that an example of the "multiplier effect" ... which has never really been seen in the wild (or so I understand)? E.g. because on the other side of the ledger the government crowds out private borrowing (see my comment in this thread to byrneseyeview) and/or taxes others to get this money, plus this almost always is accompanied by attacks on businesses of all sorts, on Main Street as well as Wall Street. Extreme examples include 1937, when capital in the US went on strike and we had the Recession of 1937–1938 and didn't really recover until WWII changed the game. In serious times of trouble, can you point out examples where this has worked in more than the short term? It didn't for the US in the Great Depression, and Japan is now nearing the end of it's second lost decade (we through they were pulling out of it, but that turned out to be a side effect of the world wide bubble that popped a little later this decade).
byrneseyeview 17y ago
This model seems flawed: 1. The government can increase spending, but they can't create money. Either they get it from taxes, or they get it from devaluing the currency (i.e. taxing holders of currency, or currency-denominated assets). How would it help to take $1 away from an employer building widgets, and use it to hire a Diversity Coordinator at the DMV? 2. What's the long-term effect on business decisions if the only two modes the economy is in are a) growth, or b) near-zero interest rates? It looks like this would lead to lots of leverage. 3. You're assuming that it's always better for someone to have a job than to lose it. So you'd end up subsidizing candlestick makers (probably by taxing light bulb factory owners). At best, this philosophy merely gives everyone a reason to misbehave. At worst, it fines the productive, growing parts of the economy, in order to reward the unproductive, shrinking parts of the economy. America in the 1930's. Japan in the 1990's. How many lost decades will it take to discredit this stuff?
- hga 17y ago
  WRT to #1, before you get to the "or" items, government borrowing crowds out private, since a national government (or at least ours) is viewed as a much safer creditor in the earlier periods of economic trouble. In the longer term, sovereign debt defaults, explicit or implicit (your "or" items, including the inflation tax), inevitably follow this type of counter-cyclical spending (statistically, since this tends to be a regional or world-wide thing).
  - jbooth 17y ago
    Government debt is an entirely different product than private debt. Different interest rate and all of that. Regarding the sovereign debt defaults, did we have one of those after the great depression? Sovereign debt defaults are associated with financial panics. Don't bind up intermediate (correct or incorrect) steps with the root cause.
    - hga 17y ago
      It may be a different product but it's still in the same market for people who want to lend out their money. The different interest rates are because of different perceived levels of risk; normally a government can offer less because they're viewed as more likely to return the money. If they aren't in the market or to the degree they are less so, investors have no choice but to put their money elsewhere. As for your question, I don't think we can easily say. E.g. the BLS says the dollar lost 28% of its (CPI) value from 1940 to 1946 ... but I'm not willing to assign blame due to the discontinuity of WWII. If Japan defaults in its 3rd Lost Decade, will that be the cause of the initial '80s panic or decades of the wrong medicine to deal with it?
anamax 17y ago
> Economic activity has benefits for society at large -- we get stuff out of it, and there's a feedback loop where more people with money in their pocket means more demand, which means more people employed, which means money in their pocket, etc. Yes, there is. However, the amount of feedback, which economists call the "multiplier" is a matter of considerable dispute. Obama's current point-woman on this has published research showing that the multiplier for much govt activity is typically less than 1. (She's saying something different now.) > Giving money to people in lump sums (which was in fact about 40% of the bill, the bill was 40% tax cuts) is fast and simple, so it certainly has a place, but keeping people in a job is far more effective because you create externalities. You're assuming that the person is producing something of value and at a reasonable cost.. More to the point, the original poster asserted that a job which cost $200k was worth more than just giving the person $70k/year even if we ignore such factors. (Numbers made up.) Note that Krugman recently wrote that just giving money to unemployed people doesn't cause problems. This is in contrast to his statement in "Macroeconomics" that unemployment payments encourage people to stay unemployed longer than they would otherwise. > That job is producing something of value to the economy, that person is gaining skills/experience leading to future employability I'd agree, but this flies in the face of the arguments used to justify higher minimum wages. > Counter-cyclical spending is, according to economic theory, the one point in the cycle where the government should be encouraged to spend money like they're in vegas, up 50k and hanging at the strip club. Breaking this negative feedback loop is priority #1 -- debt can be paid back later, I know the theory. However, it assumes that govt does something that the US govt doesn't do, namely save during the other part of the cycle. Given that, it's unclear that the spending during the down part makes sense. To put things in terms of another HN argument, it's unhealthy to eat the calories that you'd need to train for the Ironman if you're not actually training for the Ironman.