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While Washington was busy debating whether or not to sabotage the recovery by failing to raise the federal debt ceiling Up to now, Washington has thrown every

by nhebb 15y ago

While Washington was busy debating whether or not to sabotage the recovery by failing to raise the federal debt ceiling Up to now, Washington has thrown every Keynesian trick in the book at this recession, and it doesn't seem to have had a substantial impact. I think the original stimulus would have had a better impact if it had included a lot more infrastructure investments than "give a man a fish" type expenditures. I'm not a student of economics, and I won't try to pretend to be one on this forum, but haven't we run out of Keynesian options if we want to continue with the current economic policies? Nate Silver's leading line above makes me think of Germany [1]. They were the only government to take a position of austerity, were widely criticized for it, but they're the only major Western economy that rebounded from the economic crisis. The U.S. government, on the other hand, lacks the unity and political will to lead a turnaround. [1] http://www.nytimes.com/2010/08/14/world/europe/14germany.html http://www.nytimes.com/2010/08/14/world/europe/14germany.htm...

sesqu 15y ago
It was recently argued that the initial assessment of the severity of the downturn was wildly off (by 4% of GDP), and that led to poor strategy formulation by Washington.
- watchandwait 15y ago
  There's no strategy in Washington. Indeed, policy chaos caused by sweeping changes (both proposed and enacted) in health care, energy, financial, tax, and union rules have wrecked private business planning. America is being run like a banana republic, borrowing over 40% of its spending budget, randomly intervening in industries like auto, banking, and housing to reward political allies, and operating on a week-to-week horizon.
ekidd 15y ago
Up to now, Washington has thrown every Keynesian trick in the book at this recession, and it doesn't seem to have had a substantial impact. I don't think this accurately represents the arguments of the Keynesian economists. Krugman, to pick an example, calculated that high unemployment rates would cause us to miss out on at least $3 trillion of wealth creation, and he called for about $1.5 trillion in infrastructure investment. The government would capture perhaps 25% of the restored growth in taxes, so the federal government would come out at least $750 billion behind. But in theory, America as a whole would be wealthier. (All numbers from memory.) The actual "stimulus" consisted of about $700 billion, of which maybe $350 billion was actually spent on things that Krugman thought would help the economy. He predicted that this was far too small to have any real impact, and that we would therefore spend years in a weak economy. (We later spent additional money on unemployment insurance; I don't know how this affects the models.) So while you could very easily disagree with Krugman's theory, his models accurately predicted the results of the stimulus: A minor, temporary boost that would be insufficient to actually fix anything. So at least one high-profile Keynesian called it correctly, although you might argue that he just got lucky. Personally, I don't know enough economics to have an informed opinion on my own. But we have at least 15 million Americans who should be creating wealth, and who are currently sitting around doing nothing. I'd love to see that get fixed, especially because the last 20 years of Japanese history suggests that if we alternate between rounds of weak stimulus and austerity measures, we might be stuck in this economy for decades.
- po 15y ago
  These are all great points. The White House has really done Keynesian economics a disservice by limping into it. Republicans are often labelled RINOs (Republicans in name only) by their own peers… Maybe we should start to use the (Keynesian)INO label. It all goes to show what a bad job of negotiating the administration has done. In this case, as well as healthcare and the debt limit, the White House surrendered key parts of their plan in the name of compromise. In the end, the opposition still calls you a communist, god-hating country-wrecker either way so it would be better to get what you wanted. That being said, and given the language of the administration I'm not sure they buy into Keynesian economics anyway. They certainly are cozy with Wall Street and use the language and framing of austerity all the time. Politics tends to distort the models so it is important to hold people to account. You might not like Krugman's politics but he does put himself out there and make predictions. Speaking of which, does anyone follow any economists who are proponents of austerity that makes falsifiable predictions? I still don't really feel like I have found a good writer on that topic to follow.
  - po 15y ago
    edit: Oddly enough Krugman just posted in his blog (I found it after posting this) about exactly this topic: http://krugman.blogs.nytimes.com/2011/08/04/wrong-and-right/ http://krugman.blogs.nytimes.com/2011/08/04/wrong-and-right/
- nhebb 15y ago
  I remember Krugman writing that a $1.5 billion stimulus was needed, but is a stimulus of that magnitude really feasible? We spent half that and had trouble with funding enough "shovel ready" projects. I think it's harder to infuse $1.5 trillion into an economy than he takes for granted, without pissing much of it away.
  - jonknee 15y ago
    We didn't spend close to that on stimulus, $288B were direct tax breaks to individuals and companies. Most of the rest went to bailing out programs suffering from the lack of incoming tax dollars (Medicaid, education, food stamps, unemployment insurance, etc). It's great that kids continued to get healthcare, and teachers didn't get the axe, but that doesn't cut it for what I'd consider "stimulus". Just $105B went to "infrastructure" and was highly politicized to the point projects became difficult to find (for example my governor, one of the least popular in the country, refused [billions of] stimulus money for rail because it was Obama's idea). Republicans were looking at any chance to make the stimulus look like a failure since it wasn't their idea while at the same time looking to take any money they could for their districts. Basically dump on the big obvious projects and then take credit for saving teacher jobs and doing minor infrastructure work all the while not mentioning where the funds came from. It's pathetic. Even being a tiny chunk, the infrastructure portion has been noticeable where I live. There are two stimulus funded housing developments going up within walking distance, the Federal Court House down the block is getting a much needed retrofit, bridges are being repaired, etc etc.
fauigerzigerk 15y ago
The comparison with Germany doesn't hold water. Germany did not have a property bubble and hence it did not have an outsized building sector crashing, taking huge numbers of jobs with it. German households have been saving like crazy forever. They are not indebted at all. Germany does not have to fight a deleveraging spiral. Germany did not have a huge current account deficit. It has a huge current account surplus meaning Chinese growth does the Keynsian stuff for Germany. Germany has a permanent stimulus resulting from sharing a currency with the likes of Greece, Ireland, Portugal, Spain and Italy. German companies fire as few people as possible in a recession. That's a huge Keynsian effect as well and one I don't see many US conservatives pointing to when they celebrate German austerity. And by the way, German "austerity" comes in the form of a deficit north of 3 percent, exceeding the level allowed under the Maastricht treaty. In comparison to other countries that's still low, but it's not austere by any definition and it comes at a time when the German economy is booming. Austerity is what the Brits do and look at their growth. It's around zero, worse than in the US.
krschultz 15y ago
Austerity by the states and local governments has outstripped stimulus by the federal government. I find it hard to argue that 'we've thrown every Keynesian trick in the book at this recession', I would argue we haven't yet tried much Keynesian economics at all. If you look at the job reports over the last year, more often than not the private sector was adding jobs while the government has been shedding jobs (first firing census workers - obviously that doesn't count, but then states and local governments contracting) And you can make a fairly simple correlation between the winding down of the federal stimulus and the current feeling that we are going into a double dip. I know you can look at this data and come to either conclusion (that we did a stimulus and we're not having a roaring economy now, or that we didn't do enough stimluus and we're not having a roaring economy now), and also that proving causation in economics is very hard, but I personally think that the economics show that the stimulus was too small while the politics show that the stimulus was too big.
- yummyfajitas 15y ago
  Austerity by the states and local governments has outstripped stimulus by the federal government. False. Total government spending (in $B): 2006 $4698 2007 $4926 2008 $5335 2009 $5896 http://usgovernmentspending.com/spend.php?span=usgs302&year=2007&view=1&expand=&expandC=&units=b&fy=fy12&local=s&state=US&pie=total#usgs302 http://usgovernmentspending.com/spend.php?span=usgs302&y... (State and local numbers for 2010 are not yet available.)
  - Anechoic 15y ago
    Your numbers don't address his comment. The recession started in late 2007 and became apparent in late 2008. Efforts to address the recession (the Stimulus package) weren't implemented until 2009 (http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009 http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestm...) so that's the baseline. To show his comment is false we need the spending numbers for 2010 and YTD 2011. The site doesn't have solid numbers yet, but the "guesstimate" for 2010 ($5,799) indicates that krschultz is right.
inthewoods 15y ago
Not sure where you get that Germany has only done austerity - I believe Germany did have a stimulus equal to 1.5% of their GDP: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=an0ME5IcV5bY http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
Spyro7 15y ago
"They were the only government to take a position of austerity" There are several problems with the hypothesis that Germany's austerity experience is broadly applicable. 1. Germany is an export-oriented economy operating within a currency union with countries that are less export oriented. This means that Germany has the benefit of an exchange rate that is lower than it would be if Germany was not a member of the Euro currency. 2. Germany did not actually take an austerity only approach: http://www.guardian.co.uk/world/2009/jan/27/germany-europe http://www.guardian.co.uk/world/2009/jan/27/germany-europe http://www.thelocal.de/money/20090724-20807.html http://www.thelocal.de/money/20090724-20807.html As far as Washington goes, our first stimulus package was shameful. Our nation's infrastructure is underdeveloped: http://www.economist.com/node/18620944 http://www.economist.com/node/18620944 Our electric grid is woefully inadequate: http://ideas.economist.com/blog/us-electric-grid-gets-less-reliable http://ideas.economist.com/blog/us-electric-grid-gets-less-r... http://www.infrastructurereportcard.org/fact-sheet/energy http://www.infrastructurereportcard.org/fact-sheet/energy Yet, about half of our $700 Billion USD stimulus went to tax cuts. Given the lack of evidence that economic output improved, it seems sensible to conclude that most of these tax savings went to either debt servicing or savings accounts, and I have no idea where the rest of that $700 billion went. It doesn't seem to have gone into any major infrastructure projects that I am aware of. When your entire problem is a lack of economic activity, investments should be made that produce positive net benefits. As a side note, to call Washington Keynesian is to fundamentally misunderstand Keynes. Truly Keynesian economic policy would not continuously run a budget deficit. A central tenet of Keynesian economics is that a Government saves when times are good and spends when times are bad. Washington spends when times are good and spends when times are bad. Edit: Also, one thing that is very important to keep in mind is that the States have received only marginal amounts of assistance with their budgetary woes. With the States needing to balance their budgets on an annual or bi-annual basis, the net effect of the federal stimulus package may have been nothing: http://www.thefiscaltimes.com/Blogs/Bartletts-Notations/2010/06/14/bartlett-state-local-budgets.aspx#page1 http://www.thefiscaltimes.com/Blogs/Bartletts-Notations/2010... When you include the states in the picture, maybe the U.S. is not as far from austerity as we would like to believe.
- RyanMcGreal 15y ago
  > Yet, about half of our $700 Billion USD stimulus went to tax cuts. Right - tax cuts are not Keynesian stimulus spending by any sensible definition. Trying to stimulate a recessionary economy with tax cuts is like pushing on a piece of string.
owenmarshall 15y ago
>They were the only government to take a position of austerity, were widely criticized for it, but they're the only major Western economy that rebounded from the economic crisis. Two problems: 1. As others have noted, Germany's approach can hardly be categorized solely as a position of austerity. 2. Germany wasn't the only major economy to implement austerity measures. The UK implemented measures more dramatic than Germany, and was widely lauded as the model for the rest of the world by American conservatives -- that is, until their economy dramatically contracted, and the conservatives suddenly forgot about them...

by nhebb 15y ago

sesqu 15y ago

It was recently argued that the initial assessment of the severity of the downturn was wildly off (by 4% of GDP), and that led to poor strategy formulation by Washington.

watchandwait 15y ago
There's no strategy in Washington. Indeed, policy chaos caused by sweeping changes (both proposed and enacted) in health care, energy, financial, tax, and union rules have wrecked private business planning. America is being run like a banana republic, borrowing over 40% of its spending budget, randomly intervening in industries like auto, banking, and housing to reward political allies, and operating on a week-to-week horizon.

ekidd 15y ago

Up to now, Washington has thrown every Keynesian trick in the book at this recession, and it doesn't seem to have had a substantial impact. I don't think this accurately represents the arguments of the Keynesian economists. Krugman, to pick an example, calculated that high unemployment rates would cause us to miss out on at least $3 trillion of wealth creation, and he called for about $1.5 trillion in infrastructure investment. The government would capture perhaps 25% of the restored growth in taxes, so the federal government would come out at least $750 billion behind. But in theory, America as a whole would be wealthier. (All numbers from memory.) The actual "stimulus" consisted of about $700 billion, of which maybe $350 billion was actually spent on things that Krugman thought would help the economy. He predicted that this was far too small to have any real impact, and that we would therefore spend years in a weak economy. (We later spent additional money on unemployment insurance; I don't know how this affects the models.) So while you could very easily disagree with Krugman's theory, his models accurately predicted the results of the stimulus: A minor, temporary boost that would be insufficient to actually fix anything. So at least one high-profile Keynesian called it correctly, although you might argue that he just got lucky. Personally, I don't know enough economics to have an informed opinion on my own. But we have at least 15 million Americans who should be creating wealth, and who are currently sitting around doing nothing. I'd love to see that get fixed, especially because the last 20 years of Japanese history suggests that if we alternate between rounds of weak stimulus and austerity measures, we might be stuck in this economy for decades.

po 15y ago
These are all great points. The White House has really done Keynesian economics a disservice by limping into it. Republicans are often labelled RINOs (Republicans in name only) by their own peers… Maybe we should start to use the (Keynesian)INO label. It all goes to show what a bad job of negotiating the administration has done. In this case, as well as healthcare and the debt limit, the White House surrendered key parts of their plan in the name of compromise. In the end, the opposition still calls you a communist, god-hating country-wrecker either way so it would be better to get what you wanted. That being said, and given the language of the administration I'm not sure they buy into Keynesian economics anyway. They certainly are cozy with Wall Street and use the language and framing of austerity all the time. Politics tends to distort the models so it is important to hold people to account. You might not like Krugman's politics but he does put himself out there and make predictions. Speaking of which, does anyone follow any economists who are proponents of austerity that makes falsifiable predictions? I still don't really feel like I have found a good writer on that topic to follow.
- po 15y ago
  edit: Oddly enough Krugman just posted in his blog (I found it after posting this) about exactly this topic: http://krugman.blogs.nytimes.com/2011/08/04/wrong-and-right/ http://krugman.blogs.nytimes.com/2011/08/04/wrong-and-right/
nhebb 15y ago
I remember Krugman writing that a $1.5 billion stimulus was needed, but is a stimulus of that magnitude really feasible? We spent half that and had trouble with funding enough "shovel ready" projects. I think it's harder to infuse $1.5 trillion into an economy than he takes for granted, without pissing much of it away.
- jonknee 15y ago
  We didn't spend close to that on stimulus, $288B were direct tax breaks to individuals and companies. Most of the rest went to bailing out programs suffering from the lack of incoming tax dollars (Medicaid, education, food stamps, unemployment insurance, etc). It's great that kids continued to get healthcare, and teachers didn't get the axe, but that doesn't cut it for what I'd consider "stimulus". Just $105B went to "infrastructure" and was highly politicized to the point projects became difficult to find (for example my governor, one of the least popular in the country, refused [billions of] stimulus money for rail because it was Obama's idea). Republicans were looking at any chance to make the stimulus look like a failure since it wasn't their idea while at the same time looking to take any money they could for their districts. Basically dump on the big obvious projects and then take credit for saving teacher jobs and doing minor infrastructure work all the while not mentioning where the funds came from. It's pathetic. Even being a tiny chunk, the infrastructure portion has been noticeable where I live. There are two stimulus funded housing developments going up within walking distance, the Federal Court House down the block is getting a much needed retrofit, bridges are being repaired, etc etc.

fauigerzigerk 15y ago

The comparison with Germany doesn't hold water. Germany did not have a property bubble and hence it did not have an outsized building sector crashing, taking huge numbers of jobs with it. German households have been saving like crazy forever. They are not indebted at all. Germany does not have to fight a deleveraging spiral. Germany did not have a huge current account deficit. It has a huge current account surplus meaning Chinese growth does the Keynsian stuff for Germany. Germany has a permanent stimulus resulting from sharing a currency with the likes of Greece, Ireland, Portugal, Spain and Italy. German companies fire as few people as possible in a recession. That's a huge Keynsian effect as well and one I don't see many US conservatives pointing to when they celebrate German austerity. And by the way, German "austerity" comes in the form of a deficit north of 3 percent, exceeding the level allowed under the Maastricht treaty. In comparison to other countries that's still low, but it's not austere by any definition and it comes at a time when the German economy is booming. Austerity is what the Brits do and look at their growth. It's around zero, worse than in the US.

krschultz 15y ago

Austerity by the states and local governments has outstripped stimulus by the federal government. I find it hard to argue that 'we've thrown every Keynesian trick in the book at this recession', I would argue we haven't yet tried much Keynesian economics at all. If you look at the job reports over the last year, more often than not the private sector was adding jobs while the government has been shedding jobs (first firing census workers - obviously that doesn't count, but then states and local governments contracting) And you can make a fairly simple correlation between the winding down of the federal stimulus and the current feeling that we are going into a double dip. I know you can look at this data and come to either conclusion (that we did a stimulus and we're not having a roaring economy now, or that we didn't do enough stimluus and we're not having a roaring economy now), and also that proving causation in economics is very hard, but I personally think that the economics show that the stimulus was too small while the politics show that the stimulus was too big.

yummyfajitas 15y ago
Austerity by the states and local governments has outstripped stimulus by the federal government. False. Total government spending (in $B): 2006 $4698 2007 $4926 2008 $5335 2009 $5896 http://usgovernmentspending.com/spend.php?span=usgs302&year=2007&view=1&expand=&expandC=&units=b&fy=fy12&local=s&state=US&pie=total#usgs302 http://usgovernmentspending.com/spend.php?span=usgs302&y... (State and local numbers for 2010 are not yet available.)
- Anechoic 15y ago
  Your numbers don't address his comment. The recession started in late 2007 and became apparent in late 2008. Efforts to address the recession (the Stimulus package) weren't implemented until 2009 (http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009 http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestm...) so that's the baseline. To show his comment is false we need the spending numbers for 2010 and YTD 2011. The site doesn't have solid numbers yet, but the "guesstimate" for 2010 ($5,799) indicates that krschultz is right.

inthewoods 15y ago

Not sure where you get that Germany has only done austerity - I believe Germany did have a stimulus equal to 1.5% of their GDP: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=an0ME5IcV5bY http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...

Spyro7 15y ago

"They were the only government to take a position of austerity" There are several problems with the hypothesis that Germany's austerity experience is broadly applicable. 1. Germany is an export-oriented economy operating within a currency union with countries that are less export oriented. This means that Germany has the benefit of an exchange rate that is lower than it would be if Germany was not a member of the Euro currency. 2. Germany did not actually take an austerity only approach: http://www.guardian.co.uk/world/2009/jan/27/germany-europe http://www.guardian.co.uk/world/2009/jan/27/germany-europe http://www.thelocal.de/money/20090724-20807.html http://www.thelocal.de/money/20090724-20807.html As far as Washington goes, our first stimulus package was shameful. Our nation's infrastructure is underdeveloped: http://www.economist.com/node/18620944 http://www.economist.com/node/18620944 Our electric grid is woefully inadequate: http://ideas.economist.com/blog/us-electric-grid-gets-less-reliable http://ideas.economist.com/blog/us-electric-grid-gets-less-r... http://www.infrastructurereportcard.org/fact-sheet/energy http://www.infrastructurereportcard.org/fact-sheet/energy Yet, about half of our $700 Billion USD stimulus went to tax cuts. Given the lack of evidence that economic output improved, it seems sensible to conclude that most of these tax savings went to either debt servicing or savings accounts, and I have no idea where the rest of that $700 billion went. It doesn't seem to have gone into any major infrastructure projects that I am aware of. When your entire problem is a lack of economic activity, investments should be made that produce positive net benefits. As a side note, to call Washington Keynesian is to fundamentally misunderstand Keynes. Truly Keynesian economic policy would not continuously run a budget deficit. A central tenet of Keynesian economics is that a Government saves when times are good and spends when times are bad. Washington spends when times are good and spends when times are bad. Edit: Also, one thing that is very important to keep in mind is that the States have received only marginal amounts of assistance with their budgetary woes. With the States needing to balance their budgets on an annual or bi-annual basis, the net effect of the federal stimulus package may have been nothing: http://www.thefiscaltimes.com/Blogs/Bartletts-Notations/2010/06/14/bartlett-state-local-budgets.aspx#page1 http://www.thefiscaltimes.com/Blogs/Bartletts-Notations/2010... When you include the states in the picture, maybe the U.S. is not as far from austerity as we would like to believe.

RyanMcGreal 15y ago
> Yet, about half of our $700 Billion USD stimulus went to tax cuts. Right - tax cuts are not Keynesian stimulus spending by any sensible definition. Trying to stimulate a recessionary economy with tax cuts is like pushing on a piece of string.

owenmarshall 15y ago

>They were the only government to take a position of austerity, were widely criticized for it, but they're the only major Western economy that rebounded from the economic crisis. Two problems: 1. As others have noted, Germany's approach can hardly be categorized solely as a position of austerity. 2. Germany wasn't the only major economy to implement austerity measures. The UK implemented measures more dramatic than Germany, and was widely lauded as the model for the rest of the world by American conservatives -- that is, until their economy dramatically contracted, and the conservatives suddenly forgot about them...