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03/01/2010

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Meradj Mortezapouraghdam

Hello to all.

Stimulus packages and the idea of using the printing press now seems an attractive solution to all politicians, however what really puzzles me is that: "are there any other alternatives"?

Jack

"Instead of being concentrated mainly on sectors that had suffered large increases in unemployment, such as construction, the stimulus spending was oriented toward many sectors that liberal members of the Democratic controlled Congress wanted to greatly expand."

Both of our Profs seem to have slapped together essays worthy of perhaps a C. For example how and why would one target stimulus to the moribund and overbuilt housing market? (Though truth is there is the first time buyer credit and "starter homes" for young families is going much better than most of the "move up" market) And, much of the money to the states is going toward construction and my guess is that unemployed home building craftsmen are mobile enough to ply their trades on various types of infrastructure maintenance and upgrades.

Posner laments the time lag between the wake up call and stimulus hitting Main Street paychecks despite plenty of evidence this recession is deep and ugly with a long tail. Better late than never.

It would seem they should look at income strata too since we've become such a have and have not society. Saving or creating even SOME jobs means a lot down on Main St. and whether big multiplier or not is likely to help many families muddle through and avoid the foreclosures that are costly to all and disruptive of the families, towns and states. After (if?) this storm begins to subside servicing the debt from the stimulus will fall to those "making a buck" which may have some "chilling effect" but hardly that of the letting the economy spiral down deeper into recession.

Posner: "My conclusion is that the Obama-Congress stimulus was an attempt at reengineering government’s role in the economy that was badly designed and executed relative to the alleged goal of giving a short-term stimulus to the economy."

Subjective I suppose. But the days of 2.5 million housing starts a year are over, and surely it's time to make changes that conserve fossil fuels and embrace viable alternatives and what better time to begin to address a trillion plus of delayed infrastructure maintenance and upgrades than during a nasty recession?

Huge debt? Inflation and squeezing out private investment? I'm no fan of "deficits don't matter" and huge debt, but after the Depression and after WWII we had debt equal to one full GDP, high taxation to pay for it, low interest rates and soon a booming economy. Different times to be sure but do we really think the world is short of investment capital?

John Brandte

Jack, I think you are missing part of the argument. If you are trying to immediately stimulate employment as the Obama plan directly stated as the objective, you have to put people back to work in their current occupations; otherwise, the re-employment effect will be delayed due to training, relocation, etc.

What they actually did certainly questions the real intent of their "stimulus" package.

Just my thoughts :)

Altereggo

"providing for about an $800 fiscal stimulus"

No wonder it didn't do any good. You could stimulate the economy that much by having a congressional pizza party :D

Good article, but you kind of passed over some important topics; perhaps you just didn't want to get into the endless old ricardian equivalence debate?

Altereggo

Jack, I'm sorry, but I stopped reading at "main street paychecks."
You use the phrases "my guess" and "it would seem" far too often for your argument to support any conclusions. Not that I'm not sympathetic to populist outrage, of course.

Jack

Alter: Sorry, but I lack the computer models and staff of brilliant PhD's enjoyed by the Admin, Fed, CBO, Sachs and others, and along with quite a number of "Main Streeters" I saw this mess on the horizon 5-7 years ago but remain having to "guess" where chaos combined with panic will take us next. After all is there anyone in the nation who's doing anything more than flying by the seat of their pants?

And Ha! it's at times frustrating that in making a bullish bet on stocks one only has to be right about the direction, while those making a bearish bet by shorting have to be right about the direction and timing.

John: Some of the stimulus did exactly that; aid to schools and states where revenue streams have been walloped with their need to balance their budgets would have faced even more layoffs than they have. Surely you've heard the criticism of "well THAT only keeps useless government employees on the payroll?"

And sure! it would be "great" IF home building crews that scaled up to build 2.5 million homes/year could continue doing what they've done for the last decade, but! problem is we're over-built and household creation is only 1.2 million/year, so the housing industry will be something on the order of 800,000 or less for some time.

And consider: those who used to frame up for poured concrete footings and basements can readily transfer to doing the same on highways, bridges, school buildings etc. And the suppliers of lumber, cement, etc. they're all fairly labor intensive.

As for "intent" I'd question our Profs as to what they think the intent should be. For example IF (as I've thought for 30 years) it's time to lessen our 70% dependency on costly imported oil, and we've legions of unemployed, is there any reason for waiting to catch up with Europe and others on building windmills, installing solar and insulating the substandard 40 million homes recently built, along with the other 100 million old homes that are even worse? In short is a goal of trying to knock down a couple of birds with a single stone suspect?

The problem is daunting for policy makers. Consider, with box stores and other retailing changes (internet etc) we're over-retailed by half, housing that had been one of the last legs of our economy, will be off by 60% from the peak for years, and much of what MUST be done in H/C is that of making it a lot more efficient. For example we use 8 clerical people by contrast to Canada's use of one, but just now those employed in a snowstorm of insurance paperwork are happy to have those jobs be it inefficient or and breaking the backs of premium payers or not.

What is America's future role to be?

pat toche

"in recognition that government budgets have to be balanced eventually"

Oh, "balance the budget, cut taxes." Bring back Laffer!


Brian Davis, Austin, TX

Stimulus grants to States for "shovel-ready" necessary public works construction projects made sense. It's fine to spread them out over several years so the labor unions and commodities speculators don't bust your budgets. I'd have spent the rest of the "Obama" stimulus on the military. The U.S. will be lucky to salvage anything from the current wars and we won't be ready for the next one. Count on it.

steve

Dear Jack,

The first thing I noticed about your comment is that you mixed up Posner and Becker.

Sincerely,
Steve

Jeff

I actually saw a math equation that showed the multiplier effect of stimulus would be 0 or even negative. I seem to recall an old Becker post from March of 2009 to that effect.

The stimulus didn't work. Non-Keynesians knew it would not. The other result is more confusion and hesitation from business. Confusion and hesitation means no hiring or expansion.

If we isolate the stimulus-and held all other proposed policy changes constant, the stimulus still would have been a sum of zero. Combined with the proposals from the Obama administration (Health care, cap and trade, cash for clunkers, bail outs, land grabs in the west) the sum effect is a negative integer.

Jack

Pat: Laffer is still around. I saw him recently at some televised retro-Reagan gathering. But perhaps he should be cast in faux-bronze atop 13 blocks of crumbling slump-stone in honor of the trillions in debt that has accrued to his theory, or to be more fair, the misuse of his theory once the proponent gets in office and "finds?" that it's far easier to cut taxes than to make cuts in the big chunks, like the military or payments on the debt already accrued.

Brian: I think most economists agree that in terms of GDP growth investments in the military are a negative factor. As you point out the hardware is either taken "over there" and soon destroyed or becomes outmoded. Ike was particularly good at explaining in his warning of the military-i9ndustrial complex speech that he was well aware that every dollar expended on the military was one that might better be spend on school rooms or perhaps his pet; out national highways. The "dividend" of wise military expenditures must be measured in national security.

What are the tools of the "next war?" Perhaps not tanks and carriers, but intelligence, cyber-security, international cooperation against terrorism and diplomacy?

Dear Steve: Thanks! My mistake. But both seem not to stray far from the main (Chicago?) melody of "nothing can or should be done" though we've come to a point in our "capitalism" that will require more changes and protections than after the Depression.

Consider for example "We've little leverage with ..China". Oh? for half a century we've embargoed trade with Cuba on the basis of "commie" fear and civil rights abuses. While there are many advantages of trade with China, instead of waiting for yet more devaluation of the dollar, as suggested, surely we could impose a tariff based on A. purposeful currency manipulation or B. civil rights and working stds violations. I'd argue advantages for both nations; for us a slightly smaller trade deficit and a bit less impact on our labor market along with some much needed Fed revenue. For them a small brake on their helter-skelter 8% growth rate and perhaps benefiting from more goods available for domestic consumption.

BTW, they like to travel and there are already more wealthy Chinese who could afford to travel than there are wealthy Japanese but due to our own travel restrictions we got only 300,000 while the Eurozone enjoyed 17 million visits.

http://www.npr.org/templates/story/story.php?storyId=89953762

Let's see: say ten million spending a bit less than the 6,000 quoted for $50 billion? Not bad! a real "spur" to our ailing tourist industry and ten percent of our trade deficit.

Jeff: I doubt you or they could make an honest case for government spending not having a positive effect unless the expenditures were, say, sillier than AIG throwing a gala as the peasants bailing the thieves and fools out "eat cake". A fair accounting would have to include weighing the cost of job generation against the immediate benefit to mortgage holders and pizza parlors and even the return of revenue to our Treasury from income taxes, and the dividends over the years from repaired and improved infrastructure. You'd also want to consider the inherent costs of unemployment, welfare, housing assistance expended while gaining no future assets and a lot more empty and depreciating housing, commercial and retail stock.

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For example IF (as I've thought for 30 years) it's time to lessen our 70% dependency on costly http://www.new-jerseys.com imported oil, and we've legions of unemployed, is there any reason for waiting to catch up with Europe and others on building windmills, installing solar and insulating the substandard 40 million homes recently built, along with the other 100 million old homes that are even worse? In short is a goal of trying to knock down a couple of birds with a single stone suspect

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Stimulus grants to States for "shovel-ready" necessary public works construction projects made sense. It's fine to spread them out over several years so the labor unions and commodities speculators don't bust your budgets. I'd have spent the rest of the "Obama" stimulus on the military. The U.S. will be lucky to salvage anything from the current wars and we won't be ready for the next one. Count on it.

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If we isolate the stimulus-and held all other proposed policy changes constant, the stimulus still would have been a sum of zero. Combined with the proposals from the Obama administration (Health care, cap and trade, cash for clunkers, bail outs, land grabs in the west) the sum effect is a negative integer.

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For example how and why would one target stimulus to the moribund and overbuilt housing market? (Though truth is there is the first time buyer credit and "starter homes" for young families is going much better than most of the "move up" market) And, much of the money to the states is going toward construction and my guess is that unemployed home building craftsmen are mobile enough to ply their trades on various types of infrastructure maintenance and upgrades.

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