Mystery Economic Theater 2010

[garo]

Ernst,
[1] I totally agree. Barry Ritholtz posted a list of things where a stimulus can be spent too. But remember there will always be people who will try to game the system for their personal benefit. You haven't yet proven how much of the past stimulus was wilfully wasted and how much was gamed and how much was actually used. Again Ritholtz had a post showing where the stimulus went. It doesn't seem all that bad too me.

Your pal Mish and the WSJ , on the other hand, would just cut taxes on the rich which as again Ritholtz points out is the most inefficient form of stimulus there is. Why not a payroll tax holiday on the first 20k or 40k as Reich has suggested in the past?

[2] Agree somewhat.

@Prime95: Bingo. It IS a zero-sum game.

[garo]

http://www.angrybearblog.com/2010/09...t-see-and.html

For years we have been regaled with scary, scary numbers about how Medicare's projected unfunded liability was in the TENS OF TRILLIONS. And sure enough if you consulted the Medicare Report and examined the actuarial projections for Medicare Part A you would find that number. But a funny thing happened with the 2010 Report and is shown in the data table above: the 75 year number is down to $6.9 trillion, a big number but only 0.5% of projected GDP over that period, and the infinite future number is actually a $600 billion SURPLUS.

Oddly this multi-multi trillion dollar turnaround did not result in banner headlines in the NYT or the WaPo

or for that matter Mish

[Fusion_power]

The bonehead economists are coming out of the woodwork with a vociferous cry of "spend more money!"

Cut to the bottom line and what they want to do is spend more money on infrastructure with the intent of jump starting the economy. They ignore a fundamental paradigm shift that has taken place over the last 2 years. The average sentiment is more toward save money, pay down debt, and DON"T BORROW ANY MORE!

The part that blows me away is the stupid stuff that has been suggested. One article suggests a high speed rail system and improvements to the air traffic control system. While there may be a small argument in favor of improving air traffic control, there is zero benefit to most current high speed rail proposals. I would have trouble objecting to a long term program to jump start solar power systems but, even then, only over a long term that does not involve spending large sums of money. More solar tax credits anyone?

Regardless, if they want to commit political suicide, all they have to do is continue talking about spending more money and raising taxes to pay for it.

DarJones

[Mathew]

Fusion_power,

Would you please add a link to the article you are referring to? I would like to know more about these "zero benefit" rail proposals. It is difficult for me to believe that a rail system would not benefit the United States. Unless you are saying all of the proposals look like this one The Monorail.

[Fusion_power]

Matthew, That is the magic. They don't mention rails from where or to where, all they say is 'build a high speed rail system'. It is like that multibillion dollar bridge in Alaska that was going to serve 50 people. It would never have paid for itself.

A second grader can do the math, X billions spent, (pick your number of riders) X Dollars per trip X reasonable interest rate / number of years on the note = more government waste.

There are only a few locations in the U.S. that could benefit from high speed rail. Washington to New York is one of the very few.

You can find the articles on Yahoo.

DarJones

[garo]

Marshall Auerback: The Real Lesson From the Great Depression
http://www.ritholtz.com/blog/2010/09...-policy-works/

The key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock. So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal!

[ewmayer]

Originally Posted by garo

http://www.angrybearblog.com/2010/09...t-see-and.html

LOL, you actually put any stock in 75-year and "infinite time horizon" projections like these? If so, I have a social security program which is "not only solvent, it`s running a large surplus" to sell you. Here are the numbers I look at when evaluating such claims - whenever I see a geometrically-growing (in inflation-adjusted per-beneficiary terms) cost component weighed against an essentially flat (or asymptotically slower-growing) revenue-stream, I call BS on any related claims of 'solvency' or 'long-term viability':

The costs of Medicare doubled every four years between 1966 and 1980.[44] According to the 2004 "Green Book" of the House Ways and Means Committee, Medicare expenditures from the American government were $256.8 billion in fiscal year 2002. Beneficiary premiums are highly subsidized, and net outlays for the program, accounting for the premiums paid by subscribers, were $230.9 billion.

Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget. Total Medicare spending reached $440 billion for fiscal year 2007 or 16% of all federal spending and grew to $599 billion in 2008 which was 20% of federal spending.[45] The only larger categories of federal spending are Social Security and defense. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term may well require significant changes.[46]

Also, you made no mention whatsoever of the elephant under the rug, Medicare Part D, the prescription-drug benefit, whose costs are mushrooming. (Big Pharma lobbied hard to get Part D passed, and to make the coverage apply to as many new expensive drugs of dubious benefit as possible).

On to your "Real Lesson From the Great Depression" link, which is for me a more-interesting (because the math is not obviously out of whack with the claims of its proponents) issue, and one where I differ significantly with Mish:

So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal!

They are not "real jobs" in the sense of being private-sector jobs paid for by the proceeds of something that is produced and sold or some service that is provided (ultimately) to help someone else produce something of value. Make no mistake about it, New-Deal-projects jobs were government make-work jobs - so the real question comes down to to what extent all that deficit spending later paid for itself by laying the groundwork for future economic growth (which in this case would require a World War and ensuing demographic baby boom to be realized). It`s pretty clear the infrastructural megaprojects - e.g. Hoover Dam and the interstate highway system - did so, in spades (Although one should include unexpected environmental costs of such projects in any later evaluation of "was it worth it"-ness). Most of the other projects (e.g. the national-parks-related ones) were money-losers in strictly economic terms, but if one values the noneconomic benefits of such efforts (as one should, and as I do), these were also worthwhile. For me the bottom line, though is this: If you`re going to spend huge amounts of government money to alleviate the effects of an economic depression, you should try very hard to get something of value for society for your money, and to make those monies go as far as possible. That is the key difference between the government`s deficit spending then and now ... compare the $30 prevailing wage requirement for stimulus-program pothole-fillers now with the conditions of the Civilian Conservation Corps then. The huge built-in expense of overpaying people makes such programs much less cost-effective today, and as a result, such programs make a much smaller dent in the overall employment picture.

-------------------------------

Whenever a Politician Says "It`s Not" ... It Is:

I heard a very pithy piece of advice about politicians over the weekend ... of all places, during one of the host segments of the local Saturday-night chiller-cinema show (This week`s feature was a little 1959 B-number with the U.S. title of Blood Creature, filmed in the Philippines and co-starring the lovely - and 50s-babe-style bullet-brassiered - Greta Thyssen, a.k.a. Miss Denmark 1952, whose short career an IMDB amateur-biographer succinctly sums up with the wink-wink=nudge-nudgy 'All in all, Greta took advantage of the equipment she had, made it work for her, and got her "fifteen minutes."'...Personally, since the movie in question involved a Dr. Moreau-esque mad scientist on a lonely island doing bizarre medical experiments in an attempt to turn a panther into a manlike creature, I think a better B-movie schlock-title would have been "Manther" ... but I digress):

"Whenever a politician goes out of his way to tell you that he is *not* something, or that one of his proposals is *not* some thing ... he (it) is."

Let`s see: Richard Nixon, "I am not a crook" ... he was a crook. Bill Clinton: "I did not have sex with that woman" ... he did. Dubya Bush and Tony Blair (I`m paraphrasing here) "There was no secret deal to invade Iraq irrespective of what the 2002 WMD inspections revealed" ... there was.

This rule of thumb appears to work very well if one replaces 'politician(s)' with 'most economists', and replaces the literal 'not' with a broader set of phrasings conveying the same kind of negation ... e.g. "Most economists see little chance of a relapse into recession" == "relapse into recession is guaranteed".

With that in mind, consider the following 2 stories in light of the fact that these latest proposals are being described by their proponents as "Not a second round of stimulus spending", and "not more deficit spending":


With Midterm Elections Looming and Economic recovery Nowhere In Sight, Administration Switches to Desperation Mode:

Obama Offers a Transit Plan to Create Jobs.. President Obama, looking to stimulate a sluggish economy and create jobs, called Monday for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects.

The White House did not offer a price tag for the full measure or say how many jobs it would create. If Congress simply reauthorized the expired transportation bill and accounted for inflation, the new measure would cost about $350 billion over the next six years. But Mr. Obama wants to “frontload” the new bill with an additional $50 billion in initial investment to generate jobs, and vowed it would be “fully paid for.” The White House is proposing to offset the $50 billion by eliminating tax breaks and subsidies for the oil and gas industry.

My Comment: Oh, "It`s paid for", is it? Suuuuuuuuuuuuuuuuuuuure it is ... as in "Give us this vote-buying bribe money now, and we promise to pay for it via future elimination of tax breaks and subsidies, which will of course never occur because the industries targeted have much too powerful a lobby in congress."


Obama to Propose Business Tax Relief, Spending to Spur Growth. Obama tomorrow will announce an expanded tax incentive to encourage business investment, an administration official said on condition of anonymity. Obama also will urge Congress to extend permanently and expand a research-and-development tax credit for businesses, costing about $100 billion over a decade. He began the rollout of initiatives yesterday in Milwaukee, calling for $50 billion in the first of a six-year program to fix roads, railways and runways and modernize the air-traffic control system.

My Comment: Milwaukee is an interesting choice - might that have anything to do with the fact that Illinois is broke (they have literally stopped paying $billions in bills-due) and Democratic candidates running the midterm elections there are in trouble? Thus we get talk of "more infrastructure spending", which is thinly disguised vote-buying. If the R&D tax credit - which I agree should be extended and expanded, as long as it promotes genuine cutting-edge domestic R&D of the type which not get done anyway (one criticism of the existing R&D tax credit is that much of it 'rewards' big companies for doing what they would be doing to stay competitive anyway) - is such a great idea, why was its expansion and overhaul not part of the original stimulus package?

OTOH, the R&D tax-credit has long been a favorite of Republicans ... so perhaps that part of the proposal is a clever way to put Republicans in a bind.

[xilman]

Originally Posted by Fusion_power

There are only a few locations in the U.S. that could benefit from high speed rail. Washington to New York is one of the very few.

That is an interesting statement which bears closer examination and analysis.

Purely for the sake of argument, I'll throw in a route which runs along the west coast from San Diego, via LA and the Bay Area to Sacramento. A case may be made to go as far as Vancouver (Canucks permitting) or Seattle (otherwise).

Remember: for distances up to around 1000 mile / 1500km the point-to-point time of a HST journey is comparable or better than that of aircraft. That's the European and Japanese experience anyway. At 300kph or better for a train ,the reduced time for security and check-in easily pays for the 800kph or so of a regional jet. The fuel economy, measured in litres per passenger kilometre, is generally rather better for rail travel --- or so I believe.

I don't think anyone would seriously suggest that the LAX-BOS route would be better served by train, any more than LHR-ATH is in Europe. However, SAN-SFO looks entirely plausible to me.


Paul

[garo]

They are not "real jobs" in the sense of being private-sector jobs paid for by the proceeds of something that is produced and sold or some service that is provided (ultimately) to help someone else produce something of value. Make no mistake about it, New-Deal-projects jobs were government make-work jobs

Oh FFS! Schools were make-work and not real? The tri-borough bridge is not real. The doctor in a government hospital that fixes you up is not doing a "real job" according to you. I think you need to get over this obsession about what is real and what is not. Just because something is paid for by the government does not make it any less real. That said, I agree that the current stimulus is not doing a great job of spending the money effectively. But I think that has a lot to do with the politics and the socio-cultural evolution of the US.

The point which you miss is that left to its own devices, the private sector just hoarded its money and did nothing to get the economy moving. From 1929 to 1933 things kept getting worse and worse. There's an infographic on Barry Ritholtz's blog today about the deflationary spiral.

And oh yeah:
http://www.michaelmoore.com/words/mi...ckin-labor-day

[ewmayer]

Originally Posted by garo

Oh FFS! Schools were make-work and not real? The tri-borough bridge is not real. The doctor in a government hospital that fixes you up is not doing a "real job" according to you.

You misunderstand me completely, so let's take this point by point:

1) Schools, if they serve a genuine educational need and are competently and cost-effectively run, can provide large net economic benefits. However, many modern-day school building projects very clearly fit the mold of "gigantic fiscal boondoggle". Do most students really benefit from having electronic smart boards in every classroom? Are computers really a cost-effective educational tool? [I admit under some circumstances thay can be, and for some computer-oriented subjects they are of course indispensable ... but do elementary and junior-high-level kids really benefit, relative to the massive install/maintenance/eternal-upgrade-cycle cost?]

2) The bridge: The result of the project is of course very real in both he tangible sense and the lots-of-people-got-paid-to-build-this sense. If the resulting piece of infrastructure proves economically useful, even in the diffuse "this bridge will save millions of person-hours of otherwise wasted commute time, thus provides a net benefit to the economy as a whole" sense, then that is a good use of taxpayer money, even of the jobs provided were transient.

On the other hand, a "bridge to nowhere" as made famous in Japan post-1990, that provides trivial economic benefit at huge cost, and is thus make-work-purely-for-make-work's sake.

3) If the doctor is providing quality medical care in a cost-effective manner, great. If OTOH the doctor is overtreating and doing huge amounts of expensive diagnostic tests which provide little benefit, in the context of a system which incentivizes expensive treatment over simple preventive medicine, then you end up with a system as here in the U.S., where we spend twice as much on average per patient relative to the next-most-expensive medical system in the world (IIRC that is Switzerland), get on average no better (or even slightly worse) outcomes for our money, and where a huge fraction of the populace has no medical insurance whatsoever (I.e. no "government hospital" to go to to begin with), then we got a big problem.

[garo]

But all three of the points you raise happen in the private sector as well as the public sector, particularly point 3. Turning everything over to the private sector is NOT a panacea. Only the dull and hard work of better administration and improving efficiency is. And there are examples galore that show us that the private sector can get it spectacularly wrong too. Plus there is the issue of "Tragedy of the Commons" which makes it imperative for the state to intervene in many cases. Can you let private sector actors decide whether to build a bridge or not? If those decisions were left to the private sector the state of US infrastructure would be far worse than it is now. The private sector is steeped in myopic short-termism.