Jon Chait defends waste in the stimulus package

by on February 12, 2009 at 2:02 pm in Economics | Permalink

Read him here, commentary from Matt Yglesias.  I know all about Keynesian ditch-digging but we should keep a few points in mind:

1. Some of these expenditures will end up being permanent or at least long-term.

2. Government expenditure does increase monetary velocity in a way that boosts aggregate nominal demand.  But these higher velocity effects may not last for more than a single round of spending, which is to say they won't last long at all.

3. The second- and third-round stimulative effects of productive investments are much greater.  Production begets further production through the complementarity of the capital structure and through its ability to create profitable, sustainable jobs.

4. A lot of the stimulus will shift people from one job to another, rather than simply employing the current unemployed.  We really don't want to take people from producing something useful to producing something wasteful.

5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight.  Somehow those old narratives are being forgotten, I wonder why.

Steve Sailer February 12, 2009 at 2:40 pm

“Somehow those old narratives are being forgotten, I wonder why.”

As Lenin said, the essential question is always “Who? Whom?”

Jim Gannon February 12, 2009 at 3:36 pm

An issue that I haven’t seen mentioned is the amount of effort by individuals and corporations that will be committed to maintaining or increasing the flow of government funds, efforts diverted from normal productive free market activity.

Larry February 12, 2009 at 4:03 pm

Shouldn’t we be focusing on how to help workers move from bubble industries to someplace where they can perform work of value? As long as workers are employed to do unsustainable tasks (i.e, stim pork) we can never find the new balance that will signal the end of the crisis.

Brian Moore February 12, 2009 at 4:32 pm

Yglesias is a smart guy. But this is ludicrous stuff. If you pay people to do something that has no value (let’s use the ditch digging) then you’ve converted something valuable (their labor) into something not valuable (a ditch that has been refilled). That is value destruction, kinda not what you want in a recession. Even unemployed, they surely were doing something — watching tv, playing with their kids, fixing up their homes. Now we prevent them doing that to achieve a non-ditch. The complete lack of awareness that what matters isn’t money is amazing.

If we take Yglesias’ last line:

“The efficacy of stimulus as stimulus just has to do with how quickly the funds cycle into private hands and then out into the wider economy and has relatively little to do with “efficiency† in an ordinary sense.”

Then surely simply cutting people checks and mailing them would be vastly superior to any system of public works or whatever the stimulus contains.

And, according to that logic, what would have been even better stimulus would’ve been leaving the money in their hands to begin with, so that whatever multiplier associated with “then out into the wider economy” would’ve been working since last April 15th. “The velocity of money?” This would be time-traveling money. It would’ve been moving so fast it would have been stimulating the economy in the past!

This is all crazy talk. Keynes’ ditch digging metaphor is the touchstone for the cluelessness of thinking about “money” instead of the things money represents. It’s for us to stand back and look at, thinking: “how could such a smart guy believe something so obviously crazy to even a three year old?” Not, “gee, maybe he was onto something there – go get me a shovel and a hundred dollar bill.”

Superheater February 12, 2009 at 5:21 pm

Let me get this straight. Now Mulp, oozing leftist poppycock tells us Saddam’s Iraq was a “civil
society? Whatever one’s opinion of the advisablity or execution of the war, what kind of brain damaged
idiot would make that claim.

Of course, the rest of the post reads like he feeds every morning like a bird, imbibing whatever
the left-wing regurgitant is force fed down his gullet, so maybe he’s brain dead.

Lord February 12, 2009 at 5:52 pm

1. I haven’t seen government change much as a percentage of gdp. I doubt we will.
2. Granted, and it will take time for the economy to transition, but helping the transition is positive. 3. Expenditures that save money in the future are very desirable as those that increase our productive capacity. These are not necessarily all private.
4. Keeping them employed as opposed to unemployed. If those were really productive jobs with a need, they would keep or replace them.
5. And many on the right ignored imbalances for years considering them a free lunch. Well it wasn’t free, and proclaiming poverty when the bill arrives isn’t going to wash with management. You already incurred the cost.

Mark Turner February 12, 2009 at 7:57 pm

Every economic theory has its good points and bad points, and you’ll find plenty of “Nobel Prize Winners” with very divergent theories on what works best. I’d be interested to know what if any difference there is in economic terms for the following scenarios:

1. GOP president/Dem congress (such as Reagan)
2. GOP president/GOP congress (GW Bush, mostly)
3. Dem president/GOP congress (Clinton, mostly)
4. Dem president/Dem congress (Carter, et. al.)

With regard to this “stimulus” — it’s in reality just special project and program spending geared toward benefiting the Democratic voter base as a whole. Any jobs it creates would be targeted to traditionally Dem-leaning sectors and districts…or those which are seen as battlegrounds/important strategic pickups in the next major election cycles (2010, 2012). Tell me how the GOP base benefits in tangible terms for this expenditure?

Donald Last February 12, 2009 at 10:27 pm

Look at the stimulus in terms of its impact on sectoral unemployment. Take a simple example. A massive sum is being spent on Health Care. But what is the level of unemployment in Health Care – 3.8%. What do the Democrats want? That it should be 1%? Education will get a gusher of money: are there thouands of teachers on the streets? And if there are people being laid off in the public sector why should they be targeted for special protection.
The current 8% unemployment ratio is an aggregate, and aggregates do not clarify they obfuscate. Look at sectors. Management & professional 4.1% – that presumably covers some of the public sector. Business and financial 4.6%. Professional and related 3.7%.
Then the sufferers. Services 9.1%. Sales 7.5%. Construction & maintenance 15.5%. Farming & fishery 23.3%. Construction & extraction 19.2%. Production 13.7% and Transportation 12.1%. This grotesque gap between occupations is going to get worse going forward.
So where are these people to find work? Where are all those hundreds of firms involved in energy efficiency (they don’t exist) where they can apply for a job? Can they do R&D on renewable energy? Perhaps they can gain expertise in weatherizing homes. But does the US economy want umpteen people weatherizing homes? The marketplace longer-term, even medium-term, might need these people to be elsewhere but government decrees that renewable energy is the place to be because the government knows better than the market what is needed.
In a word this Democrat stimulus promises to be a disaster for the US economy. It will be a disaster in general because it will misallocate resources that are already out of kilter because of the debt binge. And it will be a disaster because it will increase the trade deficit which impinges on US sovereign risk and the dollar, and Moodys now rates the US a vulnerable “AAA”.

KM, Texas February 13, 2009 at 7:28 pm

And all the wasteful spending you discussed! Yes, it’s terrible. What was wasteful again? Lots of commenters talking about ditches to dig and undig. How much of the timulus is for that? How much is for hiring IT people to build train and auto bridges and construction workers to build processor bridges? Where’s that in the bill?

Or is this commentary itself a sort of postmodern performance of wasted expenditure?

Andrew Merrick February 18, 2009 at 3:15 pm

Thanks for the article ~

I was curious that there were very few technology preventative measures such as investing in advanced digital security.

I guess that will come next time ~

http://www.justaskgemalto.com

Comments on this entry are closed.

Previous post:

Next post: