dagblog - Comments for "Macroeconomics 101: Spending versus Stimulus or "How I learned to stop worrying and love recession""

It's late and you are getting

Bluesplashy — Tue, 03 Feb 2009 05:09:02 +0000

It's late and you are getting silly Mr. G. I said BLOWING not snorting. Blowing the seeds around is a mindless wastefull activity. It has been too long since I was snorting to remember what that was all about but it wasn't mindless.

I had an excellent comment and then it dissapeared somewhere, dammit, so I come back here and see this reply - I thought DF was talking about how people are not taking the economic crisis seriously - he is right.

Snorting dandelions

Michael Wolraich — Tue, 03 Feb 2009 04:48:00 +0000

In reply to I thought the DF was talking

Snorting dandelions rather...

I thought the DF was talking

Bluesplashy — Tue, 03 Feb 2009 04:16:49 +0000

In reply to i'm not sure you're right

I thought the DF was talking about the public discussion of the issues. I think the GOP is way out in the field blowing dandelion seeds or something. I've been snickering about the GOP being lost but I just didn't think they were that FAR away.

Does anyone think the banks are holding on to the money because they are afraid of the what is going to happen with all those maxed out credit cards?

Well, how worried should I

DF — Tue, 03 Feb 2009 02:34:00 +0000

In reply to damn, i dont know how you can

Well, how worried should I be? How close are we? I keep hearing people say that we're going to collapse under the weight of our own debt. Maybe that's true, but I don't think we have any idea of knowing when that might happen. As for right now, there's no one who will buy the debt, whether it's from China or Japan or anyone else. Maybe someday China's consumer economy eclipses ours, but that day hasn't come. That's a monster out in the woods somewhere. Maybe it strikes, maybe it doesn't.

What's certain is that we're in a recession right now with no indicators of a near-term change in trajectory. Being concerned about marginal increases to national debt right now strikes me as a bit like not parachuting from a plummeting aircraft because you might not land within walking distance of a four star hotel.

LBP!!

DF — Tue, 03 Feb 2009 02:27:53 +0000

In reply to One word: GAAP. Deregulation

LBP!!

One word: GAAP. Deregulation

littleblackpropaganda — Tue, 03 Feb 2009 00:30:55 +0000

In reply to one addition to my argument

One word: GAAP.

Deregulation doesn't just mean derivatives are WMD. Deregulation doesn't just mean hedge funds are ponzi schemes. Deregulation also means corporate financial statements are works of fiction.

I'd be very hesitant to call corporate balance sheets healthy right now, even relatively so. Did SOX save us from the current mess?

damn, i dont know how you can

Deadman — Mon, 02 Feb 2009 23:57:08 +0000

In reply to Inflation adjusted, this

damn, i dont know how you can look at that wikipedia article and all the stats on our public debt and not be worried - catastrophic is a loaded word, obviously, but why should we not be concerned about zero hour? i know we've heard rumors of the US demise as the best game in town before, only to watch upstart countries like Japan run into their own issues. Europe may be too fragmented and socialist to challenge us anytime soon, but China is a threat. It certainly has its challenges - most notably how to evolve their quasi-communist/capitalist society without formenting a revolution - but it also seems a very likely candidate to overtake us one day, and even more likely given the percentage of our debt they hold.

as to your second point, i 100% agree that it's even worse that a party and an administration committed to fiscal discipline let things spiral out of control so badly. I would find it very gratifying indeed if a democrat had to be the one to start reversing the situation ... again! (btw, govt spending may never go down, but i think the salient comparison is debt as a % of GDP, which needs to go down).

Inflation adjusted, this

DF — Mon, 02 Feb 2009 23:22:11 +0000

In reply to i'm not sure you're right

Inflation adjusted, this doesn't look catastrophic to me. Another way to think about this: When do we reach zero hour? Is there a figure? The US is in an unique position economically because we're still the best game in town. There likely can't really be a meaningful estimate of how much debt is actually problematic unless you could come up with a way to quantify how invested the rest of the world is in sitting at the table.

Another thing about government spending is that, inflation adjusted, it never goes down. This is another part of the silliness that we're subjected to. The congressional Republicans that are suddenly so opposed to spending of any kind are the same ones who were rubber-stamping the worst of it, so long as it was their party at the helm.

i'm not sure you're right

Deadman — Mon, 02 Feb 2009 23:08:00 +0000

In reply to I'm not sure that's really my

i'm not sure you're right about the US public debt comparisons - It certainly has been higher as a percentage of GDP in American history but its been rising since 2001 and I think the total has doubled since the Clinton years. source: usgovernmentspending.com

but if the thrust of your argument is that most of the public discussion about these issues boils down to a lot of nonsense, then we are in significant agreement. I just happen to think it's fair game to debate where these 'stimulus' dollars go and what they're used for. If we dont get the credit situation resolved, I think it'll all end up being wasted, so we might as well just have a spending bill that focuses on needed societal improvements. good luck trying to get congress to agree on how that is defined.

I'm not sure that's really my

DF — Mon, 02 Feb 2009 22:46:00 +0000

In reply to first of all, thank you for

I'm not sure that's really my thesis. My thesis is that the content of the public discussion around these issues is utter nonsense.

As for the statement you've highlighted, I think it's accurate. There's a pretty well-understood definition of recession at work here and I think that, all other things being equal, we'd avoid it completely if we could. Whether or not it's an inevitable part of a business cycle is debatable. I suppose you can take the view, accepting the inevitability of recession, that it's a sort of medicine that must be consumed one way or the other, but I think that's a choice in attitude rather than real opposition to the notion that it tastes bad. Even so, it's a certainly a relevant point of interest when considering economic points of view. It would be a much more interesting if we were a little more self-conscious about these things and could have debates about the real differences in ideology. I would gladly welcome that over what I see and hear presently.

Along these lines you raise another interesting point, which is to raise question about what form of spending has the greatest velocity, i.e. is the most efficient in terms of having a net positive effect on GDP. This gets a bit closer to what's being danced around on television news. It's a valid question, but I think that presently it's being answered on both sides by flat, ideological assertions.

Unemployment is a real and serious factor here. You are correct about consumer spending, but this is the reason that unemployment becomes so important. Fewer people with jobs means fewer people that have income and more people drawing on entitlements. In order to reverse this, you need to stimulate a very specific type of spending. I think this is the strongest indicator that corporate balance sheets aren't as good as one might think. We're losing a lot of jobs right now.

In that sense, I think that the assessment that government needs to spend is probably correct. It is, in a way, a confidence game. Banks won't or can't lend, firms won't or can't spend and now they're slashing labor expenditures. In any case, these are all goods questions, but the debate that is occurring appears to be revolving around very thin premises, and mostly around the "spending bad, taxes bad" mantra.

IMHO, one of these reason that all of this is so prevalent is that we don't really put numbers on any of this stuff. Some of it is difficult to quanitfy, but let's take deficit for example. The conventional wisdom some time ago was that an unbalanced budget would be certain doom. No one thinks that way any more because it's been proven that deficits aren't as detrimental as was once assumed. It certainly has effects, some of which may be quite negative, but how much is too much? If you'd told someone in 1928 that their grand-children would be holding $4k worth of the national debt, they'd surely have thought that the nation would have collapsed and that we'd all be in servitude. More to the point, the current public debt isn't really any higher than it was in the Clinton years right now and it's down as a share of GDP from the early 2000's.

This doesn't mean that it won't someday become a problem. You mention that one day China won't want it. They don't seem to find it very attractive at the moment. There's also the issue of who to sell it to. The US government can't sell it, so who does China sell to? This isn't a situation where they can just take their ball and go home. They have as much of an interest as we do in seeing that those notes don't turn sour.

If I'm going to have to see and feel pain like I've never experienced, then I think I'd like to see Obama hire Randy Savage or perhaps the Ultimate Warrior to do the PDB.