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Thread: Economists: The stimulus didn't help

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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Gipper View Post
    It's correct a lot more than you want to believe.



    Even someone morbidly obese that's on a diet could get a slice of cake once in a while. Having said that, I was addressing a time when the man was relatively healthy and in shape, before he gouged on cake.

    Keynesian economics has its use, but just incredibly limited. Classical economics does not always fix its own messes, or sometimes takes far too long to be pushed along by the "invisible hand". Intervention is sometimes necessary. Granted, not in today's political and economic world, but in other times and places, yes.



    That was it. It sounded like he believes that we're in a vegetable time, in which I would agree with him.
    Ok, soooo, what I am saying is that during economic crisis (cake time), we need keynsian stimulus (cake). It seems like you think he is saying that during economic crisis we need classicist laissez faire (vegetables). Well, if he is indeed saying that, then, I do disagree with him.

    But, here is how the conversation went, genius:

    Background: Keynesians believe that during economic crisis, we need gov't to step in and spend money to stimulate the economy while no one else is.

    The OP posted an article erroneously claiming that economists felt that the stimulus didn't stimulate. An anti-keynesian claimed that keynesian theory doesn't work except in the short term. I stated that this thread IS about the short term situation of an economic crisis (implying that we want short term stimulus).

    Someone started an analogy about cake and vegetables which muddied the waters, probably because the analogy is exceedingly limited.

    Am I not summarizing this conversation correctly?

    In any case, times like these are PRECISELY the moment for Keynesian stimulus. The one thing we were not doing is keeping our budget in order during the Bush administration so that we could borrow with confidence right now for the stimulus. So, if you're saying we're in too bad of shape long term budget wise for deficit spending based stimulus, you might be right on that count. But, the stimulus will still have (and has had) its positive effect.

    I consider classic economics the simple model that applies much of the time. I consider keynesian stimulus notions a model that applies during times when markets fail to act in the rational way classicists say they are supposed to, and the irrationality results in an anomalous crisis. Keynes is the Einstein to Adam Smith's Newton.

    The financial crisis and the housing bubble is exactly the sort of irrational thing that is NOT supposed to happen, according to classic theory. The irrational overwrought contraction that occurs during the correction to the crisis is also not supposed to happen. Keynes helps us navigate the reality of the market's irrationality.

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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Dezaad View Post
    The financial crisis and the housing bubble is exactly the sort of irrational thing that is NOT supposed to happen, according to classic theory. The irrational overwrought contraction that occurs during the correction to the crisis is also not supposed to happen. Keynes helps us navigate the reality of the market's irrationality.
    What about it was "not supposed to happen" according to whom? People were doing exactly what you would think they would do. They acted in what they thought was in their best interests. Everyone did. The issue was that people lacked the knowledge to know what was actually in their self interests. Ignorance is bliss. But it's as predictable as the sun coming up. Over time there have been countless bubbles and bursts, all based on people acting in what they thought was in thier best interests.
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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by stekim View Post
    What about it was "not supposed to happen" according to whom?
    According to classic economic theory.

    People were doing exactly what you would think they would do. They acted in what they thought was in their best interests. Everyone did.
    They were wrong (irrational, so to speak). More specifically, the market was, because it was misinformed. Which is precisely one of the things that classic theory doesn't handle well: ignorance (imperfect information).

    The issue was that people lacked the knowledge to know what was actually in their self interests. Ignorance is bliss. But it's as predictable as the sun coming up. Over time there have been countless bubbles and bursts, all based on people acting in what they thought was in thier best interests.
    All of which (Bubbles) were inadequately explained by classicists.

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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Dezaad View Post
    They were wrong (irrational, so to speak). More specifically, the market was, because it was misinformed. Which is precisely one of the things that classic theory doesn't handle well: ignorance (imperfect information).
    Actually, the market had perfect information. Some people were even able to see it and make a fortune. The market had the info, people simply chose not to look for it. Some saw it clearly, but put short term gains over long term pains. When I was a working economist I would have told my bosses there was nothing "irrational" going on. People can be expected to act in their own economic self interests nearly all the time. The fact they are ignorant of what their best interests actually are does not mean they are irrational. In other words if you really think tree sap cures cancer it's not irrational to treat your cancer with it. It's ignorant, yes. But quite rational.
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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Dezaad
    Ok, soooo, what I am saying is that during economic crisis (cake time), we need keynsian stimulus (cake). It seems like you think he is saying that during economic crisis we need classicist laissez faire (vegetables). Well, if he is indeed saying that, then, I do disagree with him.
    "Economic crisis" is not synonymous with cake in my analogy. Keynesian theory is best when a bubble is growing, not after it bursts. It performs much better when acting as a preventative measure as opposed to a cure to an already existing problem.

    But, here is how the conversation went, genius:

    Background: Keynesians believe that during economic crisis, we need gov't to step in and spend money to stimulate the economy while no one else is.

    The OP posted an article erroneously claiming that economists felt that the stimulus didn't stimulate. An anti-keynesian claimed that keynesian theory doesn't work except in the short term. I stated that this thread IS about the short term situation of an economic crisis (implying that we want short term stimulus).

    Someone started an analogy about cake and vegetables which muddied the waters, probably because the analogy is exceedingly limited.

    Am I not summarizing this conversation correctly?
    Nope. First of all, you don't have to be anti-Keynesian to know that it fails miserably in the long term. You just have to be at least somewhat versed in economics. Also, you would have to be doing a great impression of ducking your head in the sand if you think a) even Keynesian theory preaches THIS amount of intervention, and b) this is even remotely considered short-term, when these policies clearly have very long-term reprocussions. And the analogy is not exceedingly limited. It just has to be summarized for aesthetic reasons. You're not approaching this as a Keynesian. You're approaching this as a state socialist. Even a left-capitalist and Keynesian would be ill at the level of control Washington is displaying here.

    In any case, times like these are PRECISELY the moment for Keynesian stimulus. The one thing we were not doing is keeping our budget in order during the Bush administration so that we could borrow with confidence right now for the stimulus. So, if you're saying we're in too bad of shape long term budget wise for deficit spending based stimulus, you might be right on that count. But, the stimulus will still have (and has had) its positive effect.
    The argument isn't if. It's how much. The cost-benefit analyses of all these bailouts (Bush including) are awful. In addition, it's essentially a lie when Obama speaks of these as a short-term loan.

    I consider classic economics the simple model that applies much of the time. I consider keynesian stimulus notions a model that applies during times when markets fail to act in the rational way classicists say they are supposed to, and the irrationality results in an anomalous crisis. Keynes is the Einstein to Adam Smith's Newton.
    As I said before, Keynesian is meant to be a precise, pre-emptive strike and not a broad clean-up after the giant spill.

    The financial crisis and the housing bubble is exactly the sort of irrational thing that is NOT supposed to happen, according to classic theory. The irrational overwrought contraction that occurs during the correction to the crisis is also not supposed to happen. Keynes helps us navigate the reality of the market's irrationality.
    Keynes designed us to use a piece of wood to float across a deep, narrow channel. The problem exists when people want to stay on the wood after they reach solid land.

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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Gipper View Post
    "Economic crisis" is not synonymous with cake in my analogy. Keynesian theory is best when a bubble is growing, not after it bursts. It performs much better when acting as a preventative measure as opposed to a cure to an already existing problem.
    Neokeynesian models are prevalent in neoclassical theory. This was the distinction of the neo-classical compact. The classical solution to a endogenous shock to aggregate demand was to do nothing, and allow for wages to fall. Keynes recognized the existence of both price stickiness and irrational saving patterns that are a result of herd behavior.

    Neoclassical solutions (which incorporates aspects of Keynesianism) such as fiscal and monetary expansion will do nothing but further entice such bubble activity. There have been interesting psychological research in how such bubbles form (expected returns clashing with a natural phenomena of diminishing returns), yet there has been little break through in regards to policy.

    Nope. First of all, you don't have to be anti-Keynesian to know that it fails miserably in the long term. You just have to be at least somewhat versed in economics. Also, you would have to be doing a great impression of ducking your head in the sand if you think a) even Keynesian theory preaches THIS amount of intervention, and b) this is even remotely considered short-term, when these policies clearly have very long-term repercussions. And the analogy is not exceedingly limited. It just has to be summarized for aesthetic reasons. You're not approaching this as a Keynesian. You're approaching this as a state socialist. Even a left-capitalist and Keynesian would be ill at the level of control Washington is displaying here.
    Putting Washington aside, there is little debate among top economists regarding market's intrinsic need for stabilization policy. While there are very real long term consequences to fiscal stimulus (higher taxes/growth required to finance such measure long term), a simple cost benefit analysis while considering the rate of capital depreciation (both human and physical) dictates that non intervention will cost more in the long run.

    The argument isn't if. It's how much. The cost-benefit analysis of all these bailouts (Bush including) are awful. In addition, it's essentially a lie when Obama speaks of these as a short-term loan.
    In the absence of both monetary and fiscal stimulus, one would be hard pressed to paint a scenario in which asset and debt markets would be nearly as healthy as they are now. Credit markets are functioning, and there are only a few economies which face the prospect of an inverted yield curve.

    As I said before, Keynesian is meant to be a precise, preemptive strike and not a broad clean-up after the giant spill.
    Nope. Keynesian policy is a response to a current vs potential output gap. You must not understand the basis if you truly believe it to be "preemptive".

    Keynes designed us to use a piece of wood to float across a deep, narrow channel. The problem exists when people want to stay on the wood after they reach solid land.
    Such a likelihood is unsustainable as you would witness inflationary pressure on prices. If what you say is true, than debt and deficits do not matter and the government can simply spend our way to long run constant growth. However, economic reality dictates something else entirely.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
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    Re: Economists: The stimulus didn't help

    Regarding Keynsian economics

    What too many people forget is that in Keynsian economic's during good economic times the government is supposed to run a BUDGET surplus, not a deficit

    It is the moronic public that demand tax cuts/ and or spending increases from their elected officials that causes the flip side of Keynsian economics not to be enacted.

    So to simplfy

    Reccession - government deficit

    Expansion - government surplus

    The surplus pays for the deficit, and the governemnt should be in a surplus situation most of the time
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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Taylor View Post
    Economists say the stimulus didn't help - Apr. 26, 2010

    Surely to be followed by a "it wasn't big enough" response from the far left. A majority of economists believe that this debt monster failed to provide the boost that was promised.
    Well, for me, the stimulus has provided a huge boost in sales for the company I work for, due to the energy tax credit. People are purchasing more air condition equipment than ever before, which means my company makes more money, and manufacturers are making more money, and putting more people to work. For right now, things are picking up steam, and sales have tripled for us over last year. Right now, I personally am making much more money as a direct result of the stimulus.

    However, I am still against Obama's stimulus. Why would I say that, after getting such a financial boost, and seeing others make more money too? Because, at some point, a stimulus has to end. That is when the hangover sets in. When it does, the economic picture will end up being much worse than if the government did nothing at all.
    Last edited by danarhea; 04-26-10 at 10:38 PM.
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    Re: Economists: The stimulus didn't help

    So $282 billion in TAX CUTS didn't do anything?

    Huh. Notice none of the "stimulus failed" crowed mention that.
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    Re: Economists: The stimulus didn't help

    Quote Originally Posted by Gipper View Post

    Nope. First of all, you don't have to be anti-Keynesian to know that it fails miserably in the long term. You just have to be at least somewhat versed in economics. Also, you would have to be doing a great impression of ducking your head in the sand if you think a) even Keynesian theory preaches THIS amount of intervention, and b) this is even remotely considered short-term, when these policies clearly have very long-term reprocussions. And the analogy is not exceedingly limited. It just has to be summarized for aesthetic reasons. You're not approaching this as a Keynesian. You're approaching this as a state socialist. Even a left-capitalist and Keynesian would be ill at the level of control Washington is displaying here.p
    I find it interesting someone who's handle is the Gipper argues that Keynesian economics failed when Reagan was in many ways a Keynesian, pumping huge amounts of public money into the market buying up all kinds of stuff. Not to mention how Reagan went over to the Fed to get Volcker to reduce his war on inflation. Not exactly "non-interventionist." I do agree that the policies have long term repercussions. Right now we are finally paying off Reagan era debt.
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