BOOM! There goes the market!

[TexTushHog]

The reason you can't find examples of countries who has already had large deficits and then used monetary stimulus is that no nations have ever been irresponsible enough to run up real large deficits in good time and then been able to still borrow cheaply in bad times.

And the Barro article is basically just a restatement of Barro-Ricardian equivalence restated in the context of deficit spending. Barro-Ricardian equivalence has been doubted sine Ricardo himself called it's validity into question. As for Barro's contribution, I think it's best summarized by Paul Krugman:

As I’ve already pointed out,the prospect of a Keynesian stimulus is having a weird effect on conservative economists, as first-rate economists keep making truly boneheaded arguments against the effort. The latest entry: Robert Barro . . .

And his substantive critique of Barro's methodology is quite sound.

http://krugman.blogs.nytimes.com/200...n-remembrance/

[cookie man]

How about the price of eggs in China? lol. Gee you guys kicked the discussion up a few notches. It sounds like polictics and economics have a lot in common.

Here are two articles with different ideas and recollections of the same era.
The video in the first article is a synopsis of the Depression era with a warning of repeating the same mistakes.

http://www.stocks-simplified.com/Wha...epression.html

The second article is from the August 13th New York Times where Liberal economist and Obama advisor, Christina Roemer from UC Berkley, paints a different picture.

http://www.nytimes.com/2011/08/14/bu...q=Romer&st=cse

[Texas Contrarian]

Originally Posted by TexTushHog

The reason you can't find examples of countries who has already had large deficits and then used monetary stimulus is that no nations have ever been irresponsible enough to run up real large deficits in good time and then been able to still borrow cheaply in bad times.

Everyone who reads this thread will notice that you simply ignored the second part of my question:

Originally Posted by CaptainMidnight

For that matter, can you name any instance, irrespective of the current debt/deficit status, where a spending surge can reasonably be credited with boosting the prosperity of a nation?

Originally Posted by TexTushHog

As for Barro's contribution, I think it's best summarized by Paul Krugman:

As I’ve already pointed out,the prospect of a Keynesian stimulus is having a weird effect on conservative economists, as first-rate economists keep making truly boneheaded arguments against the effort. The latest entry: Robert Barro . . .

And his substantive critique of Barro's methodology is quite sound.

http://krugman.blogs.nytimes.com/200...n-remembrance/

His "substantive critique" of Barro is no such thing.

About the only boneheaded arguments I see here are the ones propounded by Paul Krugman. As I mentioned earlier, he's on the lunatic fringe. Not only does he think the stimulus package was much too small(!), he suggests $8-10 trillion of additional QE. Almost no policy prescription is too radical or risky for Krugman.

Here's an excerpt of Barro's response to this loon:

Do you read Paul Krugman’s blog?
Just when he writes nasty individual comments that people forward.
Oh, well he wrote a series of posts saying he thought the World War II spending evidence was not good, for a variety of reasons, but I guess…
He said elsewhere that it was good and that it was what got us out of the depression. He just says whatever is convenient for his political argument. He doesn’t behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he’s writing about.

(end of excerpt)

http://mostlyeconomics.wordpress.com...s-and-krugman/

There's no credible evidence that real fiscal multipliers greater than 1.0 exist anywhere other than in the imaginations of those who still believe in all those discredited macro models. None whatsoever. If there were, I think you'd see ample evidence of them actually working in practice.

Originally Posted by cookie man

The second article is from the August 13th New York Times where Liberal economist and Obama advisor, Christina Roemer from UC Berkley, paints a different picture.

http://www.nytimes.com/2011/08/14/bu...q=Romer&st=cse

Ms. Romer, as always, has an interesting and thought-provoking take on a number of things, and she (along with her colleague husband) has done some good work in a number of areas.

Just a couple of quibbles:

1) If we're going to spend additional money on anything, it would be nice if it actually went toward needed infrastructure development and maintenance. Romer and others should have insisted on this the first time around, rather than just allow money to be squandered on political payoffs.

2) Her statement that the debt/GDP ratio rose to about 1.1/1 by the end of World War II, and that it still didn't produce adverse consequences for growth and our ability to borrow, completely ignores the fact that we had an easy and credible path toward fiscal balance since we had not established an expensive social welfare and entitlement regime. Now virtually no one believes we will significantly reduce budget deficits any time soon.

When the war was over, spending dropped very rapidly. It's interesting to note that a lot of economists of the day thought that we'd go into another depression since they felt economic growth depended on government spending, which of course is completely ridiculous.

The war was also domestically financed -- we didn't sell a lot of war bonds to foreigners.

Originally Posted by cookie man

The video in the first article is a synopsis of the Depression era with a warning of repeating the same mistakes.

http://www.stocks-simplified.com/Wha...epression.html

That's a pretty good little synopsis.

Unfortunately, we learn nothing from history and make the same or similar mistakes again and again.

[TexTushHog]

As for the second half of the question, that's even easier. The current stimulus was very successful in preventing the second Great Depression. It added jobs and boosted aggregate demand significantly. The stimulus during the Great Depression did the same, though ultimately it, too, was too small to fully lift us out until the additional stimulus of WWII. But when the stimulus was cut back in 1937, the Roosevelt Recession was the result. Many other examples.

And if you want to read about why fiscal stimulus is often prematurely cut back in balance sheet recessions, you should read Richard Koo:

http://www.economist.com/economics/b...tment_stimulus

In short, it's hard to keep up support for stimulus policies because of deficit hawks, who end up ultimately spinning the economy back into recession, just as is about to happen here and in Europe.

[TexRich]

we are all fucked with this moron president we have. Obama is the worst President ever and he is only a one term pres!

[slowmover]

uh huh
nuh uh
uh huh
nuh uh ..........

[Texas Contrarian]

Originally Posted by TexTushHog

As for the second half of the question, that's even easier.

If you really believe that, you should go back and re-read my question:

Originally Posted by CaptainMidnight

For that matter, can you name any instance, irrespective of the current debt/deficit status, where a spending surge can reasonably be credited with boosting the prosperity of a nation?

Miss the part about boosting the prosperity of a nation?

You can always make things a little better in the short run by throwing around a lot of borrowed or printed money, but you cannot thereby boost the prosperity of a nation unless you create a "gift that keeps on giving." In fact, the reverse is the case if you squander the money foolishly and ineffectively. Then the bills come due and you see that the effort was a clear net negative for the economy. An essential point is that the 2009 "stimulus package" did not alter sustained patterns of production or create anything of lasting value.

Originally Posted by TexTushHog

The current stimulus was very successful in preventing the second Great Depression.

That's simply a ridiculous notion, advanced only by economists and politicians on the left and their media sycophants. For starters, just consider the fact that we already were experiencing an inventory bounceback and some modicum of recovery (albeit very weak) before any significant amount of "stimulus" money was spent. Look at the timing and you'll see what I mean. (And, of course, the "recovery" has remained weak.)

Originally Posted by TexTushHog

It added jobs and boosted aggregate demand significantly. The stimulus during the Great Depression did the same, though ultimately it, too, was too small to fully lift us out until the additional stimulus of WWII. But when the stimulus was cut back in 1937, the Roosevelt Recession was the result.

That statement demonstrates a fundamental misunderstanding of the issue. I partially explained the reason for the 1937-38 downturn way back in post #35, but you apparently didn't read it (or didn't understand it). Reductions in government spending cannot reasonably be blamed for that follow-on recession. For more information, I suggest taking a look at some of the excellent body of work done by Cole and Ohanian. They do a great job of explaining why recovery from the Great Depression was complicated by the fact that the government continued pummeling the economy in a variety of ways for years. The claim that the problem was a failure to spend enough money is laughable on its face.

Originally Posted by TexTushHog

In short, it's hard to keep up support for stimulus policies because of deficit hawks, who end up ultimately spinning the economy back into recession, just as is about to happen here and in Europe.

It certainly is the case that spending cuts can be contractionary. No one disputes that. But both the U.S. and Europe have backed themselves into a corner by running suicidal fiscal policies for years. More attempts to stimulate economies with surges of government spending might put off the day of reckoning, but will only create a bigger bust when the calamity finally arrives, which it will. We're in deep trouble because we did nothing to begin addressing the problem years ago when we should have begun taking resolute action.

Again, no one ever learns anything from history. Increases in government spending over time retard prospects for robust economic growth; they do not stimulate them.

[Lust4xxxLife]

Originally Posted by TexRich

we are all fucked with this moron president we have. Obama is the worst President ever and he is only a one term pres!

How quickly we forget the little Bush, the President who took a surplus budget and dug the hole that we're now in. The little puppet who handed out corporate and personal tax breaks while selling our future to China to pay for two unnecessary wars.

I feel your pain on Obama's performance to date, but I don't pile all of the blame on him.

Let me ask you this question... with everyone on the radar right now, if not Obama, who? Bachman? Romney? Perry? Who would you stand behind as an alternative, and why?

I don't yet see any alternative.

[billw1032]

Wow, so many things to agree with and disagree with in just 8 lines or so...

Originally Posted by Lust4xxxLife

How quickly we forget the little Bush, the President who took a surplus budget and dug the hole that we're now in.

Well, yes, but he had plenty of help. Let's start with houses of congress controlled by both Republicans and Democrats. Let's remember Barney Frank & friends who set up Fannie Mae and Freddie Mac to fail by forcing them to make loans to folks who were not credit-worthy. And then there's nearly a trillion dollars worth of stimulus plan that was mostly pork and didn't really do much to grow jobs.

Originally Posted by Lust4xxxLife

The little puppet who handed out corporate and personal tax breaks

Exactly what tax breaks are we talking about? I'm given to understand (but haven't actually confirmed) that Obama's favorite example of corporate jet owners was actually a provision of his stimulus plan. If you're talking about loopholes in general, then I'm in favor of closing as many as possible. But, that should be accompanied with lower overall rates. Too many corporations have tons of cash parked off shore where the taxes are lower. We'd be better off if they brought that money back here and put it to work in the US.

Originally Posted by Lust4xxxLife

while selling our future to China

Definitely a big problem there, but I don't see anyone proposing a realistic solution. About the only one talking tough about China is Donald Trump, but surely no one takes him seriously as a candidate.

Originally Posted by Lust4xxxLife

to pay for two unnecessary wars.

I would argue that the first Afghanistan war was probably necessary, but we should have done the job quickly and gotten out. It turns out that Iraq was based on faulty intelligence, but I always had an uneasy feeling about attacking a country that hasn't attacked us first. Obama actually campaigned on the current Afghanistan action being necessary and the surge there was his idea, but I'm not sure I see the point to our current actions there.

Originally Posted by Lust4xxxLife

I feel your pain on Obama's performance to date, but I don't pile all of the blame on him.

Plenty of blame to go around for sure, but I think he did campaign to get the job he has. At what point will he actually take responsibility for the results or lack thereof?

Originally Posted by Lust4xxxLife

Let me ask you this question... with everyone on the radar right now, if not Obama, who? Bachman? Romney? Perry? Who would you stand behind as an alternative, and why?

I don't yet see any alternative.

Amen, brother! While I think any one of them would be better than Obama, the sad fact is that I don't see a single person on the national stage that I can really get excited about. Perhaps someone not yet in the race will emerge as a decent alternative, but I have no idea who. A very sad state of affairs, indeed.

[TexTushHog]

Sorry CaptianMignight, it's hard to keep up with which economic heresies of yours I've rebutted in some detail and which slip through unnoticed. There are so many!!

Suffice it to say that your view of the 1937 Recession is revisonist history that has brought to the fore in recent (last 30) years by economists who have more of a political agenda than they have solid economics credentials. Clearly monetary policy and tax policy played a role, but the lack of a fiscal stimulus follow through from the acceleration of bonus payments to WWI veterans played a huge part, too. Again, Christan Romer, Krugman, et al have told this story far more persuasively than I can.

http://www.economist.com/node/13856176

http://www.nytimes.com/2010/01/04/op...04krugman.html

As for the "boosting the prosperity" issue, of course it boosts prosperity. It's effects are limited to the short run, but that is the entire point. To get us past a short term crisis, avoid a worse fate in the short term, and then pay the money back when times are better. The reason the instant case seems so unusual is -- as Lust4xxxLife aptly points out -- Obama's immediate predecessor was so inordinately profligate and irresponsible that his foolishness has made necessary steps taken by his successor look more radical than they are.

I think it's clear that there is little that we agree on in Economics. You reject experimental and theoretical approaches that are recognized at almost every graduate school of Ecnomics in the U.S. (except U.Va., Chicago, UCLA (where not coincidentally Cole and Ohanian are on the faculty), and a small handful of others where the Austrian influence is strong. I am a mainstream Neoclassical Synthesis guy with a bit of drift toward neo-Keynesian. We just fundamentally disagree on the philosophical underpinnings of economic philosophy. Further debate isn't going to change my mind, nor yours.

[Boltfan]

Originally Posted by TexTushHog

Further debate isn't going to change my mind, nor yours.

I'd say this is the smartest thing you have ever posted. Why not share that tidbit of information with the flame throwers in the national sandbox?

[Texas Contrarian]

Originally Posted by TexTushHog

Sorry CaptianMignight, it's hard to keep up with which economic heresies of yours I've rebutted in some detail and which slip through unnoticed. There are so many!!

You haven't rebutted anything I've posted in a cogent, coherent, or credible manner. And you haven't pointed to a single source credibly claiming the existance of fiscal multipliers greater than 1.0, or to any instance where it is reasonable to believe that such a multiplier worked in the real world. And I submit that you can't, because one doesn't exist.

Originally Posted by TexTushHog

Suffice it to say that your view of the 1937 Recession is revisonist history that has brought to the fore in recent (last 30) years by economists who have more of a political agenda than they have solid economics credentials. Clearly monetary policy and tax policy played a role, but the lack of a fiscal stimulus follow through from the acceleration of bonus payments to WWI veterans played a huge part, too. Again, Christan Romer, Krugman, et al have told this story far more persuasively than I can.

The failure to spend enough money has somewhere between little and nothing to do with the onset of the 1937-38 recession. Go back and take another look at the sharp 1920-21 downturn, whereafter the government cut spending and the economy quickly flourished. The notion that recovery needs large doses of government spending is patently ridiculous.

It's quite hilarious to see someone attempt to impugn the economic credentials and supposed political hackery of others while posting links to stuff written by Paul Krugman and Christina Romer!

Romer will forever more be attempting to spin the issue in any way that she feels may put a somewhat happier face on the gross piece of fiscal negligence for which she was partly responsible, as she was one of its leading cheerleaders. And everyone knows that Krugman has simply descended into cheap political hackery. That's why he's become such a darling of you guys on the far left. Barro noted in the piece I linked above that he'll say anything if he thinks it will bolster a political argument he's trying to make.

Originally Posted by TexTushHog

As for the "boosting the prosperity" issue, of course it boosts prosperity. It's effects are limited to the short run, but that is the entire point.

Really?

If its effects are limited to the short run, and if it doesn't alter patterns of production or produce anything of lasting value, just how exeactly does it boost the nation's prosperity?

Let's say you're barely able to make ends meet and you go on a spending spree, buying a bunch of cool stuff you can show off to your friends and filling up your wine cellar -- all by charging up every one of credit cards to the max. Have you boosted your prosperity?

The effects of the sort of "stimulus" we had are you will boost GDP a little bit when you increase spending, and then reduce it as the spending is eventually wound down, relative to what GDP would otherwise have been. That's because government spending, no matter how unproductive or ridiculous, gets tallied in the national income accounts. At the end of the day, you have nothing of any lasting value but have added another big pile onto our debt burden. Now we are finally beginning to realize as a nation that there's a painful price to be paid for years of fiscal recklessness.

Originally Posted by TexTushHog

The reason the instant case seems so unusual is -- as Lust4xxxLife aptly points out -- Obama's immediate predecessor was so inordinately profligate and irresponsible that his foolishness has made necessary steps taken by his successor look more radical than they are.

Lust4xxxLife quite rightly pointed out that George W. Bush was profligate and irresponsible, but the takeaway I gathered from his post was merely that the whole mess cannot be fully blamed on Obama -- which of course is true. But nowhere did I see him say or insinuate in any way that continuing and expanding those profligate practices were justified. In fact, he clearly said that he shared another poster's pain regarding Omama's bad judgment.

Obama was hired by the electorate to fix the problems he inherited from his predecessor, not exacerbate existing ones while adding new ones of his own.

We continue to see failed policy proposals pushed by the administration. Just yesterday, Secretary of Agriculture Vilsack said that spending more money on food stamps would provide a boost for the economy and create new jobs. Reportedly he got some hack economist (maybe a junior version of Krugman) to produce some phony analysis indicating that a 1.84 fiscal multipiler would be produced by such a program. That's just bullshit on steroids.

Economics departments at most of our elite universities have long been controlled and dominated by those on the far left of the political spectrum. People like this almost universally support activist government intervention. One tends to believe something if his career advancement depends on it. Those who don't get intoxicated on the Kool-Aid leave and go into the private sector. People like Krugman have been steeped in this sort of stuff since their undergraduate days and have no idea how the economy works in the real world. If any of these people ran a child's lemonade stand they'd probably figure out a way to lose several thousand dollars every day.

How many times do people have to see attempts to stimulate growth with big spending initiatives fail before they begin to understand the problem?

[cookie man]

In a recent Iowa forum, not one single Republican candidate raised their hand to raise taxes. For a 10 to 1 entitlement reduction vs. tax increase, I might have considered raising my hand. Do you think there should be a tax increase on people making more than a million a year? Is that really enough to deal with our debt?

Obama gave a speech that said he will be giving another speech in September with...drum roll please...a plan. Raising taxes will be part of it.

A lot of businesses are reporting great numbers this quarter, and it's being wasted because worldwide economies are mishandling government debt. It's putting a very bad vibe out there.

The time has come and past to leave Bush out of the economic delima. Obama owns the economy now, deal with it like a leader.

[LazurusLong]

I'm still confused how any thinking person can argue that taking a dollar from Person A, paying a government flunky to get that into the hands of Person B, can yield more economic growth than allowing Person A to spend his own fucking dollar?

Do people really think that the Government knows better how to spend my own damn money than I do as the earner?

By the time you factor in the government's cut to "handle" the money, you can't even give that entire dollar to Person B in the first place so right off the bat you have to cover that loss and then when you see people quoting a multiplier of 1. whatever, they seem to forget the need to factor in the Economic LOSS to person A.

Or if the money is borrowed, the interest cost PLUS the handling fee means even less to Person B.

[Texas Contrarian]

I think this guy's article (rant?) reflects the concerns of a lot of Americans:

http://finance.fortune.cnn.com/2011/...omy/?hpt=hp_t1

We're in a gridlocked, leaderless vacuum from which escape will be difficult.