Ellington

Daily Beast seems like an odd place for a Manifesto to find its origins, but that appears to be where a number of prominent economists and (mostly liberal) thinkers have put their salvo in the debate between job stimulus and deficit reduction.

Money quote:

The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s. It will prolong the great recession, harm the social cohesion of the country, and continue inflicting unnecessary hardship on millions of Americans.

This is, in essence, an appeal to Keynesianism, whereby an active government policy would call for deficit spending during this "great recession" followed by anti-inflationary policies (and, particularly, increased taxes and lower government spending) when we get back to boom times. The fundamental thought is that monetary policy and interest rates can't do this alone... regular folks need money in their pocket to stimulate spending.

Keynes′ theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high"and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run, because "in the long run, we are all dead."[13]

In broad stokes, this was a philosophy in place during the Clinton administration -- tax increases in some cases when times were getting good, along with some spending cuts that brought about surpluses -- followed by their exact opposites during the Bush administration. (The fundamental mistake during Bush II was the high-bracket tax cuts and deficit spending during relative boom times. If the government had been returning to surplus during the 2000s, we'd be in better shape for the deficit spending that's necessary now.)

So if the government were to either enact a second stimulus (unlikely during this election year) or go status quo with extensions of jobless benefits (very likely in an election year) the open question will be tax levels -- while we're certainly unlikely to see a Revenue Act of 1932 -- an increase in taxes that some credit with extended the Depression -- it might make sense to leave tax tables where they are (Bush era, as painful as that is to say) at least for the next two years or so, or to specifically offset small changes in the top marginal rates (back to 36% and 39.6%) with payroll tax breaks or something else that stimulates at the lower end of the income scale.

Previous Comments

ID

158710

Comment

Fresh from his weekend off (Republicans are now against Presidential vacations, incidentally), is taking it to the GOP over extended jobless benefits, perhaps looking to turn it into a campaign issue. From the CNN piece: Senate GOP leaders have blocked a vote several times, highlighting deficit concerns by arguing that any benefits extension should be offset by spending cuts. Democrats are counting on the seating of the replacement for Sen. Robert C. Byrd of West Virginia on Tuesday to break the logjam. (Side note: Is it really the middle of 2010 -- and yet CNN's own website has squished 3:4-video-to-a-16:9-player of the President from the Rose Garden?)

Author

Todd Stauffer

Date

2010-07-19T13:03:47-06:00

ID

158717

Comment

The unemployment benefits issue is something the Democrats should definitely take the ball and run with. There's a bunch of issues the Republicans have fumbled the ball and given to the Dems, but the Dems don't seem to want the ball. Sorry for the corny symbolisms. I'm just in a football mood.

Author

golden eagle

Date

2010-07-19T14:46:08-06:00

ID

158729

Comment

Update from Daily Beast (which, in spite of myself, I seem to read every morning): two dozen more economists have signed on to the "Reboot America" Manifesto encouraging extended unemployment benefits (something likely to happen today) and, perhaps, a "second stimulus" plan.

Author

Todd Stauffer

Date

2010-07-20T08:19:36-06:00

ID

158734

Comment

Explain to me why in times of economic hardship, it could possibly make sense for government bureaucrats to expend resources on political projects instead of allowing them to be used for things the private sector actually wants?

Author

Mark Geoffriau

Date

2010-07-20T11:53:44-06:00

ID

158738

Comment

I should add -- my comment is directed at the prospect of yet another "stimulus", not the extended unemployment benefits, which is another issue altogether.

Author

Mark Geoffriau

Date

2010-07-20T12:56:34-06:00

ID

158743

Comment

It could make a whole lot of sense if weak performance in the private sector causes long-term damage to the economy. And it is silly to dismiss all stimulus spending as a "political project." Is providing money to states to retain teachers and police a political project? Was the interstate highway system just a political project? It produced no benefits for the private sector?

Author

Brian C Johnson

Date

2010-07-20T14:22:41-06:00

ID

158744

Comment

Looks like the unemployment extension just passed the cloture hurdle. Final measure could pass the Senate today and head back to the House.

Author

Todd Stauffer

Date

2010-07-20T14:27:15-06:00

ID

158745

Comment

It produced no benefits for the private sector? The question is not whether there are any benefits at all (obviously, even government manages to avoid spending money on completely worthless enterprises -- most of the time), but whether the benefit outweighs the loss of those resources for the private sector's use.

Author

Mark Geoffriau

Date

2010-07-20T14:28:24-06:00

ID

158763

Comment

Agreed, but when the private sector is using only a fraction of available resources, there is little need to worry about competition with the government. The worry is deflation, not inflation. Is there any kind of stimulus you could support? Do you support the extension of the unemployment benefits?

Author

Brian C Johnson

Date

2010-07-20T20:15:18-06:00

ID

158770

Comment

Agreed, but when the private sector is using only a fraction of available resources, there is little need to worry about competition with the government. Before I answer that objection, I'd like to point out that you've strayed from the Keynesian party line here -- Keynesian macroeconomics wouldn't be concerned so much with efficient spending using available resources, as with spending simply to spend, in order to "prime the pump" with artificial demand. That aside, the fallacy here is assuming that government bureaucrats have the ability to determine which resources are actually available, and to design projects that target solely those under-utilized resources without also drawing on other resources that the private sector is using. Moreover, the very fact that certain resources may be under-utilized is an indication that the market doesn't desire them at their current price. What's needed is a price correction, not a further propping-up of the misvalued resource by government fiat. If corn is being overproduced (because of, oh, let's say, government incentives), and corn farmers have unpurchased crops going to waste, using borrowed money to purchase more of the corn is simply exacerbating the original problem -- the price of the corn doesn't match the market's valuation of the corn. Is there any kind of stimulus you could support? Do you support the extension of the unemployment benefits? Not generally speaking. It functions exactly like you'd expect an incentive to work -- it produces more and lengthier unemployment (or, conversely, operating exactly like a tax on labor).

Author

Mark Geoffriau

Date

2010-07-21T09:28:31-06:00

ID

158772

Comment

Sure, if unemployment benefits were lavish, didn't require proof that you're seeking work and weren't temporary (and subject to whim, even in a crisis, of the Federal congressional calendar) then they'd be an incentive for people not to seek work. In the aggregate, though, the system doesn't work like that at all. From The Atlantic's Case For and Against Unemployment: The substantive case against UI goes like this. Jobless insurance is a subsidy -- an incentive to stay unemployed. Somebody on UI might choose to stay unemployed longer, or hold out for better jobs, knowing he's got a few hundred dollars a week holding him over. Even liberal economists like Paul Krugman have argued that especially generous or lengthy jobless benefits in Europe artificially inflate the unemployment rate. To be sure, UI might increase the unemployment rate slightly. The San Francisco Fed concluded that extended benefits added 0.4 percentage points to the unemployment rate. But in an economy with five unemployed for every job opening, Americans don't need unemployment benefits to discourage them from working. The job market is doing that all by itself. Unemployment insurance might even be good for the economy. The Congressional Budget Office and economist Mark Zandi of Moody's both said extending UI was one of the most effective ways to stimulate in a downturn -- above tax cuts or infrastructure spending. It puts timely money in the hands of people who are likely to spend it locally, increasing the taxable income of the people and businesses around them. Bolds are mine. The argument for stimulus (particularly smart, targeted government stimulus that might Promote the General Welfare by spurring innovation in health care, renewable energy, transportation, etc.) is that businesses (and high-income people, for that matter) in a down-cycle can be irrationally unwilling to invest because of that darned lack of perfect information in the marketplace. Get enough people not investing *even* when they have the tax breaks and other incentives in place and you have what has developed as what has now been about a 30-year case study on the limits of supply-side economics.

Author

Todd Stauffer

Date

2010-07-21T10:01:31-06:00

ID

158773

Comment

Incidentally, a previous entry asked what any additional stimulus should be. Aside from the JFP being on the record calling for an "Apollo Project on Clean Energy" (I'd personally like to see extraordinary government contracts expended toward that end), the most obvious immediate stimulus (quickly spent and supporting wage-earners likely to inject those dollars into the economy) would be additional aid to states. Indeed, in some corners, the likely lack of aid to states is leading to assumptions that we're headed toward "fiscal drag". (Krugman refers this with the line "Hello 1937.") Quoting Goldman Sachs analyst Alec Phillips: We are therefore removing from our estimates an assumption of further fiscal stimulus beyond the policies in law (including this week's unemployment extension), though we continue to expect extension of most of the expiring 2001/2003 tax cuts. This adds almost a full percentage point to the drag on growth from Q4 2010 to Q4 2011 to what we had already estimated.

Author

Todd Stauffer

Date

2010-07-21T10:20:02-06:00

ID

158774

Comment

Todd, if the goal is to get private businesses to invest, then what we need is for the government to stop changing the rules every 5 minutes, and to avoid actions that necessitate radically higher taxes sometime in the near future. The course you are suggesting is just about the worst prescription for encouraging private investment. Keynesians love the "paradoxical" nature of their construct in which the microeconomic rules somehow disappear on "aggregate" macroeconomic levels, but the theory simply doesn't hold water. For an excellent discussion on the actual real-world results of UI, I recommend this article, and the study of unemployment in early 1980's Pittsburgh referenced therein. http://caseymulligan.blogspot.com/2010/03/do-jobless-benefits-discourage-people.html

Author

Mark Geoffriau

Date

2010-07-21T10:43:46-06:00

ID

158777

Comment

From that same blogger: UI Neither All Nor Nothing

Author

Todd Stauffer

Date

2010-07-21T11:31:38-06:00

ID

158778

Comment

Right. In your linked post, he argues that UI doesn't explain all of the unemployment or recession, just a small portion of it. What he specifically doesn't argue is that UI beneficial, unless you are staking the meaning of the entire post in this one line: All of the UI extensions done by Bush and Obama have made national employment be less than it would have been (of course, lower employment may be a price worth paying to help people who lost their jobs). Is there some other point I'm missing?

Author

Mark Geoffriau

Date

2010-07-21T11:35:15-06:00

ID

158790

Comment

Mark, economics is a deeply divided field. Obviously, your economist from the Chicago School believes that unemployment insurance is bad for the economy. Many other economists would strongly disagree. You can offer your flip assertion that Keynesian theory "doesn't hold water." I could retort that the Chicago School has been humiliated by its recent failures. Appeals to authority will get us nowhere. However, Mulligan does take seriously the humanitarian aspect of unemployment insurance. He concludes his post by saying that the question is whether the cost of UI is worth continuing a "just and compassionate program." Does the compassionate argument for unemployment insurance sway you? From your post above, I have to assume that you also oppose food stamps. Please correct me if I am wrong. Many economists regard food stamps as efficient stimulus. But setting aside economics, food stamps help desperate people. They reduce malnutrition and starvation, preventing long-term health problems for children and the needy. Should we eliminate food stamps, even if doing so causes great harm?

Author

Brian C Johnson

Date

2010-07-22T11:10:49-06:00

ID

158792

Comment

Mark, economics is a deeply divided field. Obviously, your economist from the Chicago School believes that unemployment insurance is bad for the economy. Many other economists would strongly disagree. You can offer your flip assertion that Keynesian theory "doesn't hold water." I could retort that the Chicago School has been humiliated by its recent failures. Appeals to authority will get us nowhere. Your objection would apply if I had merely stated that "my" economist says that UI is bad -- but I didn't. I linked to his post explaining in real terms why UI is bad for the economy, in which he links to an academic study that supports his conclusion. However, Mulligan does take seriously the humanitarian aspect of unemployment insurance. He concludes his post by saying that the question is whether the cost of UI is worth continuing a "just and compassionate program." Does the compassionate argument for unemployment insurance sway you? I don't love it, but I can accept that government may have the authority to operate the UI program. If the economic effects described in the linked post are accurate, though, then we need to understand that unemployment benefits are not simply "helping out" the jobless -- it's helping out the jobless at the cost of reducing employment overall. How just and compassionate is it to help the jobless by taking away jobs from other people? From your post above, I have to assume that you also oppose food stamps. Please correct me if I am wrong. Many economists regard food stamps as efficient stimulus. But setting aside economics, food stamps help desperate people. They reduce malnutrition and starvation, preventing long-term health problems for children and the needy. Should we eliminate food stamps, even if doing so causes great harm? You mean the Food Stamp program created at the behest of the farm lobby to use up surplus produce? Given the incredibly high rates of obesity-related deaths and illnesses among the poorest Americans, do you think the Food Stamp program has been a wise use of government power?

Author

Mark Geoffriau

Date

2010-07-22T11:37:17-06:00

ID

158793

Comment

The House has voted to extend UI benefits, with the bill headed to the president's desk for signature; meanwhile, "deficit hawk" Robert Frank signs onto the 'Stimulus Now' manifesto. Like other deficit hawks, I believe we need to start paying down the mountain of debt the federal government has been running up. But not now, not as we continue to struggle to emerge from the deepest downturn since the Great Depression. Cutting spending now is the very last thing we should do. Plus, the pull quote: "Deficits undertaken to finance productive investment not only do not impoverish our grandchildren, they actually enrich them. More important, they also help put the unemployed back to work. What if reason took hold and we could do both -- worry about the deficit, but worry about it at the right times, when the economy is in growth? (Party like it's 1999?) If we can shelve supply-side economics for good, maybe we can build revenues when we're making money to pay down debts; and spend to stimulate when we're in trouble. The $5 trillion run-up in national debt during the Bush administration paid mainly for an unproductive war in Iraq and tax cuts that went largely for additional consumption. Our grandchildren indeed will be forever poorer as a result of that borrowing. But the reverse would be true if government borrowing were used for productive investments. By the way, there are some fabulous ideas in Frank's Promoting Recovery While Cutting the Deficit piece at the NYTimes as well. Some of it -- like massively restructuring consumer debt -- raises extremely interesting questions... such as, would this Promote the General Welfare? If we have UI and Social Security and other such programs, what about government restructuring of consumer credit card debt? This point is made in both pieces: Another productive measure would be to increase public investment in infrastructure. When road repairs are deferred for just two to three years, total maintenance expenses can more than double – even if we ignore the cost of accidents and vehicle damage caused by potholes. Spending an extra dollar now to save two dollars three years from now is an investment with an annual rate of return of more than 18 percent. Making that investment with money borrowed at 3 percent would not only put people to work immediately, but would also help balance government budgets. And after decades of infrastructure neglect, there are many other public investment opportunities that promise returns even higher than 18 percent.

Author

Todd Stauffer

Date

2010-07-22T12:55:22-06:00

ID

158797

Comment

I should not have said that your argument is an appeal to authority, but my objection still applies. That is, you have your economists, and we have our economists. I'm not sure what point you are trying to make by presenting Mulligan and his study. Do you think we have never even heard your side of the argument? That we will slap our foreheads and ask, "How could I have forgotten that nothing matters but supply and demand?" Mulligan leaves open the question of whether UI is worthwhile overall. You begrudgingly admit that the government "may have the authority" to provide UI, but there is no question that the government has the "authority" to do so. The question is whether it is right. Does it do more good than harm? That is the question Mulligan leaves open, and the one you regard so skeptically. The food stamp program was not created at the "behest" of the farm lobby. Even if it were true, how would it matter? We're talking about a program that helps millions of desperate Americans every year. Your suggestion that poor people may be fat because they receive food subsidies is absurd. The fattiest, least nutritious foods are the cheapest, and that is a consequence of economies of scale, of massively industrialized processed food production. Ending the food stamp program would not produce skinny poor people.

Author

Brian C Johnson

Date

2010-07-22T21:19:24-06:00

ID

158809

Comment

I'm not sure what point you are trying to make by presenting Mulligan and his study. Do you think we have never even heard your side of the argument? That we will slap our foreheads and ask, "How could I have forgotten that nothing matters but supply and demand?" Brian, I'm not even sure what you are arguing at this point. Are you suggesting that the free market/Austrian School position shouldn't even be heard? Everyone should just accept Keynesian economic theory because...well, just because? The food stamp program was not created at the "behest" of the farm lobby. Then you flat deny an historical fact (the farm lobby's role in the generation of the food stamp program) and offer no evidence other than your own certainty. And you missed the point of the argument anyway -- I'm not claiming that the food stamp program has created the obesity problem, but I am certainly claiming that given the comparative rates of obesity and starvation among the poor, the food stamp program is an incredible waste of resources. Somehow, the US managed to avoid mass starvation from 1943 and 1961 when there was no food stamp program.

Author

Mark Geoffriau

Date

2010-07-23T10:06:36-06:00

ID

158821

Comment

Mark, I'm not suggesting that your perspective shouldn't be heard, or that you should embrace Keynesian theory. In fact, I made that joke because it seemed you were suggesting we should just embrace the Chicago School. My point is that distinguished economists disagree on this question. So what's the point of shooting economists at each other? It won't get us anywhere. I do think it's telling that Mulligan takes compassionate considerations seriously, while you clearly do not. As for food stamps, I have to point out that you offered no evidence either. That said, I do not dispute that the farm lobby played an important role in supporting the program. But the food stamps program was part of LBJ's war on poverty. I will assert without evidence that many supporters of the program were sincere in their desire to help the poor. You can assert without evidence that all of them were merely corrupt servants of the farm lobby. But your cynicism is a bit paranoid.

Author

Brian C Johnson

Date

2010-07-23T13:49:59-06:00

ID

158822

Comment

Brian, that's the whole point -- I didn't "shoot an economist" at you and just expect you to believe it -- I referenced a specific article that had specific information (including an academic study) pertaining to this discussion. Moreover, my reference was in direct response to some of Todd's claims (that he supported with quotes from another source) regarding the Keynesian belief that certain market forces just disappear or work in unexpected ways on the aggregate level. But honestly, it's tiring trying to respond to your posts, given your insistence on throwing in these personal observations concerning how "telling" it is that I "clearly do not take compassionate considerations seriously", or my "paranoid cynicism", or somehow putting the burden of proof on me to show libertarianism isn't just a nicer political label for racist white guys, as you did in another discussion. You're absolutely right, however, that I didn't offer evidence about the farm lobby. I didn't expect someone to challenge it, since we're all on the internet and it's so easy to verify a basic historical fact. http://tinyurl.com/3ynbqrn

Author

Mark Geoffriau

Date

2010-07-23T14:07:06-06:00

ID

158824

Comment

I was having fun with you about subsidies causing obesity, though some conservatives have made that argument. But you do seem to be arguing that the existence of fat poor people proves the food stamp program is "an incredible waste of resources." Frankly, I'm not sure whether to take such a flimsy argument seriously at all. More than half of all food stamp recipients are children. According to the Department of Agriculture, more than 1 million children went hungry at some point during 2008. Nearly 17 million children lived in a household where food was sometimes scarce. That's nearly one child in four. The households that suffer hunger the most are those that are headed by single mothers. At a time when welfare and rent subsidies have been drastically cut back, food stamps provide income security to households living in poverty. By spending less on food, these households have more money to pay their rent. Thus, food stamps reduce homelessness. They almost certainly reduce crime. The food stamp program has been a huge success.

Author

Brian C Johnson

Date

2010-07-23T14:19:48-06:00

ID

158825

Comment

I'm with Brian on this. Say what you want about food stamps and the welfare system overall--and some people do abuse the system--but imagine how much the homeless problem and crime would be if there was no support system. Some may argue that people ought to just get a job. Easiest thing to say, but it doesn't always just work that way. I believe a vast number of people would rather be working than being on UI or any other form of public assistance because it doesn't bring in nearly enough money to support the responsibilities they have. But if being on UI brings in more money than working at McDonald's, I think most will choose UI. It's not because their lazy, it's because they have families to support, mortgages or rent to pay, etc. Also, what do you about families where both parents work, but still don't make enough to make ends meet?

Author

golden eagle

Date

2010-07-23T15:12:44-06:00

ID

158827

Comment

So you guys would expect a massive epidemic of crime, homelessness, and starvation during the 18 year period from 1943 and 1961 when there was no food stamp program, right? Did it happen?

Author

Mark Geoffriau

Date

2010-07-23T15:47:08-06:00

ID

158829

Comment

I should add, I'm not posing that question as a "gotcha" -- I don't have time to search for the relevant statistics at the moment. But I will suggest that, if the food stamp program is as critical as you say, going for 18 years without should have had some fairly dramatic effects. The numbers should reflect a significant change from the pre-1943 and post-1961 years. If the difference is negligible (or nonexistent), then I think I'm warranted in questioning whether the supposed benefit of the program is worth the cost.

Author

Mark Geoffriau

Date

2010-07-23T15:55:02-06:00

ID

158832

Comment

Mark, first, correlation does not necessarily equal causation. Second no comprehensive statistics for hunger, homelessness or poverty exist for the period. The Great Depression was over and, with WWII's economic lift and post-war prosperity, poverty and hunger simply slipped from the national radar. Works like Michael Harrington's "The Other America" in 1962 ("It is more important to understand that the very development of society is creating a new kind of blindness about poverty. It is increasingly slipping out of the very experience and consciousness of the nation.") brought the issue back into public consciousness. The first measures for poverty were used by the U.S. Census in 1962. From "Hunger in America" from Second Harvest, 2004: The strong economy of the postwar period, coupled with flagging political and public awareness of the problem of hunger, led to the government largely abandoning food assistance, except in the case of the National School Lunch Program. USDA, under the Eisenhower Administration, again focused interest on support of farm policy and agricultural trade. In fact, USDA became so inattentive to the problem of hunger (and the problem became increasingly invisible to the majority of Americans) that when a bill re-establishing the Food Stamp Program was enacted in 1959, USDA was not required to implement it and chose not to do so." ... "During his campaign for the Presidency in 1960, then Senator John F. Kennedy witnessed the "hidden hunger" in the upper Midwest and in Appalachia, especially West Virginia, a state crucial to his election. In the first televised Presidential debate in U.S. history, before 65 million Americans, John Kennedy cited the problem of hunger in America in his opening statement. He spoke of poor children in West Virginia and how they took part of their school lunches home with them to share with their families. Kennedy "forcefully declared that government wasn't doing enough to feed the poor." In the Kennedy Administration, food assistance fit into a larger context of farm policy. Food aid to the needy would lead to greater consumption and increased farm incomes. Many people went back to work in the early years of America's involvement in WWII, so the period you cite has many factors not inclined to increase crime, hunger and homelessness (although I have seen a statistic that about 40% of those who volunteered for service were in such poor health that the armed forces rejected them). Men and women who returned from the war received educations via the G.I. bill, producing one of the most educated and productive generations in American history and an increase in the country's middle class. The poor, however, never went away. Americans who came to Mississippi and other rural southern areas in the late 50s and early 60s, for example, were shocked by the depth and extent of poverty and malnutrition, just as Kennedy was in West Virginia.

Author

Ronni_Mott

Date

2010-07-23T20:20:15-06:00

ID

158862

Comment

Mark, I agree that this conversation is tiring, but I have not made "personal observations" about you. You haven't explained how you take compassionate considerations seriously. The most you could muster was a grudging admission that the government has a right to consider such matters. I call your argument "cynical" as a literal description of your take on food stamps. That is, you are "contemptuously distrustful" of the program. And I never suggested that you are personally racist. I feel betrayed that "libertarians" are also socially conservative, because I do admire other parts of libertarian thinking. You compared mothers who have children only to gather more welfare and immigrants who have children only as anchors. I found that distasteful. It is hard for me to see it as anything other than racist anecdote holding hands with nativist anecdote. I do believe that you are sincere, and I appreciate your intelligence. But your argument that food stamps are a failure because there wasn't a "massive epidemic of crime, homelessness, and starvation" from 1943 to 1961 is truly illogical. The argument is that food stamps do meet a real need, and that they produce an overall benefit to society. No one has argued that without food stamps, civilization would collapse overnight. At a time when millions of Americans are unemployed and desperately dependent on food stamps, you should make a better argument for ending the program.

Author

Brian C Johnson

Date

2010-07-27T18:59:08-06:00