An economist joke.
(From an excellent interview with Robert Barrow — which Instapundit linked to — on why the stimulus bill is so terrible.)
ADDED: This post got linked by Instapundit. Isn't that going to cause feedback?
February 8, 2009
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Several Obama supporters here have used Biden's defense of the 'stimulus' bill, that it was supported by 'all' but the lunatic fringe economists.
In fact, as Barro pointed out, this bill is horrible, and most economists, including Krugman, don't have the slightest goddamned idea what they're talking about in this area of economics.
In short, says Barro, the supposed "multiplier effect" of government spending is largely unknown, and to claim it is known is a sham, except for short-term military spending that doesn't wreck USA stuff. Like WW2, he meant. Or a shovel-ready invasion of Iran.
This bill makes our debt problem massively worse. The background banking and credit changes he thinks are probably going to be good, but the stimulus bill is deletirious.
The sad thing is that Barrow doesn't seem to realize that viewing any war as an economic stimulus is a joke. Any economist who thinks using ones natural resources to drop bombs and shoot bullets at ones neighbors helps the economy is a fool.
What good does it do the economy to have our boys in trenches somewhere in France? No good, and it doesn't matter if we don't suffer much in the way of casualties.
If war is such a great stimulus the why the hell isn't the economy bombing right now. We are wasting billions in Iraq and Afghanistan and have been doing so for quite some time.
That was suppose to be: "Why isn't the economy booming right now." My fingers somehow corrected it to the reality of what the wars are doing to our economy. Just one more factor that is on the minus side of a healthy economy.
Brian, he was joking, as Althouse pointed out.
Pogo,
Brian's response demonstrates admirably the depth of thought and perception that is driving this stimulus bill....
Pogo, and (Brian)
I think you missed a distinction in his explanation. In short, he said:
- stimulus spending is spending pretty much regardless of whether it is on building a bridge or building an F22.
- stimulus spending on a bridge or passing out tax rebates are about equal in benefits
- regardless, he thinks the stimulus multiplier is overstated.
- his main point was that actual long term tax rate reductions produced 2 benefits for one dollar value. They provided the spending stimulus part the same as everything else, PLUS, they generate real increases economic growth due to increased incentives to work, invest, etc.
I read that, Sgt. I was more intrigued by his falsification of the claim that support of the stimulus bill by economists meant it was the right thing to do.
What is the right thing to do? Just let the free market work it out? Do you have an opinion?
I don't see how an economic policy wouldn't consider what economists recommend.
Barro states the preferred response in the wsj article Barro wrote:
"Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already high and fall on capital income. Eliminating the federal corporate income tax would be brilliant. On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free."
But there is no way to avoid the pain.
The sad thing is that Barrow doesn't seem to realize that viewing any war as an economic stimulus is a joke.
Barro's not the one who's used WWII spending and its effects as an argument for the economic stimulus bill.
No, the said thing is that Brian Macker doesn't seem to realize that Barro (not Barrow) said that "Attacking Iran is a shovel-ready project. But I wouldn't recommend it," and that it was a sort-of joke. Sort of joke in the sense that he mentioned that the best evidence for "spending increases GDP" that people always cite is WWII spending boosting the economy.
He cites it merely to attack the idea that increasing nominal GDP is always a good idea, particularly if you're doing so by doing something like a war in Iran that isn't a good idea.
Krugman wrote a column in response to Barro's WSJ essay, explaining why Barro just doesn't get it. Apparently Barro did not take kindly to be publicly slapped down.
http://krugman.blogs.nytimes.com/2009/01/22/war-and-non-remembrance/
There are two entangled aspects of stimulus spending. One is the spending itself and the other is long -term efficiency created by the spending.
The spending itself can stimulate the economy by adding to the money supply--even if the spending is totally wasted. A guy who digs holes and then fills them back in, will spend his pay on real goods and so this stimulates production and employment.
But we should be able to do better than spend on useless projects. An irrigation project can increase the productivity of farming, an atomic power plant can make electricity for decades, etc.
If invading Iran is something that we will eventually have to do--say after they nuke Tel Aviv and NYC, why not do it now? We need the stimulus now, most of the stuff the military uses is produced domestically and better now than after a couple of cities have been vaporized.
"(From an excellent interview with Robert Barrow ...
Labels: ... Robert Barrow, ..."
Barro, not Barrow.
no"stimulus package"will work in this recession. The people will not let it succeed. During the great depression, folks banded together to survive, and assisted one another. We tried to feed the less fortunate. During WW11 folks sacrificed to win the war, and bring the troops home. Today the atmosphere of excessive greed throughout the government and finance will insure that no package will cure the ills in the economy. It just can't work.
Robert Higgs makes a good case that it was not WWII that brought an end the the Depression, but Truman's pro-business policies following the war. If true, that would support the notion (with which I agree) that there is little or no public sector spending that can be considered "stimulative" in the broad sense.
http://www.lewrockwell.com/higgs/higgs77.html
Sorry, that was the wrong link. This one is better:
http://www.lewrockwell.com/higgs/higgs101.html
stimulus package whats it going to stimulate more bonuses for the big corperations and banks why not give the money back to the taxpayers see if we the people can spend enuff money to get the ecomney going cause if we dont spend the money we wont have the car companys makeing cars we wont have farmers growing food or any thing else cause its we the people that need to get this econmey going not a bunch of government payoffs to the big bussness they only like to give the money as bonuses to the top boys and billion dollar bonuses arent real thats a joke to us tax payers
If WW2 spending got us out of the Depression what's the difference between spending that kind of money but on productive things? Even productive spending in other countries would be a better investment against war and certainly cheaper. Goodwill is cheaper than bombs and more fun that fighting. Its hard for despots to take control in happy times and harder yet from educated happy people and people don't often bomb their friends. If all that money was spent on sustainable development the arms manufacturers would be needing the bailout.
Maybe someone can actually explain this to me. I've heard the argument lots of times that lowering taxes increases the incentive to make money?
I just don't get it. As far as I know, you are never taxed more than you make, and the more money you make, the more money you'll have. That is, if I make $50,000 with 10% tax I'll have $45,000, but if I make $60,000 with a 10% tax, I'll have $54,000. Which is more.
How would my incentives change if I suddenly had an 8% tax rate?
Matthew, you're not seeing that the rates increase in higher tax brackets. The first $X isn't taxed at all. Each increment of higher income brings with it a higher percentage of taxing. If you could work longer hours and take more risks to make an additional $10,000 but you could only keep half of it, you have less incentive than if you could keep 3/4 of it. You might decide to be happy with less.
"Attacking Iran is a shovel-ready project." (But I'm not recommending it)
I know the guy was joking, but the 1st mental image I had was of a shovel next to an empty grave ready to be filled in Arlington.
In certain circumstances, war can help the economy, like WWII, but that relies on allowing your competitors to destroy themselves, bankrupt themselves purchasing your war materials, and then America ending up with the worlds dominant manufacturing industry with most the world's gold once the war ends.
Other wars, like the Civil War, Vietnam, Iraq...caused us great economic damage.
To replicate the WWII strategy you would have to attack China and Japan, destroy the jobs capacity there to bring them back here. And such a war would also mean we would have to execute or imprison a healthy amount of the US Ruling Elite now committed to globalism, outsourcing, and concentrating wealth in the Richest 1% of Americans.
dpb - If invading Iran is something that we will eventually have to do--say after they nuke Tel Aviv and NYC, why not do it now? We need the stimulus now, most of the stuff the military uses is produced domestically and better now than after a couple of cities have been vaporized.
I think the Neocon case for endless war against potential enemies of us, or using American troops blood for Israeli purposes against enemies that only threaten them - is effectively destroyed with the Neocon themselves being discredited over the last 5 years.
We will not launch another preemptive war against nations or a particular nation over imagined hypotheticals for a long, long time.
And that is about hypotheticals some say affect OUR vital interests. Not to mention hypotheticals about a possible country being attacked we have no defense treaty with.
Lets not forget that the Neocons and many warhawks of different philosophies that are calling for new wars against Syria, Saudi Arabia, Lebanon, Pakistan for mainly Israel's sake or calling for new wars for "humanity's sake" in the Sudan, Congo, Burma...or in pet "liberation" wars against the Russians over Georgia or against China over Tibet - Have Absolutely No "Skin" in the Game They Seek To "Play".
On top of that, Iran and the Gulf pose a special problem to any idiot that thinks that the US doing a sneak war with Iran would be an "economic stimulus". Every strategist says that such an attack would end Gulf oil and gas supplies for many months and send the world into a Depression with the US getting full blame.
Althouse - Matthew, you're not seeing that the rates increase in higher tax brackets. The first $X isn't taxed at all. Each increment of higher income brings with it a higher percentage of taxing. If you could work longer hours and take more risks to make an additional $10,000 but you could only keep half of it, you have less incentive than if you could keep 3/4 of it. You might decide to be happy with less.
Like many people discussing taxes, you focus only on the income tax and overlook the regressive taxes all pay that actually make the upper middle class pay more out of each dollar they earn than the very wealthy who find FICA and sales taxes a pittance and who get taxed more at the capital gains rate than on work-derived straight income. (The Warren Buffet Paradox - he is taxed less on each dollar he makes than his executive secretary is)
There is also a jobs creation element. If you tax a well-off doctor, lawyer, even plumber at a higher rate...maybe they become less consumed by greed and want to work 50 hour weeks instead of 80-hour weeks. Productivity takes a hit, but all of a sudden society has lots more openings for good jobs as need and demand for new ones is created as the greed-motivated then cut back their hours and necessitate new hiring.
Zeke the plumber works 7-days a week, killer hours to get as rich as he can. Makes 190,000 a year. Taxes rise, Zeke angrily scales back to 50 hours a week. Makes only 90,000. But doing so helps put Julio and Juwan the plumbers out of unemployment and each getting 50,000 a year. Welfare spending decreases, net to society from FICA payments goes up. Consumers benefit from new competition and effeciencies as Zeke, Julio, and Juwan do certain things best..and competition opens up each to improve and consumers to spend more on plumbing now that they can get 3 competing bids rather than just one when Zeke dominated local business and was a 95-hour a week workaholic barrier
to others getting business...
Taxes rise, Zeke angrily scales back to 50 hours a week. Makes only 90,000. But doing so helps put Julio and Juwan the plumbers out of unemployment and each getting 50,000 a year.
Or maybe Zeke employs Julio and Juwan, who both get laid off when Zeke decides to scale back the business.
"but all of a sudden society has lots more openings for good jobs as need and demand for new ones is created as the greed-motivated then cut back their hours and necessitate new hiring."
Of course, Julio and Juwan are not motivated by greed. No, not them; just Zeke, the effing capitalist pig. The others are motivated by, uh, the love of man to fix your clogged toilets.
And Cedarford's idea is based on the erroneous notion that there is some fixed amount of work and wealth in the world, and some people are taking more than their fair share of it. Evidence for this point of view is absent, however.
For example, why are the plumbers Julio and Juwan unemployed when there is work to be had? Why haven't they underpriced Zeke and taken the work from him?
The plumber example is just plain silly.
What is the right thing to do?
Well I can tell you what the wrong things to do are.
Giving BILLIONS of dollars to a partisan political action group like ACORN. Spending money on pet projects like a Mob Museum in Vegas, porking money for anti smoking measures, studying STD's, financing condoms and abortions and many many other projects that won't create long term jobs or economic growth.
Another wrong thing is to create only UNION jobs in the supposedly shovel ready infrastructure projects. The majority of the countries work force is not unionized and frankly most don't want to be unionized.
What does create jobs, long term jobs and steady economic growth. Lowering taxes, fees and restrictions on those who create jobs. Mid size and small businesses create jobs throughout the nation and not just in localized urban areas.
I know...I know...Obama is all about the inner cities and organizing communities (Unionizing). Obama doesn't really care about rural and small town America. All of his pork projects are to benefit minorities and inner city neighborhoods. Period.
Of course, Julio and Juwan are not motivated by greed. No, not them; just Zeke, the effing capitalist pig.
In this case, yes. Zeke is motivated by greed abetted by his taxes dropping the wealthier he gets to erect barriers to entry to prevent other people from taking "his work".
In many cases, Pogo, this IS a zero sum game...where the available work in one area in a variety of trades may indeed be finite and something that can provide 3 good jobs or one job for a very greedy dude willing to work killer hours to keep 2 others unemployed.
That is why we don't generally allow other members of an association of professionals or trade to enrich themselves attempting to destroy others in the same field's jobs.
For example, why are the plumbers Julio and Juwan unemployed when there is work to be had? Why haven't they underpriced Zeke and taken the work from him?
Barriers to entry. Economies of scale. Bigger now normally beats smaller in American competition (see WalMart).
DBQ - What does create jobs, long term jobs and steady economic growth. Lowering taxes, fees and restrictions on those who create jobs.
We tried that under Bush and for every 6 million skilled and manufacturing jobs we lost we created 8 million jobs. 1.5 million high skill, 6.5 million low skill, with 2 million done by illagals who are a financial drain.
Wages flat or declining slightly in the 4th and 5th Quintiles.
The majority of the countries work force is not unionized and frankly most don't want to be unionized.
That may have been true in the 90s, but it's a whole new world out there now, DBQ. Most Americans believe their job is at risk, their family security threatened. They know the safe, good jobs that government and private sector unions, or professional associations with good political clout - command. An unfettered "free market" in labor is believed by most to perhaps help the few, but surely screw the many.
Want to see serious job application lines? Put up notice for a union job with steady pay, high job security, and legitimate family health insurance benefits.
Obama doesn't really care about rural and small town America. All of his pork projects are to benefit minorities and inner city neighborhoods.
All the better. Inner city neighborhoods are filled with small, job-creating businesses. Wal-Mart isn't putting any supercenters up in the ghetto. Hell, there aren't even any Safeways there. Instead, there are small groceries, used tire dealers, barber shops, and people picking the mortar off bricks from torn-down buildings.
As for the high cost of Wal-Mart jobs, read The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation
FLS - you know why stores moved out of the ghetto? Due to the rampant crime and danger involved in doing business there. Are you saying that the Chimperor MAObamaMussoliniSoros is going to subsidize the existing businesses there - pimps, drug dealers and prostitutes? And this time, in some way other than being their customer? Lots of luck with that.
I understand there are certain breaking points in tax where it makes sense to not work harder or make more money (the main one being the difference between the normal income tax and the AMT), but I still take don't think the the incentive not to work comes from the fact that a tax exists.
There are also incentives that make you want to get money in capital gains form rather than wages - but I don't think that one cuts incentives.
I think Ann's hypo seems a little strained - especially since the individual gradients of the tax brackets aren't really great leaps - usually in the 5% range. So unless the more work in going to greatly increase income (in which case the incentive is obvious - shifting multiple tax brakets in a single year - wow), the different between the new bracket dollar and the old bracket is fairly low. Plus, cutting taxes accross the board doesn't rectify this problem. You'd hypothetically have to cut the differences between the graduated tax rates.
Most people have plenty of incentive to make money - and a tax cut isn't going to suddenly motivate them to do whatever it takes to make more. I've not seen anyone detered from making money by taxes. Maybe I just assume we're all greedy...
Matthew said:
"...I still take don't think the the incentive not to work comes from the fact that a tax exists"
Yes, it does.
Imagine a corporation is deciding whether or not to make a new widget. The bean counters require a projection of an after tax return on investment of 12%.
A project that is expected to earn a 20% ROI pretax should get funded under a 25% tax rate while not funded under a 50% rate.
The higher tax rate has taken away the company's invcentive to hire people and develop this product.
The obvious counter is "a ten percent after tax return for funding the project is better than a 2% money market return."
Consider the risks, though, that the company undergoes to bring a product to market: Development and/or unit costs may be higher than expected; inventory carrying costs; supplies of components may disappear; demand or prices may be lower than forecast; the market may have changed completely (remember PDA's?).
ROI requirements help take these risks into account to ensure the company's long term survival.
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