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Dems prefer academic theories of job creation to economic reality

Posted by B. Daniel Blatt at 7:40 pm - January 24, 2011.
Filed under: Big Government Follies,Economy

Over at Michelle Malkin, Doug Powers provides an important datum which helps explain why so many Democrats, apparently the president included, believe increased government spending is a necessary means to create new jobs.  It’s what they learned in college.  And if their professors taught them governments create jobs, well, experience be damned, it must be so!

While evidence continues to pour on showing that the hundreds of billions the federal government showered on the states failed to hold the unemployment down as the president’s economic advisors predicted, “evidence” the editors of the Washington Examiner report, “is mounting that economic superstition is alive and well in the nation’s political circles, though it has nothing to do with a fondness for tax cuts. It’s instead the crazy belief that the government can spend its way to prosperity for the rest of us.

Over at Powerline, John Hinderaker provides a handy-dandy chart showing that “the ballooning public expenditures of recent years have not caused a boom in the job market“:

Jobs:Spending Comparison.001.jpg

He is still “not shaken,” Jennifer Rubin writes, “in his belief that government spending “creates jobs’.

Hans Bader finds it to be “a bad sign for the American worker” that “‘The new spending’ Obama will call for will likely ‘include initiatives aimed at building the renewable-energy sector—which received billions of dollars in stimulus funding’”:

This is because such green jobs programs have wiped out thousands of American jobs in the past.  The $800 billion stimulus package used “green-jobs” subsidies to send American jobs overseas.  79 percent of those subsidies went to foreign firms, such as an Australian firm that imported Japanese wind turbines, effectively outsourcing American jobs.  It also wiped out jobs in America’s export sector.

Still beholden to the nostrums of the left on green jobs and government spending, the president is setting the stage for a showdown with congressional Republicans.  Perhaps, that’s part of his political strategy.  But, if Republicans hold firm on their principles, this showdown could redound to the benefit of the GOP.   Americans have no appetite for more government spending and indeed want elected officials to hold the line on such expenditures.

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101 Comments

  1. Well, government purchases does help, though the “fiscal multiplier” is probably less then 1 (the same is true of tax cuts, btw).

    Deficit spending crowds out buisiness investment, since it bids up (or props up) the prices of goods and services, preventing investors from buying those goods and service. It sucks up the national savings, preventing realignment of goods and services from consumers to investors (who use it to create jobs).

    Government purchases are most effective, if *done without corruption*–but that never happens; in practice they fall flat. In the end, all government spending is undemocratic–its vote buying, pure and simple, and both parties have engaged in it (Republicans do deficit-financed “tax expenditures”–mortgage interest deduction, anyone?–while Democrats do “direct spending”).

    Comment by joeedh — January 24, 2011 @ 8:12 pm - January 24, 2011

  2. The classic Keyensian argument, is deficit spending increases business profits, then businesses reinvest those profits to create jobs (so-called “business savings”).

    Since deficit spending eats up the national savings, no net investment occurs. If investor A cannot buy good B because the government has bought it, even if the manufacturer of good B has more money to invest it’s at the expense of investor A.

    Comment by joeedh — January 24, 2011 @ 8:15 pm - January 24, 2011

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  4. Also, UC Berkeley has apparently hired former Michigan governor Jenny Granholm to lecture on job creation.

    I guess we know where Rich Rodriguez will get his next coaching job.

    (Of course Michigan’s new “Republican” governor, Rick Snyder, is basically promising more of the same policies Granholm championed; more spending on tourism, more spending on education, vague promises to balance the budget, appointed a Democrat whose constituents tried to recall him over tax increases as state Treasurer, and… oh yeah, putting the taxpayers on the hook for a half billion dollars (before over-runs) to build a bridge to Canada that a private entity was willing to build without taxpayer funding. Little wonder Snyder’s biggest fan is the Chairman of the State’s Democrat Party. )

    Comment by V the K — January 24, 2011 @ 10:16 pm - January 24, 2011

  5. V, the Granholm story is the important datum I linked at the opening of this post. :-)

    Comment by B. Daniel Blatt — January 24, 2011 @ 10:46 pm - January 24, 2011

  6. Dear Dan,
    I checked out Hinderaker’s blog entry on this issue. “It is blindingly obvious that spending does not equal stimulus, and increasing federal spending will not create jobs.” Actually, though he makes a nice picture, I don’t get the sense that JH is an economist. The reason I say this is that he mistakes correlation with causality. After all, according to this graph, I could make the equally “valid” claim that higher taxes in the late 1990s led to more jobs (with a little extra gov’t spending), whilst the Bush tax cuts actually led to a decline in job activity in the period upto 2004 (also with gov’t spending increasing), after an initial spike in 2001. Or that increased federal GOVERNMENT spending in the period 2004 to 2008 led to an increase in job growth. These are consistent with the picture JH offers us.

    Are you really sure you want to trumpet this graph as evidence for your position? I would be a little more cautious about doing so. Something is going on, but the simplistic picture doesn’t capture it.

    Comment by Cas — January 24, 2011 @ 11:38 pm - January 24, 2011

  7. NDT said it well in the other thread: Government is overhead for the economy. Anyone involved in a business knows that some of the overhead is essential; but it’s still overhead, and much of it is fat that the rest of the business can barely afford, fat that should be cut in a downturn, to aid recovery.

    The U.S. economy can only tolerate the Federal government taking about 19% of it. This phenomenon is known as Hauser’s Law: http://seekingalpha.com/article/238919-hauser-s-law-illustrated

    It’s interesting to consider the above chart (Hauser’s Law) and Hinderaker’s chart together. Jobs have declined almost in proportion to federal spending going beyond the 19% that the economy can afford. Keynesians would lie that, well, there was a recession and government was forced to spend. The opposite causality is nearer the truth: the government has spent and spent, therefore the economy has not been able to recover normally from the recession.

    Comment by ILoveCapitalism — January 24, 2011 @ 11:46 pm - January 24, 2011

  8. Well, government purchases does help

    No. It doesn’t.

    Again as NDT pointed out in the other thread:

    … since the government has no power to spend other than to take from [businesses and citizens], which reduces their purchasing power, or to print currency, which also reduces purchasing power, what we see very quickly is that the only thing government spending essentially does is reduce purchasing power [of businesses and citizens]…

    Comment by ILoveCapitalism — January 24, 2011 @ 11:49 pm - January 24, 2011

  9. I don’t get the sense that JH is an economist.

    Nor should he be. Economics has become a compromised “science”. Keynesian economists, in particular, are possible even more intellectually corrupt and dishonest than the climate scienticians who promote AGW theory.

    Comment by ILoveCapitalism — January 24, 2011 @ 11:52 pm - January 24, 2011

  10. Peter Schiff explains the basics of real economics, in this nifty book: http://www.amazon.com/How-Economy-Grows-Why-Crashes/dp/047052670X

    Peter Schiff schools David Epstein (the Columbia professor who was recently charged with screwing his own daughter) in this recorded debate: http://www.europac.net/media/lectures_amp_debates/fordham_federalist_society_debate_november_11_2009

    Comment by ILoveCapitalism — January 25, 2011 @ 12:01 am - January 25, 2011

  11. Sorry, this is the diagram I meant to link at #7, showing how unaffordable our bloated Federal government has become: http://seekingalpha.com/article/240443-how-much-federal-spending-can-americans-afford

    Comment by ILoveCapitalism — January 25, 2011 @ 12:06 am - January 25, 2011

  12. Hi Joeedh,
    Under classic Keynesian theory, $1 of gov’t spending does more for the economy than $1 of tax cuts, providing there is no or little “crowding out” of investment spending because of rising interest rates. The argument goes like this. When you get a $1 in tax cuts, you spend some, and you save some. E.g., if the marginal propensity to consume (mpc) out of an additional dollar of income is .9, you’ll consume 0.90c and save 0.10c. Well, when you spend that 0.90c, you gave it to someone else, say a shopkeeper. If they have the same mpc as you do, they will spend 0.81c and save 0.9c. This process continues, as this extra dollar of tax cuts is partially spent and partially saved by further iterations of buyers and sellers. That means that a dollar in taxes reduced leads to more dollars in leveraged buying/aggregate demand (i.e., 0.90c + 0.81c + 72.9c + 65.61c + ….).
    Now, if we look at an extra dollar of gov’t spending, we get all of the same effects, as well as one more. The gov’t actually gets a dollar’s worth of services (hole in the ground, a fighter jet, a car, whatever) which also boost aggregate demand, as well as the multiplier effect that I described above. When you add all this up, (i.e., $1.00 + 0.90c + 0.81c + 72.9c + 65.61c + ….), we find that this iterative process is described by the equation Change in Aggregate Demand = i/(1-mpc x (change in gov’t spending). So, in the ideal case, if the mpc is .9 as in our case, $1 of extra gov’t spending leads to $10 dollars of extra demand. For those of you about to blow your stacks, it is also the case that $1 of EXTRA INVESTMENT spending or export earnings or consumption does the same trick.

    There are caveats. A major criticism of Keynesian economics concerns “crowding out.” Basically, gov’t finances its extra spending by borrowing money from the market. Gov’t sells bonds, and gets money in return. Well, it has to pay an interest rate, and as the gov’t, its debt is the best their is. So, if there are scarce funds out there, then the gov’t can get them, but only by offering a higher interest rate. That higher interest rate precludes firms who would have invested from doing so. So, in the worse case, when crowding out is total, the economy swaps one dollar of private investment spending for one dollar of gov’t spending. That is the basic picture. You can complexify it with rational expectations and other “stuff” but that is the basic argument. A lot of people here, I think, are implicitly arguing that gov’t spending will lead to crowding out (and higher interest rates). What would be useful, is to check those figures out. That would be useful. Because if there isn’t crowding out, then gov’t intervention is WAY MORE EFFECTIVE THAN TAX CUTS. In fact, if you raised taxes by a dollar, and raised gov’t spending by a dollar, you will keep the budgetary position as it is (no added deficit), and get an additional dollar of aggregate demand. This is called the “balanced budget multiplier” because it leaves the budget picture unchanged. The corollary of this is that cutting taxes by 100 billion and gov’t spending by the same amount, will cause aggregate demand top fall by $100 billion. In our current circumstances, that would be very bad. To those who might argue that this would mean that interest rates would fall, thus boosting investment, you have to deal with two problems we are having right now.
    First, interest rates are pretty low right now; they don’t appear to be going anywhere… especially as we are saving more, and foreigners are still willing to lend us money (because they don’t have a lot of choices).
    Second, increased investment is a function of sunny dispositions and business beliefs that aggregate demand will increase to account for the extra production a firm wants to create. If aggregate demand is falling or stagnant, this is much less likely to happen.
    Anyhow, just some theory to go with a not very helpful picture…

    Comment by Cas — January 25, 2011 @ 12:13 am - January 25, 2011

  13. Hi ILC,
    “Government is overhead for the economy. Anyone involved in a business knows that some of the overhead is essential;” What does “overhead” mean in this context?

    Comment by Cas — January 25, 2011 @ 12:15 am - January 25, 2011

  14. Hi ILC,
    “Nor should he be. Economics has become a compromised “science”. Keynesian economists, in particular, are possible even more intellectually corrupt and dishonest than the climate scienticians who promote AGW theory.”
    This is not even a rational argument.

    Comment by Cas — January 25, 2011 @ 12:17 am - January 25, 2011

  15. What does “overhead” mean in this context?

    People/functions that are not directly involved in whatever the business or economy produces, but that instead are paid for by siphoning off the earnings or income of the people who are directly involved in whatever the business or economy produces.

    This is not even a rational argument.

    … said the guy in the glass house as he heaved the stone. (The *quoted assertion* being “not even a rational argument.”)

    Comment by ILoveCapitalism — January 25, 2011 @ 12:35 am - January 25, 2011

  16. HI ILC,
    At least my glass house is a little better constructed than yours! :)
    Out of curiosity is defense and property protection count as overhead?

    Comment by Cas — January 25, 2011 @ 12:44 am - January 25, 2011

  17. #15 was an off-the-cuff definition of “overhead”; the following would be more precise when discussing a business:

    The ongoing administrative expenses of a business which cannot be attributed to any specific business activity, but are still necessary for the business to function. Examples include rent, utilities, and insurance.

    The definition is overly optimistic, in that it appears to exclude the concept of excessive overhead, i.e., of overhead being fat that can and should be cut in a downturn.

    Looking at the totality of businesses i.e. the economy as a whole and government’s relationship to the economy, and also correcting the above-mentioned flaw along the way, we would then rephrase it as:

    The ongoing administrative expenses of a political-economic unit which cannot be attributed to any specific business and which may or may not be necessary for businesses to function, but which are forcefully expropriated from businesses and citizens. Examples include court costs, defense costs, welfare spending, government bureaucrat salaries and pensions, bailouts and “corporate welfare”, and sundry government waste.

    Comment by ILoveCapitalism — January 25, 2011 @ 12:45 am - January 25, 2011

  18. If you would like a name for your non-rational argument, you can try argument ad hominem or circumstantial ad hominem or argument by personal attack.

    Comment by Cas — January 25, 2011 @ 12:49 am - January 25, 2011

  19. … said the guy in the glass house as he heaved the stone. (My statement having been a recitation of fact, and the statement just above being again a non-rational argument, a type of argument ad hominem or circumstantial ad hominem or argument by personal attack.)

    Comment by ILoveCapitalism — January 25, 2011 @ 12:50 am - January 25, 2011

  20. (More generally, statements having the following logical content, “I hereby assert without proof that your recitations of fact are not that, but are mere ad hominems”, are in themselves a form of ad hominem. Since they themselves contain no evidence, proof or other rational argument to speak of, and since their implied conclusion is, “… making you an ad hominem type of guy”, which is in itself an ad hominem.)

    Comment by ILoveCapitalism — January 25, 2011 @ 1:07 am - January 25, 2011

  21. Hi ILC,
    “Examples include court costs, defense costs, welfare spending, government bureaucrat salaries and pensions, bailouts and “corporate welfare”, and sundry government waste.”
    So are these necessary or un-necessary expenses?

    “My statement having been a recitation of fact” the original statement about economists or my subsequent claim, or both?

    Comment by Cas — January 25, 2011 @ 1:10 am - January 25, 2011

  22. Now, if we look at an extra dollar of gov’t spending, we get all of the same effects, as well as one more.

    Except you don’t, because that $1 had to be taken from someone else, and that taking of $1 from someone else reduces THEIR available cash by $1, which reduces aggregate demand by $1.

    You simply don’t understand that fact, do you, Cas? You simply refuse to acknowledge that government cannot create money from thin air. It has to take it from those who earn it or it has to devalue what is already out there.

    And this was the most entertaining and howlingly foolish statement you made.

    The corollary of this is that cutting taxes by 100 billion and gov’t spending by the same amount, will cause aggregate demand top fall by $100 billion.

    Nope. Your own “equation” above contradicts that statement.

    When you get a $1 in tax cuts, you spend some, and you save some. E.g., if the marginal propensity to consume (mpc) out of an additional dollar of income is .9, you’ll consume 0.90c and save 0.10c. Well, when you spend that 0.90c, you gave it to someone else, say a shopkeeper. If they have the same mpc as you do, they will spend 0.81c and save 0.9c. This process continues, as this extra dollar of tax cuts is partially spent and partially saved by further iterations of buyers and sellers. That means that a dollar in taxes reduced leads to more dollars in leveraged buying/aggregate demand (i.e., 0.90c + 0.81c + 72.9c + 65.61

    First round of tax cut dollars = $90 billion in additional aggregate demand

    Second round of tax cut dollars = $81 billion in additional aggregate demand PLUS the additional aggregate demand of $90 billion from the first round, for a total of $171 billion.

    Even if one makes the laughable logic of “subtracting” $100 billion because the government is no longer spending money, you’re still $72 billion ahead in multiplier effect just from two rounds ($172 billion – $100 billion) — AND, to top it off, you didn’t take an additional $100 billion in aggregate demand out of consumers’ pockets for the government to spend.

    And the hilarity and hypocrisy of those individuals like Cas who demand more and more government spending always comes forth when you discuss defense spending — because that they want to cut, cut, cut, under the argument that it isn’t doing the country any good. According to their logic, government spending ALWAYS does the country good, so why would they want to reduce it and thus hurt the country?

    Comment by North Dallas Thirty — January 25, 2011 @ 2:13 am - January 25, 2011

  23. A great post and some excellent comments. My own observation is that Obama’s death grip on Keynesian economics is merely one aspect of the left’s larger view towards socialism and the belief that humanity can be perfected. Obama refuses to admit that his policies have failed. Unsurprising – otherwise socialism would really have been left in the dustbin of history with the fall of the Soviet Union. Even when faced with reality, most on the left think that any lack of success is only because of some unforseen pitfall that can be fixed with just a bit more money and/or a few more regulations. To the committed leftie, the problem is never the fatal internal contradictions of the statist policies they embrace. They are quite willing to spend as much of your money – and take away as much of your freedom – as it takes to make things right.

    Comment by GW — January 25, 2011 @ 2:41 am - January 25, 2011

  24. Hi NDT,
    “Except you don’t, because that $1 had to be taken from someone else, and that taking of $1 from someone else reduces THEIR available cash by $1, which reduces aggregate demand by $1.”
    No. If you think about it some, you will see that the balanced budget multiplier works as I describe it. Do this thought experiment:

    As the government, you pay me a dollar to do a service or provide a good for you. That service can be anything you like–maybe its building a road for you, or providing a bullet for one of our weapon’s system, whatever. You just raised AGGREGATE DEMAND by a dollar in value. Now, before I can spend the dollar you gave me, or put it in the bank, you raise my taxes by a dollar. Oh no! That leakage lowered MY INCOME by a dollar, so I cannot spend/save the extra dollar, so there are no Keynesian multiplier effects as I described earlier! So, everything balances and nothing changes, as you might say, right? No. The issue is that you conflate aggregate demand and income. They are conceptually (and actually) two different (though intertwined) things. In equilibrium, they are equal to each other, as I have suggested earlier.

    Think about it, even after you take back the dollar (in increased taxes) you gave me as a payment for the service I did for you, YOU STILL HAVE THE VALUE OF THE GOODS AND/OR SERVICES THAT I DID FOR YOU. And what was that worth? $1. Hence, aggregate demand went up a dollar. My income remained unchanged from what it was originally because of your higher taxes (that’s the sound of me shaking my fist at your socialist government desire to take my hard-earned cash!) :)

    Comment by Cas — January 25, 2011 @ 2:51 am - January 25, 2011

  25. Hi NDT,
    “According to their logic, government spending ALWAYS does the country good, so why would they want to reduce it and thus hurt the country?”
    Again, no. I just set out some basic markers for where government spending can be helpful or not helpful. You have to look at the conditions and work out what economic policy fit those conditions. That part of macro-economic policy has a high degree of “art” to it.

    Comment by Cas — January 25, 2011 @ 2:55 am - January 25, 2011

  26. The issue is that you conflate aggregate demand and income.

    No, the issue is that you think “aggregate demand” matters. You say silly things like this:

    You just raised AGGREGATE DEMAND by a dollar in value.

    No, not by a dollar in value. By a dollar in numeric measurement only. Dollars are just a “point system” for allocating people’s output. Increasing the number of points, and/or the speed with which they circulate, does not make people either willing or able to raise their output value. It only lessens the purchasing power of the points; the real value that the each point commands on average and over time. It particularly hurts the value of savings (saved points), thus destroying capital over time.

    Production and capital formation drive the economy. Production depends on the formation and deployment of capital, i.e. of real savings. When you let people increase production (of things that other people want – letting the market decide what those things are, and how inputs and capital are employed to produce them), you increase real wealth and income. When you increase the number and/or velocity of dollars, you don’t. You only shrink the unit in which you measure wealth and income, driving up the raw numbers. It’s like thinking that if we increase the number of inches per unit of real space, thus driving up your “height numbers”, you have become taller. Newsflash: you haven’t.

    “Aggregate demand” doesn’t drive the economy. Demand is already infinite. People always need and/or want more. Assuming that people are allowed to produce things that other people need and/or want (i.e. that markets are allowed to function), other people will always “demand” everything that is produced. Distortions (unused and/or “missing” production) arise when government blocks those processes.

    Comment by ILoveCapitalism — January 25, 2011 @ 3:26 am - January 25, 2011

  27. (continued) It is trivially easy to disprove the “aggregate demand” theory. If it were true, government should send $1000 to every American right now. And if that were good, $2000 should be better. And if it were, $4000 should be even better. And so on. Hint: They just tried it in Zimbabwe. It didn’t work. It destroyed savings and capital, bringing all but the most basic (i.e., survival-oriented) production and trade to a screeching halt.

    Comment by ILoveCapitalism — January 25, 2011 @ 3:31 am - January 25, 2011

  28. …why so many Democrats, apparently the president included, believe increased government spending is a necessary means to create new jobs

    …I have a simpler answer. They — particularly Obama — are not interested in creating jobs in the private sector — they are working feverishly to move jobs from the private sector to government employment. They want as many people as possible dependent on THEM. They want to command and control the entire economy. They are more than happy to pay people to dig holes and pay other people to fill those same holes in again. Its not about jobs, its about command and control.

    Comment by American Elephant — January 25, 2011 @ 5:50 am - January 25, 2011

  29. #12 (Cas)

    The problem there is presuming that your ‘hole in the ground’ has value. . it only has value if it is useful or produces value. . . something which many government products, an absurdly large amount of them, do not do. The “Bridge to nowhere” type projects consume many more resources than they actually produce, leaving everyone, on net, poorer than when they started. And since government products don’t have to worry about utility or efficiency because they essentially have no limiting budget. . . almost ALWAYS the cost will outweigh the marginal utility.

    Comment by Ryan — January 25, 2011 @ 7:59 am - January 25, 2011

  30. V, the Granholm story is the important datum I linked at the opening of this post.

    Oh, noes! I commented on a post without completely reading it. Now I know how Levi feels. Or, would feel if he had a functioning braincell.

    Comment by V the K — January 25, 2011 @ 8:56 am - January 25, 2011

  31. You just raised AGGREGATE DEMAND by a dollar in value.

    No, not really. All you did was shift a dollar of demand away from the market and to the Government. Instead of being spent by a consumer or investor, it was spent by a bureaucrat.

    People are most efficient when spending their own money on themselves, and least efficient when spending other people’s money on other people.

    One dollar is marginal, but multiply the effect by billions, and all of that inefficiency amounts to a huge net drag on the economy because instead of being spent relatively efficiently on consumer goods and services or invested in a job-producing operation, that money ends up being squandered wastefully on projects like, for example, teaching African men to wash their pee-pees.

    This harms the consumer in many ways. Among them, it creates artificial demand that raises prices and reduces the consumer’s buying power. It also stunts job creation because money wasted can not be invested in job producing enterprises. Indeed, over a third of Obama’s Stimulus simply went to states to avoid laying off unionized bureaucrats; who are not only the least efficient employees, but many of them in regulatory bureaucracies are actively employed to obstacle job creating enterprises.

    Comment by V the K — January 25, 2011 @ 9:06 am - January 25, 2011

  32. I saw It’s a Wonderful Life and I recall that George Potter did a lot of good in Bedford Falls with his savings and loan. After people spent ” marginal propensity to consume (mpc)” they took the leftovers (savings) and entrusted it to George Potter. In return, George Potter paid them interest and their little savings grew.

    Now, get this. George Potter loaned the money to people to build a house or a housing development or stock a business or start a business. He made shrewd choices and charged the borrower more interest than he paid the savers. We might call this “profit.”

    Just like the little investor at the savings and loan, George Potter paid his business bills from the profit, plowed some back into the pool of money to loan out and pocketed some for himself.

    Somehow, I missed the part of “savings” in the economic morality tale that Cas told in #12.

    Government spending is targeted spending. It selects the time and place of economic impact. Economists have jargon to conceal the mumbo-jumbo they package in their sales talk for government spending. They love to talk about externalities while ignoring opportunity costs. But as soon as you begin to chatter in economic tongues you are in la la land.

    Letting a person keep a dollar is not targeted spending. He may upgrade at the grocery store or give it to a wino or slap it under his mattress or feed it to his goat. A billion dollars left in the hands of its owners is nearly impossible to predict or trace. Economists do not like trying to manage the explanation of what an uncontrolled chain reaction of dollars left not confiscated will do. They are equally mystified by what happens when tax dollars get sent back to people.

    The part about Keynes that amuses me is that the government, in hard economic times, suddenly understands the economy and its workings so well that it can inject cash at strategic places and bring life to the dying patient. That takes enormous genius. If General Motors had such skill, it would not be government motors. But, we all know that Keynesian economics is all theory. It is the theory of “pump priming” which works well with pumps, but not nationwide aquifers. It is simplicity made so simple that it is too simple. It makes people do stupid stuff like try to build a new, vibrant economy around home insulation.

    The first stimulus had enough money to repair the US infrastructure. I can not begin to prove that. But, I heard on television how much money was needed to fix “the infrastructure” and Obama got that much and more. Of course, no one in his literal mind believes that there is an “infrastructure to-do list” that is pin-pointed, priced out and order ranked (shovel-ready.) In fact, there is no working understanding of what is included under the term.

    The issue is really quite easy. Let people spend their own money v gearing up the government to fix the economy. If you are a liberal, you do not trust “boobus americanus.” If you are a conservative, you do not trust theorists, politicians, grifters and charlatans.

    Comment by Heliotrope — January 25, 2011 @ 10:07 am - January 25, 2011

  33. Hi ILC,
    ““Aggregate demand” doesn’t drive the economy. Demand is already infinite. People always need and/or want more.”

    Economists make a distinction between demand and effective demand. Demand is what you are speaking to–a starving child in Ethiopia has demand–for food (she is willing to eat). But, she does not have effective demand for food (she is willing and can afford to get the food). And think about what you said–you argue a version of Say’s Law, I think (that supply creates its own demand). That is OK as long as you don’t think it is the whole story, which you appear to be doing when you say, “No, the issue is that you think “aggregate demand” matters.” I confirm this when you say that “Production and capital formation drive the economy.” Let us add one more thing that was dear to Adam Smith’s heart, namely trade. And trade, even as it is rooted in comparative advantage, is also about satisfying wants, or dare I say it, demand. I am unclear why you dislike the term “aggregate demand.” It is the other half of the equation. You make things. Those have to be things that people want (or demand). When we collect all the agents in aggregate, we have their aggregated demand. For a capitalist market to work or any market for that matter) we have to have buyers and sellers, suppliers and demanders. Both are important.

    Finally, you (and VK) are welcome to make the inflation argument (with a fixed aggregate supply–at least in the short run–increases in aggregate demand lead to rising price level, rather than increased output), but please be aware that there is plenty of evidence that we are not facing a vertical aggregate supply function right now (underutilization of capital, differentials between actual and potential GDP, under and un-employment, etc), and that increasing aggregate demand would be helpful top the economy, and not set off inflation or crowding out.

    And your “trivially easy” proof, is no proof. I don’t argue what you are arguing. I recognize limits, based on the conditions of the economy, as I have made clear, and which you have not bothered to address. There is a time when additional gov’t expenditures are no cure, but hinder things, and should be reduced. But that time is not now, given the ACTUAL state of the economy. If I had my way, I would funnel gov’t spending into infrastructure investment, because of the boost we would get from long term growth (in this aspect, I agree with you Ryan). You argue for some straw man you have set up. Getting us out of this hole (pun intended, Ryan :)) requires looking at where the economy actually is, not dogmatically talking about “inflation, inflation, inflation…”

    Comment by Cas — January 25, 2011 @ 10:12 am - January 25, 2011

  34. There is a time when additional gov’t expenditures are no cure, but hinder things, and should be reduced. But that time is not now, given the ACTUAL state of the economy.

    Okey-dokey. We have a conclusion based on what? All over Wall Street, in the Soros compound, at Berksire Hathaway, at the Bank of England, at the FED, at the European Union, in Beijing, and board rooms of international corporations and kitchen tables of mom and pop businesses, people are trying to figure out the ACTUAL state of the economy and our very own Cas knows the answer.

    If I had my way, I would funnel gov’t spending into infrastructure investment, because of the boost we would get from long term growth

    Now, Cas, would you divert money already borrowed or would you confiscate more money and run up the deficit to do this?

    Have you figured out what the “infrastructure” entails? Does it include upgrading military equipment? Does it send a mission to Mars? Does it raise the levees around New Orleans? Does it restart the Cross Florida Barge Canal? Does it plow down empty buildings in half deserted towns in Michigan? Does it bail out New Jersey, New York, Illinois and California? Does it build an interstate highway along the border with Mexico that is really a Berlin wall? Does it round up drug users and put them in rehabilitation camps?

    For all your aggregate economic jargon, you sure do skip to Lazyboy conclusions without any discernible effort or jargon or formula.

    Comment by Heliotrope — January 25, 2011 @ 11:05 am - January 25, 2011

  35. Think about it, even after you take back the dollar (in increased taxes) you gave me as a payment for the service I did for you, YOU STILL HAVE THE VALUE OF THE GOODS AND/OR SERVICES THAT I DID FOR YOU. And what was that worth? $1. Hence, aggregate demand went up a dollar. My income remained unchanged from what it was originally because of your higher taxes (that’s the sound of me shaking my fist at your socialist government desire to take my hard-earned cash!)

    And here we see one of the finest examples of the Obama Party unicorn-farts economic theory.

    Tell us, Cas, when you are charged a dollar for something in the store, do you think that item actually is worth a dollar?

    The answer is no. That item was purchased or made by the shopkeeper for less than a dollar. That is the fundamental tenet of mercantile capitalism; you make money by buying objects or raw materials and selling them for more than it costs you to produce the finished product.

    So let’s say the item you purchased, when all is said and done, cost the shopkeeper 95 cents to put out on the shelf or to provide the service, for which you paid them a dollar.

    Now you come back and take that dollar away at gunpoint using your power to tax. The shopkeeper is already in hock to someone else 95 cents for having that item in the first place. Before they had a profit of 5 cents; now they are out the value of both the dollar AND the item, since they no longer have it to sell or provide.

    So let’s add up the ledger here.

    You, the government, do indeed have the value of that good or service, which is 95 cents. You also have the dollar, which gives you a total value of $1.95.

    The shopkeeper has no dollar AND no item — for a net reduction of their value, and thus “aggregate demand”, by $2.00 — because they lost the dollar AND they lost the item’s worth to them to sell, which was a dollar. You have required the shopkeeper to provide you something for free – which means they not only lose the value of what would have been paid them for it, they also lose the actual value of the item itself.

    In short, “aggregate demand” has gained $1.95 and lost $2.00. Multiply this times several million shopkeepers and you’ve sucked an enormous chunk of change out of the economy.

    You are repeating economic theories ad nauseum without one single iota of applicability. To borrow from Erma Bombeck, you are like a four-year-old with a calculator who can divide 1 million by the value of pi, but doesn’t know whether a dime is worth more than a nickel.

    Comment by North Dallas Thirty — January 25, 2011 @ 11:27 am - January 25, 2011

  36. There is a time when additional gov’t expenditures are no cure, but hinder things

    Alrighty: When?

    You implicitly acknowledge that government spending (and money printing) has harmful effects. Now you imply that you (or economists in which you believe) would know the right time to stop. We can have all the fun of da booze and yet avoid death, if we just keep our use down to a half gallon daily.

    looking at where the economy actually is

    Exactly what you are not doing, Cas.

    Here is where the economy is. It’s about to go off a cliff. Maybe this year, maybe next, almost certainly in the next five years. Because we have over-borrowed. Because we have abused the “reserve currency” privilege (pissing off the other countries, who are now searching for ways to cut the dollar loose). Because Democrats have created huge structural deficits and vastly increased government’s burden on the economy, and because not enough Republicans are yet telling the American people the awful truth about that. Because we have Soviet-style planning of interest rates, and the planners have decided to punish savers and basically to loot the purchasing power of savings, in order to cover up the problems and keep the party going. Because government injects itself into the economy at more and more points, distorting markets with false signals (when the government allows markets to function at all).

    You are what is called a “sophomore”, a wise fool. You pride yourself on your high vocabulary in a junk science, a “science” that has gone far FAR off the rails of truth.

    Comment by ILoveCapitalism — January 25, 2011 @ 11:28 am - January 25, 2011

  37. (continued) Which brings us full circle to Dan’s topic:

    Dems prefer academic theories of job creation to economic reality

    Comment by ILoveCapitalism — January 25, 2011 @ 11:32 am - January 25, 2011

  38. The point is that in a recession, when the private sector is contracting and everyone is afraid to invest, the federal government is the only entity that is large enough to pick up the rest of the economy’s slack. It’s not like we always want to run deficits in good times and bad – we should only be running deficits when our other options are exhausted.

    Ideally – and this is where Obama blew it – the spending goes towards things like infrastructure development and upgrades. Stuff that not only provides short term economic activity, but which results in long term economic benefits like less congestion and faster broadband speeds, that kind of thing. We ought to be building high speed rail and nuclear power plants like every other developed nation in the world, which yes, cost lots of money now, but will make our economy more efficient and adaptable in the future.

    Now, according to conservative economy theory, there ought to be a strong correlation between low taxes, high corporate profits, and concentration of wealth with job creation. So where are the jobs? Taxes are the lowest they’ve been in decades, companies are posting record profits almost every quarter – but there’s no jobs. Why is that?

    It’s because there’s nothing forcing companies to spend their profits on creating jobs, and that’s why you’ve seen executive pay skyrocket over the past few decades and huge bonuses for people who fail. They’ll gladly take the deregulation and low, low taxes, but oops! They forgot to spend that extra money on jobs. Why employ Americans if you can employ Chinese for a fraction of the cost?

    Comment by Levi — January 25, 2011 @ 11:33 am - January 25, 2011

  39. Economists make a distinction between demand and effective demand. Demand is what you are speaking to–a starving child in Ethiopia has demand–for food (she is willing to eat). But, she does not have effective demand for food (she is willing and can afford to get the food).

    The hilarity, again, of the talking-points repeaters like Cas is that they spout these theories, but then never seem to be able to apply them.

    For instance, in order to spin and dodge for its loopy theories on demand, Cas tries to talk about “affordability”. But then, Cas demands higher and higher taxes — which, as any non-Obama Party economist can tell you, decrease the affordability of items by both increasing price AND decreasing available income. Hence, higher taxes squelch demand — something of which Cas seems completely unaware.

    Comment by North Dallas Thirty — January 25, 2011 @ 11:37 am - January 25, 2011

  40. Levi, there’s not as many jobs as there could be because there’s much more regulation than there should be. Conservative economic theory is about more than just the tax rate.

    (Didn’t know it had anything to do with concentration of wealth.)

    Comment by B. Daniel Blatt — January 25, 2011 @ 11:38 am - January 25, 2011

  41. I applaud ILC and NDT for entering into the arcane topics of academic economics. They do so without requiring that the class learn the vocabulary and become facile in speaking in the mystiques of economic terminology.

    Academia is full of places where you create a mystique and then defend it. It is actually a sideshow that obscures an empty center ring in the circus of the mind.

    General Electric shut down its incandescent bulb plant in Virginia and threw the town into economic turmoil. Meanwhile, General Electric is opening a new incandescent bulb plant in Mexico. You do not need to have gone through middle school to understand what happened. However, we simpletons in economics do know why cigarettes are smuggled into New York City and how valued incandescent bulbs are soon to become on the black market. Will NAFTA allow trucks to haul incandescent bulbs into the US? Will they come down from Canada like so much whiskey during prohibition? Or will the National Incandescent Bulb Police (NIBP) raid attics and cellars and stop this narcotic for readers in its tracks?

    Without question in my mind, there is a doctoral study in economics in some US university pondering the economic impact of allowing the incandescent bulb black market to stifle the mercury-laden twirly bulb.

    Its not good to twart Nanny Government. Not even in theory. A Nanny Government theory trumps reality.

    Comment by Heliotrope — January 25, 2011 @ 11:40 am - January 25, 2011

  42. Why employ Americans if you can employ Chinese for a fraction of the cost?

    And the answer is? ……

    Comment by Heliotrope — January 25, 2011 @ 11:45 am - January 25, 2011

  43. I don’t think you need a doctorate in economics to understand that when the Government raises the cost of employing people through various mandates, enacts the highest corporate tax in the western world, and enacts regulations that increase the cost of doing business… there is simply less money available for businesses to hire people.

    On the other hand, if you are complete imbecile (cough, Levi, cough) you can fail to understand how those developments hinder job growth, and then blame corporations for being “greedy.”

    Comment by V the K — January 25, 2011 @ 11:59 am - January 25, 2011

  44. Now, according to conservative economy theory, there ought to be a strong correlation between low taxes, high corporate profits, and concentration of wealth with job creation. So where are the jobs?

    You just answered the question.

    Why employ Americans if you can employ Chinese for a fraction of the cost?

    And actually, an even better answer: Why employ Americans if the Barack Obama Party will allow you to employ illegal immigrants for a fraction of the cost?

    The hilarity is, Levi, that if you wanted to reduce unemployment, reduce welfare costs, and increase tax revenues, you could do so easily by simply enforcing existing immigration law — which bars illegal immigrants from taking jobs, leaving them open for Americans, bars illegal immigrants from collecting welfare benefits, which means you no longer have to pay to provide them, AND increases tax revenues due to Americans taking the jobs previously held by illegal immigrants and paying taxes on them.

    But you won’t do that because you and your Barack Obama need a huge pool of fraudulent voters who you can manipulate and control into putting you back into power, even if it screws over the entire economy in the process.

    Comment by North Dallas Thirty — January 25, 2011 @ 12:01 pm - January 25, 2011

  45. a starving child in Ethiopia has demand–for food (she is willing to eat). But, she does not have effective demand for food (she is willing and can afford to get the food).

    That is a good example of how absurd economics has become. The child does have ‘effective’ demand for the food: she is able and willing to do lots of things for it. It’s just that those things aren’t valuable to the person holding the food, or to the company that must transport it; or perhaps that the food and/or the transportation don’t exist, because government has been blocking production and trade.

    Economists then step in, with all their wisdom. They observe the non-starving people trading food and transportation using currency, and say, “Gee, why don’t we use government force to give the little girl currency? Then she’ll have food, and we’ll all feel noble.” The question is, where does the currency come from? Government can take it from someone else via taxes – resulting in NO net increase to food production/trade, or to “aggregate demand” or any other gibberish. Or, the government can declare new currency into existence, ex nihilo – which dilutes everyone else’s saved currency. They were just robbed, only they don’t know it yet. There may be a brief and small boost to production because Farmer John was cash-strapped and willing to take the new cash, but sooner or later, people catch on that there is more cash going around – in other words, that it is time for everyone to increase food prices, rather than work harder. (As has been happening lately!) Equally, people find that they can’t expand production because their capital has been diluted (i.e., looted). Some competent farmers who had done well, wake up to find that they aren’t doing so well. Again: NO lasting net increase to food production/trade.

    Comment by ILoveCapitalism — January 25, 2011 @ 12:04 pm - January 25, 2011

  46. A salient article: I Wish Government Would Stop “Investing” and Just Get Out of the Way.

    Turns out, the Government spigot was open just about as wide under Bush the Younger. And guess what he was spending on… green energy and education. Just like Bam-Bam.

    Comment by V the K — January 25, 2011 @ 12:04 pm - January 25, 2011

  47. BTW, dimbulb Jenny Granholm followed the Obame/Cas/Levi prescription for job creation every year she was governor of Michigan and in every year, the state lost jobs. Even in the boom years of 2004-2007, Michigan was an economic basket case.

    And seems doomed to remain so under RINO Governator Rick Schwarzensnyder.

    Comment by V the K — January 25, 2011 @ 12:08 pm - January 25, 2011

  48. the Government spigot was open just about as wide under Bush the Younger

    I’ve been saying… But de Rugy nails it:

    What President Obama calls investment is just spending. Government should stop worrying about productivity and growth of the American economy and let businesses do what they do well: find ways to make money at a lower cost.

    Comment by ILoveCapitalism — January 25, 2011 @ 12:21 pm - January 25, 2011

  49. Exactly. California massively increased government spending over the past decade; by Cas’s “logic”, that should mean that California is firing on all cylinders economically and in a massive growth phase.

    We think not.

    Now, for entertainment value, let’s have Cas dissect why, exactly, his government spending did diddley-squat for California. He claims Keynesianism isn’t appropriate in certain situations; let him identify precisely why that is the case for California.

    Comment by North Dallas Thirty — January 25, 2011 @ 1:04 pm - January 25, 2011

  50. And let’s further have Cas explain why Texas, with its barebones state Government “investment,” has led the country in job creation for the last decade.

    Curious, much like the case with ‘Global Warming,’ the real world stubbornly refuses to conform to the models put together by liberal economists/climate scienticians. And in both cases, the model demanding massive Government expenditure and diminishing of individual freedom is repudiated.

    Comment by V the K — January 25, 2011 @ 2:08 pm - January 25, 2011

  51. The folks commenting here are, for the most part, fairly well versed in economics. Perhaps too cerebral for me, because I don’t care for, or follow Keynes. I follow Wal-Mart.

    What is the value of $1 right now? Is it $1, or a % +/- $1?

    What is our national, state, and local debt? If our debt is $14 Trillion, is it actually $14 Trillion, or a % +/- of $14 Trillion?

    There are ten villains in this story: The three branches of our government at each level: federal, state, and local, plus the American citizenry.

    Seems to me the only solution is complete de-regulation of all of the private sphere.

    Comment by DaveO — January 25, 2011 @ 2:22 pm - January 25, 2011

  52. when the private sector is contracting and everyone is afraid to invest, the federal government is the only entity that is large enough to pick up the rest of the economy’s slack.

    Here’s a radical idea: Why not get the government the hell out of the way and let businesses do what they do? The reason everyone is afraid to invest is because they know they’re gonna get ass raped. Fortunately, Americans put adults in charge of the House and with a little luck they can stop Obama’s wild pounding away.

    We ought to be building high speed rail

    Which nobody wants and most likely, the ticket prices will be too high. With the Florida sink hole jumper, they’re building a station a bit far from where a lot of people live East of Lakeland. I’ve already found that I can be half-way to Tampa in the time it takes to get to the station. Not to mention the fact that I’d have my own vehicle when I got there and wouldn’t have to rely on somebody else (and spend more money) for a ride once I got there.

    and nuclear power plants like every other developed nation in the world,

    But the assholes you associate yourself with oppose nuclear power based solely on a stupid movie that sucked more balls than Bawney Fwank in P-town.

    there ought to be a strong correlation between low taxes, high corporate profits, and concentration of wealth with job creation. So where are the jobs?

    See above.

    Further, there was a story the other day that some businesses were complaining to the Florida legislature that they had jobs, but people weren’t taking them. Turns out folks seem to be making more on unemployment welfare, thanks to the Obammunists.

    Taxes are the lowest they’ve been in decades, companies are posting record profits almost every quarter – but there’s no jobs. Why is that?

    You’ve copied and pasted this over and over. Each time I’ve asked you to provide evidence of these “record profits almost every quarter” and you have YET to do so. You post your drivel and then run away.

    Florida businesses are paying 300-400% MORE on unemployment welfare to finance Queen Anna Pelosi’s Bliss on the 99ers and what not. She stated that unemployment welfare is what creates jobs and not businesses.

    THERE’S YOUR JOBS!

    The Obammunists are essentially paying people to stay home and watch Oprah.

    And that’s why I would never trust you to even run a bake sale.

    Comment by ThatGayConservative — January 25, 2011 @ 3:53 pm - January 25, 2011

  53. Further, there was a story the other day that some businesses were complaining to the Florida legislature that they had jobs, but people weren’t taking them. Turns out folks seem to be making more on unemployment welfare, thanks to the Obammunists.

    And I would imagine the rich liberal propagandists who sneer at the low paying jobs that millions of Americans do might have something to do with that as well.

    Comment by ThatGayConservative — January 25, 2011 @ 3:57 pm - January 25, 2011

  54. Long story short, we’d be a helluva lot better off if the liberals would shut up and go pound sand for eternity.

    Comment by ThatGayConservative — January 25, 2011 @ 3:58 pm - January 25, 2011

  55. Just as wide?

    THat is a farking joke. . .

    http://www.moonbattery.com/obama-deficit-slide.jpg

    Yes, Bush ‘spent like a drunen sailor’. . but Obama/Ried/Pelosi have spent like a sailor mainlining crack cocaine. ..

    Comment by Ryan — January 25, 2011 @ 6:26 pm - January 25, 2011

  56. Cos: The Keyensian argument is still seeped in monetarism though (despite John Maynard Keyens’ best efforts).

    Why can’t the Fed peg interest rates really low, to “cancel out” the crowding out effect (which of course is what it’s doing)?

    There are only so many goods and services in the economy. The economy can only grow so fast, to produce more. If the government sucks up unused resources, they simply will not exist for private investment (other then buisiness saving–reinvesting profits–but few jobs are created this way, since it mostly benefits large firms).

    Maintaining aggregate demand isn’t as hard as Keynesians say. When you have a large trade deficit, a combination of foreign demand and private investment will take up part of the slack. This has happened (e.g. look how manufacturing led the recover). The government need not fill the whole output gap.

    But since the government has sucked up the national savings, businesses are investing more overseas then they are domestically. The real, tangible things they need just aren’t here at a decent price; everything is being consumed. That’s what a net negative savings rate means.

    Comment by joeedh — January 25, 2011 @ 6:30 pm - January 25, 2011

  57. You’ve copied and pasted this over and over. Each time I’ve asked you to provide evidence of these “record profits almost every quarter” and you have YET to do so. You post your drivel and then run away.

    Democrats only have to spout talking points, they don’t have to back them up.

    Obama/Ried/Pelosi have spent like a sailor mainlining crack cocaine. ..

    That’s a smear on drunken, drug abusing sailors. They only spend their own money. Obama/Pelosi/Reid are like the whore that rolled the sailor, took his credit card, and is now maxing it out on useless crap.

    Comment by V the K — January 25, 2011 @ 6:41 pm - January 25, 2011

  58. http://federalreserve.gov/monetarypolicy/files/FOMChistmin19371201.pdf

    That link is to the November 1937 meetings of the Federal Open Market Committee.

    Around page 4 the members discuss how government spending had crowded out investment in the 1930s, and *they didn’t recommend restarting it, despite a recession*–they wanted incentives to kick start private investment instead.

    Comment by joeedh — January 25, 2011 @ 6:48 pm - January 25, 2011

  59. in other words, Levi is again using the big lie, repeating it over and over believing if he says it enough, people will believe it.

    Comment by The_Livewire — January 25, 2011 @ 6:51 pm - January 25, 2011

  60. when the private sector is contracting and everyone is afraid to invest, the federal government is the only entity that is large enough to pick up the rest of the economy’s slack.

    Yet another LLL (Levi Laugh Line). The federal government is the out-of-control entity *making* the productive people afraid to create jobs and invest for the long haul. After Levi’s out-of-control government terrorizes the productive, it then says “Government must take up the slack.” The Left consistently offers poison as food, more poison as antidote.

    Comment by ILoveCapitalism — January 25, 2011 @ 6:53 pm - January 25, 2011

  61. Yes, Bush ‘spent like a drunken sailor’. . but Obama/Ried/Pelosi have spent like a sailor mainlining crack cocaine

    Ryan, I always say: Bush pointed the (economic) bus off the cliff, Obama stepped on the gas pedal.

    Comment by ILoveCapitalism — January 25, 2011 @ 6:57 pm - January 25, 2011

  62. Hi all,
    So little time, so many comments. I will keep it brief:
    Heliotrope, “Have you figured out what the “infrastructure” entails?” Yes. Rebuilding the interstate is a form of infrastructure investment. Better still, in a post oil world, upgrading our railway network. Bridge maintenance, etc.

    Heliuotrope, “But, I heard on television how much money was needed to fix “the infrastructure” and Obama got that much and more.” He didn’t. Part of the horse trading was to get more tax cuts, and so infrastructure was down-graded as a priority.

    ILC, “Because we have Soviet-style planning of interest rates, and the planners have decided to punish savers and basically to loot the purchasing power of savings” You can’t have it both ways–low interest rates aid business to take the leap necessary to invest. The corollary is that savings rates are low. Just ask the Chinese, they have been happy with low savings rates for a long time, and they certainly save more than we do.

    NDT, “Tell us, Cas, when you are charged a dollar for something in the store, do you think that item actually is worth a dollar?” Depends. After all, Toyota sold its first Prius’ at a loss, in order to estanblish a market, and then raised prices when the vehicles caught on. So, again, it depends.

    ILC, “Alrighty: When?” When the economy is at or near full employment. Then, increases in aggregate demand, lead very quickly to increases in the price level, and over time, if repeated in a sustained way, to inflation. However, we are no where near that situation. I gave indicators concerning where the economy is right now. We are clearly in a depressed aggregate demand situation:
    Historically high under- and un-employment; super depressed housing market; banks lending at levels way below normal. Banks have gone from zero reserves in 2008 to $800 billion today. While mortgage lending is up compared with 2009, business loans (with record low interest rates) is down 47% in the same period. Banks are not lending to those users who could invest.
    What evidence to you present that would convince us that we are not near full employment levels? Or that gov’t expenditure isn’t working? Oh yes, that Hinderacker diagram that started this post, and which doesn’t measure what its creator wants it to. You may say that “economists don’t know anything about the world” but how does that excuse sloppy arguments that HR makes and that Dan linked to, and that many support here as somehow, self-evident? It doesn’t, I think. And if you want to see my argument, you’ll have to go back all the way to my first post

    “You are what is called a “sophomore”, a wise fool. You pride yourself on your high vocabulary in a junk science, a “science” that has gone far FAR off the rails of truth.” And this counts as an argument? How sad.

    NDT, “For instance, in order to spin and dodge for its loopy theories on demand, Cas tries to talk about “affordability”. But then, Cas demands higher and higher taxes” I have no idea how this fits in with explaining what the difference between demand and effective demand is.

    ILC, “Economists then step in, with all their wisdom.” No, that is the job of politicians. Economists would offer alternative prescriptions depending on what is deemed important, efficient, and the trade-offs there-in.

    VK, “there is simply less money available for businesses to hire people.” I have noticed a trend on this blog, that many commentators really don’t seem to give the possibility of growth much due. In answer to VK, if spending is directed to productive ends, by private enterprise and/or government, then we can expect to see the economy grow.

    Joeedh, “If the government sucks up unused resources, they simply will not exist for private investment ” This is another common refrain. The answer to this and other iterations of this point (“gov’t should get out of the way of business”. etc), is that business isn’t doing the heavy lifting. You can lower taxes on them, bu that isn’t going to be the engine of growth that you want it to be. Evidence: Companies have record profitability. They are holding a lot of money. But they are not investing it, putting it to productive use. And why is that? Fear. Fear that the economy will tank, and they will be left holding the bag. After all, we have such large u/e, crappy housing market, etc, that I have been talking about.

    Commentators on this blog might argue that is “gov’t got out of the way, then the economy will blossom.” Yet, these commentators offer very little evidence for this claim; but rather maintain a calm faith in the rightness of their cause. There was a great laissez faire economy in the late 19th century. Great booms. But you had lows that lingered (like the Long Depression of 1873–96), and they didn’t have income taxes, or any of that pesky problems that you bemoan in the comments today. And they drifted with years of misery, pathetic growth, high unemployment. And why didn’t businesses snap out of this mess? Well because they didn’t have enough demand for their products to kick-start the level of private investment that was needed. Needless to say, government wasn’t anywhere as active as our government today.

    PS. On the record profits issue: Checkout the NYTIMES, http://www.nytimes.com/2010/11/24/business/economy/24econ.html. “Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history. As a share of gross domestic product, corporate profits also have been increasing, and they now represent 11.2 percent of total output. That is the highest share since the fourth quarter of 2006, when they accounted for 11.7 percent of output.”

    And why? Because worker productivity is increasing, but workers are not being paid more. SO, let us get out of the way of businesses, and in a high unemployment economy, watch real wages fall for workers, so standards of living can fall–at least for many, if not those at the top

    Comment by Cas — January 25, 2011 @ 9:45 pm - January 25, 2011

  63. I have no idea how this fits in with explaining what the difference between demand and effective demand is.

    Of course you don’t, Cas, because it undercuts your entire unicorn-fart theory.

    You see, in your world, taxes have to be ignored. They are completely inconvenient. You magick up money from nowhere and push it out to people, an endless stream. If you ever had to deal with from where that money came, your entire theory would collapse, as I showed above, because it would be obvious that you are taking money from people, and thus reducing their “aggregate demand”, at a faster rate than you are pushing it back out to stimulate “aggregate demand”.

    In short, all you are doing is standing on the brake while simultaneously whining that your engine isn’t powerful enough.

    Comment by North Dallas Thirty — January 25, 2011 @ 10:17 pm - January 25, 2011

  64. Cas reminds me of that joke about the engineer, the chemist, and the economist who were stranded on an island, with nothing to eat. A can of soup washes ashore. The engineer says, “Let’s smash the can open with a rock.” The chemist says, “Let’s build a fire and heat the can first.” The economist says, “Let’s assume that we have a can-opener…”

    In order to “refute” my point that Government spending takes away from capital formation, he has to pretend that Government spending is equally efficient to private spending. It is not. No private enterprise would spend $800,000 teaching African men to wash their junk, much less billions to prop up useless unionize public employees whose work is unnecessary at best and destructive at worst.

    Comment by V the K (Assistant to the Regional Manager) — January 25, 2011 @ 10:49 pm - January 25, 2011

  65. Hi NDT,
    “Cas, because it undercuts your entire unicorn-fart theory.” ! :)

    “You see, in your world, taxes have to be ignored. They are completely inconvenient.”
    And you haven’t addressed a real world piece of evidence that I have presented to cast doubt on your position. We have an historical lab to test your theories NDT. Its called the 19th century. And the depressions that hit it with quite some regularity. They didn’t have income taxes in 19th century America from 1873-1896. They had the wonderful laissez faire system you want, with business pretty much able to do whatever it wanted. Gov’t got out of business’ way. So, how do these inconvenient facts support your theory? Surely, the 19th century should have been a wonderful expression of your fervently held position (as with other commentators)? But it isn’t. You have to explain this “inconvenient truth.” It is not enough to keep repeating the same thing over and over again.

    As for money from people’s pockets. I just want to point out that we have a fractional banking system. We are no longer on the gold standard. That has issues of its own, but the gov’t isn’t taking “money from peoples’ pockets.” This isn’t a zero sum game. If you are worried about inflation, the dollars aren’t being taxed, they are being printed. And at the moment, given the level of bank lending (as I pointed out earlier) inflation isn’t the issue (actually, I am more worried about the possibility of deflation). And neither is crowding out. And if we are talking about future taxation, yes, that is a possibility. But I would remind you that debt levels as a ratio of GDP were much higher at the end of WWII then they are now. According to the theories(?) advanced here, this should have been a time of apocalypse. It wasn’t. US growth was high and sustained after WWII. Taxes were also high (much higher than they are now–hey they were 92% in 1952-53, 91% in 1954-63; 70% as late as 1970). These are inconvenient facts, that fly in the face of your “established wisdom.”

    VK, “No private enterprise would spend $800,000 teaching African men to wash their junk” Maybe so. But if there was a profit to be made… Anyhow, I have no idea why they did this–perhaps they are looking for protocols that might be used in more developed countries after field testing in Africa; or maybe, its a stupid boondoogle waste of taxpayers money! I have no idea. Private enterprise has no lock on stupidity.

    Comment by Cas — January 26, 2011 @ 12:01 am - January 26, 2011

  66. Question: Why are you lumping the Depression of 1873 in with the Depression of 1893? Further, I’m intrigued that you don’t lump in the Depression of 1920-21 to make it extra scary.

    WHOOPS! Wilson & Harding cut government spending and let the free market work just like every previous President had. Then they Keynesians came along and gave us almost 30 years of depression.

    FAIL!

    Comment by ThatGayConservative — January 26, 2011 @ 1:30 am - January 26, 2011

  67. Hi TGC,
    Thank you for your reply.
    “Why are you lumping the Depression of 1873 in with the Depression of 1893?”

    “In the United States, economists typically refer to the Long Depression as the Depression of 1873–79, kicked off by the Panic of 1873, and followed by the Depression of 1893, book-ending the entire period of the wider Long Depression.” Take either one, if my bookending upsets you. The Depression of 1873 to 1879 lasted 65 months. The Great Depression lasted 43 months. The 1873-9 Depression is the longest identified by the National Bureau of Economic Research. That is market forces for you–always leading to a solution, years down the track….

    “WHOOPS! Wilson & Harding cut government spending and let the free market work just like every previous President had. Then they Keynesians came along and gave us almost 30 years of depression. FAIL!”

    FDR became President in 1933. 1929-1932 economic indicators: Industrial production -46%; Wholesale prices -32%; foreign trade -70%; unemployment change +607%. That is what Hoover (who followed Harding’s & Coolidge’s approaches) gave you. Funny how they also presided over a booming speculative market that also went bust… I have no idea what that last statement of 30 years of depression means, as it is factually incorrect, if referring to the period 1935-1965?

    I appreciate you mentioning the 1920-21 depression, because it helps to make one of the points I have been hammering in my conversation with many of the commentators here. As for 1920-21, this was not caused by a deficiency in aggregate demand, so it is not the case that fiscal stimulus (i.e., gov’t spending) would have helped in this situation. Our situation today is a different case with different causation than 1920-21. Today, we need an increase in aggregate demand, hence, short term fiscal stimulus would be very useful.

    Comment by Cas — January 26, 2011 @ 2:46 am - January 26, 2011

  68. But I would remind you that debt levels as a ratio of GDP were much higher at the end of WWII then they are now.

    You may not be aware of this, but global circumstances were rather different at the end of world war II. For one thing, the industrial capability of… well… the entire world outside the USA had been destroyed. The USA had no global competitors. Nor was capital nearly as internationally mobile as it is today. Also, the world had adopted a Gold Standard at Bretton Woods that was advantageous to the USA. (And was, by curious coincidence, discarded soon after the massive welfare programs of the 1960s were institutionalized.) The USA was also self-sufficient in oil at the end of WWII.

    The post-WWII experience has no relevance to our current situation.

    Comment by V the K — January 26, 2011 @ 7:39 am - January 26, 2011

  69. [...] Uh, Mr. President, they weren’t tax cuts but the retaining of Bush’s tax breaks, and don’t look now, but we’re still in the hole with unemployment and jobs. [...]

    Pingback by Reality vs. SOTU Speech: Unemployment Rate Rose Last Month, Most States Lost Jobs « Frugal Café Blog Zone — January 26, 2011 @ 9:38 am - January 26, 2011

  70. Hi VK,
    Good for you! The Bretton Woods collapse wasn’t mysterious. It was due to the egregious manner in which the US financed the Vietnam War (which as a share of GDP was much higher than for the current wars we fight). So, even if I grant your claims, what say you to the earlier record of 19th century depressions and what it has to say about your faith in self-stabilizing and correcting markets?

    Comment by cas — January 26, 2011 @ 10:52 am - January 26, 2011

  71. what say you to the earlier record of 19th century depressions and what it has to say about your faith in self-stabilizing and correcting markets?

    The economy always came back stronger after each crash (and more quickly without Government intervention), the Government didn’t rack up massive unsustainable deficits, and the currency wasn’t constantly devalued.

    Works for me.

    Still no explanation on why the high-tax, high government “investment” economic model has bombed so spectacularly in New York, Michigan, and California.

    Comment by V the K (Assistant to the Regional Manager) — January 26, 2011 @ 12:36 pm - January 26, 2011

  72. Oh, another benefit… the 19th Century didn’t have a permanent underclass that was generationally dependent on state welfare.

    Comment by V the K (Assistant to the Regional Manager) — January 26, 2011 @ 12:37 pm - January 26, 2011

  73. That is what Hoover (who followed Harding’s & Coolidge’s approaches) gave you.

    Harding & Coolidge cut spending. Hoover increased it by 42% in the first two years alone. Nor did he let the private sector work it out. He demanded companies keep people employed and keep increasing pay.

    And yes, FDR contributed to keeping us in a depression until the mid-50s and no, WWII did not end it.

    Comment by ThatGayConservative — January 26, 2011 @ 1:31 pm - January 26, 2011

  74. Agreed. The idea that Hoover “followed Harding’s & Coolidge’s approaches” is almost totally false. Hoover didn’t follow their approaches; wish he had!

    Instead, Hoover prototyped Roosevelt’s approach: increases to regulation, taxes, spending and deficits. The result was that Hoover and Roosevelt together (following the same basic policies, which Roosevelt merely intensified) turned an ordinary recession into years of economic agony.

    Comment by ILoveCapitalism — January 26, 2011 @ 1:36 pm - January 26, 2011

  75. More here: http://mises.org/daily/3788

    Comment by ILoveCapitalism — January 26, 2011 @ 1:38 pm - January 26, 2011

  76. As for the late 19th century: In the United States, all those so-called “depressions”, it was the greatest period of economic progress and improvement of real living standards that any country had yet seen, in all of human history. That is why all those immigrants came: for the high real wages.

    “Alrighty: When [should government back off from spending and printing money]?” When the economy is at or near full employment.

    Well then, that explains Zimbabwe. They followed Cas’ economic advice. They kept spending and printing, spending and printing, waiting for full employment to arrive. Since it never arrived (as I could have told you it would not), they never reached that magic point where Cas would have told them them to stop. The rest is history.

    Comment by ILoveCapitalism — January 26, 2011 @ 1:43 pm - January 26, 2011

  77. Let’s first set the record straight on Herbert Hoover’s fiscal policies. Contrary to what you have heard and read over the last year, Hoover behaved as a textbook Keynesian after the stock-market crash. He immediately cut income tax rates by one percentage point (applicable to the 1929 tax year) and began ratcheting up federal spending, increasing it 42 percent from fiscal year (FY) 1930 to FY 1932.

    But to truly appreciate Hoover’s Keynesian bona fides, we must realize that this enormous jump in spending occurred amidst a collapse in tax receipts, due both to the decline in economic activity as well as the price deflation of the early 1930s. This combination led to unprecedented peacetime deficits under the Hoover administration — something FDR railed against during the 1932 campaign!

    How big were Hoover’s deficits? Well, his predecessor Calvin Coolidge had run a budget surplus every single year of his own presidency, and he held the federal budget roughly constant despite the roaring prosperity (and surging tax receipts) of the 1920s. In contrast to Coolidge — who was a true small-government president — Herbert Hoover managed to turn his initial $700 million surplus into a $2.6 billion deficit by 1932.

    It’s true, that doesn’t sound like a big number today; Henry Paulson handed out more to bankers by breakfast. But keep in mind that Hoover’s $2.6 billion deficit occurred because he spent $4.6 billion while only taking in $2 billion in tax receipts. Thus, as a percentage of the overall budget, the 1932 deficit was astounding — it would translate into a $3.3 trillion deficit in 2007 (instead of the actual deficit of $162 billion that year). For another angle, I note that Hoover’s 1932 deficit was 4 percent of GDP, hardly the record of a Neanderthal budget cutter.

    The Fake History of the Depression
    http://mises.org/daily/3426

    Comment by ThatGayConservative — January 26, 2011 @ 1:45 pm - January 26, 2011

  78. TGC, good one. To be clear: Hoover signed the 1930 tariff which of course, was a tax. Also, Hoover increased the 1932 top income tax rate from 25% to 63%. Roosevelt then jacked it up to 79% for 1936. (And more in the war years.)

    Notice the pattern? Hoover jacks up spending, the economy gets worse. Hoover jacks up taxes, the economy gets much worse. Roosevelt jacks up spending, the recovery that the economy was poised for is aborted. Roosevelt further jacks up taxes (1936), the economy gets worse (1937).

    Obama has pretty much been following the Hoover/Roosevelt playbook. (He did keep the Bush tax cuts and avoid raising tariffs – but Obamacare is a massive set of tax increases.) We will all suffer, unfortunately.

    Comment by ILoveCapitalism — January 26, 2011 @ 2:07 pm - January 26, 2011

  79. Hi VK,

    “The economy always came back stronger after each crash (and more quickly without Government intervention), the Government didn’t rack up massive unsustainable deficits, and the currency wasn’t constantly devalued. ”

    Those 20% unemployed for 5 + years. That is just the workings of capitalism. Thanks for clarifying your position. And all that blood and violence as workers struggled with bosses, with worries about revolution (which by the way was a real concern during the Great Depression here is America, as well as a major contributing factor to the rise and initial success of fascism in Germany); that is just the workings out of the economy, as well. The price the country bears to “just let nature take its course” may not be worth it.

    As for states that weather the blows of the recession better than others, yes, there is variability. You can add Illinois as a state having real problems.

    “The states between the Rocky Mountains and the Mississippi River are doing comparatively well. They have small populations that don’t place big demands on state services, and they produce commodities — notably oil and coal — with prices that have held up. Then there are medium-size states like Virginia and Washington, which have budgeted in a responsible manner but are still being buffeted by national economic tides.”
    So, the answer lies in this–lack of proper fiscal management for some like Illinois and California; smaller populations and/or better commodity prices for others.

    As for Texas, “This month the state’s part-time legislature goes back into session, and the state is starting at potentially a $25 billion deficit on a two-year budget of around $95 billion. That’s enormous. And there’s not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn’t do the trick. And though raising this kind of money would be easy on an economy of $1.2 trillion, the new GOP mega-majority in Congress is firmly against raising any revenue.

    So why haven’t we heard more about Texas, one of the most important economy’s in America? Well, it’s because it doesn’t fit the script. It’s a pro-business, lean-spending, no-union state. You can’t fit it into a nice storyline, so it’s ignored.

    But if you want to make comparisons between US states and ailing European countries, think of Texas as being like America’s Ireland. Ireland was once praised as a model for economic growth: conservatives loved it for its pro-business, anti-tax, low-spending strategy, and hailed it as the way forward for all of Europe. Then it blew up.

    This is the sleeper state budget crisis of 2011, and it will be praised for doing great, right up until the moment before it blows up.

    Read more: http://www.businessinsider.com/texas-state-budget-crisis-2011-1##ixzz1CAjiPBi7

    PS. I apologise for not always citing my sources. Googling the quote does work, but … Can someone lead me through the way to hypertext links. When I sometimes post with just the url, the server bumps my comments, and it takes a while to rewrite them…

    Comment by cas — January 26, 2011 @ 2:42 pm - January 26, 2011

  80. Hi ILC,
    “As for the late 19th century: In the United States, all those so-called “depressions”, it was the greatest period of economic progress and improvement of real living standards that any country had yet seen, in all of human history.”

    Could you give me the statistics for the periods of the depressions? Then the overall results, so I could compare and evaluate your claim?

    Comment by cas — January 26, 2011 @ 2:48 pm - January 26, 2011

  81. HI TGC,
    “a depression until the mid-50s and no, WWII did not end it.”
    Could you please share with me your statistics for this, because it doesn’t accord with the NBER data. Maybe you defing a depression differently from the commonly accepted manner. There were three recessions between 47 and the end of the fifties, interspersed with growth rates of anywhere from 1 to >10%. Could you please clarify?

    Comment by cas — January 26, 2011 @ 2:55 pm - January 26, 2011

  82. Notice the pattern? Hoover jacks up spending, the economy gets worse. Hoover jacks up taxes, the economy gets much worse. Roosevelt jacks up spending, the recovery that the economy was poised for is aborted. Roosevelt further jacks up taxes (1936), the economy gets worse (1937).

    Only in the USA is it known as the Great Depression. The rest of the world… not afflicted with the New Deal… recovered much more quickly than the USA.

    Also Texas’s “budget deficit” isn’t the horror story shrill leftist Paul Krugman make it out to be. First of all, Krugman exaggerrate the size of the shortfall by a factor of 2. Texas uses a form of zero-based budgeting. They calculate expenditures after they assess receipts (not the other way around as the FedGov does.)

    Also, the bulk of the projected deficits are Medicaid costs mandated by ObamaCare

    FAIL.

    Comment by V the K — January 26, 2011 @ 4:08 pm - January 26, 2011

  83. because it doesn’t accord with the NBER data.

    Which data?

    Comment by ThatGayConservative — January 26, 2011 @ 6:01 pm - January 26, 2011

  84. Hi VK,
    I love that “FAIL” you use, so final! :) So, I went and read the Williamson article, and found a couple of useful links that seem to ameliorate the “fail” grade you gave me. In good health! I’d be interested in your thoughts.
    http://frontburner.dmagazine.com/2011/01/08/krugman-vs-williamson-the-texas-deficit/
    http://www.dallasnews.com/news/politics/texas-legislature/headlines/20101023-Legislature-likely-to-cut-deep-to-571.ece

    And a quote from an interested poster on Williamson’s site:
    “Two large (and growing) demographic groups in Texas are seniors and low-income residents (particularly Hispanics). (Illegal immigrants are also a problem—but that’s another story.) Seniors are exempt from paying property tax (the principal source of state revenue in Texas). Low-income residents don’t generally own property and therefore don’t pay much or anything in property taxes. However, both low-income residents and seniors draw substantial services (CHIP, primary and secondary education, roads, health care).

    How is Texas going to generate revenue (to cover its structural deficit) when two key demographic groups contribute little to state revenue but draw substantial services?

    Questions to Williamson:

    Would you still make the same rosy claims about Texas if its budget deficit is, in fact, 25 billion (as opposed to 11-15 billion)?

    Do you believe the demographic factors mentioned above will impact Texas’s deficit?”

    Comment by cas — January 26, 2011 @ 6:28 pm - January 26, 2011

  85. Hi VK,
    NBER data on gdp growth

    Comment by cas — January 26, 2011 @ 6:28 pm - January 26, 2011

  86. VK!
    “Only in the USA is it known as the Great Depression. The rest of the world… not afflicted with the New Deal… recovered much more quickly than the USA.” As per Great Depression (and it was called that in Australia, by the way…)
    Could you please explain why newly Nazi Germany, more established Fascist Italy and Japan, and Communist Russia, all did better than the US, as well? And it is also an exaggeration to say “all” did better as well: Czechoslovakia, Canada, Poland, Netherlands, & Denmark came out of the Depression at the same time as the US, http://www.econ.berkeley.edu/~cromer/great_depression.pdf. But then again, it might depend on when you think the US got out of the [Great] Depression. Do you agree with TGC that it went on to the mid fifties in this country, or do you follow the more academically established 1929: Q3 (begin) and 1933: Q 2 (end)? Or something else?

    Comment by cas — January 26, 2011 @ 6:51 pm - January 26, 2011

  87. http://www.ggdc.net/Maddison/Historical_Statistics/horizontal-file_03-2007.xls

    It provides historical GDP in “million 1990 International Geary-Khamis dollars”. For the US, it says:

    1830 – 18,219
    1840 – 27,694
    1850 – 42,583
    1860 – 69,346
    1870 – 98,374
    1880 – 160,656
    1890 – 242,758
    1900 – 346,869
    1910 – 518,044
    1913 – 582,941

    Just eyeballing it, that makes 40-60% GDP growth per decade in the 19th century. Rates like 50-80% per decade during all those “depressions” of the 1870-1900 period. Yup, what a horrible time that was to be alive.

    Just eyeballing the later decades very roughly, we only had 30-40% growth in the rest of the 20th century. And of course, still lower growth in the decade of this century.

    I’m answering this one question of yours because it happened to catch my eye. Your posts are replete with errors (and as well, questions that you could research yourself) and I haven’t got all day, so I’m intentionally skipping a lot.

    Comment by ILoveCapitalism — January 26, 2011 @ 7:11 pm - January 26, 2011

  88. Typo, meant “Rates like 50-60% [six zero] per decade during all those…”

    Comment by ILoveCapitalism — January 26, 2011 @ 7:17 pm - January 26, 2011

  89. This is my last word. You Cas, and the majority of the “science” of economics, have committed a fundamental flaw. You think that spending, i.e. consumption, is the economy. You *define* C + I + G spending, as “the economy”. Thus if spending is down, the economy is bad; if spending is up, the economy is good. When the economy is in trouble, try to get spending up. That thinking lies near the root of your problem. In reality, production is “the economy”. Before there can be consumption/spending, people must create things that you can spend on. After providing the minimum basics of law and order and property rights, which is its one legitimate function, government must get the hell out of people’s way and let them produce things. The money they earn in production, they can then spend in consumption. Production, in turn, is driven forward by capital. Capital comes from under-consumption, i.e., from people choosing deliberately to NOT CONSUME. Real capital cannot be created by the government, ex nihilo; only inflation can. Real capital comes from people’s savings. Indeed, “capital” may be considered another word for “savings”. When the economy gets in trouble, it is invariably because government got in the way of production and/or capital formation, and/or had been out there messing with market signals for the previous several years, thus creating imbalances (such as the housing bubble which was an artifact of the CRA, Freddie, Fannie and Greenspan’s massive money creation including his 1% interest rates). The solution is to take the recession and get it over with, letting the market charge off the losses (malinvestments) and correct the imbalances. The solution is for government to back off, getting itself out of the way of production. The solution is for people to under-consume, creating new capital. The solution is *NOT* to stimulate consumption. Stimulating consumption is the EXACT OPPOSITE of what is needed to fix the economy. The government shouldn’t take a role in fixing the economy but, if it must, then if anything it should try to move against consumption, i.e. to stimulate under-consumption. A period of under-consumption is what will fix things – which, in a market economy, means a period of recession and high(er) interest rates. The faster the government stops fighting reality and gets the inevitable recession over with, the better off everyone is. The brilliance of Harding’s response to the 1920 recession is that he did, and the failure/tragedy of Hoover and Roosevelt’s response to the 1930 recession is that they didn’t. I know you don’t agree with all this. That’s your problem. I’ve told you the truth. It is up to you to see it for yourself. Evidently, you are so mentally programmed in conventional economics that you cannot, at this time. Whatever. I don’t have time to keep spoon-feeding you truth.

    Comment by ILoveCapitalism — January 26, 2011 @ 8:35 pm - January 26, 2011

  90. Hi ILC,
    Thank you for the info–the data looks interesting. GDP has increased. And substantially. Capitalism unfettered of constraints can grow an economy, even with ups and downs. Who would have guessed! :) What is also interesting is that when you compare this period for u/e data, you see long periods of time where u/e exceeded 12-14% in the same time frame (consistent with the Depressions). How is this consistent with rising per capita gdp? The answer lies in the fact that during this period, income distribution worsened; not everyone shared in the nation’s prosperity.

    The point I want to make though, goes back to an issue I raised about the human cost of doing nothing to alleviate u/e in this situation. Human capital is destroyed by u/e. And even as people on this thread bewail the need for gov’t to allow physical capital formation and not hinder it, they have little to say about human capital, except in so far as individuals get a fair return on that human capital. I agree with that. However, u/e works directly against this. When I speak to the human cost of Depression, it draws tough minded statements that this is the way it has to be for a functioning economy to grow. I disagree with this sentiment, because of the high cost in human capital as well as the human misery it causes. If you must be tough minded, include the calculation of the destruction of human capital in your prognostications. Because, even as GDP rose (and was acquired by those who were employed, and majorly by those who owned or had access to physical capital) there were many who did not share in this prosperity, to their detriment, and also to the country’s detriment.

    PS. “I’m answering this one question of yours because it happened to catch my eye.” Great! In future, just give a link to support the claims you make, when asked to defend it. I can look up the data for myself.

    Oh, if you (or anyone else, for that matter) decide to answer the first claim I made about the meaningless picture Hinderaker thinks proves something it does not, be my guest.

    Comment by Cas — January 26, 2011 @ 9:11 pm - January 26, 2011

  91. Let’s see what Cas is attempting to spin today.

    And a quote from an interested poster on Williamson’s site:
    “Two large (and growing) demographic groups in Texas are seniors and low-income residents (particularly Hispanics). (Illegal immigrants are also a problem—but that’s another story.) Seniors are exempt from paying property tax (the principal source of state revenue in Texas). Low-income residents don’t generally own property and therefore don’t pay much or anything in property taxes. However, both low-income residents and seniors draw substantial services (CHIP, primary and secondary education, roads, health care).

    How is Texas going to generate revenue (to cover its structural deficit) when two key demographic groups contribute little to state revenue but draw substantial services?

    First, senior citizens are not exempt from paying property tax. Texas law places a mandatory cap on property tax amounts for senior citizens for school districts and allows other taxing districts, i.e. counties and cities, to put in place a cap if they so choose; however, senior citizens are still required to pay property tax up to the cap.

    Second, Texas has no state property tax. Only local entities may impose property taxes, and by state law, those funds must be retained and used locally.

    Third, Texas’s primary source of state revenue is the state sales tax, which is paid by all individuals making virtually any purchase in the state of Texas, including senior citizens, low-income individuals, and illegal immigrants. Taxes are assessed on consumption, not income or age.

    So let’s see; Cas is bashing Texas and drawing all sorts of conclusions about how awful it is based on three flat-out lies about it.

    That’s not surprising. Cas tried spinning and telling these lies when confronted by V the K with this:

    Still no explanation on why the high-tax, high government “investment” economic model has bombed so spectacularly in New York, Michigan, and California.

    Comment by North Dallas Thirty — January 26, 2011 @ 9:25 pm - January 26, 2011

  92. Human capital is destroyed by u/e.

    Ah, I see we’re to the usual moocher’s tactic of whining about how we have to pay his bills because of “the poor”.

    Unfortunately for you, Cas, everyone here is aware that you endorse and support policies, such as massive tax increases, increased regulation, refusal to enforce laws against illegal immigration, and government seizure of “excess” — all of which ultimately, by raising expenses and punishing law-abiding and successful businesses, leads to more unemployment.

    And then, as shown by your blathering about Herbert Hoover and Texas, you even have to lie to do it.

    Comment by North Dallas Thirty — January 26, 2011 @ 9:41 pm - January 26, 2011

  93. And one more thing, which I forgot; by law, only US citizens are eligible for CHIP, not illegal immigrants as claimed by Cas’s quote.

    Furthermore, the cutoff age for CHIP is 18 — which, by definition, precludes “senior citizens” from partaking in it.

    So again, let us summarize: Cas is stating that Texas is doomed due to a structural budget deficit created by the cost of an exemption that doesn’t exist from a tax that never was to pay the cost of providing services under a program to two demographic groups that are ineligible for it.

    Gentlemen, I believe we have finally quantified the heretofore-unknown stupidity level of galactic.

    Comment by North Dallas Thirty — January 26, 2011 @ 9:59 pm - January 26, 2011

  94. Damn. NDT beat me to it.

    Comment by ThatGayConservative — January 27, 2011 @ 2:04 am - January 27, 2011

  95. Dear NDT,
    Because what I am going to say has some subtlety, I am going to ask you to bear with me, rather than go for your knee-jerk response. First, you are right–the state does not draw property taxes (the Williamsom commentator was wrong about that), so that is points two and three in one tidy knot.

    The issue comes with your point one. The commentator should have said: The elderly are exempt from paying PART of their property taxes. When I read the article you kindly pointed me towards, I was struck by the fact that the local authorities are worried that the caps they have in place are such that they will be in the red this year and next. The reason? “”The costs go up every year, whereas homes that are frozen will pay the same amount year after year even as each dollar buys less and less,” Lavine said.

    Some other states with freezes include limits so that seniors earning over a certain amount of income don’t qualify for the tax break. Such an argument never got much support in Texas, though Lavine said it would have made sense.

    Brown said he regrets not putting a provision in the constitutional amendment excluding homes worth more than a certain value, perhaps $250,000. But he doesn’t expect to try to change the law now, he said.

    Read more: http://www.star-telegram.com/2010/05/02/2158023/tax-freezes-for-the-elderly-and.html#ixzz1CDUOZoRg

    What makes this difficult for Texas is that when I read the state constitution, Article 8, Section 1-b (h), it makes clear that local authorities “may not be increased while it remains the residence homestead of that person or that person’s spouse who is disabled or sixty-five (65) years of age or older and receives a residence homestead exemption on the homestead.” That is, you can’t increase property taxes. The article makes clear that the elderly don’t use many services till they get ill. OK. But, there is a growing demographic gap between expenses and revenues, over time. You didn’t address the issue of poor folks who use local resources that have to be paid for. I am uncertain how significant that is as a category. But the bottom line is that there is a real danger that Texas has boxed itself into a fiscal corner, and may have to (shock, gasp) raise taxes in the future to pay for essential services. Finally, as the commentator did ask at the end: “Would you still make the same rosy claims about Texas if its budget deficit is, in fact, 25 billion (as opposed to 11-15 billion)?”

    “Ah, I see we’re to the usual moocher’s tactic of whining about how we have to pay his bills because of “the poor”.”
    I appreciate that you want to believe intensely in what you say, but it doesn’t mean that you actually address the point I was making. My analysis was aimed at the concept of human capital. If you choose to ignore this concept, and go on a tear concerning “mooching” knock yourself out

    As for California et al, I’ll repeat what I said above when you asked me to explain why CA bombed: “So, the answer lies in this–lack of proper fiscal management for some like Illinois and California; smaller populations and/or better commodity prices for others.” They needed to either cut spending, raise taxes, or some combo of each. The political dynamics precludes (it seems) any coherent working together by both sides of the political spectrum in Sacramento, to actually address the problems. Further, CA is not a sovereign state, so other remedies are limited. It doesn’t get to print money; it doesn’t get to devalue its currency. So, its options are limited.

    And again, I’ll repeat: “Oh, if you (or anyone else, for that matter) decide to answer the first claim I made about the meaningless picture Hinderaker thinks proves something it does not, be my guest.” That is back at #6

    Hi TGC,
    I did some checking, and I was clearly wrong to say that Hoover followed Coolridge and Harding’s policies. He wasn’t a complete Keynesian, but he certainly didn’t follow laissez faire policies! The one thing missing from your analysis is the role of the destruction of the money supply, and its deflationary impact.

    Hi ILC,
    You continue to mischaracterize my position. There are times when AD should not be stoked. There are times it should. It is not a “spend more always” approach. AD is one side of the coin. Income is the other.

    “The brilliance of Harding’s response to the 1920 recession is that he did, and the failure/tragedy of Hoover and Roosevelt’s response to the 1930.” You cannot get it through your head that I do not think these are similar cases. They are not the same kind of depressions, so what government needed to do in each case needed to be different. One size solution does not fit all categories.

    Finally and relatedly, VK and ILC, whilst the 19th century was very different from the 20th: “For one thing, the industrial capability of… well… the entire world outside the USA had been destroyed. The USA had no global competitors. Nor was capital nearly as internationally mobile as it is today. Also, the world had adopted a Gold Standard at Bretton Woods that was advantageous to the USA. (And was, by curious coincidence, discarded soon after the massive welfare programs of the 1960s were institutionalized.) The USA was also self-sufficient in oil at the end of WWII. The post-WWII experience has no relevance to our current situation.”

    Unfortunately I think it it does. Because the major ways in which the 21st century differs from 19th century is in the increased interconnectedness of economies, and the incredible mobility and size of capital. And these were differences accelerated by WWI, WWII and the Cold War. Oil is a finite commodity, and one in which we can see a finite window of use (so driving when gas hits five dollars a gallon will hurt productivity, I suspect… and make train travel much more attractive). Add in the Information Revolution, and the speed with which people around the world come to know things, and how easy it is for them to organize on a scale that has hitherto been impossible.

    Thus, when the world stood on the brink of a financial meltdown in 2008, the possibility existed that without serious intervention, given the interconnectedness of the world we live in, we could have had the longest, largest, most severe and internationally widespread Depression ever recorded. Maybe it would have worked out the way commentators here suggested it would. But the alternative to intervention would have been unemployment to rise to Great Depression levels and beyond. I don’t have the confidence that you have to think that the societal fabric of this country would have held together in this age, especially in the face of widespread dissemination of negative information about winners and losers in the “new economy.” I think we are still in the realm of that possibility, especially given that we haven’t yet gotten a proper handle on the financial sector. I would like to believe that the invisible hand cures all things, left to its own devices. But the events of 2008 show that private interests do not always align with the public good. The search for short-term profit can be the enemy of the long term good. Those folks at JP Morgan who helped create CDOs & default swaps brought in large profits. But they helped sow the seeds of the crisis to come.

    Comment by Cas — January 27, 2011 @ 3:03 am - January 27, 2011

  96. Cas: Texas runs a two year budget, so you can’t compare its total budget deficit to other states that use a ONE year budget on a one for one bases.

    Comment by Ryan — January 27, 2011 @ 5:00 am - January 27, 2011

  97. Once more, Palin gets it: http://www.facebook.com/note.php?note_id=494999858434

    The President… states [that] we want to make sure “we don’t get buried under a mountain a debt.” That’s the problem! We are buried under Mt. McKinley-sized debt. It’s at the heart of what is crippling our economy and taking our jobs.
    [...]
    In the past, he promised us he’d make job creation his number one priority, while also cutting the deficit… What did we get? A record $1.5 trillion deficit, an 84% increase in federal spending, a trillion dollar stimulus that stimulated nothing…

    When you grow government, you get government “jobs”: leaf raking, bureaucrats who only burden the private sector, and so forth. You crowd out (thus prevent) private sector growth. History has shown that in country after country. It’s why today’s recovery is so tepid, compared to past American recoveries from recession. Just like in the 1930s.

    Comment by ILoveCapitalism — January 27, 2011 @ 11:05 am - January 27, 2011

  98. (continued) The average American is determined to make their life better and so, over a period of years, the economy may slowly recover despite the cancerous growth of government. Again as happened in the 1930s. But when government gets out of the way, you get a much stronger recovery – as in the 1980s, 1990s and 1920s.

    Comment by ILoveCapitalism — January 27, 2011 @ 11:12 am - January 27, 2011

  99. Thanks for your clarification, Ryan.

    Comment by Cas — January 27, 2011 @ 11:13 am - January 27, 2011

  100. Illinois seems to be following the Cas/Obama/Krugman economic formula; a 66% tax increase so that wise and efficient Government can wisely and efficiently invest the money it confiscates from Illinois taxpayers. Surely, boom times are just around the corner for Illinois.

    Or, perhaps not.

    Comment by V the K — January 27, 2011 @ 11:56 am - January 27, 2011

  101. Human capital is destroyed by u/e.

    Ah, I see we’re to the usual moocher’s tactic of whining about how we have to pay his bills because of “the poor”.

    NDT, agreed. “Human capital” and “the poor” are both shibboleths that left-wingers trot out cynically, to try and shut down a pro-capitalist viewpoint. If lefties actually cared about the poor, they would become pro-capitalist, as capitalism is what has raised the living standards of the poor so much, these last two centuries. But lefties don’t actually care about the poor; only about punishing success (fulfilling their inner envy of the successful).

    Likewise, in this case, I talked about how Harding’s government-reducing response to the 1920 recession let the economy recover quickly from that recession and got the pain over with quickly, which was a great boon to the unemployed and to human beings everywhere… while Hoover and Roosevelt’s government-expanding response dragged out the 1930 recession for over a decade of agony. And likewise with Obama’s government-expanding response to recession today, or Zimbabwe’s. If a person cares about the unemployed and “human capital”, in truth and not just as a pose, it should be clear which path is better.

    Comment by ILoveCapitalism — January 29, 2011 @ 11:20 am - January 29, 2011

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