Metal Sludge Gossip Board

The Congressional Budget Office (CBO) in the US has now reported the following, the ARRA being the American Recovery and Reinvestment Act, better known as “the stimulus”. They are comparing how things might have been had there been no stimulus with how they actually turned out instead:

CBO estimates that ARRA’s policies had the following effects in the first quarter of calendar year 2012 compared with what would have occurred otherwise:

– They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.1 percent and 1.0 percent,

– They lowered the unemployment rate by between 0.1 percentage points and 0.8 percentage points,

– They increased the number of people employed by between 0.2 million and 1.5 million,

– They increased the number of full-time-equivalent jobs by 0.3 million to 1.9 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)

So depending on how you do the calculation, the fall in unemployment may have been as low as 0.1 percentage point and the cost per job as high as $4.1 million. If, on the other hand, you take the best outcome, the fall in unemployment was 0.8 percentage points at a cost of $540,000 per job. And if you’d like to split the difference, it’s about $2.5 million for a fall in the unemployment rate of 0.4 percentage points.

Of course, beyond that, which they do not report, the American economy has had by far the worst recovery since World War II with no genuine end in sight.







Textbook Keynesian economics is such nonsense. John Stuart Mill 160 years ago could write that the demand for commodities is not demand for labour, meaning that buying things creates no value, meaning that public spending to raise employment cannot work. Keynesian theory is the economic equivalent of applying leeches, almost a perfect description of what Keynesian economics is actually about.
http://catallaxyfiles.com/2012/05/31/th ... et-office/


My contribution:

Whatever the numbers, even if they are a quarter of those in the article, paying money to fudge employment stats is a short term fix. Unless they are productive jobs with a long term future, the jobs will be gone as soon as the stimulus dries up. It's easy to create these fake jobs.. just pay someone stimulus money to do things that otherwise wouldn't need doing. The free market, sans taxpayer money, is the ultimate arbitrator of whether a job is sustainable or not.

In this vein, here is my proposed jobs programs using stimulus money:

Department of window smashing.. employs tens of thousands nationwide who go around smashing windows. Stimulates the window industry. Increases demand for glass productions, increases employment for window fitters, transport companies and home depot. Everyone wins.



An extreme example, but you get the point. Apart from the necessary public sector jobs, a government's role in job creation is to foster the best social and economic environment possible for private enterprise to employ people. Not to pay people to do jobs that nobody has any need for, that wouldn't get done without taxpayers largess.

I think Keynsian economics has done a lot of good, but the 'borrow indefinately to spend ones way out of a crisis without addressing the fundamental issues' attitude is extremely naive.

90% of borrowed stimulus money should go to infrastructure, where it benefits the economy in the long term. The other 10% should go towards research grants.

SmokingGun wrote:Whatever the numbers, even if they are a quarter of those in the article, paying money to fudge employment stats is a short term fix. Unless they are productive jobs with a long term future, the jobs will be gone as soon as the stimulus dries up. It's easy to create these fake jobs.. just pay someone stimulus money to do things that otherwise wouldn't need doing. The free market, sans taxpayer money, is the ultimate arbitrator of whether a job is sustainable or not.

They tried doing that during the Great Depression. For example, the front steps of the Brooklyn museum was demolished and a ground level entrance was created instead. The idea was to use government (tax payer) money to fund the project so people could get paid to do the work.

It sounds like a good idea, but much like you said, the moment this funding is gone all of those people are right back out of work.

More financial illiteracy from the right. You don't simply divide the budgetary cost which includes tax cuts and is spread over many years by the jobs added this year to determine cost per job. You're also ignoring what is created when the work is done.

What is amusing about this post is that you are relying on the CBO's report but then declaring that Keynesian economics is useless while the CBO report uses Keynesian economics to perform the analysis and says the multiplier for certain types of govt spending can be as high as 2.5.

That is how they are getting a range from .1 to .8 etc. They are taking the minimum multiplier and the maximum multiplier, looking at the spending and going from there.

By using their numbers you are conceding that Keynesian economics is effective in some circumstances (ie: multiplier greater than 1).

They tried doing that during the Great Depression.

You don't even know what the word recession means dummy. You don't know anything about the Great Depression.

Getting off the gold standard, rescuing the banks and increasing govt spending turned the economy around immediately.



The Reagan years prove that Keynesian stimulus is effective. 1/3 of the economic growth in 85 and 86 came from increased govt consumption and investment. Add in a recovery that was driven by a interest rate cut in 82 and devaluing the dollar at the Plaza accord in 85 and you have a text book Keynesian stimulus. It was called "Morning in America."

DEATH ROW JOE wrote: What is amusing about this post is that you are relying on the CBO's report but then declaring that Keynesian economics is useless

No, I never said that. Keynesian economics works well until there is a sharp economic downturn. I have always maintained that it is not possible to borrow one's way out debt. Certain borrowing in very specifically targetted areas such as infrastructure can help, but as long as the underlying economic issues are not addressed, not much will improve as the debt (and interest payable) continues to grow.

DEATH ROW JOE wrote: By using their numbers you are conceding that Keynesian economics is effective in some circumstances (ie: multiplier greater than 1).

Yes, correct, in my post I did state clearly that Keynesian economics has been very effective.

It's the endless borrowing and stimulus money spent on futile attempts for governments to 'pick winners' that is the Keynesian school's achilles heel.

The Reagan years are not applicable, as the role of manufacturing has changed enormously. Our creditors now control manufacturing, and that makes it a whole new ballgame.

That and the ridiculously high debt that the press rarely dares to mention.

SmokingGun wrote: The Reagan years are not applicable, as the role of manufacturing has changed enormously. Our creditors now control manufacturing, and that makes it a whole new ballgame.

Manufacturing failed to recover during the Reagan years. That's why he devalued the dollar at the Plaza Accord in 1985. Devaluation is a Keynesian stimulus. Notice manufacturing jobs were fell from 84 to 86 and then turned around after devaluation. The manufacturing sector crashed in the US this past decade because Rubin exploited the Asian financial crisis in 97 to pursue a strong dollar policy. The developing countries were required to hold higher dollar reserves, the dollar appreciated 30% from 97 to 2002, manufacturing jobs were lost every year from 97 to 2010. A few hundred thousand have come back the past two years.

Plaza Accord
http://en.wikipedia.org/wiki/Plaza_Accord



I realize that you said Keynesian stimulus is acceptable under some circumstances. My comment was actually directed at the blogger you quoted who was rambling on about John Stuart Mills etc.

Also, the purpose of deficit spending under Keynesian stimulus is to push the savings surplus into the economy when monetary policy is exhausted. So the example of breaking something and rebuilding is a last ditch effort to get money into the economy. It's not really about creating temporary jobs. The money spent on labor and windows is merely a conduit to get money circulating in the economy. Of course it would be better to build something that is needed but if there if that is not available, then breaking a glass and repairing is a way to stop a deflationary spiral.

Right now the economy is in a liquidity trap. Fed funds rate is zero and there is a 800 billion savings surplus.



So far as deficit spending now, the federal govt is borrowing money at negative real rates for 5-20 years and a real rate of .36% for 30 years.
http://www.treasury.gov/resource-center ... =realyield


Borrowing more and spending more would release that savings surplus and boost growth over 3%. It's definitely more effective than another round of quantitative easing which is likely given the recent jobs report.

Cuts in public consumption and investment have been a drag on growth for 7 of the past 9 quarters. If there is any reason to criticize the Obama administration, it's for allowing that to happen when people are literally paying the govt to hold their money. After adjusting for inflation, spending decreased under Obama.



"using inflation-adjusted dollars, Obama had the second-lowest increase -- in fact, he actually presided over a decrease once inflation is taken into account."

http://www.politifact.com/truth-o-meter ... -lowest-s/

DEATH ROW JOE wrote: Also, the purpose of deficit spending under Keynesian stimulus is to push the savings surplus into the economy when monetary policy is exhausted. So the example of breaking something and rebuilding is a last ditch effort to get money into the economy. It's not really about creating temporary jobs. The money spent on labor and windows is merely a conduit to get money circulating in the economy. Of course it would be better to build something that is needed but if there if that is not available, then breaking a glass and repairing is a way to stop a deflationary spiral.

Yes it is a way, but IMO the risk/benefit ratio limits it's usefulness. If performed in conjunction with more fundamental measures given preference, it would certainly have it's place. But as long as China/US terms of trade (among other things) are not addressed, it essentially remains a prohibitively expensive short-term measure. In isolation it's like pissing against the wind.. temporary relief, but with a potentially even messier situation to deal with afterwards.

As for the Reaganonics / Obamanomics comparison:

~A year ago-



~Now-



Reagan's recovery, quite literally, is off the charts!! With Obama it's been a lot of pain with not much gain.

What I like here is that smoking gun is getting his graphs somewhere, unlike joey, who actually goes to a site where you can make up your own graphs.

brotherplanet wrote:What I like here is that smoking gun is getting his graphs somewhere, unlike joey, who actually goes to a site where you can make up your own graphs.

SmokingGun is a woman.

Skate4RnR wrote:

brotherplanet wrote:What I like here is that smoking gun is getting his graphs somewhere, unlike joey, who actually goes to a site where you can make up your own graphs.

SmokingGun is a woman.

It's hard to see gender from this side of my computer screen.

Same here but what I can tell is that you got one too many chromosomes nigga.