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Old 07-07-2010, 03:36 PM   #121
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How much growth was created or saved because of them and how much worse would have the problem been without them? If you accept that there were jobs created or saved from the 'stimulus' money then the concept is the same for the tax cuts. The concept 'cuts' both ways.
We'll never know.

The context in which these actions were taken are entirely different.

The stimulus was necessary according to many.

Bush first presented the tax cuts as giving money back to the people because there were projected surpluses. All the talk about letting people keep more of their money.

That wasn't the first time that tax cuts were talked up as being good for the budget. It started with Reagan and we know the fiscal results under Reagan, Bush Sr. and W.

Curiously, Clinton raised some taxes and the budget, whether it actually balanced or not, was in a lot better condition when he gave up the reins.


Now, it's much easier to count up the budget than to determine the effects of job creation measures in the economy. The first is simple arithmetic while the second one is probably some multivariate calculus.
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Old 07-07-2010, 04:13 PM   #122
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Originally Posted by IndependentlyPoor View Post

It turned out that raising taxes and cutting spending (or if you prefer, reducing planned increases) did not prevent the economy from growing nicely. Seems to me that actually goes against Keynes' theory, ...
No. As in my previous example/analogy - there may be external forces that outweigh what you are looking at.

It may or may not be the case in your example, but it doesn't prove/disprove anything, unless we can fully quantify the external effects - and we probably can't.

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Old 07-07-2010, 04:23 PM   #123
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No, I am saying you can't assume cause/effect, and I am saying it is difficult to parse out an action/policy from all the other noise.

I've said before, I think it helps to look at what we know to be true, and apply that as best we can. These other 'observations' cause us to act in ways that may be counter-productive.

A physical example:

A) I *know* that putting a 1000W heater in a room with no other HVAC system will add to the heat in the room.

B) I may not know everything about the thermal mass of the room, and the insulation and leakage values. I may not know the outside temperature, and I sure can't predict it with super-accuracy. I don't know if people will be coming and going from the room, or how many occupants there are at any one time.

C) But I can say with certainty that the heater will not cause the room to be cooler than if it were not running, and that it will add heat to the room. Even if I can't predict the actual temperatures.

Yet, someone might observe that I turned on the heater, and the temperature of the room went down. Maybe this is because a bunch of people just left, the sun went down and a cool breeze came by with a big drop in outside temperature.

That person could come to the conclusion that heaters cool rooms.

Or maybe there was something even more indirect - maybe some one placed flowers in the room, and removed them later. We could plot room temperature versus the number of flowers in the room and possibly see good correlation. Time to buy more (or outlaw!) flowers!

So my point is, we really need to do the best we can to understand cause/effect, and apply 'solutions' (policy) reasonably. If we do that, we should be reasonably assured that we had a good chance of improving the situation, even if it continued to trend poorly (it's reasonable to assume it would have been worse w/o our reasonable action). It takes a little faith in your knowledge/understanding, but what doesn't?

-ERD50

My first thought to "A" was.... not if you do not turn it on... then later you say that you did... so... no fun here


sure, you can spend the money for the heater... but if the room is the size of a football stadium... and the heater cost $1 million dollars... then maybe it is not the right thing to buy.... that is another argument on this stimulus spending... that they are not spending it on things that actually can 'warm' the place up...
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Old 07-07-2010, 04:38 PM   #124
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Let's wind this back just a little.
We were talking about Keynesian economics and Ziggy allowed that here in the U.S. we tend to be all for the stimulus part but not so enthusiastic about counter-cyclic policy during the boom times. I mostly agree. I worry about that. Especially now, since I believe that we are going into this in a poorer position.

Perhaps I shouldn't have, but I pointed out that we did engage in a little counter-cyclic policy during the Clinton years. Greenspan is often given credit for pushing Clinton in that direction.

I brought it up because I thought that Ziggy's statements

and


were just a bit too negative. We have a recent example of a moderate policy (I don't recall it being draconian) getting it almost right. The debt almost stopped growing and the debt/GDP declined. Anything wrong with that?

I acknowledge confounding factors, but do not accept the idea that the dramatic change in the debt curve cannot be related to policy decisions. It could have been different. Clinton could have gone on a giant spending spree. (If you want to say "like Obama" here, I won't complain.)

It turned out that raising taxes and cutting spending (or if you prefer, reducing planned increases) did not prevent the economy from growing nicely. Seems to me that actually goes against Keynes' theory, and it confuses things. However I would be in favor of risking a mild recession during boom times if it were required to reduce the debt down to comfortable levels. Mainly I take this as an indication that getting our fiscal house in order does not necessarily require drastic action.

And I repeat. I am not comfortable with Krugman's blithe attitude toward the debt.

It may be that there is no good solution.

IMO, it was not for lack of trying that Clinton did not spend money... he had a Republican congresss that did not want to back his programs..

He did not cut the budget at all... even with cutting the defense budget... his budgets were averaging about a 3.5% increase year over year... but the receipts were close to an average of 9% per year increase...

SOOO, even then we did not cut like Keynesian says to do... it was the tax increases that did the trick...

http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf


BTW, according to someone in Wiki..... we can NOT grow our way out of the current problem...



Can the U.S. outgrow the problem?

GAO Comparative Increase in Spend vs. GDP.


Some politicians and economists have argued that the U.S. can "grow its way" out of these fiscal challenges. Their argument is that economic growth (driven by tax cuts, productivity improvements, and borrowing) will generate sufficient tax revenue to offset growing entitlement spending.[87] However, the GAO has estimated that double-digit GDP growth would be required for the next 75 years to do so; GDP growth averaged 3.2% during the 1990s. Because mandatory spending growth rates will far exceed any reasonable growth rate in GDP and the tax base, the GAO concluded that the U.S. cannot grow its way out of the problem.[88]
Fed Chair Ben Bernanke stated in April 2010: "Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the U.S. economy will be sufficient to close these deficits without significant changes to our fiscal policies."[89]







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Old 07-07-2010, 05:00 PM   #125
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My first thought to "A" was.... not if you do not turn it on... then later you say that you did... so... no fun here
heh-heh-heh, and I tried to word that sooo carefully Let's see, if a 1000W heater is not plugged in, is it really a 1000W heater, or is it merely a device with 1000W of heat capability?


Quote:
sure, you can spend the money for the heater... but if the room is the size of a football stadium... and the heater cost $1 million dollars... then maybe it is not the right thing to buy.... that is another argument on this stimulus spending... that they are not spending it on things that actually can 'warm' the place up...
And this is where it comes down to having some (even if it is imperfect) knowledge of the cause/effects. Even with a very, very wide range of assumptions, one could calculate that producing 1000W of heat in a stadium size room will at most only have a very local affect.

I suppose similar rough estimates could be made regarding stimulus money. But I don't see much interest in it, politicians want to be able to claim they did this or that, and they apparently have a big enough audience for it to keep getting elected.

-ERD50
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Old 07-07-2010, 05:27 PM   #126
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Originally Posted by ERD50 View Post
No. As in my previous example/analogy - there may be external forces that outweigh what you are looking at.

It may or may not be the case in your example, but it doesn't prove/disprove anything, unless we can fully quantify the external effects - and we probably can't.

-ERD50
I'm trying to figure out what you are disagreeing with. I said
Quote:
It turned out that raising taxes and cutting spending (or if you prefer, reducing planned increases) did not prevent the economy from growing nicely.
Is this not true?

Then I said
Quote:
Seems to me that actually goes against Keynes' theory
Here I am acknowledging that other things were going on. Everything else equal, Keynes would have predicted a slowdown. I don't see any disagreement here either.

The economy boomed despite Keynes. The budget was in such good shape that Greenspan publicly worried about a surplus.
Earlier I credited this happy state of affairs to the Greenspan/Clinton policy. Is what you disagree with?

If so, no problem, but it has nothing to do with Keynes being right or wrong.

However, to require that I
Quote:
fully quantify the external effects
is demanding the impossible. Can any economic argument reach this standard?
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Old 07-07-2010, 07:50 PM   #127
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I'm trying to figure out what you are disagreeing with. ...

The economy boomed despite Keynes. ...

Earlier I credited this happy state of affairs to the Greenspan/Clinton policy. Is what you disagree with?
I'm disagreeing that a conclusion, any conclusion, can be made based on the information at hand.

What we have is:

A: A policy was put (or NOT put) in place.
B: The economy boomed (or tanked).

That is not enough to assign cause/effect.

Quote:
Everything else equal, Keynes would have predicted a slowdown. I don't see any disagreement here either.
And for all we know, this did cause a 'relative slowdown', which I would think (but don't know) is what Keynes would have predicted. I doubt he deals in absolutes.

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However, to require that I fully quantify the external effects is demanding the impossible. Can any economic argument reach this standard?
That's what makes real world economics tough. Need another example of absolutes versus relative? Here:

Let's say I understand chemistry and biology, and I can determine that X # of nitrogen should boost yield on your corn crop by 10%. I also do some carefully controlled test plots and am able to validate these numbers pretty closely.

Now you, the farmer, buy my fertilizer this year, but your corn crop gets wiped out by hail. Your yield goes down by 50%.

Does this "prove" that my fertilizer is no good? Of course not. The effects of nitrogen on corn are well understood, and we can estimate that the crop still did relatively better, or at least would have under more typical circumstances. But we can't always count on absolute improvements, due to external events.

This is complicated far more by real world economics.

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Old 07-08-2010, 06:04 AM   #128
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The budget was never balanced during President Clinton's term. I'm surprised folks are still saying this. The national debt went up every year.
This is only true if you care about the semantics of when Clinton's term ended. The largest surpluses occurred in 2000, before the tax cuts, before the recession, and before Bush's first budget. National debt (according to the link) declined from $5.79T to $5.63T during that year.

There is no doubt that the budget moved from deficit to surplus, even considering the accumulation of "debt" to social security recipients who won't get paid what is currently promised.
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Old 07-08-2010, 06:17 AM   #129
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How much growth was created or saved because of them and how much worse would have the problem been without them? If you accept that there were jobs created or saved from the 'stimulus' money then the concept is the same for the tax cuts. The concept 'cuts' both ways.
Except when you're in a liquidity trap where people and corporations horde money (emphasis added).

Current economic conditions matter to proposed policy recommendations (it's strange that no one seems to acknowledge this seemingly obvious point). Demand side stimulus doesn't work when the economy is up against supply constraints (1970's) and Supply side policies don't work when you're stuck in a liquidity trap with the Fed constrained by the zero bound (like now).

One size does not fit all.
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Old 07-08-2010, 09:10 AM   #130
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Originally Posted by ERD50 View Post
What we have is:

A: A policy was put (or NOT put) in place.
B: The economy boomed (or tanked).

That is not enough to assign cause/effect.

-ERD50
No.

What we have is:
A: A policy was put in place (measures to balance the budget).
B: It succeeded (or came close depending on whose numbers you look at).
C: That the economy boomed is an entirely separate issue.

The point was that the government is capable of counter-cyclic economic policy (tax increases and spending constraints). The fact that these measures did not prevent the economy from booming is icing on the cake. Whether through luck or skill, they hit the jackpot and got it just right. (I admit to a bit of snark in that last sentence. I suspect that many would say that taxes were too high.)
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Old 07-08-2010, 09:26 AM   #131
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No.

What we have is:
A: A policy was put in place (measures to balance the budget).
B: It succeeded (or came close depending on who numbers you look at).
C: That the economy boomed is an entirely separate issue.
OK, I think we are in agreement then, as far as that goes. That's not was I reading from (into?) your posts.

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Old 07-08-2010, 09:29 AM   #132
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OK, I think we are in agreement then, as far as that goes. That's not was I reading from (into?) your posts.

-ERD50
Perhaps my posts are not the model of clarity that I imagine them to be.
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Old 07-10-2010, 07:24 AM   #133
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John Makin is a conservative economist (you can see him blame the economic crisis on the government in a 2009 WSJ Op Ed piece) but now seems to have come to the same conclusions as Krugman.

The Rising Threat of Deflation

This article for the American Enterprise Institute is a pretty good discussion of our current situation, and a pretty good recital of text-book economics.

There is a lot of stuff here worthy of quoting, but I'll just leave with his conclusion:

Quote:
At this point in the postbubble transition to deflation, fiscal rectitude and monetary stringency are a dangerous policy combination, as appealing as they may be to the virtuous instincts of policymakers faced with a surfeit of sovereign debt. . . . . The G20's shift toward rapid, global fiscal consolidation--a halving of deficits by 2013--threatens a public sector, Keynesian "paradox of thrift" whereby because all governments are simultaneously tightening fiscal policy, growth is cut so much that revenues collapse and budget deficits actually rise. The underlying hope or expectation that easier money, a weaker currency, and higher exports can somehow compensate for the negative impact on growth from rapid, global fiscal consolidation cannot be realized everywhere at once. The combination of tighter fiscal policy, easy money, and a weaker currency, which can work for a small open economy, cannot work for the global economy.
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