A massive stimulus, huge deficit and a “relatively” jobless recovery. How is this to be explained? From today’s Associated Press:
New estimates from the White House on Friday predict the budget deficit will reach a record $1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends.
That’s actually a little better than the administration predicted in February.
The new estimates paint a grim unemployment picture as the economy experiences a relatively jobless recovery. The unemployment rate, presently averaging 9.5 percent, would average 9 percent next year under the new estimates.
The Office of Management and Budget report has ominous news for President Barack Obama should he seek re-election in 2012 — a still-high unemployment rate of 8.1 percent. That would be well above normal, which is closer to a rate of 5.5 percent to 6 percent. Private economists don’t think the unemployment rate will drop to those levels until well into this decade.
The gaping deficits are of increasing concern to voters. But Obama and Democrats controlling Congress are mostly taking a pass on deficit reduction this year as they await possible recommendations from Obama’s deficit commission.
While there’s a slight improvement in the deficit for the current year, next year’s predicted $1.42 trillion worth of red ink — that’s 37 cents of borrowing for every dollar spent — is looking worse. It’s about $150 billion more than previously predicted, because of still-slumping tax revenues.
White House budget director Peter Orszag said the numbers represent a ‘fiscal situation that requires attention.’
Deficits have skyrocketed since the recession took hold in 2008 and Congress responded with a massive bailout of the financial system and last year’s $862 billion stimulus measure.
The economics of Keynes persists because that is the preferred theory of those who manage our economies since it gives them enormous power to spend and direct the economy in their own preferred directions. The fact that the economy is in no way structured in the way that our textbooks say appears to be a mere matter of detail.
But as Krugman says, it’s not working because they are not spending enough.
ken n
24 Jul 10 at 9:52 am
Does Krugman understand how marginal benefits work?
I blame that meddling wife. She has to be ghostwriting. His academic career infers he is smarter than this.
.
24 Jul 10 at 10:06 am
But as Krugman says, it’s not working because they are not spending enough
No matter how much they spend, no matter how bad the economy, more spending will always be touted as the answer.
daddy dave
24 Jul 10 at 10:24 am
I agree with Dot.
These days we simply don’t know if it’s Paul or his wife simply taking over the column and changing it’s intent.
JC
24 Jul 10 at 11:28 am
Massive stimulus?
it was 14% of the Deficit in 209 and 30% in 2010.
compared to Asutralia which was very very successful it is puny and certainly not massive.
they have a liquidity trap and the output gap sine WW2
helps to know what you are talking about.
Butterfield, Bloomfeld % Bishop
24 Jul 10 at 12:03 pm
“they have a liquidity trap and the output gap sine WW2
helps to know what you are talking about.”
Seeing it didn’t work with the “necessary preconditions”, don’t you think it is time to reject or critically examine the idea of blowing revenue that doesn’t exist to create demand that doesn’t exist?
.
24 Jul 10 at 12:14 pm
Net public debt is 17.6% of GDP actually Homer. This clearly puts a dampener on growth. In fact it reinforces the need to repudiate debt and avoid additional debt such as “stimulus”, and to avoid wasteful “stimulus”.
“helps to know what you are talking about.”
It sure does. So it may be a smaller proportion. But since Rudd’s election, total debt has blown out. The stimulus was wasteful and the States are prolifigate wasters.
You think debt and tax policy does not matter. The multiplier fell to around zero here and less than zero in the US.
You think the failure of pump priming, the accumulation of debt and the persistence of bad tax policy doesn’t matter.
You’d rather make everyone poorer to defend Rudd’s record. You must owe him a lot. I cannot conceive that he’ll be fondly remembered by most other Australians.
.
24 Jul 10 at 12:28 pm
The message is not getting out that extra spending, to increase the deficit, causes unemployment directly. It appears that this is a socially unacceptable claim to make in the economics fraternity.
Its not that all economists disagree with this rather obvious inference. Its more something like how things are with lawyers. Like at recess, when the two lawyers pitted against each-other share a lot of jokes to the horror of their clients. It appears that to show that extra spending to increase the deficit, throws people out of work, goes against some sort of silent “professional ethics” of the academic world.
Harold Lloyd
24 Jul 10 at 1:23 pm
the US stimulus was not massive.
I have shown that.
Their stimulus was less than ours however they are stuck in a liquidity trap and have the largest output gap since WW2 . I could have added they have deflation as well.
moreover the package was predicated on an unemployment rate well below 9-10%.
They clearly were not spending enough.
As i said it does halp to know what you are tlaking about
Butterfield, Bloomfeld % Bishop
24 Jul 10 at 1:30 pm
“Their stimulus was less than ours however they are stuck in a liquidity trap and have the largest output gap since WW2 . I could have added they have deflation as well.”
Okay, so why didn’t work?
“They clearly were not spending enough.”
Yet the projected job losses without a stimulus are less than ACTUALS – WITH the stimulus.
Please explain how the stimulus effect has a parabolic relationship with the stimulus to GDP ratio.
Thye inference is that you need very, very large spending for it to be worthwhile above doing nothing.
To which the Americans could not simply not afford with a liquidity trap (for various reasons that are contentious), a sovereign debt problem and the collapse of the private banking system.
Such a relationship is also highly dubious is stimulus projects are subject to real world constraints loike all others, such as diminishing marginal returns. Do you realise that it would create its own capacity constraints, thereby slowing growth even more?
.
24 Jul 10 at 1:37 pm
Homer, you nimbus,
The US is not stuck in any liquidity trap. There’s $ 1 trillion sitting at the fed that is fully available to the banks. People aren’t borrowing for two reasons
1 record equity issuance last year with corporate ameri
Jc..
24 Jul 10 at 1:38 pm
17.6% in Australia. It’s hard to know what you’re on about when you cannot competently type “2009″ and “talk”.
.
24 Jul 10 at 1:38 pm
Homer Krugman recently said that use use fiscal stimulus only when both of two conditions are satisfied. Neither of which applied here.
“Fiscal stimulus is what you do only if two conditions are satisfied: high unemployment, so that the proximate risk is deflation, not inflation; and monetary policy constrained by the zero lower bound.”
pedro
24 Jul 10 at 1:42 pm
How do you know the multiplier fell to zero hear and less than zero in the US Mark?
Given real Australian growth was 2.2% (Trend) in 2009 as opposed to the RBA’s May 2009 forecast of -1% that is clearly not the case.
As a multiplier of less than zero suggests the US stimulus weighed on growth that is also unlikely to be the case.
sdfc
24 Jul 10 at 1:42 pm
IPad is a bitch
Corp America with over US$1 trillion in cash.
2 firms unprepared to expand and or hire because of legislative uncertainty due to the demolition party and the anti commerce sentiment held by the total fool in the white house.
Now go away and stop spamming the site of weekends. Please give everyone a break.
Anyways you ought to be in church praying for forgiveness as a result of your lies and dishonesty on the web.
Jc..
24 Jul 10 at 1:43 pm
Yes Homer, also remember that banks were privately recapitalising, then the TARP came in and crowded out funds – even O/S funds.
So if there WAS a liquidity trap, it was caused by a) bad monetary policy, b) bank failure on the back of really shitty policies (such as no-recourse mortgages and bad macro poloicy), c) and crowding out.
You want the Government’s parabolic marginal returns on expenditure to save them/us?
.
24 Jul 10 at 1:44 pm
Sdfc,
You promised last night you wouldn’t come on here when you’re drinking heavily as you’re too incoherent.
How the fuck do you know the growth rate was the result of the pink batts and school dunes spending spree?
If you’re unable to give a coherent answer then please wait until the alcohol wears off.
Jc..
24 Jul 10 at 1:48 pm
“How do you know the multiplier fell to zero hear and less than zero in the US Mark?”
Because we had a decline in GDP per capita and capital expenditure growth, and a rise in unemployment and a shocking rise in hidden unemployment after/during the stimulus.
This is not reliant on forecasts. It is an observation.
You’re simply loopy if you rely on forecasts to conclude the stimulus created 3% growth (while at the same time putting a net amount of people out of work and reducing capital expenditure growth) and then reject them.
in the case of the US the no stimulus situation turned out to have LESS unemployment than the ACTUALS when the stimulus was spent. This observations are over a long dataset as well so the “but unemployment lags” sleight of hand isn’t going to work.
.
24 Jul 10 at 1:49 pm
JC I think it is you who is drinking heavily, or given hallucinations maybe something else.
Mark
Forecasts aren’t perfect but they are the best measure we have given the alternative growth scenario is unknowable. You seem to approach these things as if zero is some sort of lower bound for growth.
There is no evidence the stimulus reduced capital expenditure growth in fact the national accounts suggest the tax breaks for business investment promoted private investment in fixed capital.
How do you know the US stimulus resulted in less employment. That case is simply unknowable. However given the persistent decline in US private sector credit it is highly likely US unemployment would ahve been higher had it not been for stimulus spending.
sdfc
24 Jul 10 at 2:03 pm
Some criticism of Rudd:
http://www.andrewlaming.com/dev/upload/GFC_Exaggeration.pdf
http://www.theaustralian.com.au/news/model-of-reinvention/story-e6frg73o-1225712352830
.
24 Jul 10 at 2:03 pm
I have never thought Rudd-Labor would get much bounce over allegedly saving us from the “GFC.” Because even if he had, people respond much more to pain than “business as usual.” Thus, they will throw out a government perceived to have overseen/caused economic malaise, but the opposite is not the case.
Peter Patton
24 Jul 10 at 2:09 pm
Sdfc
We’ve been through this 100 times already. Artificial demand is not real demand that economists speak about. It’s a form of sovietized demand for which the bills arrives later and crowds out the private economy.
You know that, or should know that because we’ve explained that to you 100 times before.
Jc..
24 Jul 10 at 2:10 pm
No sfdc, your views on forecasting are both absurd and schizophrenic.
“There is no evidence the stimulus reduced capital expenditure growth ”
I’m sorry but that is not true. Cap ex growth shrunk AFTER we returned to positive GDP growth and then the stimulus was fully implemented as the dollars flowed away from retail and to construction etc.
“Forecasts aren’t perfect but they are the best measure we have given the alternative growth scenario is unknowable.”
Based then on the US forecasts, the multiplier was negative.
How then do I view zero growth as a lower bound?
Homer then extrapolates that the multiplier would turn positive if only we would spend more.
Homer and Zandi’s exposition is a demonstration of very, very bad economics. The multiplier has a parabolic identity where its minima is less than zero and the maxima is unbound?
Why don’t we then stimulate an unlimited amount, from the international money markets you seem to think have ‘unlimited finance’, or from the printing presses which you seem to think don’t impact upon the quality of money?
“How do you know the US stimulus resulted in less employment. That case is simply unknowable. ”
Based on observing actuals vs the very forecasts you are defending!
…and you wonder why JC is being a smart arse?
.
24 Jul 10 at 2:12 pm
JC, GDP does not distinguish between artificial and real demand.
If the govt borrowed money and spent it then clearly that will impact on the size of GDP. I think the claim we avoided a recession is crap, but the recession was shallow.
Whether the stimulus spending was a good idea is a different question from whether it had any effect on GDP.
pedro
24 Jul 10 at 2:15 pm
LOL zero must be a lower bound for growth, below that is shrinking.
pedro
24 Jul 10 at 2:16 pm
I know Pedro, but it doesn’t mean we can’t distinguish for obvious reasons.
Giving people free insulation. exorbitantly expensive school dunnies and calling that a demand boost is intellectual absurdity at best. In reality it’s intellectual fraud.
JC
24 Jul 10 at 2:19 pm
It also infers that we simply accumulated more inventory – or at best we shifted a usable inventory into an unusable one.
This is precisely what Keynesian policy tries to avoid, in theory.
.
24 Jul 10 at 2:21 pm
JC
And people just do not “feel” all that wasteful expenditure. Unlike Howard’s much more brazen “checks in the mail.”
Peter Patton
24 Jul 10 at 2:21 pm
No JC it replaces a deficiency in private demand. There is no crowding out if private demand is sluggish.
The worst that can be said about it is that it can be inflationary if private demand picks up and the government is still calling on resources.
Sorry if you can’t grasp it but this is real economy stuff not hte ideological crap you like to peddle.
sdfc
24 Jul 10 at 2:22 pm
Well it is a demand boost, and I think there are times that some stimulus spending might make sense. However, I think you can make the case that we would be coming out of the recession a bit better if the spending had been lower. For one thing, we’d have had a different debate about the mining tax because Rudd and Swan would not have been so desperate to do it.
pedro
24 Jul 10 at 2:22 pm
“The worst that can be said about it is that it can be inflationary if private demand picks up and the government is still calling on resources.”
No, the worst that can be said about it is that money is down the drain. At some point the spending has to be paid for. The fact that private demand is low in a recession does not automatically mean that the State should boost demand or that the demand provided by the State is qualitively the same as private demand.
I posted a statement from Krugman above which clearly says that in his view our stimulus should not have been done.
pedro
24 Jul 10 at 2:26 pm
Pedro
We may well have a faster growth rate coming out of the recession but that is generally the result of coming off a lower base.
I’m not convinced the government should have engaged in such an aggressive stimulus, however I also don’t know the cost of the government sitting on its hands and allowing unemployment to rise to 8% of above. Our major problem isn’t the stimulus but the high level of household debt.
sdfc
24 Jul 10 at 2:26 pm
SDFC:
No one here suggested we couldn’t have a stimulus. however the stimulus we were talking about are the real ones that would assist in boosting sluggish demand.
cutting personal tax rates, lowering the corporate tax rates, eliminating payroll taxes, removing subsidies on absurd crap like wind and solar, allowing 100% deprecation in the first year, removing FIRB restrictions… those sorts of things would boost demand.
However to suggest that the insulation fiasco and the EBR rip off was good for the economy is laughable.
JC
24 Jul 10 at 2:27 pm
. Our major problem isn’t the stimulus but the high level of household debt.
Which the people installing the faulty insulation will no longer have to worry about, while the rest of us now have an imputed government debt as a result of the Lurch/Rudd insulation fiasco and the BER rip off.
You really are an ideologically blinkered leftwinger SDFC.
JC
24 Jul 10 at 2:31 pm
……however I also don’t know the cost of the government sitting on its hands and allowing unemployment to rise to 8% of above.”
They shouldn’t have. Most people here agree. See what a real stimulus looks like that i mentioned above and include in that list removal of the minimum wage instead of raising it.
JC
24 Jul 10 at 2:33 pm
“Our major problem isn’t the stimulus but the high level of household debt.”
Which is of course irrelevant to the quality and usefulness of the stimulus.
Nobody knows the counterfactuals, but we do know that all of the treasury forecasts proved wrong and that treasury data is a debased currency these days.
pedro
24 Jul 10 at 2:38 pm
“There is no crowding out if private demand is sluggish.”
No.
1. Rudd’s stimulus was implemented after we returned to positive GDP growth.
2. The cap ex growth slowed.
3. We were still close to capacity constraints during the downturn.
It is also untrue.
All that crowding out requires is for Government spending to bid up loanable funds.
This is observed by the Keynesian model, with a vertical money supply curve. SFDC thinks it is horizontal.
.
24 Jul 10 at 2:39 pm
With unlimited supply of money too I might add.
No wonder SDFC and Homer agree.
JC
24 Jul 10 at 2:40 pm
It’s funny how you keep going back to the insulation fiasco as your major argument against the stimulus. It suggests you don’t really have too many arguments against it if you keep relying on that policy. As for the BER, it’s obvious you don’t believe in investing in education. Who’s ideological again.
The all minimum wages are bad argument, ignores the fact that income distribution matters and that there is no evidence whatsoever that the increase in the minimum wage will lower employment.
sdfc
24 Jul 10 at 2:44 pm
No I know you’really full of shit. Even Kreuger and Card don’t want to be associated with their study.
“Price floors don’t cuase shortages”.
“We can print as much moeny as we like”
With your misunderstanding of how Keynes actually viewed money markets, and constant harping on about his insights, I think we can say case closed to any conjectures you have over economics.
It’s like you unleash anti-economics when someone questions any of Rudd’s silly policies.
I feel fooled that once you made a front which appeared to be veneer of a contestable position on economics.
But it turns out you’re a crank with about as much as an idea as Paul Howes.
.
24 Jul 10 at 2:50 pm
Price floors and shortages. Labour is not jsut another commodity, no matter what your assumption laden neoclassical crap might tell you.
Can the central bank print as much base money as it likes? Well yes it can. The problem comes when banking sector money creation is severely inhibited.
Keynes views on the money markets were spot on as has been demonstrated by the events of the GFC. I shouldn’t blame you for your ignorance however as the financial markets play no real role in neoclassical economics.
What anti-economics. I have given lengthy reasons why I have not been at total agreement with the stimulus.
Your problem is that you rely an economic philosophy which has no basis in the real world. Try adding uncertainty, expectations, people, and financial markets into your analysis and you might begin to get the picture.
I’m off to the footy so my next comment won’t be for several hours. Up the mighty Swannies.
sdfc
24 Jul 10 at 3:16 pm
“Price floors and shortages. Labour is not jsut another commodity, no matter what your assumption laden neoclassical crap might tell you.”
Labour markets aren’t subject to supply and demand? Then how is it so that labour supply is the backbone of aggregate supply?
“What anti-economics.”
The One Nation policy of free central bank notes.
“Can the central bank print as much base money as it likes? Well yes it can.”
Yep, this sure is assumption free. No assumptions about money quality, devaluation, repudiation of debt by legislation…etc.
Assumptions are simply information. What matters is if they are correct and realistic and are useable.
The results of minimum wage laws suggest the neoclassicals are correct.
Here you’re piecing together various disparate theories, without paying attention to their inconsistencies. You say that the neoclassicals are wrong about labour markets on their assumptions (without explaining why, but the results suggest otherwise) but then use Keynes – the father of neoclassical economics to say his ideas can help national income to avoid an unemployment crisis – to which, you’ve rewritten his assumptions about money and interest – whereas previously you’ve banged on about how great his insights were.
No we cannot print as much money as we like. Past a certain point, seignorage has negative marginal benefits. It is from this point on the banking system is threatened by increasingly poor quality money.
Furthermore, such an action would be leaked in an internationalised money market. We’d destroy our own banks, depreciate the currency, attack real wages and subsidise overseas lenders – how does this help us pay for Government largesse if you are helping to destroy the tax base, and otherwise subsidise overseas businesses?
.
24 Jul 10 at 3:45 pm
okay we have found the stimulus wasn’t massive.
thee is no liquidity trap in the US?
umm under a Taylor rule interest rates should be -5%. QE reduces this to around -3%.
That is ummm a liquidity trap.
Crowding out happens when the private secotr and the public sector are bidding for the same funds.
that is neither occurring here not in the US but for different reasons
Butterfield, Bloomfeld % Bishop
24 Jul 10 at 4:32 pm
Explain to me what educational benefits are derived from the BER SDFC?
School halls might do something for communities, but I doubt they improve education. Unless you rate basketball as an essential part of education
Entropy
24 Jul 10 at 5:15 pm
Labour is not jsut another commodity, no matter what your assumption laden neoclassical crap might tell you.
No one here would would describe labor as a commodity, SDFC. It’s another straw-man you’re putting up.
Labor is a service, not a commodity you dill. You can’t buy on weight or size etc.
You don’t really understand economics, do you?
JC
24 Jul 10 at 5:24 pm
umm under a Taylor rule interest rates should be -5%. QE reduces this to around -3%.
At the very least homer, you should give this comment attribution instead of just lifting it off the web and making it sound as though it’s yours. That’s just plagiarizing.
As usual though you don’t mention what was said beyond that.
(i forgot where you lifted it from so I can’t attribute)
The writer mentioned that monetary conditions in the US indicate rates may be at -5%. Further QE would ease monetary conditions to reach that level and help it climb back.
Nothing was said about a liquidity trap and was most certainly not described as such.
You really are dishonest as the freaking day is long, homer.
JC
24 Jul 10 at 5:29 pm
The all minimum wages are bad argument……… there is no evidence whatsoever that the increase in the minimum wage will lower employment.
Oh really, ummm so demand curves slope upwards instead of down and supply curves slop down instead of upward?
Please SDFC, show me how your unique view figures on a demand and supply curve as I’m really interested.
http://en.wikipedia.org/wiki/File:Supply-and-demand.svg
If you’re right. Dot will nominate you for the economics prize as you’ve found some truly trailblazing information here.
You really don’t have nay freaking idea, do you? None.
JC
24 Jul 10 at 5:36 pm
You are an idiot.
interest rates cannot be negative.
rates are much higher than they should be.
That is a liquidity trap.
go away and come back when you understand a basic subject
Butterfield, Bloomfeld % Bishop
24 Jul 10 at 5:37 pm
I think Homer was playing a video tape of Alan Greenspan on CNBC where he heard that remark about real rates but I can’t be certain.
You really are dishonest Homer.
JC
24 Jul 10 at 5:39 pm
No idiot it is the paper I have citied previously by glen rudebusch.
I assumed a peron talking about the subject would know this.Of course never assume knowledge when Forrest is around.
and no it wasn’t further QE it was current QE making interest rates abour -3%.
Butterfield, Bloomfeld % Bishop
24 Jul 10 at 5:42 pm
Homer:
Stop changing the subject.
Let me repeat your plagiarized comment again.
umm under a Taylor rule interest rates should be -5%. QE reduces this to around -3%.
interest rates cannot be negative. Is not the same thing.
Interest rates can’t be below zero however monetary conditions can have the same effect which is what Greenspan (i think) was saying and when no mention was ever made of a liquidity trap.
I think it was Greenspan who said it, but I can’t recall correctly.
You’re bastardizing what that person had to say and then imposing your own missive about the liquidity trap when that plagiarized comment you lifted had nothing to do with that.
Don’t you feel any shame at all? Serious question.
JC
24 Jul 10 at 5:45 pm
Homer please show me where you’ve cited the paper as i don’t believe you.
The -5% real rates was discussed in relation to monetary conditions and nothing was ever mentioned about a liquidity trap.
I want the link please.
JC
24 Jul 10 at 5:47 pm
Entropy
Explain to me what educational benefits are derived from the BER SDFC?
He plays games with that Ent.
He pretends he didn’t support the vast bulk of the stimulus and then spends the 99.9999999% of his time defending it.
It’s all bullshit crap, like most of the signatories to this voodoo economic nonsense.
JC
24 Jul 10 at 5:57 pm
Interesting stats from UK – growth fastest for four years reports the FT. Question is whether it can survive future budget cuts.
Taylor
24 Jul 10 at 6:29 pm
“Crowding out happens when the private secotr and the public sector are bidding for the same funds.
that is neither occurring here not in the US but for different reasons”
Money, unlike land is fungible you stupid git. Crowding out happens all of the time.
“interest rates cannot be negative.”
Yes, there are such a thing as negative real interest rates.
“rates are much higher than they should be.”
Previously you criticised these results from your own misinterpretation of the Taylor rule Taylor has run a million miles from.
You built up a strawman. Oh you towering economic genius you.
So Homer by your definition, if we’re still in a liquidity trap and recession after a stimulus:
1. Shouldn’t we junk the stimulus?
2. If we need a bigger stimulus, do you then understand this infers that the benefits of stimulus have a relationship with the size relative to GDP which is parabolic, has a negative minima but maxiumum values are unbound?
3. Then why don’t we stimulate the economy to the stratosphere?
4. How has any of this got anything to do with Keynes? This is corollary as loopy as SFDC’s assertion that Keynes had great insights but he can disprove crowding out by having a diametrically opposed assumption to Keynes on the money supply.
5. Do you understand that if we have not reached a level where the benefits vis a vis your parabolic schedule have not equated with doing nothing yet or would cost more than what it has taken to get here, then we should do nothing?
.
24 Jul 10 at 6:51 pm
“Interesting stats from UK – growth fastest for four years reports the FT. Question is whether it can survive future budget cuts.”
Likely given the crippling debt in Britain since 2002 has seen it’s demise as an economic power.
.
24 Jul 10 at 6:52 pm
Mark and JC
Your reliance on the output gap argument suggests economies never have output gaps. It is silly in the extreme.
The reliance on supply and demand curves to analyse the labour market basically incorrect. Labour is not just another commodity. Supply and demand curves might be great for analysing commodity markets but for analysing the labour market they are basically useless. Any theory of the labour market that relies on homogeneous preferences and the notion that income distribution is independent of prices is sadly lacking. Analysing the labour market by assuming a homogeneous consumer is, let’s face it the same consumer, simply bad economics.
Bugger, one of my mates has turned up. Gotta go.
sdfc
24 Jul 10 at 9:18 pm
“Your reliance on the output gap argument suggests economies never have output gaps.”
Gibberish. I used the ouput gap argument to point out that it was also a neoclassical argument, which by your reasoning, is “assumption laden crap”.
Of course economies have output gaps. External shocks can generate them. The issue is if they resolve themselves or if such fluctuations have a net cost. Our flexible labour market saw that the adjustment was quick and less painful. More restricitve hiring laws and minumum wages would have seen firms shed, not hoard labour and we would have now a persistent output gap ala hysteresis.
The vulgar Keynesianism of sfdc and Homer assumes the output gap is always below potential output, and never above. It is about the most difficult to estimate save for NAIRU, so dictating policy off it will barely ever work. They’d also assume that there could never be an output shock past potential output.
Why should we forgo the benefits of rule based policy over taking a punt on discretionary macro policy? Paticuluarly when Ramey, Romer and Mankiw all put forward evidence or considered opinions that stimulus has less of an effect than tax cuts – and considering we had a surplus before the stimulus.
It’s also amazing that you criticise the partial equilibrium analysis of markets whilst putting forward no alternative, for being “assumption laden crap” and simplistic (to which they are not on detail), and at the same time spruiking a bastardised version of a dumbed down version of Keynes with little concern about real world issues such as the practicality of implementation, real world multipliers, bifurcation of parameters and the results of modern macroeconomic dynamics with expectations which hold that stimulus doesn’t do much except for raise prices.
The only theoretical use of this is to inflate the economy if there is an output gap, if it won’t clear, if there is a liquidity trap, and if it will work.
There is nowhere that all three of these conditions exist without microeconomic problems. Evidence from the US is that it didn’t work anyway. Barro essentially says the multipler is essentially zero.
“Any theory of the labour market that relies on homogeneous preferences and the notion that income distribution is independent of prices is sadly lacking.”
You are way out of your depth. No supply or demand curve “relies” on homogenous preferences. This is just bullshit. Are you saying this because you can’t remember, you are self taught or because this is what you were actually taught – despite it being complete and utter crap?
Buy a fucking textbook on labour economics and flick to the labour supply chapter. Read it. Read over the bit that shows that the aggregated labour supply is made up from varying individual work/leisure preferences. Take notes. FFS. What you are saying is basically bullshit.
You’re also arguing that you can’t use supply and demand to analyse labour – and conclude that marginal workers will be adversely affected by minimum wage laws because they’re different to other workers – which is precisely what the makeup of supply demand recognises – which you think it doesn’t.
Previously you were telling us how great Keynes was, riffing on his theory of financial markets whilst you had quietly re-written his analysing of the demand for capital and the supply of money and credit – altering the elasticity of the money supply curve from infinite to zero as to justify your idea that there “is no crowding out”.
I’ll be very nice sfdc: you don’t know what the fuck what you’re talking about, pal.
.
24 Jul 10 at 10:11 pm
Mark
I’m sorry I have confused the issue by saying your reliance on the “output gap” argument when I really meant to say “crowding out”. That’s what I get for not proof reading. As far as I can see crowding out unlikely to be a problem in an economy with a large output gap.
Do you really believe the Australian and US economies are running above potential?
I’ve got to go to bed. I’ll answer this post sometime tomorrow. If you don’t realise your whole philosophy is built on assuming all consumes are identical then I suggest you look closer at the ideology you have signed up to. It is bunkum.
sdfc
25 Jul 10 at 12:43 am
SDFC
As far as I can see crowding out unlikely to be a problem in an economy with a large output gap.
Here, the Philly Fed puts that to bed. I would like to make you aware that your anti-economics ally (homer) once suggested that the Philly Fed doesn’t know what it’s talking about. Perhaps you want to also take that route as it would be amusing.
http://www.philadelphiafed.org/publications/speeches/plosser/2010/03-23-10_european-banking-forum.cfm
It mentions how policy makers got the policy response to the output gap wrong in the 70′s.
Do you really believe the Australian and US economies are running above potential?
Who said we were? You really are a klutz or stupid, SFDC. You seem to not be able to follow conversations.
I’ve got to go to bed. I’ll answer this post sometime tomorrow. If you don’t realise your whole philosophy is built on assuming all consumes are identical then I suggest you look closer at the ideology you have signed up to. It is bunkum.
Even your anti-economist twin would not make such a stupid statement as your last one. No one is suggesting that all consumers are identical, however its absolutely anti-economics to suggest responses and propensity don’t take on reasonably predictable characteristics.
You asshat, you’re now doubting the slope of demand and supply curves.
If you’re going to start peddling this sort of fraud you’re really not worth debating because you’re just a fool.
Honest question. Do you really have an economics degree because anyone that doubts that sort of thing never went through year 12 economics.
JC
25 Jul 10 at 12:58 am
“JC, GDP does not distinguish between artificial and real demand.
If the govt borrowed money and spent it then clearly that will impact on the size of GDP. I think the claim we avoided a recession is crap, but the recession was shallow.
Whether the stimulus spending was a good idea is a different question from whether it had any effect on GDP.”
Sir. What you say is literally true!
But this is not something we don’t know about Mr Pedro? These are not questions beyond the grasp of certainty, that human reason can often supply. This sort of thing always increases nominal GDP full stop. And often increases real GDP, depending on what time period you might be focusing on.
And so what? So what Mr Pedro?
Whereas in the old days, a value investor would look at multiple metrics and ratios to assess a single company, are you proposing that we focus on a single metric to assess the progress of the economy entire?
GDP as a metric, ought to be seen as the aftermath of economic development. Its not a goal of economic development. Its not a good medium-term measure of economic development. At best its a lagging indicator of economic development. And its a lagging indicator, partly because, when you have economic development, the parasites descend on the situation, and pump up GDP.
Guitar-Ziggy
25 Jul 10 at 1:43 am
“I’m sorry I have confused the issue by saying your reliance on the “output gap” argument when I really meant to say “crowding out”.”
Do you really know what you’re talking about?
“I’m sorry I have confused the issue by saying your reliance on the “output gap” argument when I really meant to say “crowding out”. ”
If you think “output gap” means “borrowing and capital raising are repudiated”.
Do you realise we had credit growth during the downturn – then after that, when we had stimulus, public borrowing displaced private borrowing in some markets?
“Do you really believe the Australian and US economies are running above potential?”
Australia is a definite possibility. Employment growth was 3.3% I think for May-June. This cannot go on for much longer – not at least with the strucutural deficiencies and total public debt we have.
America too. Don’t you understand that their potential GDP has been walloped really, really hard, and the Government had a really bad stimulus package? You do understand the point of Keynes, don’t you, is merely to inflate through fiscal policy where there is no other option? You do understand they now have a really high NAIRU given some people have been out of work for two years or more?
“If you don’t realise your whole philosophy is built on assuming all consumes are identical then I suggest you look closer at the ideology you have signed up to. It is bunkum.”
No. this is simply not true. Even labour supply, which you feel is unique, is made up from varying personal preferences for work/leisure. It is aggregated. This does not mean preferences are the same.
A market demand curve doesn’t assume everyone has the same preferences either. Once again, it aggregates. This does not mean preferences are the same.
This is very basic stuff. It’s about week 5 of microeconomics 1 even for marketing and accounting dummies. Why don’t you know it?
http://books.google.com.au/books?id=JpuDoMDX4tsC&pg=PA278&dq=deriving+market+labour+supply&hl=en&ei=B4dLTI3kIovqvQO5_LW7Cg&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEkQ6AEwBQ#v=onepage&q&f=false
http://books.google.com.au/books?id=6Kedl8ZTTe0C&pg=PA96&dq=deriving+market+demand&hl=en&ei=PIdLTJXJBY-KvgOdnZC7Cg&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDkQ6AEwAw#v=onepage&q=deriving%20market%20demand&f=false
That said, if you think non Keynesian macro is wrong, Keynes was wrong to the extent it becomes consistent with your ambit claims about seignorage, supply and demand is not a good heuristic for economic analysis, how do you suggest we analyse the economy?
.
25 Jul 10 at 10:42 am
Quoted this twice:
“I’m sorry I have confused the issue by saying your reliance on the “output gap” argument when I really meant to say “crowding out”. ”
Should have quoted…
“As far as I can see crowding out unlikely to be a problem in an economy with a large output gap.”
With the same response:
If you think “output gap” means “borrowing and capital raising are repudiated”.
.
25 Jul 10 at 10:50 am
Bird
Get out from under that ziggy disguise as we all know it’s you.
JC
25 Jul 10 at 10:51 am
The drooling idiot couldn’t hide in a fatties convention. He’s like Homer, no name change works for more than minutes.
pedro
25 Jul 10 at 4:16 pm
Plosser is a tosser and predicted higher inflation in the US and thus the reason why rates had to rise there.
He is like Sinkers and budget predictions. He gets it wrong all the time and says the same thing in the hope no-one has read him before.
A large output gap means supply is way behind demand.
Hard to imagine crowding out in this occurrence at all.
Butterfield, Bloomfeld % Bishop
25 Jul 10 at 5:37 pm
Homer:
Is the Philly wrong then? IS the Philly Fed wrong while you’re right? What are the chances Homes.
What are the chances that a respected organization specializing in economic matters is wrong while the absolute worst economist in Australia (you) is right?
Would 20 billion : 1 be too low odds? ummm.
JC
25 Jul 10 at 5:43 pm
Plosser has been wrong for over four years.
If commodity prices could make inflation rise in 2006 how is it going to do it now?
As everyone has asked what is the transmission mechanism?
and of course the US experiences deflation at present
Butterfield, Bloomfeld % Bishop
25 Jul 10 at 5:45 pm
The US is experiencing deflation? Which index are you looking at, Homer?
Evidence please.
There is a fear the US will go into deflation however the numbers don’t quite suggest it has been, you unadulatered fool.
Lord you talk shit. drivel comes out of that empty skull of yours at the rate of knots…. Faster than the “Concorde”. Dope.
JC
25 Jul 10 at 5:48 pm
I already have.I copies the whole atlanta fed piece but I forgot you can’t read
Butterfield, Bloomfeld % Bishop
25 Jul 10 at 5:56 pm
You dope… talking about things you don’t understand
What the fuck do you think is Stagflation then you moron. The output gap is below potential in a period of stagfaltion.
You are the worst economist the country has ever seen. By far.
JC
25 Jul 10 at 6:13 pm
yeah that is why the US has deflation.
What an idiot.
the output gap in the US is the largest since WW2.
Tel us genius why didn’t inflation rise in 2006 with little output gap and full employment?
Butterfield, Bloomfeld % Bishop
25 Jul 10 at 7:19 pm
They had -0.1% for May-June and +1.1% for the 2010 FY.
Big deal. Their real estate market is is also finally clearing? Doy you contend Homer that their real estate market ought to be pumped u7 to pre-crisis levels?
.
25 Jul 10 at 7:47 pm
Homer:
Do you understand my comment and why I posted it?
You said the following
A large output gap means supply is way behind demand.
Hard to imagine crowding out in this occurrence at all.
Do you even understand that stagflation essentially makes your theory nonsense?
Do you?
JC
25 Jul 10 at 10:49 pm
So Homer, you’re contending now that pump priming can be categorised as “supply side” policy?
.
25 Jul 10 at 10:58 pm
“A large output gap means supply is way behind demand.
Hard to imagine crowding out in this occurrence at all.”
LOL, so that’s the problem in the recession, too little supply! We better clamp down on AD quick smart.
pedro
26 Jul 10 at 1:37 pm