« Remember the Moderates: Thomas Dewey
Cheney Says Obama’s Policies Will Make U.S. Vulnerable To Terrorist Attack »
Stimulus Schmimulus
Cued by Andrew Sullivan, I briefly commented on this subject in the parenthetical conclusion to this post — but the issues raised by Sullivan and his colleague, Megan McArdle, deserve more than that; hence, the following.
To recap: Yesterday, Megan went semi-nuclear on some of her readers who suggested the primary “burden of proof” should be placed on the stimulus opponents rather than its proponents. Au contraire, Megan responded:
… it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren’t tax cuts or transfer payments. Let’s recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II) — the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.
While I can’t comment in detail on the above-cited history, a book I’m reading on the history of Republican presidents — written by a lifelong Democrat, nonetheless — generally supports Megan’s points about America in the 1930s. To summarize, from pages 186-190 of that book:
-
Roosevelt was first elected President in 1932. With controlling Democratic majorities in House and Senate, his New Deal proposals were quickly enacted.
Despite the prompt action, “the Depression hung on tenaciously” through the 1934 mid-terms. “Jobless rates did not improve, farm prices remained low, and factory output was less than 50 percent of capacity in some indutries.”
Regardless, Roosevelt was re-elected in 1936 and Democrats expanded their majorities in House and Senate, losing “none of their enthusiasm in the Seventy-Fifth Congress,” even though “the Depression would not go away.”
By the 1938 mid-terms, “the Depression (had) abated hardly at all, and voters showed mild dissatisfaction by punishing the incumbent Democrats, who lost seven Senate seats and a hefty eighty in the House.”
Megan anticipates one counterargument to this history, namely that the various New Deal stimuli didn’t work as intended because they were too little too late. The other counterargument, of course, is that the New Deal might not have improved matters, but without it, the Depression would have been even worse.
Both arguments, using Megan’s words, are anchored in “a belief in the virtues of stimulus that is essentially non-falsifiable.” She concludes: “We might as well move macroeconomic policy to the Office of Faith-Based Initiatives.”
I view the matter through a simpler, less-informed, and potentially less cynical lens than Megan. In short: Provable or not, and despite discouraging precedents, it’s probably better in the current circumstances to do something major than something minor or nothing at all — which is essentially what David Leonhardt argues in his column in the print edition of today’s New York Times. Of course, Leonhardt cites experts, data, and other points of reference to bolster his case, while I favor bold action for a more pedestrian (and yes, less verifiable) reason, namely: the benefits of action vs. non-action on our national psychology.
Though his policies did little discernible good in the 1930s, it seems Americans took a certain, substantial solace from Roosevelt’s insistence that government at least try to help. They clearly preferred someone who acted with bold confidence — successfully or not — over anyone who recommended inaction or middling action. Why else would Americans elect Roosevelt their President a (now-unbreakable) record of four times, including twice after they began to boot Democrats out of Congress?
Translation: To “survive” the Great Depression, Americans in the 1930s didn’t want someone telling them they needed to buckle down and weather the storm and nothing more. They wanted someone telling them — and showing them — that, while they were buckling down, their government would be doing everything it could imagine to help. That’s what many Republicans are missing in their assessment of the current situation, I fear: The national psychology requires government action, right or wrong.
On the other hand, given the unknowables of such action — i.e., given the significant chance that any action could be ineffective (or worse, counter-effective) — some compromise on the major components of the experiment (e.g., the magnitude of individual and corporate tax incentives vs. public works) would be wise. Fortunately, for those who favor major-component compromise, as I do, that outcome now appears likely.
14 Responses to “Stimulus Schmimulus”
Well I agree that the models are wrong, but any complaint about the spending goes 10x for the tax cuts, so if she wants to be intellectually honest (she doesn't) she would admit that. I would disagree with you that it is better to do “something” than “nothing” when “something” means trying to prop up the system. That is going to require so much money that it is undoable. The entire argument is misplaced because they are arguing about whether we can prevent the downturn from getting really bad, when they should be arguing about how to respond when it does. I've now been talking about this for two years (I should probably try to get a bigger pulpit) but the “something” we should be doing is shoring up food/housing/unemployment distribution programs and planning all these infrastructure projects to work on once we've hit bottom in a year or two.
This should take place in parallel with wiping out the current banking system (either by setting up a parallel one and just stop bailout out the current, or forcing them to write down everything and be recapitalized) so businesses will have liquidity to operate. It should not be about trying to prevent deflation or getting GDP growth back up immediately. But even if I had a bigger audience, no one would to listen to me because I'm saying that most people are going to lose a majority of their wealth and they don't want to accept that…so we're going to squander it all and then end up with a humanitarian crisis.
First, the burden of proof _always_ lies with _proponents_ of government intervention or authority. That's our English libertarian normality.
Second, the burden of proof on a stimulus lies with proponents of it. There is an historical as well as logical basis for a stimulus effort.
Third, the burden of proof lies with proponents of _each_element_ of a stimulus package, to show it truly is stimulatory in effect and in intention (as opposed to, say, family planning or midnight basketball). Hopefully the Senate will be honest, logical, and mature in lieu of the House Democrats' gross misconduct in this regard.
* * *
“I've now been talking about this for two years (I should probably try to get a bigger pulpit) but the 'something' we should be doing is shoring up food/housing/unemployment distribution programs and planning all these infrastructure projects to work on once we've hit bottom in a year or two. “
Yes. In addition to that book by Bootle and one or two articles by him I've linked to already, there is the “bang for the buck” evaluation by Zandi at Moody's Economy that shows that food stamps and unemployment insurance (as well as aid to states) are among the kinds of measures that have the most effect. Presenting information like that is what more stimulus advocates should be doing (as well as using that information to guide their choices and preferences!). We also need to long out in the longer-term and be propitious now about the devotion of some spending and activity (which should boost employment, coincidentally) toward infrastructure needs (repairing or replacing deficient bridges; increasing highway capacity where needed; improving our electrical power transmission system or “grid” in addition to correcting known deficiencies) as well as lesser needs and wants (adding new freeways where they have long been needed; research and development into future electrical infrastructure, alternative energy sources). Coincidentally, infrastructure is probably the area for spending and activity most acceptable politically to the most people (the least controversial, you could alternatively say).
One way to aid the states that Obama could and logically should exploit (as an incrementalist measure toward Medicare for All) would be to take over financing, then administration of Medicaid from the states. I also believe that if Obama were smart, he could exploit a favorite GOP item, tax reductions, by offering the best kind, which is a tax reduction for everyone, possibly leading to eventual replacement of the payroll tax by the income tax (made more progressive, naturally, to buy more votes) and even readjusting tax and spending so as to make Social Security sustainable (which it currently is not).
Housing is controversial and provocative because the federal government shouldn't engage in deliberate moral hazard and vote-buying.
Banking is controversial and provocative not only because of past failures but the history also with the savings and loan bailout and with the corruption of current stimulus thought to include federal provision of subsidized low-rate mortgages, likely to many who are unqualified borrowers. (It's only a matter-of-degree difference between these mortgages under consideration and federal payday loans.)
Monetizing the large increase in federal debt, and later, inflation “to get out of deflation” but also to buy votes as in decades gone by is a fear that may become real, but not currently.
Short of a sound stimulus (more like a decline-brake or retarder), it would be better to be merely reactive, wait for things to fail and then take remedial action, or just have done the most sound thing as an alternative to a sound stimulus policy, which would be to do nothing.
1. Pete, you're right about “recognition.” I picked up the following book in downtown Detroit a few weeks ago,
http://www.amazon.co.uk/Great-Slump-Capitalism-…
[Used book stores are gold mines!]
and while the New Deal didn't end the Great Depression, and people didn't necessarily (though some no doubt did) feel happy that the federal government was doing something for them, at the very least, as contrasted with what was felt about Hoover, with FDR someone at least acknowledged the plight that so many people were in.
2. Hey, everyone! The cities and mayors aren't limiting themselves to getting bailout money to sustain mismanaged operations, as with the City of New York so long ago. (Does Bloomberg want another bailout?) Here's what the mayors have on their minds for stimulus projects. An eco-park! A Frisbee golf course! The dinner bell has been rung in Washington, and the mayors have responded heartily.
344 pages of Washington-inspired stimulus ideas:
http://www.usmayors.org/mainstreeteconomicrecov…
Translation: To “survive” the Great Depression, Americans in the 1930s didn’t want someone telling them they needed to buckle down and weather the storm and nothing more. They wanted someone telling them — and showing them — that, while they were buckling down, their government would be doing everything it could imagine to help. That’s what many Republicans are missing in their assessment of the current situation, I fear: The national psychology requires government action, right or wrong.
Sure. But…
The domestic audience of everyday Americans isn't the only one that needs to be addressed. Obama had better start looking like he knows what he's doing about the banking system and global economic issues including trade.
The single best thing he could do- for himself and his party politically as well as for the country (even the entire planet, when you consider the global impact of all of this) is to start showing more decisive leadership by announcing that Congress must (and will) act swiftly on the things that must be addressed immediately but will be more deliberate on the issues that require more time and greater understanding before we act. He ought to insist that the stimulus bill be stripped down and the longer term stuff will be handled separately so that the emergency and stimulatory measures can easily clear the bar with widespread support from both parties.
City: Boynton Beach, FL
Program: Community Development Block Grants
Project Description:
Quantum Eco Park ? Development of an “eco” park using LEEDS or other “green” design princip[le]s. Amenities
to include trails through natural areas, nature center for environmental education, interpreive exhibits, rock
garden, butterfly garden, botanical garden
Funding Required: $4,500,000
Jobs: 50
City: Austin, TX
Program: Water and Wastewater Infrastructure
Project Description:
Raul Alvarez Disc Golf Course: This project will develop a 36?hole disc golf course that will be environmentally
and financially sustainable.
Funding Required: $886,000
Jobs: 4
That actually gives me an idea, DLS. Why not have an actual bid process for job creating stimulus money? The main criteria would be the ratio of cost: jobs, so that those mayors who submit proposals like the ones you highlighted wouldn't stand a chance, while other projects where the ratio was under $100,000 per job would be competitive.
Um, because that would be the smart thing to do? But I don't believe that the #1 priority at this point should be to create jobs or try to prevent a sharp downturn, but to just plan and support people as they need it. As DLS points out that is what gives the most “bang for the buck” anyway and at some point things will stabilize naturally and then we will have more resources to rebuild and expand.
Well, OK, Mikkel, but politically I don't think we can avoid the pressure to 'create jobs' in the short term, so I'd at least prefer that someone find a way to credibly do so without it being a complete farce or political grab bag.
Yeah that's true. You know what they say about not letting the perfect be the enemy of the good.
McCardle is a libertarian. For any libertarian to claim that someone else needs to prove something about highly theoretical models before they can do anything is the height of hypocrisy.
Exactly- and if it were done as a percentage of the overall bill (to cap the overall amount), then it wouldn't really be harmful and could have some positive real effect and even more so, some positive psychological effect.
That concept is actually completely internally consistent with the logic that guides libertarianism, Jim. The default position is that money spent by government has to be justified. You obviously disagree with that principle, but it doesn't make her a hypocrite.
Yes, it does because the entire basis of libertarianism is an utterly blind faith in the infallibility of the free market for everything under the sun. There is no proof whatsoever that this is true. Yet they have the gall to tell other people to prove things.
It's unfortunate our elected officials can't put aside their posturing and foolishness to address our economic problems, to the degree that can be accomplished. I live in Wyoming and we have had a booming energy sector in the past few years and now, oil companies are laying off workers, the price of oil is down, and when that happens, production decreases. Houses and apartments have been built that won't get sold. people have less to spend in small businesses, you know where it all leads. It seems that a major portion of our economy has been built on a house of cards–consumer spending, i.e., people borrowing money to buy foreign made products, it will obviously take time to move away from that model to something more sustainable.