This crowding out analysis couldn't be more appropriate. Also, the piece on the Keynesian converts is spot on.

It's hard to claim a Nobel Prize winning economist is wrong, and especially so a he cites studies by other esteemed economists, but in the midst of this mess, I end up with lots of questions about his theories and conclusions.

First would be the fear of "crowding out" other investment or spending. Every day I see businesses "crowded out" by the lack of demand for their products and services, with what capital is salvaged and labor going to the sidelines. I've also noticed in the relatively stable mid-west projects not going forward "in this environment". In concept what "private spending" would the arrival of government spurring "crowd out?"

Second: A goodly chunk of the "stimulus" is to begin the repair and perhaps upgrading of our long neglected infrastructure, something that is, and has not, been done by the private sector. In addition to the stimulus I'd expect a return on investment from these projects in the capital assets themselves, plus savings from time spent stuck in traffic, better use, and conservation of energy which would keep more dollars flowing in our economy and improve our level of competition by lowering operation costs.

Perhaps the best of Obama's plan will be that of spurring the new energy plan. Is it too optimistic to see American jobs retrofitting energy efficient windows, HVACs and adding insulation to our public and private buildings and residences, along with building windmills, perhaps a natural gas transportation sector, the proposed 52" gas line from Alaska, etc that will be paid for by lowering our energy costs as well as KEEPING far more of our energy dollars on our continent?

The Pork Effect: I too have wondered about projects most ready to go being "the winner" of scarce resources. But, I suppose that those on the shelves at the ready must have gotten that far along somehow. And what of the private sector's choices? A very low, perhaps negative cost of interest (after inflation) tends to draw out poor choices of projects in the private sector too. In this era, I don't assume that a private project is inherently, or even tends, to be "more valuable".

Closet Keynesians? Becker mentions the severe recession of 81-82 when "government" was declared to be the enemy so few were likely to show up with JMK lapel buttons, but even in that era of "fighting inflation" the Reagan/HW era went ahead with deficit spending of a couple hundred billion each year and, presidential adviser Stockman, whose plan was to cut spending to match revenues (Much like the Rubin plan implemented in 1992) was tossed aside plans and all. So "Keynesian spurring" was alive and well, at least until Perot and a few scattered Congressmen made the accumulated debt a public issue.

Study showing tax breaks will be saved:

I've long thought the saving effect to be why the Bush era deficits did not derive the "bang for the buck" expended; that at the income level the tax breaks targeted it's likely true that the tax refund would go into savings or perhaps disappear on a foreign cruise ship, or? be "invested" in a much larger or second home, the mortgage of which would place even further demands on our Treasury. But Obama's plan is to target a much lower income group..... the one that drags our savings rate down into negative territory, in which I'm sure the refund will be spent within days of arrival.

Lastly, while Romer and Jared, now virtually government spokesmen might "project" unemployment of "9%" (or the real rate that's 5% higher) as the worst it can get, it's my guess that we're in a structural situation where it may be a long time or never, that unemployment will be much below 10%.

Soooooooooo... as we've seen with the UAW jobs bank approach being intolerable to most Americans we'll proceed with coverups such as more Keynesian spurring and make work projects.

Perhaps we'll be "saved" by the boomers retiring, but! I'd guess that is going to be delayed by a decade due to the loss of $12 trillion in private wealth.

The goal of the plan is to put people to work. Create jobs in construction by building roads, bridges and schools. There is no doubt that the roads need help. Just try to drive around Chicago without the fear of breaking an axle.

My fear of the government plan is that it is just "makework". The hope is that the government plan will jump start the economy. But the economy cannot grow of its own accord based on government spending that has a short half-life. President Reagan's Strategic Defense Initiative created demand in the defense industry for years that was also felt back on college campuses.

This plan will create a bump in the GDP and the new White House will be able to take the credit. But what about the long term effects of the plan. Federal funding of highways to the states already exists. Does this plan brings those future funds into the present? If that is the case, then the forward deficit should not be different. But I doubt that there are future cuts
coming.

The plan is the fiscal equivalent of the liquid diet fad of the eighties. Then, people could lose tens of pounds in a very short time if they just drank this liquid. However, once off the diet the pounds quickly came back. The Obama plan provides the potion that will temporarily make us look good. What will we look like down the road? The money will have been spent and in the end will the current unemployed be better trained for the future? Is it really new schools that keeps America's youth from competing internationally or is there some other cause? The
failure of the market to regulate itself created the situation where now we need a pseudo planned economy.

I hope that America doesn't buy a new wardrobe just yet.

The goal of the plan is to put people to work. Create jobs in construction by building roads, bridges and schools. There is no doubt that the roads need help.

My fear of the government plan is that it is just "makework". The hope is that the government plan will jump start the economy. But the economy cannot grow of its own accord based on government spending that has a short half-life. President Reagan's Strategic Defense Initiative created demand in the defense industry for years that was also felt back on college campuses.

This plan will create a bump in the GDP and the new White House will be able to take the credit. But what about the long term effects of the plan. Federal funding of highways to the states already exists. Does this plan brings those future funds into the present? If that is the case, then the forward deficit should not be different. But I doubt that there are future cuts
coming.

The plan is the fiscal equivalent of the liquid diet fad of the eighties. Then, people could lose tens of pounds in a very short time if they just drank this liquid. However, once off the diet the pounds quickly came back. The Obama plan provides the potion that will temporarily make us look good. What will we look like down the road? The money will have been spent and in the end will the current unemployed be better trained for the future? Is it really new schools that keeps America's youth from competing internationally or is there some other cause? The
failure of the market to regulate itself created the situation where now we need a pseudo planned economy.

I hope that America doesn't buy a new wardrobe just yet.

The stimulus package is about politics not economics. Democrats do not want to face re-election in two years with a weak economy. They now hold dominating positions in the Federal government and want to hold these positions.

Secondly, Obama and many other Democrats are Social Democrats. They think that capitalism is flawed by its nature and that government must control markets.

So much of the call for increased government spending is desired by some groups for its own sake- they are simply taking advantage of widespread fear to implement the large government programs they desire for the long term.

The liquidation and consolidation of crippled financial institutions would do more to help the economy then a trillion in stimulus spending

I think this whole idea of a massive Keynesian conversion is overblown.

Face it - you two are both classic Chicagoans. There have been lots of Keynesians and neo-Keynesians around for a long time. The difference isn't that more people are becoming Keynesian - it's just that the Keynesians are actually being heard now and you guys feel like idiots because you realized the Chicago School - while it's made important contributions - isn't omniscient.

You guys were wrong, so to make yourselves feel better you're saying "wow - EVERYBODY was a monetarist and now they're changing their tune".

Pathetic.

The treatment of multipliers always seems to me to be one-side. That is, the focus is on successive rounds of spending that might occur when additional government expenditures are made. But no attention is given to the (FOREGONE) successive rounds of spending that do not take place, but presumably would have, had the money used to finance the government expenditures (taxes or borrowing) not been diverted to government.

The absolute magnitude specific nature of the "stimulus" does impact the "crowding out" effect.

The proposed infrastructure projects will require steel workers and heavy equipment, but not many dry wall installers and carpenters. The high unemployment in the housing construction trades is irrelevant to creating a massive "crowding out" impact on someone trying to build a factory or chemical plant, which also utilizes steel workers and heavy equipment. Massive low skilled infrastructure projects are a thing of the past.

If the stimulus plan were targeted towards sectors near full employment, then I'd get your crowding-out argument. My read of Romer and Bernstein, however, is that the projected employment effects will be somewhat broad based. My read of the labor market is that unemployment is also broad based. OK, the stimulus will be more targeted to construction jobs but isn't the construction sector facing high unemployment. Maybe I'm not reading the match of the stimulus effects to the areas of unemployment perfectly but your argument for crowding-out needs a little more fleshing out on this score if you really want to make the case for crowding-out as strongly as you argue.

Don't we, in fact, have two things going on, not one? We have: (a) a credit/liquidity crisis and (b) a global economic slowdown. It is the combination of the two which have led to a significant recession, perhaps even (time will tell) depression.

So far the Fed and Treasury have (somewhat clumsily at least at Treasury) tried to, in the first place (if those knowledgeable in such things are to be believed), prevent the complete collapse of the entire global financial structure. In this endeavor they seem, at least for the moment, to have succeeded. At what cost we will eventually see. Hopefully, less than the collapse's would have been (assuming it's still not pending).

Thereafter, they turned their attention to trying to ameliorate the ongoing credit strictures in hopes of quickening the slowing economy overall. In this they appear to have been largely unsuccessful.

To me, the question of why that is will determine whether or not the Obama stimulus package will have any significant impact. In my view the reason why monetary policy stimulus stategies have failed is that they did not reach the core of the issue, interbank lending. That (primarilly at the big national banks), is still essentially frozen.

All of these institutions have the same two issues. First, they have a trust issue and second, a reserves issue. The two things are part and parcel of the same scenario.

They all have so many hundreds of billions of dollars of "toxic instruments" both on and off their books (in SIV's, etc) that they all realize that each one is as basically insolvent (with mark to market accounting) as the next. Not only can't they value these things, but there's essentially no buyer for them at any value. As they are required to pull progressively more of these "worthless" items onto their books and write them off, their assets decrease and cash capital requirements go up. Also, it seems plausible to me to think that reserve requirements are skyrocketing at least in part since regulators have tied capital reserve requirements to internal VaR numbers generated by the banks themselves and those VaR's must (if they're still using last 500 day models) look extraordinarilly awful about now.

In the end, I believe that until the CDS's weighing down financial intitutions' books (and pseudo books) are addressed we'll not see much thawing of the interbank lending freeze up that remains at the heart of the financial crisis. If they won't lend to each other, they pretty much won't lend to anybody (except at ruinous rates).

Solution? That'll take somebody smarter than me to figure out. I'm sure there are plently who think I'm not smart enough to have got the issue right, let alone draft a sensible solution. But certainly some mechanism must be found to begin the orderly "working through" of these CDS's. I've been advocating discounted income stream accounting, standardization of terms, discharging uninterested counterparties (i.e. if you bought the CDS as a naked short substitute, you're toast), and the creation of a regulated open market, but who knows? And while they're at it, the new administration ought to look at absolutely prohibiting these off book holdings by publicly traded corporations. Markets need to be transparent if they are to work. SIV's are inherently opaque as are OTC one off CDS's.

Since I don't believe the root causes of our financial illness have yet been addressed, I would be willing to bet that (except for isolated instances in the stock market) no "stimulus package", whether primarilly monetarist or primarilly Keynesian, is going to have much purchase on the ugly downturn we're in. Against the hundred trillion dollar CDS frozen waste, a trillion dollar stimulus is like spitting on the Antartic ice shelf in hopes of thawing it.

So, what were the experiences of the Bush stimulus about a year ago?

@DanC, you're exactly right. Just look at the provisions in Obama's stimulus package - it may as well be an extension of a campaign platform and we all know campaign speeches are great in Iowa and New Hampshire, but they rarely mean anything in DC. For instance, he's promising to have electronic medical records fully implemented by 2011, when GWB's ten-year timeline lagged behind within the first six months and it had the entire healthcare sector behind it. With EMR adoption at 25%, there are a lot more skeptics on this issue than 4-5 years ago, yet Obama still is promising two years to do the practically impossible? This is perfect evidence that his Administration is already just catering to what people want to hear, rather than realistic, sound policies. Everyone thinks they want/need a stimulus, yet many don't see the crowding out effect, and they won't until both crowding out and Ricardian Equivalence (which we haven't talked about yet, but I think it's also a major concern on this issue) hammer the last nail into the coffins that were people's jobs, homes and overall value. However, he will find that you can only be take the "please everybody" approach for so long; there comes a point where people just want you to stand up for something, even if it's not what you support. President-elect Obama will likely be the one humbled most by all of this, because there is no way anyone can be POTUS in this time without taking the brunt of responsibility for what's happening. At first, I thought he would be positioned to take all the credit for any actions taken in the last six months, but now we know there will likely be very little of that, and it's only going to get worse.

@Tom, the experiences were that last year's stimulus is the latest evidence that fiscal stabilization rarely does any good for the economy, and in many cases, it can contribute to making things worse, a la people taking their last stimulus checks and buying more stuff they couldn't afford.

@DanC, you're exactly right. Just look at the provisions in Obama's stimulus package - it may as well be an extension of a campaign platform and we all know campaign speeches are great in Iowa and New Hampshire, but they rarely mean anything in DC. For instance, he's promising to have electronic medical records fully implemented by 2011, when GWB's ten-year timeline lagged behind within the first six months and it had the entire healthcare sector behind it. With EMR adoption at 25%, there are a lot more skeptics on this issue than 4-5 years ago, yet Obama still is promising two years to do the practically impossible? This is perfect evidence that his Administration is already just catering to what people want to hear, rather than realistic, sound policies. Everyone thinks they want/need a stimulus, yet many don't see the crowding out effect, and they won't until both crowding out and Ricardian Equivalence (which we haven't talked about yet, but I think it's also a major concern on this issue) hammer the last nail into the coffins that were people's jobs, homes and overall value. However, he will find that you can only be take the "please everybody" approach for so long; there comes a point where people just want you to stand up for something, even if it's not what you support. President-elect Obama will likely be the one humbled most by all of this, because there is no way anyone can be POTUS in this time without taking the brunt of responsibility for what's happening. At first, I thought he would be positioned to take all the credit for any actions taken in the last six months, but now we know there will likely be very little of that, and it's only going to get worse.

@Tom, the experiences were that last year's stimulus is the latest evidence that fiscal stabilization rarely does any good for the economy, and in many cases, it can contribute to making things worse, a la people taking their last stimulus checks and buying more stuff they couldn't afford.

Anonymous,

I felt too very strongly for a long time that the government bailouts would be creating a sort of crowd out effect. But counterparty fear and deflationary fear is so rampant that people are placing a MASSIVE premium on the safety of US treasuries. Crowd out is not so much happening in this environment as is investor fear of deflation. As indicative of this look at the AAA 10 yr corp bond vs the 10 yr US Treasury note! It is at a nearly 230bps spread!

Arguably, either corporate bond yields are too high or treasuries are too low. Either way, crowd out effect, as I learned it from Tolley, occurs when the government finances itself by using a competitve market rate. Investors are not willing to incur corp debt risk in this atmosphere, as indicated by the spread. For this rate to be so currently out of wack investors must have built the expectation that the risk involved in corporate bonds is too much to bar. This is not a typical crowd out effect occuring, its a panic flight to safety (trite though it sounds).

@Jack, Btw, I am "Anonymous" - I forgot to enter my info before submitting the first time, so I reposted under my name above. The implementation of EMR has nothing to do with having (or not having) the technological capabilities to make it happen. As you describe, there are so many opportunities to implement technology within our healthcare system. But the problem lies with general hurdles that the healthcare industry has to confront where other sectors do not, i.e., regulatory constraints, patient privacy concerns, no boundaries for failure (no getting it right in 2nd or 3rd generation), and general barriers to adoption by end users. This is where P-E Obama has missed the point - we can throw money at the problem all day long and develop great plans, but when they get held up in the political process or when the implementers have failed to consider some basic factors about the industry, then it will all be for naught.

@RPB, you bring up some good points, but I would disagree just a little. For instance, I don't think the premium on Treasuries is there yet, or at least not as much as we might think. We're still too deep in the uncertainty/volatility to really determine efficient valuations in Treasuries. Not sure those spreads are indicative of reality yet. But, that's admittedly my viewpoint on it, so I could be wrong. On the deflationary threat, I think the threat is real and monetary policymakers are starting to grow concerned, but I'm not sure the financial markets at large have gotten to that point. The markets are still just trying to figure out where the waves are coming from and keep their heads above water. Again, just my theory.

Jack, I'm not understanding your point. If the government borrows $1 million to pay for the construction of a bridge, that $1 million is not available for another use, i.e., there is an opportunity foregone. While there may be a multiplier effect associated with the expenditure of the $1 million for the bridge construction, seems to me there would have been a multiplier effect if the $1 million had been used for something else as well, i.e., the foregone opportunity. The fact that future income will be needed to service the additional $1 million government debt doesn't change any of this as far as I'm able to reason.

Keynesians? I think I’m becoming one….
Let’s have the U.S. Government buy, oh say $300M worth of automobiles from all manufactures with US manufacturing plants, according to their ratio of total US production. These cars should be used to replace the current government fleet with the older fleet cars given to each state government.
Next, let’s repair the US highway system by giving, oh say $300M in funds to the states to manage the road repairs, much like the state of Minnesota did over the past few years.
Now what to do about all those state budget problems in all those blue states. Hmmm, let’s make all the state government employees (while we are at it all public school teachers too) federal employees.

I wonder whether the 'conversion' of many macroeconomists to Keynesians is similar to the herd behaviour mentioned in the earlier post regarding the Madoff Ponzi scheme. Contrary to the idea of 'rational expectations', are we just seeing that even well-known 'rational thinkers' are openly and readily subject to herd behavior and like to follow / support the opinions of even better-known 'rational thinkers'?

What other options would we have now, if not becoming Keynesians? Academia is an amazingly protected place where 'there is no answer -- and here's my proof for that' is a valid response. In the fields of consultancy, or policy-making, incentives are harsh towards 'producing' results, even if out of thin air! Are we seeing the sheer pressure to 'do something' result in Keynesian practices?

Is it not the same 'pressure to produce' that has seen so many subprime loans as well as ponzi schemes? If a banker's pay structure depends completely on the number of loans s/he brings in, then the viability of those loans are less and less challenged. Similarly, if you have too much money and you ABSOLUTELY NEED to put it somewhere then Ponzi schemes would do just fine thank you.

How much of our 'efficiency ideas' are being 'thrust upon' the world? I see every single Union, however small, do the chicken game of strike vs lockout every time they are undergoing collective bargaining. Is this really necessary, or have our ideas about game theory, etc. have MADE them the only 'prescribed solution'. We all know that an eye for an eye makes the world blind, yet we keep prescribing threats and means for retaliation as the only way to avoid conflict.

I think the exigence on efficiency has made economists prescribe incentive structures that are too skewed for humanity's longer term sustenance.

Mark, thanks, I'm sure these are and have been impediments to EMR

"But the problem lies with general hurdles that the healthcare industry has to confront where other sectors do not, i.e., regulatory constraints, patient privacy concerns, no boundaries for failure (no getting it right in 2nd or 3rd generation), and general barriers to adoption by end users."

........... but I hope and expect that we're finally at the point of a chassis up restoration of our still powerful but worn and increasingly wasteful muscle car of health care. The tear down and rebuild will be especially troublesome since the aging beast is still used as a daily driver.

I don't have all the answers but let's consider the privacy issue. For most of us I suppose the fear is that of being discriminated against in employment, or perhaps by today's "insurance companies".

I'd hope that the rebuild would relieve employers of much of their concerns (which I'm SURE manifests itself today as blanket discrimination against older workers who are more likely to have "existing" or have higher health costs in general than the young) which would relieve some of the privacy concerns. Once we are ALL in the pool we're then relieved of "insurance company" cherry-picking. That would leave privacy concerns mostly in the social sphere of has so and so contracted HIV, but I doubt that EMR would be more leaky than the humans knowing the "secret" today.

As for getting H/C pros to adopt (Ha! I'm recalling working in the early days of IT when the "client" liked the new computer report, but wanted to cling to the old one as well......... weaning was part of the task!) there's probably no better time. Boomers are leaving in droves while the younger ones, as Obama, will have their I-phones "pried from their cold dead hands". Today's 20-somethings learned to "keyboard" at amazing speeds in 4th grade and it's a little bit odd to see them pen or pencil in hand.

Lastly? The hole card is a guy who campaigned on change and reforming H/C, giving them not only political capital but the obligation to live up to campaign promises. Hang on!

Bill sez: "Jack, I'm not understanding your point. If the government borrows $1 million to pay for the construction of a bridge, that $1 million is not available for another use, i.e., there is an opportunity foregone. While there may be a multiplier effect associated with the expenditure of the $1 million for the bridge construction, seems to me there would have been a multiplier effect if the $1 million had been used for something else as well......"

............. A good and fair question and especially so were we not in an era of lowered demand and surplus labor that includes underutilized capital equipment from equipment that already exists to factory output.

As for the "million" I really don't know. A year ago the world was AWASH in hot capital looking for a safe home or a project with a ROI, and largely not finding worthy projects, thus causing mischief by inflating the DOW, corrupting the financial world and running up oil futures.

Today? the private sector "interest rate" seems to be something between zero or even a negative percentage and "you can't get it at any price". I assume much of the private capital is still out there but "scared" as RPB's comments on T-bill, C-bond spreads would indicate. Thus public pump priming? And the risk of a bridge rebuild "crowding out" what? a new factory, here? another shopping mall?

But more perhaps. How is it that in a world awash in capital that our public infrastructure fell a trillion or two behind in maintenance and needed upgrades? Obviously "the invisible hand" has not been giving public infrastructure a fair shake, leaving, I guess, that task to our common sense and political will. So the projects would be justified in any economy and better yet in one facing 10% unemployment?

Interesting "bang for the government buck" chart

http://www.ourfuture.org/files/images/Economic-benefits-of-stimul.jpg

Zandi's a bright guy who has been testifying before Congress and a founder of http://www.economy.com/default.asp

Both the esteemed professor & the judge make a compelling argument for why the stimulus won't work as expected. However, neither of them propose an alternate solution. It would be interesting to know what they think would really work in the current situation. What would they recommend the president-elect if he polled them for their opinions ?

Jack, your point about the current level of unemployed resources implying a smaller opportunity cost of government projects is well taken. Professor Becker addressed this issue in his remarks, but also noted that it would be difficult for government projects to target only the use of those resources that are currently unemployed. If that is the case, then I believe my point about an offsetting multiplier effect still holds.

Here's a sharp analysis of the Fama critique of the Obama stimulus: http://firelarrysummersnow.blogspot.com/

Feel free to check it out and debate...

Here's a sharp analysis of the Fama critique of the Obama stimulus: http://firelarrysummersnow.blogspot.com/

Feel free to check it out and debate...

Here's a sharp analysis of the Fama critique of the Obama stimulus: http://firelarrysummersnow.blogspot.com/

Feel free to check it out and debate...

sorry for the triple post -- i was getting error messages...

Bill, I wonder. There's bound to be stresses as one sector shrivels and, hopefully, another expands.

The other day I heard that the (spunky?) ex-employees of WAMU, some 9,000 strong, decided to throw themselves a party. I wondered what might come out of that. Here (Tulsa) there's a new local bank starting up and small local/regional banks that kept to the rules have done pretty well and may benefit from the voids left by the "bigs". Could a new bank form out of the "big bang?" of WAMU?

And what of the others? In one sense they're "bankers" but zoom in and you've sales people, administrators, accountants, computer dudes, and some with clerical or not many skills at all.

IF......... a wide range of infrastructure or "new energy" jobs are created, can they and others who're laid off fit in somewhere? In keeping with the "13 careers" we keep hearing about? My guess is that most can and a few won't.

My biggest concern is that of a combo of high productivity in the US, plus outsourcing and "too many?" imports that perhaps 80% of our workforce is all that is required and THE question is what to do with the permanently un or underemployed? Interesting times?

Bill, I wonder. There are bound to be stresses as one sector shrivels and, hopefully, another expands.

The other day I heard that the (spunky?) ex-employees of WAMU, some 9,000 strong, decided to throw themselves a party. I wondered what might come out of that. Here (Tulsa) there's a new local bank starting up and small local/regional banks that kept to the rules have done pretty well and may benefit from the voids left by the "bigs". Could a new bank form out of the "big bang?" of WAMU?

And what of the others? In one sense they're "bankers" but zoom in and you've sales people, administrators, accountants, computer dudes, and some with clerical or not many skills at all.

IF......... a wide range of infrastructure or "new energy" jobs are created, can they and others who're laid off fit in somewhere? In keeping with the "13 careers" we keep hearing about? My guess is that most can and a few won't.

My biggest concern is that of a combo of high productivity in the US, plus outsourcing and "too many?" imports that perhaps 80% of our workforce is all that is required and THE question is what to do with the permanently un or underemployed? Interesting times?

I want to thank Dr. Becker for making this available in this public forum.

I am not an economist, but my instinctive reaction to the Obama stimulus was negative. It is good that Dr. Becker provides an analysis more concrete than my emotional skepticism.

I now have my own name for the Obama stimulus package: Porkonomics. Since this stimulus plan is being crafted by politicians I have extreme confidence in my own prediction: Stimulus funds will be spent to provide political benefits rather than economic benefits.

دردشة صوتية

From the above blog:

"What is so different about the present recession compared to that one (i.e. 1981-1982), and to other recessions since then, that would greatly raise the estimated stimulating effects of government spending on various types of goods and services?"

One obvious difference is that the 1981-1982 recession was created intentionally by monetary policy (by the Volker Federal Reserve) in order to halt the inflationary cycle.

As pointed out by Krugman today in his blog, there was plenty of room to correct that recession by a reciprocal application of monetary policy.

see:

http://krugman.blogs.nytimes.com/

"Time will tell whether I am right that a spending and tax package of the type analyzed by Romer and Bernstein may stimulate the economy as measured by GDP and employment, but that the stimulus will be smaller then they estimate, and its value to consumers and taxpayers could be even smaller."

Please. All economists know -- and FT's Lex actually had an article on the issue -- that "time will not tell." Economists will have the pleasure of disputing this point for the remaining time that humans have on this earth.

There are many problems with Obama's plan to stimulate, but the biggest one is that economic adjustments mandated by government work no faster than the free market. It's poppycock to talk about how government spending can increase aggregate demand without increasing the money supply, unless you have some theory for why government spending increases the velocity of money. I will grant you that it might, but there is nothing in the standard Keynesian model or even the IS-LM analysis that suggests that velocity must increase if government spends money.

I would surmise that velocity would increase only if government spends money that comes into its possession faster than the average private money holder spends money that comes into his possession. It is not at all clear to me that's the case. I fail to see why money spent by the government is different from money spent by anyone else. If we are acting on the assumption that private entities and individuals save but government does not, then that is a big assumption.

This recession has been going on since December, 2007, and we are just now talking about what a stimulus would look like, after spending more than a year in "debate." That's not very speedy. Obama's stimulus promises infrastructure spending. Infrastructure spending takes years to plan and execute. You've got to acquire land, you've got to do engineering, you've got to hire contractors, you've got to procure supplies, etc. Only when all of that is done do you hire the workers. By then, we may be two recessions down the road, or we may be in the midst of the greatest economic boom in history. And when the workers are done, and told that their services will no longer be required, we may be headed into yet another recession.

In order to conclude that government action can get us out of a recession, you've got to assume that government works more efficiently than private enterprise. I see no evidence of that.

The Obama stimulus plan should also envision changing regulations & economic policies to have short-term & long-term effects on unemployment, middle-class and the market stability. Strengthening the middle lass and creating more job opportunities should be the primary objective of the package, rather than handing the blank check to the Wall Street and failed financial institutions.

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Dave: Perhaps I'm missing your point, but it seems you might be overlooking the government's ability to borrow from the future to spend, if not today, in months, or as some of the estimates are this week in a year or couple of years; time frames I'd predict are relevant to the scope of The Mess.

I've more concern that we're in a structural change in which the "old" economy is likely not to provide jobs for all, until something of a lengthy transition is accomplished, than that a boom lies just around the corner. As exhibit one I'd point out the lackluster (if that) job or wage growth of a near wartime economy running half trillion deficits back to back.

Further the plan leads us into spending on infrastructure in which neither the last Congress nor the private sector was investing. Such spending should flow in over whatever else is happening in the existing economy, and given the rates of unemployment I don't think we're too concerned about "crowding out" for quite some time. And from what I'm seeing states appear to have twice the amount of "shovel ready" projects that have been shelved for the lack of funding as there is funding from the stimulus plan.

A comment on the current "pace" of private activity; we've all seen or heard of projects from the simple purchase of a car, to that of a builder trying to start even a build for which he has a customer (not a spec) to finishing out a subdivision where there is demand and the prospect of sales, finding their plans hampered by the inability to finance them at street level. This, to me, is a "no pace" effect, though one I see all are trying to free up......."soon?" or "maybe?"

Also, I've hopes that we're being led into a New Energy economy. In the short run the building of windmills, solar, the retrofitting of buildings provides economic activity in the near future while the projects will pay themselves off with dividends as we pay ourselves for the energy generated or conserved instead of sending our dollars abroad to nations that return them only by buying our productive assets which will provide even more dollar outflow in dividends or cap gains in the future.

Alaska has enough NG that been re-injected and deposits we know are there to provide 10% of US NG for half a century or more. It's been a frustration to Alaskans that the oil companies have dragged their heels on building the needed pipeline, and a further frustration that the Bush Admin pursued the frontrunning of costly LNG projects to IMPORT NG from halfway around the world, instead of providing the leadership that would make the pipeline Gov Palin mentioned a reality. This project is a $40 billion project for the US and Canada that, again, provides a ton of jobs ...."soon?" with the payback assured by our gas consumption alone, and perhaps the "Boone Pickens" bridge to the future plan, and even that of using hydrogen fuel cells that doubles or perhaps triples the energy produced per raw BTU.

But I ramble too long! In short I see a spurring short term, more sensible use of our assets mid-term and ultimately a keeping home of more of our hard-earneds to be used for even more domestic projects later. Trains to supplement and replace some of our trucking and airlines? A bio-tech boom? Who knows? but we've got to go up to bat to get a home run or even a base hit.

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I hope there is an amendment in the stimulus that the jobs created are for Americans and Legal Residents. If there is no amendment most of the jobs will just go to those workers with temporary working visas (H1b and L1) and Americans are still out of work. It would be a shame if citizens of India and China benefit more than Americans that funded the stimulus.

Obama administration needs to realize that in several months economic crisis and soaring deficit will be solely his administration’s and his party’s problem, so for any previous or future mistakes he’ll have to take the blame. Two-three months from now nobody will remember Bush’s policies and the Democrats have to be more careful on the long-term effects of massive spending. If the new stimulus fails, just like the past one, then this will balloon into Obama’s first political problem. We have to also realize, that on the long-term we won’t be able to afford more bailouts and there has to be alternative solutions, since we are passing the trillion Dollar deficit boundary. Printing more money can be utilized as short-term tool, but on the long run it will devastate economy. Something needs to be done immediately, but more regulation & spending does not seem to be a logical answer, we need another alternative solution. Maybe we should take pure libertarian approach and let the free market decide who wins or loses? This will cause social unrest and chaos, so as a society we can not afford this option either. Maybe we’ve killed the goose that laid eggs for us?

Debugger: If we fear that stimulus spending will too quickly leak out of the nation or draw more immigrants, it would logically follow that we should be concerned about the same in overall policy. Is it time to debate "fair trade" vs "free trade".

David: I guess we're all reaching for the brass ring, but surely a "pure" Libertarian approach would REQUIRE the transparency that was lacking and led to what we see. Otherwise lassez faire would just lead to the same players raiding company after company. Some of the Mess might have been avoided had AM Best, Moody's and S&P bond raters not sold their soul and the reputations that took a century to build in the frenzy of the last few years.

I don't see a financial system working w/o a sheriff being on watch.

Interesting video at http://money-cake.com/2009/02/heritageorg-says-obamas-spending-plan-is-wrong/ as to why Obama's spending plan will fail. The future is a scary place if things doesn't change soon! America is in serious financial trouble.

Currently I am a student at a University working part time to get by. I am entirely on my own, not listed as dependent. I recently found that I am not eligible for a stimulus check, yet illegal immigrants without social security numbers are?...What is going on?!

Tax cuts are not the answer, look at the last 8 years -- that is what got us into this mess. Doesn't anyone realize that the U.S. is in really bad shape. We need help now -- big help! Republican, Democrat, Socialist, Independent, whatever -- everyone needs to forget these ideologies and remember that they are Americans. We must work together.

Here are my issues on Unemployment, Work Visas and Racial Differences.

If The United States of America wants to rid it’s self of Unemployment.

Then all these Corporations and other companies that have to lay off employees, the first people to be laid off should be the individuals here on WORK VISA’S.
Force the Staffing agency that placed them here to either place them somewhere else, or send them back home.
Why does the American Born Citizens have to find a Staffing Agency to find them work?

Q: Why can’t they figure this out?

A: Because it hasn’t happened to them (3) times like it has to me and other Natural Born Americans.
I met one of these individuals in 1996, and I was laid off in 2001.
Now I just began working at another Telecommunications Corporation, and this person is at this Company, He is still not an American Citizen, and is still over here on a WORK VISA.
And he was NEVER laid off.

As for local Government,
Take away the District Issued Vehicles, Credit Cards, and any other TAX paid perks and let those Administrators pay for these like everyone else. That ALONE will fix the debt.

For the United States to be the GREATEST Country in the World, the people making the decisions are the most incapable. To people like me, it’s black and white.

On November 11 on the FOX morning show, you played a video of Students speaking Spanish in a video they made for school.

I found that VERY offensive.
I always see FOX report about; African Americans, Mexican Americans, Asian Americans, Indian Americans being offended by one thing or another.

So I guess I would be called a (White or Caucasian American)
But I have NEVER seen FOX report about a White or Caucasian American being offended.

You’ve done stories about White police officers ONLY ticketing Blacks, so I called in and even e-mailed FOX and gave my, Name, Drivers License #, DOB, and PLEADED FOX to PLEASE run a check on me. And if FOX did, they would have found that ALL the tickets I have been given over the last 25+ years (10 or so) were from a Black officer. So it works BOTH ways. I didn’t see a story about that.

Here are some FACTS:

I have been wondering why Whites are called racists, and no other race is.

There are African Americans, Mexican Americans, Asian Americans, Arab Americans, and Indian Americans etc.

And then there are just Americans.

You pass me on the street and sneer in my direction.
I’ve been called 'White boy,' 'Cracker,' 'Honkey,' 'Whitey,' 'Caveman' .Peckerwood, and more, and that's OK.
But if I was to call you, Nigger, Kike, Towel head, Sand-nigger, Camel Jockey, Beaner, Gook, or Chink
You call me a racist.
You say that whites commit a lot of violence against you... so why are the ghettos the most dangerous places to live?

There’s the United Negro College Fund, Martin Luther King Day, Black History Month, Cesar Chavez Day, Yom Hashoah, Ma'uled Al-Nabi to name a few.

There’s BET (Black Entertainment Television).. If we had WET (White Entertainment Television)
You call us a racist.
If we had a White Pride Day, you would call us racists.
If we had White History Month, we'd be racists.

If we had any organization for only whites to 'advance' OUR lives we'd be racists.
Do we have Organizations FORCING Hiring Managers, CEO’s or even Pro and Colleges interviewing us because were White?

There’s a Hispanic Chamber of Commerce, a Black Chamber of Commerce,
And then we just have the plain Chamber of Commerce.
Wonder who pays for that??

A white woman could not be in the Miss Black American pageant,
But any race or color can be in the Miss America pageant.
You call us a racist.

There’s a NAACP, and United Negro College fund to name a few
If we had a college fund that only gave white students scholarships...
You know we'd be racists.
There are over 60 openly proclaimed Black Colleges in the US.
Yet if there were 'White colleges' that would be a racist college.

In the Million Man March, you believed that you were marching for your race and rights.
If we marched for our race and rights,
You call us a racist.

You are proud to be black, brown, yellow and orange, and you're not afraid to announce it.
But when we announce our white pride, you call us racists.

You rob us, carjack us, and shoot at us. But, when a white police officer shoots a black gang member or,
Beats up a black drug-dealer running from the law and posing a threat to society,
You call him a racist.

I am proud...But you call me a racist.
Why is it that only whites can be racists??
I’m sure Channel 4 will not air or even acknowledge this e-mail just like Channel 4 ONLY covered the story about
White officers are targeting Black drivers.

That's why we have lost most of OUR RIGHTS in this country.
We won't stand up for ourselves!
WHY CAN”T I BE PROUD TO BE WHITE?
It's not a crime yet, but getting real close!

Thank you,

And I am 100% sure, I will not hear back from you, because you want stimulate real economic growth, COMPLETELY Rid AMERICA of Unemployment and Unemployed people, then lets take care of our own house first.

Lay-Off the Work-Visa individuals first,

Here are my issues on Unemployment, Work Visas and Racial Differences.

If The United States of America wants to rid it’s self of Unemployment.

Then all these Corporations and other companies that have to lay off employees, the first people to be laid off should be the individuals here on WORK VISA’S.
Force the Staffing agency that placed them here to either place them somewhere else, or send them back home.
Why does the American Born Citizens have to find a Staffing Agency to find them work?

Q: Why can’t they figure this out?

A: Because it hasn’t happened to them (3) times like it has to me and other Natural Born Americans.
I met one of these individuals in 1996, and I was laid off in 2001.
Now I just began working at another Telecommunications Corporation, and this person is at this Company, He is still not an American Citizen, and is still over here on a WORK VISA.
And he was NEVER laid off.

As for local Government,
Take away the District Issued Vehicles, Credit Cards, and any other TAX paid perks and let those Administrators pay for these like everyone else. That ALONE will fix the debt.

For the United States to be the GREATEST Country in the World, the people making the decisions are the most incapable. To people like me, it’s black and white.

On November 11 on the FOX morning show, you played a video of Students speaking Spanish in a video they made for school.

I found that VERY offensive.
I always see FOX report about; African Americans, Mexican Americans, Asian Americans, Indian Americans being offended by one thing or another.

So I guess I would be called a (White or Caucasian American)
But I have NEVER seen FOX report about a White or Caucasian American being offended.

You’ve done stories about White police officers ONLY ticketing Blacks, so I called in and even e-mailed FOX and gave my, Name, Drivers License #, DOB, and PLEADED FOX to PLEASE run a check on me. And if FOX did, they would have found that ALL the tickets I have been given over the last 25+ years (10 or so) were from a Black officer. So it works BOTH ways. I didn’t see a story about that.

Here are some FACTS:

I have been wondering why Whites are called racists, and no other race is.

There are African Americans, Mexican Americans, Asian Americans, Arab Americans, and Indian Americans etc.

And then there are just Americans.

You pass me on the street and sneer in my direction.
I’ve been called 'White boy,' 'Cracker,' 'Honkey,' 'Whitey,' 'Caveman' .Peckerwood, and more, and that's OK.
But if I was to call you, Nigger, Kike, Towel head, Sand-nigger, Camel Jockey, Beaner, Gook, or Chink
You call me a racist.
You say that whites commit a lot of violence against you... so why are the ghettos the most dangerous places to live?

There’s the United Negro College Fund, Martin Luther King Day, Black History Month, Cesar Chavez Day, Yom Hashoah, Ma'uled Al-Nabi to name a few.

There’s BET (Black Entertainment Television).. If we had WET (White Entertainment Television)
You call us a racist.
If we had a White Pride Day, you would call us racists.
If we had White History Month, we'd be racists.

If we had any organization for only whites to 'advance' OUR lives we'd be racists.
Do we have Organizations FORCING Hiring Managers, CEO’s or even Pro and Colleges interviewing us because were White?

There’s a Hispanic Chamber of Commerce, a Black Chamber of Commerce,
And then we just have the plain Chamber of Commerce.
Wonder who pays for that??

A white woman could not be in the Miss Black American pageant,
But any race or color can be in the Miss America pageant.
You call us a racist.

There’s a NAACP, and United Negro College fund to name a few
If we had a college fund that only gave white students scholarships...
You know we'd be racists.
There are over 60 openly proclaimed Black Colleges in the US.
Yet if there were 'White colleges' that would be a racist college.

In the Million Man March, you believed that you were marching for your race and rights.
If we marched for our race and rights,
You call us a racist.

You are proud to be black, brown, yellow and orange, and you're not afraid to announce it.
But when we announce our white pride, you call us racists.

You rob us, carjack us, and shoot at us. But, when a white police officer shoots a black gang member or,
Beats up a black drug-dealer running from the law and posing a threat to society,
You call him a racist.

I am proud...But you call me a racist.
Why is it that only whites can be racists??
I’m sure Channel 4 will not air or even acknowledge this e-mail just like Channel 4 ONLY covered the story about
White officers are targeting Black drivers.

That's why we have lost most of OUR RIGHTS in this country.
We won't stand up for ourselves!
WHY CAN”T I BE PROUD TO BE WHITE?
It's not a crime yet, but getting real close!

Thank you,

And I am 100% sure, I will not hear back from you, because you want stimulate real economic growth, COMPLETELY Rid AMERICA of Unemployment and Unemployed people, then lets take care of our own house first.

Lay-Off the Work-Visa individuals first,

So much for bipartisanship. Seems everyone wants to play the blame game. Can't we all just get along? (Somebody please call Rodney King!)

What i think to create jobs.
dont give employers a raise of money.
Instead give the more vacation time.
Build up 1 hour a week.52 hours a year.
It would create 1 extra job per 39 employers.
If you do that 2 years in a row 5% unemployment solved.everybody happy employers almost 3 weeks extra vacation time.
For company's people are more happy, more flexibility on the workfloor.We create also jobs in the travel industie because people have more payed vacation time.
You dont think this would work.
This is a plan that was interduced by the dutch goverment about 25 years ago worked in the netherland.
Maybe this will work better then create hate to eachother and blame people who cant do anything about it, if we want to come out of this cricis we need to work together on it and build to make this country better again.

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We really should start to learn Chinese, because China now owns most of the US. Maybe the government will just give them a couple of cities. That should pay for a little bit of the trillions being spent.

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This event is the greatest ever event in the history of modern America. Congratulation to the fellow U S Citizens who writes their history in the golden letters of humanity. The circle is complete. We should remember the leaders who dare to rewrite the history Abraham Lincoln who fought the civil war to free the so called niggers from the slavery. The great Martin Luthar King and John F Kenedy all of them lost their life to establish the equality of mankind. Congratulation Mr. Obama for being the first color President of USA and my heartiest congratulation to my American brothers and sisters who fulfills the dream of their great leaders to show the world “hi buddy see we all are equal here”
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Nice blog, I don't think that stimulus packages are doing something good. Because I can't figure out the change there.

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Adding on to Bob's comment, see Krugman's point:

http://krugman.blogs.nytimes.com/2009/01/19/getting-fiscal/

Basically, Becker has just flunked Econ 101.

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i guess it is also a good way.

i am not a professor but very keen on the definition on the private spending. what you stated in this post-"the efficiency of the economy would rise if too little had previously been invested in this infrastructure, while efficiency would fall if this government spending were more wasteful than the private spending that was crowded out."-catches much rationality. government spending should be used in areas where is urgently needed and usually will take good effect to promoting economy. but if is a kind of waste, then we would rather fall back on the private spending. i think this is as the same meaning in your argument. so what do exact mean by private spending? thank you in anticipate for your time, Becher.
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