On Tue, 27 Jan 2009 10:41:04 -0500, RogerDodger wrote: >> On Sun, 25 Jan 2009 16:58:44 -0500, RogerDodger >> wrote: > >>>>All in plain English: >>>> >>>>http://faculty.chicagogsb.edu/brian.barry/igm/ditella.pdf >> >> Another analysis earning praise: >> >> http://faculty.chicagogsb.edu/john.cochrane/research/Papers/fiscal2.htm The stupidity continues: "In any case, let us hope this is not the plan. Just because a little demand goose followed by inflation is possible doesnÎéÎ÷t mean itÎéÎ÷s a good idea. The inflation that will result from a trillion dollars of money permanently dropped on the economy, and the real economic dislocation of such a major inflation, is frightful to contemplate." This is obviously written by someone who represents the people who currently have all the money. Back to the "paper": ------------------------------------ Three fallacies Most fiscal stimulus arguments suffer from three basic fallacies. First, if money is not going to be printed, it has to come from somewhere. (this is the first real "fallacy" in the supposed list of fallacies. Government spends money into the economy and the Fed never bounces a government check. The sale of T-Bills or the collection of taxes occurs after the spending. Ask yourself where the private sector got the money it will use to pay the taxes and buy the T-Bills) If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. BWAHAHAHAHAHAHAHHAAHAHAHAHAHAHAHAHAHA!!!!!!!!!!!!!!!!!!!!!!!!!!! Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus canÎéÎ÷t help us to build more of both1 . This is just accounting, and does not need a complex argument about ÎéÎícrowding out.ÎéÎí BWAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The unemployment rate says that this is total crap. Second, investment is ÎéÎíspendingÎéÎí every bit as much as consumption. Fiscal stimulus advocates want money spent on consumption, not saved. (And the lying never stops. Saving and investment are two different things. If I collect money and put it in a mattress then most stilt brain Republicans will call this "saving". It is no different that I would place the money into T-Bills as opposed to placing it in the mattress. In neither case am I "investing" and in neither case am I "spending".) They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather save it. But the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift. (the "economy" cares that the money is employed to relieve a debt burden that will inevitably allow more consumption or that the money is spent into the economy right away. The spending is good in the near term and the paying down of debt is ab actual "investment" from the consumers point of view) Third, people must ignore the fact that the government will raise future taxes to pay back the debt. (Yet another lie. It never ever stops with conservatives. Every position they take assumes a stagnant world that never progresses. The assumption is that investments in infrastructure have no payback in an improved economy. If the investments will have increased the velocity of money by improving the efficiency of the economy then additional tax revenues will be realized as a result of the stimulus while the individual in the economy receives a direct benefit that outweighs the tax bite. It is like complaining about the fact that a large raise has put me in a higher tax bracket. If you are that damned stupid then please refuse the raise) If you know your taxes will go up in the future, the right thing to do with a stimulus check is to buy government bonds so you can pay those higher taxes. (I think this is marvelous advice to the Republicans. Please buy all the T-Bills you can manage) Now the net effect of fiscal stimulus is exactly zero, except to raise future tax distortions. The classic arguments for fiscal stimulus presume that the government can systematically fool people. (actually, Ricardo rejected "Ricardian Equivalence" because he was a lot smarter then the typical stilt brain conservative) The central question is whether fiscal stimulus can do anything to raise the level of output. (BZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZTTTTTTTTTTTTTTTTTT!!!!!!!!!!!!!!! The central question is whether the stimulus can improve the quality of life of the vast majority of Americans in a sustainable way over that which would have been without the stimulus.) The question is not whether the ÎéÎímultiplierÎéÎí exceeds one ÎíÎñ whether deficit spending raises output by more than the value of that spending. The baseline question is whether the multiplier exceeds zero.2 (And the answer is that the it depends on the time frame and it depends on interest rates. In the near term the stimulus does not even need to exceed zero because interest rates are zero. In the mid term the increased tax revenue arising from improvements in velocity will need to exceed zero. And in the 3 to 4 year term the "multiplier" must exceed one. It is almost impossible that this will not be achieved and if it is not achieved it will be because of stilt brained throwback conservatives) A cure should have something to do with the diagnosis. The classic argument for fiscal stimulus presumes that the central cause of our current economic problems is this: We, the people and our government, are not doing nearly enough borrowing and spending on consumer goods. The government must step in force us all to borrow and spend more. This diagnosis is tragically comic once said aloud. (yet another lie or possibly just a conservative insistence on adherence to the past. The "classic" rationale for stimulus was put in place under the gold standard. At that time "borrowing" was the only way to "allow" spending increases. That all changed in 1973. And the problem we have is not one of inadequate borrowing. That has to be one of the stupidest claims the world has ever seen. The problem we have is too much production and not enough demand. The solution is both, less production, and more demand. The solution is shorter working hours (share the available work) and a better social insurance system. Infrastructure spending is the current politically expedient way to rescue the economy but much more needs to be done) -- "Those are my opinions and you can't have em" -- Bart Simpson