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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

by 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.
- jellicle 15y ago
  So you're going to argue both sides of the question? You're really going to argue that every trick in the book has been tried, and that the amount that non-lying economists recommended to spend wasn't feasible? Which is it? In actuality, the correct answer is that there are a vast supply of projects going undone for lack of money - crumbling bridges, roads, water pipes, sewer pipes, high-speed rail, just to get started - and that if there had been the political will to spend money on those types of manpower-intensive projects, the economy would be in much better shape today. (You get new bridges, smooth roads, AND a working economy.) Instead a vast amount of money was spent, most of it going to benefit a few thousand of the richest people in the U.S., who have dutifully saved their profits in off-shore tax havens, creating no economic benefit.
yummyfajitas 15y ago
Just curious, could you provide a link to Krugman's predictions? I'd be really curious to see how a Keynesian model predicted a GDP/production recovery with stagnating employment. I was under the impression that most Keynesian models assumed that employment was slaved to production.

by ekidd 15y ago

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.
jellicle 15y ago
So you're going to argue both sides of the question? You're really going to argue that every trick in the book has been tried, and that the amount that non-lying economists recommended to spend wasn't feasible? Which is it? In actuality, the correct answer is that there are a vast supply of projects going undone for lack of money - crumbling bridges, roads, water pipes, sewer pipes, high-speed rail, just to get started - and that if there had been the political will to spend money on those types of manpower-intensive projects, the economy would be in much better shape today. (You get new bridges, smooth roads, AND a working economy.) Instead a vast amount of money was spent, most of it going to benefit a few thousand of the richest people in the U.S., who have dutifully saved their profits in off-shore tax havens, creating no economic benefit.

yummyfajitas 15y ago

Just curious, could you provide a link to Krugman's predictions? I'd be really curious to see how a Keynesian model predicted a GDP/production recovery with stagnating employment. I was under the impression that most Keynesian models assumed that employment was slaved to production.