There’s a story in today’s Financial Times with the title “Worries about US Recovery Deepen”. It ought to be a reminder to that dwindling number of Keynesian economists out there just how bad things are in the showcase stimulus economy of the United States. The argument that it would have been worse had no stimulus been provided is wearing very thin. That even more spending is now needed is a policy restricted almost entirely to tenured academics.
The central point of the story, which is mostly about financial markets, is this:
The Richmond branch of the Federal Reserve’s gauge of manufacturing activity for the US’s mid-Atlantic region fell by nearly a third, and sales of existing homes fell 27.2 per cent in July – to the lowest level for 15 years – well past consensus expectations of a 12 per cent decline.
The problem, apparently, at least according to Goldman Sachs, is that there is still too much optimism! As reported in that same story:
Though fears for the global economy are not new, economists at Goldman Sachs said earlier today that economic expectations were not yet low enough….
Factor to watch: With a GDP revision due on Friday, it should bring official expectations – at 1.5 per cent – in line with Goldman’s early forecast of a drop to that level for the rest of 2010 and early 2011.
As noted by one American commentator, “the US economy is in a 1930s-style Depression”. This may even be true, but not for the reason he thinks. It is true because the same Keynesian approach was taken to fix the problem both then and now. And interestingly, the result may end up being exactly the same this time as it was then.
Guess where the stimulus fanatics live?
http://pajamasmedia.com/instapundit/104957/
Quite a dangerous map to have out there with an armed citizenry.
Infidel Tiger
25 Aug 10 at 12:14 pm
just on time when the CBO shows how much ARRA stimulated the US economy Steve says the opposite.
The problem of ARRA was it was big enough, devoted too much to tax cuts and of course Republican ensured the States didn’t get the money to stop them being Herbert Hoover
Greece shows the potency of fiscal policy as have other countries that can’t be mentioned here
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:16 pm
“and of course Republican ensured the States didn’t get the money to stop them being Herbert Hoover”
Hoover never engaged in fiscal austerity. Roosevelt campaigned on it and reneged. He made the depression last by another seven years.
.
25 Aug 10 at 12:27 pm
Obama will respond when he returns from his sixth holiday of the year.
C.L.
25 Aug 10 at 12:29 pm
It’s Obama’s plan to show is empathy to the unemployed – He doesn’t have a job either.
Infidel Tiger
25 Aug 10 at 12:32 pm
Hoover did but had a naturally hostile Congress
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:32 pm
is his.
Infidel Tiger
25 Aug 10 at 12:32 pm
Changing your story now Homer?
Disgraceful.
.
25 Aug 10 at 12:35 pm
A $1.3 trillion deficit, a failed ‘stimulus’ program, double-digit unemployment …
The GOP House Leader calls it right:
John Boehner urges Obama to oust economic team.
C.L.
25 Aug 10 at 12:36 pm
I haven’t changed anything Marky.
your knowledge of history is well documented and shows complete ignorance.
Gosh Bush left a $1.2 trillion dollar deficit and that was without ARRA!
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:38 pm
Homer,
You blamed Hoover previously but now called out you blame Congress without any admission you were wrong prior to this.
Disgraceful.
.
25 Aug 10 at 12:46 pm
Here is the CBO graph comparing the Bush and Obama deficits.
C.L.
25 Aug 10 at 12:47 pm
Marky you clueless twit, who puts up a budget to Congress?
what was in that proposed budget?
you don’t know
can’t read , can’t think
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:48 pm
So it’s Hoover’s fault for having a hostile Congress?
Amazingly what the hostile republican Congress wanted (in your story) is what Roosevelt ended up doing, and screwing the economy.
.
25 Aug 10 at 12:51 pm
Homer: lying again.
Obama’s Statement on the Senate’s Passage of the FY 2009 Budget:
The Republicans were the ones trying desperately and vainly to stop the stampede to the deficit the US now has. The Democrats – and one Democrat in particular – backed or initiated EVERY SINGLE DOLLAR of expenditure making up today’s budget deficit. That man is Barack Obama.
C.L.
25 Aug 10 at 12:53 pm
oh dear CL hasn’t seen the CBO projection of the budget in January 2009.
Just for dolts that was BEFORE inauguration.
It was projected at $1.2b.
The budget in 2009 was $1.413b
CL caught lying again
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:56 pm
Marky you stil have no clue about the budget Hoover proposed do you
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 12:57 pm
err CSeal, you are displayting a Forrrest level of sinkers type wrongness!! How could Barry Obanana have apprioved the deficit when has been on holiday the hole time??!!
Infidel Tiger
25 Aug 10 at 12:59 pm
Marky you stil have no clue about the budget Hoover proposed do you
Homer, the world’s foremost budget historian.
JC
25 Aug 10 at 1:00 pm
My God you’re such a brainless plagarist….but also dead wrong, beleiving in children’s fairy tales:
http://www.dailyreckoning.com.au/krugman-and-his-hoover-history/2010/03/26/
.
25 Aug 10 at 1:01 pm
err Marky I never said I used Krugman.
It is very easy to get if you know how but of course you do not.
Stiil do not know what hoover proposed do you?
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 1:04 pm
“I never said I used Krugman.”
That’s the problem.
From Rob Murphy again:
“After reading Krugman’s piece, the casual reader would be quite confident that the Hoover administration slashed spending in 1932. Such a reader would probably be surprised to learn that the “fiscal mistake of 1932″ was a reduction in spending of about $63 million, or 1.3 percent of the prior year’s budget. Krugman’s column mentions nothing of the tremendous hike in tax rates at this time, such as the top income tax rate which jumped from 25 percent to 63 percent (!) in 1932. (See my book on the Depression for more details.)”
I don’t know Homer, but if you can recite the 1932 State of the Union address, I’ll give my full attention.
.
25 Aug 10 at 1:06 pm
Homer’s right, the Keynsian recovery is well underway in the US. It’s all rainbows and lollipops as far as the eye can see. People are so happy they’ve all decided to hold on to their homes rather than sell:
http://www.theatlantic.com/business/archive/2010/08/how-bad-was-julys-plummet-in-home-sales/61959/
Infidel Tiger
25 Aug 10 at 1:19 pm
Swimmingly:
http://portalseven.com/employment/unemployment_rate_u6.jsp
.
25 Aug 10 at 1:23 pm
Mark
Thanks for putting that link up and reminding us all that Hoover’s deficits were small in the context of an economy where GDP fell around 50% and that even in the midst of the depression he still didn’t manage to run deficits as big as Reagan. Keep up the good work.
sdfc
25 Aug 10 at 1:49 pm
Actually if you use constant dollars, it *only* fell by 26.47%. I am using 2000 constant prices.
Reagans debt of course led to Bush I’s recession.
A monetary crunch and near tripling of tax rates of course has the effect given in the IS LM framework of a slightly higher interest rate and massively reduced GDP.
.
25 Aug 10 at 2:19 pm
Marky still doesn’t know what Hoover proposed. He looked at a graph and made an assumption.
Just lie the stupid assumptions about Ireland going on a spending spree when they implemented austerity and then Poland not have an economic stimulus.
hint a President recommends a budget. A congress can change it. They can change it so the President cannot veto it.
Reagan of course had his largest deficit in the midst of a boom but Marky thinks that was okay. You simply do not have deficits in severe recessions!
Can’t read can’t think
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 2:30 pm
Come on Homer. What was Hoover’s 1929 State of the Union Address, word for word?
“Just lie the stupid assumptions about Ireland going on a spending spree”
That’s what the debt to GDP ratio suggests.
“A congress can change it. They can change it so the President cannot veto it.”
Did they? Was it Hoover’s fault or not?
“Marky thinks that was okay”…no, you’re verballing me. AGAIN.
*Reagans debt of course led to Bush I’s recession.*
.
25 Aug 10 at 2:42 pm
Goldman Sachs mm? Goldmann Sachs are always relevant during economic crisis for some reason. I forget what.
Adrien
25 Aug 10 at 2:44 pm
oh dear, the state of the union address is NOT giving a budget to Congress.
Spending goes up in a depression goose.
A president cannot veto a budget from Congress if there are sufficient votes.
Can’t read , can’t think
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 3:06 pm
Homer,
What day did Hoover give his budget to Congress?
What day did he give his State of the Union address?
How did they vote on it?
Whose fault was it they nearly tripled the tax rates?
Why does spending *always* go up in a depression.
Are you inferring that the House and Senate both voted two thirds majorities on the budgets from 1929-1932?
If so, why did you blame Hoover? Why did Mellon resign?
.
25 Aug 10 at 3:10 pm
Homer: here’s that graph again showing how Obama tripled the deficit.
Source: CBO.
Date: 21 March 2009.
C.L.
25 Aug 10 at 3:30 pm
Obama’s Failed ‘Recovery Summer’.
Second page of that post here.
C.L.
25 Aug 10 at 3:57 pm
CL ,
The CBO put out a budget projection in January 2009 on the budget. it was $1.2 b
look it up it is called the budget and Economic outlook.
A budget deficit that tripled is not $1.4B but in Marky world it probably is
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 4:05 pm
What day did Hoover give his budget to Congress?
What day did he give his State of the Union address?
How did they vote on it?
Whose fault was it they nearly tripled the tax rates?
Why does spending *always* go up in a depression.
Are you inferring that the House and Senate both voted two thirds majorities on the budgets from 1929-1932?
If so, why did you blame Hoover? Why did Mellon resign?
.
25 Aug 10 at 4:14 pm
Marky, it is very easy to find out. gosh there are actually quite a few journal articles on the topic in question.
what ever happened to those self proclaimed world class research skills
Why does spending always go up in Depressions. gosh I wonder why?
hmm unemployment is what around say 15% in Ireland Hungary and the Baltics. got to around 30% in the great Depression.
hmm why?
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 4:18 pm
Please cite a source. Or you could just answer the questions.
.
25 Aug 10 at 4:30 pm
I know the answers clown.I do not need to.
you the person who is clueless.
Use the skills you boasted about so much
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 4:37 pm
I know the answers clown.I do not need to.
you the person who is clueless.
Use the skills you boasted about so much
I’d love to have written that on a few essays.
Infidel Tiger
25 Aug 10 at 4:39 pm
So Homer, you don’t actually know, you just bullshitted me all day.
Right.
.
25 Aug 10 at 4:41 pm
Homer lied. English died.
Infidel Tiger
25 Aug 10 at 4:44 pm
“I know the answers clown.I do not need to.
you the person who is clueless.
Use the skills you boasted about so much”
Please run for Parliament on a combined ALP/Greens ticket as the “alternative PM”.
Please Homer. Left wing economics needs such a drubbing.
Fat Tony: “Mr Paxton, why won’t you reveal your telecoms NBN?”
Hmoer:
” know the answers clown.I do not need to.
you the person who is clueless.
Use the skills you boasted about so much”
.
25 Aug 10 at 4:49 pm
Marky your research skills are essentially about the same as your mathematical skills .
nonexistent.
it is amazing you can attempt to argue so ferociously when you know nothing about a topic.
Can’t read, cant think can’t even look up anything
Butterfield, Bloomfeld % Bishop
25 Aug 10 at 5:13 pm
Bullshit Homer.
Just name the three bills Congress used their overide provisions on.
Your argument is so bizzare it vindicates Hoover. I note this happened *suddenly* when we pointed out FDR continued on his policies.
.
25 Aug 10 at 6:02 pm
Mark
The deficits were accrued when dollars and cents GDP had fallen by half, so in that context the deficits were fairly small. You should never compare nominal and constant dollar figures.
sdfc
25 Aug 10 at 7:02 pm
In constant dollars the deficit fell by much less then current dollars.
You were using current dollars, right?
.
25 Aug 10 at 7:15 pm
Of course I was using current dollars. That is what the budget figures are measured in. The comparison on that site between Hoover’s deficits and Bush’s deficits is pointless considering the state of the economy in the early 30s compared to earlier this decade.
sdfc
25 Aug 10 at 7:22 pm
No, you should compare both with constant dollars.
If you use constant dollars, it *only* fell by 26.47%.
“The comparison on that site between Hoover’s deficits and Bush’s deficits is pointless considering the state of the economy in the early 30s compared to earlier this decade.”
It’s a comparison. That’s what it’s for. To see what differences there are. You’re inferring we can only compare the causes of the different outcomes, not the preceding environment.
Why is that so?
.
25 Aug 10 at 7:35 pm
Analysis of budget deficits is only relevant in the context of nominal GDP. The fall in tax revenue and rise in spending is in current dollars. Having said that, that real GDP fell by a quarter does nothing to support your argument that Hoover ran significant deficits.
Bush’s deficits were incurred in an economy when nominal GDP grew while in the 1930s it fell by 50%. The two are not comparable in terms of fiscal stance. In fact given the decline in GDP and the fairly small headline deficit it is likely that the 30s structural balance was in actually in surplus. I’m sure there are some figures on the structural balance somewhere but I am in the middle of cooking tea so that question may have to wait for another time.
sdfc
25 Aug 10 at 7:59 pm
“Analysis of budget deficits is only relevant in the context of nominal GDP.”
No. First of all, we’re also looking at the fall in GDP as well.
“Having said that, that real GDP fell by a quarter does nothing to support your argument that Hoover ran significant deficits.”
That wasn’t my argument.
http://catallaxyfiles.com/2010/08/25/worries-about-us-recovery-deepen/comment-page-1/#comment-92587
“A monetary crunch and near tripling of tax rates of course has the effect given in the IS LM framework of a slightly higher interest rate and massively reduced GDP.”
.
25 Aug 10 at 8:23 pm
Always worth reading for a different perspective:
Milton Friedman vs. the conservatives
http://www.themoneyillusion.com/?p=6564
pedro
25 Aug 10 at 9:01 pm
In fact given the decline in GDP and the fairly small headline deficit it is likely that the 30s structural balance was in actually in surplus.
Oh for lords sake. This is like receiving a statement from Bernie Madoff telling you he’s made 12% again that year.
Sdfc, dude, GDP collapsed, deflation sawed values in 1/2, unemployment was 25%. They were initiating new programs by the minute.
How the fuck would anyone know what the budget would look like, let alone a structural surplus.
No kidding, but do you even think when your making these statements that they may sound a trifle homer-like?
In that sort of crisis you’re just plugging holes every other second, as you have no hope of figuring it all out other than wild guesstimates.
Unless I’m mistaken there was no computerization and the level of sophistication in these sorts of matters was not similar to the present day.
You really have no idea. Stick to the cooking.
JC
25 Aug 10 at 9:15 pm
Yes Mark and the fall in nominal GDP (income) was around 50%. The US deficit increased to 4.5% of GDP in 1933, the year the economy began its recovery. The increase in the size of the deficit as a percentage of GDP was largely the result of the sharp fall in nominal GDP which troughed in Q1 1933. The rise in outlays was fairly small given the decline in private sector income between 1929 and early 1933.
JC
The budget figures are publically available. Considering nominal GDP fell by 50% and the budget balance went from +0.6% in 1930 to 4.5% in 1933 it is not too much of a stretch to suggest the structural balance may well have been in surplus in one or more of those years.
The huge stimulus you imagine would have meant there was a rather large structural deficit. Considering there wasn’t we can conclude you are once again talking out of your arse.
sdfc
25 Aug 10 at 11:34 pm
Why do you insist on using nominal GDP and rebutting me on a point I never made?
.
25 Aug 10 at 11:36 pm
SDFC:
Stop it. Looking back in hindsight, especially now, is far easier than it was at those times.
They wouldn’t have had a clue what was happening to the budget one year to the next when Industrial production, the then marker for GDP, was literally collapsing.
I didn’t mention anything about a stimulus SDFC. WTF are you talking about?
All I did was point out the stupidity of thinking they would have been concerned with a primary surplus in those does when the door handle fell off and the roof was caving in.
Where did I even mention stimulus, SDFC? Point it out.
Would terms like structural deficit, primary surplus been around in those days? lol
Dude, you got go to the back of the class as you’re just not progressing. I haven’t seen any progress in months from you.
JC
25 Aug 10 at 11:42 pm
Why do you insist on using nominal GDP and rebutting me on a point I never made?
He does this all the freaking time. He brings up shit you’ve (or anyone) never said and then argues against it.
He’s made of straw.
JC
25 Aug 10 at 11:43 pm
Mark
Budget deficit to GDP ratios are in nominal GDP terms. That is why I used nominal GDP.
I’m not sure why you are crying foul, it was you who contradicted my point about GDP dropping by 50% by bringing real GDP into our conversation in the first place.
JC
You said They were initiating new programs by the minute that sounds like stimulus to me.
Just for the slow (JC) for the government to have been stimulating the economy in any significant way in the early 1930s would have far larger deficits than were the case.
I was simply responding to the erroneous contention that government stimulus made the depression worse.
sdfc
26 Aug 10 at 7:46 pm
“I’m not sure why you are crying foul”
I’ve never seen you say we should use nominal GDP before. It’s not the norm.
“I was simply responding to the erroneous contention that government stimulus made the depression worse.”
1. Monetary contraction & higher taxes. (Hoover)
2. Then the deficits & bad micro policies. (FDR)
.
26 Aug 10 at 7:57 pm
No, SDFC, no dice. Policies they were initiating were things like job destroying initiatives like locking in high labor rates, price controls and destroying farming produce because the price had fallen.
There were enough of those fucked up policies absolutely wrecking the economy to the point that it was a miracle unemployment only reached 25% at its peak.
JC
26 Aug 10 at 8:03 pm
Mark
I’m not going to go around in circles regarding the use of nominal or real GDP so let’s move on.
We seem to be in agreement that Hoover did not engage in stimulatory policies of any significance.
As for Roosevelt, the economy grew sharply under his policies from 1933-early 1937. The late mid 1937-38 contraction came in the wake of tighter fiscal and monetary policies.
sdfc
26 Aug 10 at 8:16 pm
That should be mid 1937-38 contraction.
sdfc
26 Aug 10 at 8:17 pm
“As for Roosevelt, the economy grew sharply under his policies”
???
They exhibited the behaviour of a developing country and took seven years to get out of the depression.
.
26 Aug 10 at 8:24 pm
SDFC:
Conversely we had budgetary contraction here in he early 30′s and zippo of a depression.
Oh yes we weaken the currency against gold, which means monetary policy had its effect.
I really don’t know what fucking point you’re trying to make. The ROI for the US stimulus was less than zero. It was negative.
They ended up spending 300,000 on basically unsustainable jobs and you still continue to argue this voodoo.
Your side lost live with it. Quack economic lost out.
JC
26 Aug 10 at 8:27 pm
Just like raising income taxes from 25% to 65%, this was not a good idea:
http://www.answers.com/topic/agricultural-adjustment-act
.
26 Aug 10 at 8:28 pm
No, according to SDFC all that was fine, Dot. what caused the depression was that they didn’t spend enough on insulation program.
If only Lurch and Rudd were around then, they could have gone in, quickly and hard on insulation thereby avoiding the depression.
I wish we had a time machine to get those two in there.
JC
26 Aug 10 at 8:33 pm
Mark
Yes that’s right the economy grew sharply from 1933 to early 1937. Nothing third world about it, also nothing to suggest fiscal expansion wrecked the economy as the naysayers would have us believe. That the economy took the better part of a decade to reach its 1929 level is a function of the depth of the downturn from 1929 to early 1933.
Tax increases aren’t fiscal expansion but rather a fiscal tightening designed to limit the size of the deficit. You’ll be happy to know I’m not in favour of raising taxes during a recession either.
The Agriculture Adjustment Act is something the rural socialists might like but then again I am not a member of the Nationals.
JC
We’ve been through the differences between the depression in Australia and the US before. In short we did not have a banking collapse but rather a collapse in the terms of trade. You seem to be under the impression that the Commonwealth didn’t engage in spending on public works. I’m sorry to disappoint you but they did.
We’ve been through the Rudd stimulus ad nauseam. Simplicistic calculations like 300k per job fail to take into account the cost of lost output and bankruptcy which may have been incurred had the government sat on its hands. Then again simplistic is about the level of your understanding of these issues it seems given the standard of your contributions to these discussions.
Having said that I think we’ll get the chance sometime in the next few years to find out how the do nothing theory performs if the coalition wins government in its own right at the next election.
sdfc
27 Aug 10 at 12:10 am
Fme
Look SDFC, the US banking collapse was precipitated by bad policy. Period. We didn’t have a banking collapse because our banking system was structured differently and the Premiers plan was the right policy.
Yes we did have a public works program, you nimrod. I’m aware for instance the Harbor bridge was built in the 30′s. I’m also aware that our budget balance didn’t go into the abyss.
Look I really don’t know why the fuck you’re having this conversation.
Lets focus on the US. You do appreciate their budget deficit is around 11% of GDP, don’t you. You are aware of what that means and the seriousness of this gap?
We’ve been through the Rudd stimulus ad nauseam. Simplicistic calculations like 300k per job fail to take into account the cost of lost output and bankruptcy which may have been incurred had the government sat on its hands.
Wrong country, Dickhead. the 300K per job is the estimate for the US not here, which is what we were talking about.
Here’s the rub, there isn’t a person here that i know of that wanted to stop the stabilizers from doing their thing and cutting taxes to promote stimulus which works according to this study.
Interesting that they found no cases of spending stimulus working as against tax cuts.
” peer-reviewed economics from Alesina, who examined 92 attempts at stimulus since 1970 in OECD countries and found that tax cuts, but not spending, stimulated.”
http://www.economics.harvard.edu/faculty/alesina/files/Large%2Bchanges%2Bin%2Bfiscal%2Bpolicy_October_2009.pdf
Where’s your evidence?
JC
27 Aug 10 at 12:32 am
JC
The authors make no claim of causation. Why do you?
If you want to read a paper dealing with the current US stimulus why don’t you visit the CBO?
sdfc
28 Aug 10 at 9:23 pm
<i.The authors make no claim of causation. Why do you?
Are you nuts?
“According to our results fiscal stimuli based upon tax cut are much more likely to be growth enhancing than those on the spending side. In this respect the US stimulus plan seems too much based upon spending.”
You keep shit up as you go along.
JC
28 Aug 10 at 10:38 pm