Some Thoughts On The Stimulus
Feb 12th, 2009 | 22 responses
As we move closer to the passage of the economic stimulus package I thought I would take some time to post a few thoughts on the issue. I realize that for many it is a subject that prompts some pretty strong emotions and I would like to start by (at the risk of sounding like a broken record) remind everyone of a few basic civilities.
To begin with pretty much everyone is in favor of the economic recovery happening as quickly as possible. I know that it is easy to just assume that the other side is somehow opposed to good things or that they want everyone to fail. This makes it easier to support your own viewpoint even when you have doubts.
But the fact is that just because you oppose the stimulus package does not mean you oppose the recovery, it simply means that you have doubts about whether the package will succeed. Similarly just because you support the proposal does not mean you are on a secret agenda to impose socialism on the United States, it just means that you feel that this level of stimulus is required to recover the economy.
I also think it is somewhat arrogant for people on either side of the debate to say that they know how this proposal will pan out. While television may provide us with leaders who are Nobel prize winning economists with perfect prescience the real world is full of normal people who can’t possibly know what will happen.
Indeed in this very debate both sides have cited the experience of Japan in the 1990′s to show why they are correct. Some contending that their efforts at stimulus failed because they did not spend enough while others suggest that the problem is that a large level of spending simply can’t solve the problems.
As for my own views, I find myself somewhat on the fence when it comes to the current package. I do recognize that it is very important for us to get the economy going and that to do so will require action by the government. I do think that some tax cuts are important to give businesses and individuals money to put into the economy. But I also recognize that we also need some immediate infusions of cash into the system and that this is going to require spending on the part of the government.
My concern rests over the level of spending and tax cuts and whether nearly $ 1,000,000,000,000 being added to our debt is going to cause more problems that it will solve. Just for the record I wasn’t happy when Republicans were in control and they ‘tinkled’ away many billions of dollars and by the same token I am not really happy now. Certainly some of the spending during the Bush years was necessary just as some of the spending is necessary now, but I think we need to be very careful about how we spend it.
In that vein I would hope that the spending is going to be directed at things that will 1) really work to stimulate the economy and 2) are truly necessary programs rather than pork projects designed to get votes. We certainly have plenty of infrastructure problems that could be solved with a stimulus package, thereby serving both the goal of helping the economy as well as repairing the long term neglect of our roads, bridges, etc.
The problem is that when I read about what is contained in this bill I am not sure about many of the proposals that have been included in the bill. For example the bill includes more than $ 1 billion in funding for the Census, more than $ 2 billion to study global warming, $ 10 billion in programs to promote carbon offsets and billions upon billions in local pork projects to build roads and bridges to nowhere, indoor rainforests and the like. None of these programs really look to stimulate the economy and many are pure waste.
On the perhaps necessary but not really stimulating to the economy side we have $ 80 billion in grants to the states to help with their budgets and $ 90 billion in Medicare grants. It would seem to me that such spending could be included in separate legislation which could be examined on its own merit.
My personal desire would be for the same group of moderates who worked on the bill already would get back together and design a proposal which would slash both the tax cut and spending provisions down to what is pure stimulus and leave the rest for future debate. This would allow us to quickly get out a jolt to the economy while taking our time on the long term
This is not to say that I am wholly naive about how spending decisions are made in Washington. This is the Congress, and as someone once said, if pro is the opposite of con then is progress the opposite of Congress. No spending package that comes out of the legislative process is going to be entirely satisfactory to anyone.
Further, as a fiscal conservative I am always going to be reticent about incurring more debt and I also probably lean more towards tax cuts than spending since I tend to trust the guy next door more than I am going to trust the guy in Washington DC when it comes to how to spend money.
As I ponder the situation I find myself alternating between reluctant support of the bill as being the best we will be able to put together versus resigned opposition for the same reasons. In the end I suspect that, if a member of Congress, I would probably come down on the side of support simply because I think something has to be done and we probably are not going to get any further in terms of changes or improvements.
But it would not be a particularly happy decision and somehow I suspect that there are few members of Congress truly happy with the final package. That perhaps is the saddest part of the whole process.
22 Responses to “Some Thoughts On The Stimulus”
I think you're giving them too much leeway to say this was the best they could do. When you start looking at how the sausage is made, it's pretty disgusting.
I know that a lot of people were justifiably outraged that this stuff went on during the GOP dominated years, but I hope that some eyes are opened now to see that the lack of ethics doesn't have a party bias. We need to take our country back and I hope that people from both ends of the political spectrum will see how outrageous this is under the current circumstances.
CS – check this out. The CBO is saying the real cost is not $789b, but 3.27 trillion!
http://blog.heritage.org/2009/02/12/true-cost-o…
It seems to me that the thoughts expressed in this article and comments above are a perfectly normal response IF this was a perfectly normal recession. It's not. The worst recession in my life occured when the price of Oil went from $2 a barrel to over twenty thanks to OPEC. We had a real danger of inflation and a prime rate in the teens, The Feds eventual response was to slash ihe Prime to 7%. Regan's tax cuts helped.(a matter of debate.)
The point is that there are no more Fiscal variables to twiddle. Any project that spreads money into the economy – be they road beds or bed and breakfasts – it doesn't matter. If people go to work or continue to work, they earn and spend money. As I've asked before, how much money do I get back from tax cuts if I'm unemployed?
Fiscal conservatism is like a doctor who advocates a healthy diet as a way to health. Under normal conditions, it makes good sense. Our patient is bleeding to death. First stop the bleeding. IMHO
Yes, I've seen those estimates, AR. And it's only the beginning (or part 2, counting TARP, of what looks like a long series.)
I especially wanted to point out the complaints from House Democrats about K Street getting to review the bill before they do, though, since I know that Kim is going to be outraged over that. I'm sure she'll comment on it as soon as she becomes aware, since this was something she strongly opposes.
The point is that there are no more Fiscal variables to twiddle. Any project that spreads money into the economy – be they road beds or bed and breakfasts – it doesn't matter. If people go to work or continue to work, they earn and spend money.
Actually it does matter if jobs aren't actually created in a timely manner. If the jobs don't come along until the point of time when the economy would have been rebounding anyway, then you've done no good and the borrowing has created more debt, and the public investment has tied up funds that would have been used for private sector investment. But don't take my word on that, read the CBO estimates of what this bill is likely to do.
And your analogy to health might make sense if you had the correct diagnosis. The patient isn't bleeding, he's volume overloaded and pumping in more volume is likely to speed up the demise.
I'm not questioning your analogy, but if volume – too much money in the market- was the symptom, wouldn't inflation be spiking? The CBO says the problem will occur in 5 years, the patient could go into coma long before then. If unemployment hits 10-15%, all bets are off in a service economy.
Well, you are questioning my analogy, but that's OK
I actually thought about your exact point right after I posted, and I'm not sure why the analogy fails on that point. I think it's because we don't have too much actual money, but too much credit as a ratio to actual GDP. But still, I think it's important to know whether or not the patient needs a big infusion or if potentially that'll be harmful.
To try to parse the medical analogy a bit more, it seems to me that intravascular vs. extravascular volume is probably part of the picture (a patient with edema, not intravascular overload, so bp isn't high- maybe that's the analogy to inflation? I'm not sure.) That seems to make some sense, because we do know that the ability of the 'fluid' to circulate is a problem right now.
Actually that's not what the CBO is saying. What they are doing is responding to a very specific request from an extremely conservative Republican representative asking for an estimate based on the permanent extension of provisions of the bill. Then they take the 10 year cost. Then they put it into a barely readable graphic with no link to a complete document. And what CS posts is even worse. An unsourced blog article based on supposed emails from staffers? Let's see…a compromise package is agreed on one night and the next day there are supposedly complaints from “staffers” that they don't have copies of a final bill whose compromise form was just reached hours before. Does anyone else see the problem with this? Try honing your reading skills, CS, since the people supposedly doing the bitching are only staffers, not representatives as your post implies.
If only the economy would lend itself to an analogy we all could agree upon. That's maybe ultimately the point. Too much make-believe money in the marketplace? Absolutely, and dangerously so. Too many people out of work with many, many more possibly going on the rolls? Just as bad.. It's a toss-up between an open head wound and a sucking chest wound. Take your pick, they both lead from bad to worse very quickly.
I mean really, we have too much money AND not enough credit??? I didn't think that was possible, Let's hope all our witch doctors figure it out, cause it's really beyond me to know what really is the right thing.
Thanks CStanley, I've learned a couple things.
Jim, if that rumor turns out to be unfounded I'll retract. But your points about the timing don't apply because the House actually voted to require the bill to be posted online for 48 hours prior to a vote, and that deadline has come and gone. The speed with which this is being pushed through and the lack of transparency doesn't lend itself to confidence in the process, even if admittedly that time frame is difficult for them to work with. But it was the timeline that the leadership chose, and they either stick to it or they leave themselves open to these questions.
HemmD: I'm not going to be able to get this out of my head now, to see if the analogy can be made to work. The more I think about it, I think credit could be like the extravascular fluid and money supply would be the intravascular. High BP would be like inflation, low would be deflation.
The integrity of the vascular system is the confidence of the soundness of the markets.
Albumin and other osmotic components would represent, I guess, attractors for investment.
I think?
If this makes sense, then I'd say the patient is shocky, but also has extravascular volume overload- so we have to stabilize the circulation and perhaps use a judicious infusion of a high osmotic fluid.
Which translates to: a stimulus, but not the oversized one that some are calling for (that wouldn't be judicious, the circulatory system can't handle it) and one which actually can help attract more investment down the line (the osmotic fluid) instead of a fluid that will leak into the extravascular space and cause more edema.
Plus, start figuring out how we get some of the excess fluid out so that the extravascular stuff can get pulled back into the circulation.
Hmm.
Well having played too many games, to me it's like flying a military jet that has been hit and leaking fuel. In order to make it back to the base you have to decide whether to conserve what you have at a lower airspeed or hit the afterburner and get as far and light as possible, and then throw up the flaps to maintain lift (since military jets, unlike commercial ones have enough aerodynamics to fly without power for a while) and pray.
The afterburner way doesn't get you as far on fuel so you're less maneuverable and if you run into an enemy plane you're screwed, and to make matters worse it's hard on the plane and depending on the amount of damage can make things much worse…however if things do hold together and the skies are clear you get further that way. I have no idea if the games are realistic but I spent many hours as a kid trying to pick which to do by looking at the map, trying to gauge it and then going by gut feel. The games are mean too and don't let you use autopilot, so a lot of times I'd crash within sight of the runway after spending 10 minutes flying. The one game that was my favorite sometimes the afterburner would make things fly off and damage other systems, and so one time I hit the afterburner for about 5 seconds and then the ejection system broke and the fuel started pouring out really fast so I was committed to burning it off as fast as possible and had no other option.
Haha….it's funny how we all use analogies for what we're familiar with.
CStanley: OK, where does artial bleeding of jobs fit in your diagnosis?
Your analogy for the credit market is quite accurate and eloquent. I have no background in the credit markets on which to disagree in any case. World wide credit problems ar going to be an ongoing problem for some time. I read somewhere that AIG may be on the hook for 22 trillion in European leverage guarantees.
I do know, however, that we have become a very fragile service economy that could crash in a matter of a months if job loss continues abated. Past recessions have been “grown out of.” because job loss has eventually been neutralized by dropping interest rates and providing credit to pull us through. Those remedies no longer appear available.
As the economy doctor, I'm happy to defer to you concerning credit edema.
As a first year resident, I merely wish to re-stress that blood loss must be the higher immediate priority or the patient will bleed out..
Don't mean to beat this very dead horse.
Heh…this is actually kind of weird because everything you mention really can be fit into my model, I think.
Arterial bleeding of jobs…first off, I think the jobs in this analogy would be the RBCs- the oxygen carrying components of the blood. So, the steps when they're leaving the circulation quickly will be to transfuse (job creating via stimulus) or alternatively use an artificial blood carrier. Sometimes that's preferrable because the body might be attacking it's own RBCs- so the analogy there would be the debate over public vs. private sector jobs. But the hemoglobin products don't perform as well or last as long (actually transfused cells don't either) so you have to make sure the patient's going to start making his own pretty quickly (much like the debate about whether stimulus spending crowds out private investment that's going to be needed for the long term recovery.)
And certainly, the volume to be infused is important- so if you mainly need the RBCs and not high volume infusion, you want to use packed blood cells, not whole blood or colloidal fluids (those things would be appropriate in a normal circumstance where you just have to get the circulation going by quickly restoring blood pressure with volume- that's how I see a normal Keynesian intervention- but putting high volume in under these peculiar circumstances can definitely be harmful IMO.)
So my argument there is that you surely want to make sure that the stimulus spending is highly targeted to create a lot of jobs, not just generally spending money because we think that helps (that would be the high volume approach.)
But there's also the question of whether or not there's really a focal point or points of massive hemorrhage or is it just widespread extravasation because of the leaky vessels (the integrity thing I mentioned earlier.) I don't know if there is an analogy to what a surgeon does in the case of acute hemorrhage, which is to find the source and stop the bleeding by ligating the ruptured vessels. And it sort of seems more to me that we have the second situation, of generalized 'oozing' throughout the system. In that sense, the appropriate govt action I think is to restore confidence, and part of that is to stop the Armageddon predictions. Since job decisions are being made by these companies at least in part on the anticipation of things worsening, I think you'll stop some leakage by using more confident rhetoric (maybe that's like slowing heart rate instead of giving the patient shots of epinephrine, which would cause the heart to beat faster and stronger and push more of the RBC's out of the holes in the vessels.)
Your point about the dangers of high unemployment in a service based economy are on target, I think…but that's also why it's true that psychology matters. Think about it…even for me personally, we're in decent shape but there are services I'll be putting off for the next 6-12 months because I don't know what's around the corner and the picture I'm getting is so bleak that I'm more concerned than I normally am about having cash reserves. I'm hoarding, basically.
There's probably something in there that would correlate to tissue demand for oxygen, but I'm not quite able to piece that one together.
Anyway, I could be talking through my hat here but I find it interesting that there are a lot of parallels. It would be interesting if someone had expertise in medicine as well as economics, to see if they think my model makes any sense at all.
Well then, to pick the last nit on this dog…
I'm not sure there's a medical condition where the loss of one RBC causes the death of two more RBCs. I.E. The loss of one service job tends to degrade multiple service jobs going forward.
Virginia is experiencing problems processing jobless claims because the state had to lay off claims workers due to lack of State funds .
Your flushed out analogy is really well done, but (always the but), it is an analogy. By that I simply mean there is a subtle danger in framing what is unknown with a known framework.
Where's a doctor of medicine AND economics when you really need them?
I believe you would agree that the present situation is not one any other economy has faced – I may even be wrong in this, but none come to mind.
So, the medical analogy implies we have seen this set of symptoms before and know exactly how to proceed to save the patient.
I'm not sure that's true, but I hope your right. I surely do.
Well if an organ starts failing because it can't get enough oxygen then other organs can start failing due to toxin buildup or whatnot. The medical analogy for what I think we should do about the economy is induce a coma and lower body temperature so much that metabolism is reduced and organs are protected, then focus on the repairs even if blood is still leaking.
Yep, you got it, Mikkel.
And then there's also the danger of restoring oxygenation too quickly because you get free radicals released into the bloodstream. There's a condition we deal with in dogs where that's an issue- stomach torsion- because when you flip the organ back and restore the blood flow you release all of those toxins into the circulation. These are the kinds of considerations that aren't necessarily intuitive (your inclination is to fix the problem quickly, especially if it's clearly a problem that puts the patient in a life threatening situation.)
And that, I think is the take home message from my analogy, HemmD. You're right, of course, that analogies are never perfect and sometimes people think they can infer too much from them- but to me it's about thinking through the interrelated cascade of problems, and this model seems somewhat useful for that.
Well CS that's because the body operates on dynamic feedback loops much like most natural processes. Using systems control theory to describe the body, weather, etc. has made our understanding much better, yet none of that is incorporated into the standard economics models. This is why I reject orthodox economics wholescale except for the (often purely qualitative) parts that talk about feedback and they have no models for. Our “modern” economic system is built on 19th century thought.
Well, I'm glad that I'm not crazy in picking up on that intuitively.
MIKKEL FISHMAN's post, One Data Point To Rule Them All, seems to conclude kind with what I was fumbling to express.
“This is why I’m so skeptical of the bailouts/stimulus packages/whatever…until the system is flushed back to at least normal levels (of leveraged debt), it’ll be impossible to use the money productively. This is why I really wish the government would throw in the towel and use our limited resources to help set up programs that anticipate 25% unemployment etc. and then use the bullets we’ve saved for when the system is flushed out and needs a real Keynesian reboot.”
Enough
Nice U can also use the site For the Speed test Ip-Details.com