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Economists: The stimulus didn't help

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.
 
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.
 
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.
 
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.
 
Dezaad said:
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.
 
"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.
 
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
 
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.
 
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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.
 
"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.

I don't understand how you get this out of Keynes.
 
LOL!

really?

right now?

Another display of how little you know in regards to government debt.

Reagan was elected in '82. Given the high rate of interest at the time, and the explosion of debt (specifically long term), a good deal of Reagan era debt is approaching maturity. :prof
 
Another display of how little you know in regards to government debt.

Reagan was elected in '82. Given the high rate of interest at the time, and the explosion of debt (specifically long term), a good deal of Reagan era debt is approaching maturity. :prof

The legislative branch has plenary authority to appropriate funds.
 
The legislative branch has plenary authority to appropriate funds.

Remember that next time you or anyone else talks about "Obama's debt."
 
Remember that next time you or anyone else talks about "Obama's debt."

Some of the debt belongs to Obama, just as some of the debt belongs to Reagan. Some of it belongs to Republican Senators, and some of it belongs to Democratic Senators.

MOST of it belongs to liberal Democrats, though.
 
obvious child said:
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.

What he did was not close to what Obama is doing, and it's also not going to high-risk ventures that will create larger deficits in the long run. Reagan's investment created what is called "smart debt", and in that sense the investment didn't outpace inflation to the point where the real numbers were smaller than the nominal ones when placed on the current valuation model. In addition, Reagan didn't open a checkbook to deprivatize a good chunk of the GDP.

Goldenboy said:
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".

I meant preemptive as in "during the bubble but before the burst", but not "before a bubble starts". That would be wasteful spending on a crapshoot. It has worked in the past to minimize fallout. The '87 crash was a prime example. The fallout from the stock market barely caused a ripple, even though that, when updated for inflation and TVM, was just as big and probably a little bit bigger than in '29 when the whole country went ape****. When he cushioned the real estate bubble that was forming in the mid 80s, he did a lot to soften the blow when the crap eventually hit the fan like it had to.
 
Some of the debt belongs to Obama, just as some of the debt belongs to Reagan. Some of it belongs to Republican Senators, and some of it belongs to Democratic Senators.

But you said:

The legislative branch has plenary authority to appropriate funds.

MOST of it belongs to liberal Democrats, though.

Prove it.
 
But you said:

The legislative branch has plenary authority to appropriate funds.

Yes, I remember what I said, and it's still true. Pick up an American government textbook if you don't believe me.

Prove it.

Liberal Democrats are the main proponents of entitlement spending, which accounts for the majority of the Federal budget, and hence the Federal budget deficits and debt.

That I have to explain this simple concept to you is evidence that you will refuse to acknowledge the facts as presented.
 
Yes, I remember what I said, and it's still true. Pick up an American government textbook if you don't believe me.

So why did you say it?

I took it to mean you were saying presidents are not responsible for spending. Were you just throwing out random irrelevant facts from a text book?

Liberal Democrats are the main proponents of entitlement spending,

Sorry, but being a "proponent" of something isn't the same as voting for it.

That I have to explain this simple concept to you is evidence that you will refuse to acknowledge the facts as presented.

I am questioning the relevance of your facts, not the facts themselves.
 
So why did you say it?

I took it to mean you were saying presidents are not responsible for spending. Were you just throwing out random irrelevant facts from a text book?

Why do you need things that are painfully and utterly obvious explained to you?

Two posters were talking about "Reagan's debt" and "Reagan-era debt". The obvious implication being that Reagan was responsible for said debt. I merely reminded them that the legislative branch has plenary authority to appropriate funds, i.e., Reagan isn't the only one responsible for debt incurred during his Presidency.

I wasn't saying "Presidents are not responsible for spending." Presidents can be responsible for SOME spending, but they cannot be responsible for ALL spending.

Sorry, but being a "proponent" of something isn't the same as voting for it.

But they DO vote for it. Why am I having to explain these things to you!?

I am questioning the relevance of your facts, not the facts themselves.

You told me to "prove" that liberal democrats were responsible for MOST of the debt, which is questioning the facts. It's quite a well known FACT that liberal Democrats advocate and vote for the majority of Federal entitlement spending, which accounts for the majority of our Federal budgets. That I have to explain this to you, and REPEAT myself, is evidence that you're just being purposely obtuse and intellectually dishonest.
 
Why do you need things that are painfully and utterly obvious explained to you?

Because you make no sense.

Two posters were talking about "Reagan's debt" and "Reagan-era debt". The obvious implication being that Reagan was responsible for said debt. I merely reminded them that the legislative branch has plenary authority to appropriate funds, i.e., Reagan isn't the only one responsible for debt incurred during his Presidency.

I wasn't saying "Presidents are not responsible for spending." Presidents can be responsible for SOME spending, but they cannot be responsible for ALL spending.

Fine. Thanks for the reminder. Like I said, keep it in mind next time someone talks about Obama's debt too.

But they DO vote for it. Why am I having to explain these things to you!?

No, you can't just walk in here and declare that liberal Democrats and only liberal Democrats have voted for the largest spending items. You have to have some evidence. Things aren't that simple.

You told me to "prove" that liberal democrats were responsible for MOST of the debt, which is questioning the facts. It's quite a well known FACT that liberal Democrats advocate and vote for the majority of Federal entitlement spending, which accounts for the majority of our Federal budgets. That I have to explain this to you, and REPEAT myself, is evidence that you're just being purposely obtuse and intellectually dishonest.

It may be well known, but that doesn't make it true.

I am not being obtuse or dishonest. Things are never as simple as you wish them to be.

Start with this fact - liberal Democrats were in the minority in the House for 12 years when the Republicans ran things, and in the Senate too a couple of times since 1980. Are you saying they are responsible for the spending that occurred during that time?

The same old tired "liberal Democrats are responsible for spending" myth was exploded when the GOP took over. From 1995 to 2007, the fiscal years the GOP ran the House, on-budget spending grew from $1.2 trillion to $2.2 trillion a year. Entitlements amounted to between 288 billion to 450 billion during that time. So entitlements clearly didn't account for the majority of debt growth then. (This ignores the fact that Social Security had a surplus and technically did not grow the debt at all, but never mind that technicality).
 
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P.S.

http://www.cato.org/pubs/briefs/bp87.pdf

The Republican Spending Explosion
by Veronique de Rugy

Veronique de Rugy is a fiscal policy analyst at the Cato Institute.


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

Executive Summary

When the Republicans gained control of Congress in 1994, they promised to eliminate the deficit and reduce wasteful spending. For several years, the GOP partly upheld its commitment by modestly curtailing spending growth and balancing the budget.

Unfortunately, the balanced budgets of the late 1990s created an "easy money" mindset in Congress, which began a spending spree that continues unabated today. Total federal outlays will rise 29 percent between fiscal years 2001 and 2005 according to the president's fiscal year 2005 budget released in February. Real discretionary spending increases in fiscal years 2002, 2003, and 2004 are three of the five biggest annual increases in the last 40 years. Large spending increases have been the principal cause of the government's return to massive budget deficits.

Although defense spending has increased in response to the war on terrorism, President Bush has made little attempt to restrain nondefense spending to offset the higher Pentagon budget. Nondefense discretionary outlays will increase about 36 percent during President Bush's first term in office. Congress has failed to contain the administration's overspending and has added new spending of its own. Republicans have clearly forfeited any claim of being the fiscally responsible party in Washington.
 
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