What’s Wrong with the World

"Parasitic tax — why, don’t we have an older, more antique-sounding word for that?"

We do - rent seeking - and it describes the financial sector perfectly.

"And I clearly remember the mood at the beginning of this year, when the talk was all about a rocket-propelled global recovery as manufacturing output and exports roared forward on Obama stimulus dollars. Back then, the talk was of a 10-year note yielding north of 5%. Instead, as the economic outlook has darkened, the note is plunging toward 2%"

Or he could have read Krugman, DeLong, Thoma, etc. Here's PK back in November 2009.

"Alas, I’m getting the sense that the Obama administration is intimidated all the same. We’ve got the president telling Fox News that he’s worried about a double-dip recession if he doesn’t reduce the deficit soon — as opposed to the concern I and other have that he’ll have a double dip if he doesn’t provide more support."

http://krugman.blogs.nytimes.com/2009/11/19/invisible-bond-vigilantes/

It would have been nice if we had actually done some serious stimulus. Romer wanted 1.4 T and we wound up with 600 B and that was never going to be enough.

My favorite article about Krugman.
http://www.cato-at-liberty.org/paul-krugmans-fallacious-forecast-of-a-6-7-trillion-drop-in-housing-wealth/

Unfortunately, the Onion is a more reliable oracle than our bankster apologists.
http://www.theonion.com/articles/bush-our-long-national-nightmare-of-peace-and-pros,464/

al,

Paul Krugman is wrong in so many different ways about the economy and what to do about our current economy problems that it is something of a hobby of mine to collect my favorite articles detailing the ways in which his intellectual shortcomings are highlighted. A good place to start is Vox Day's blog:

http://voxday.blogspot.com/search?q=krugman

As for the broader question of whether or not economic stimulus makes sense right now, I direct your attention to Stanford economist John Taylor:

http://johnbtaylorsblog.blogspot.com/2010/07/more-on-blinder-zandi-working-paper-on.html

Really al, when it comes to economic comments, you will have to do better.

Paul,

I love Francis' stuff as well, but you have yet to convince me that anything he has said has shaken my trust in "Capitalism" with a capital C or free-markets. As I keep insisting, once you acknowledge the very large role the government had in inflating the housing bubble pre-crisis, it is hard to blame the financial industry for taking advantage of the conditions created by our political class (Republicans and Democrats) to make a lot of money.

As I keep insisting, once you acknowledge the very large role the government had in inflating the housing bubble pre-crisis, it is hard to blame the financial industry for taking advantage of the conditions created by our political class (Republicans and Democrats) to make a lot of money.

And I keep insisting that this goes much deeper than the housing bubble.

it is hard to blame the financial industry for taking advantage of the conditions created by our political class (Republicans and Democrats) to make a lot of money.

Why is it so hard to blame them too? Many financial actors are close to politicians and regulators anyway. Come to think of it, people who took out loans they couldn't realistically repay also bear some blame.

Are you driving at something more substantive than "The government made them do it!"?

Von Mises called it & them right, "the destructionists". They know exactly what they are doing & why, they being the garbage in the White House, the Chicago Gutter Gang. Even Mort Zuckerman seems to have awakened.

Da Guvmint has pumped billions into the real estate market, social justice you know, and said market not only continues to tank, but is tanking even faster. Imagine that.
Life is both a barrel of laughs and surprises isn't it.
Obviously the answer among sensible sophisticates is to spend more.

Al, "rent-seeking" is a rather modern term. What I had in mind was usury.

"It would have been nice if we had actually done some serious stimulus. Romer wanted 1.4 T and we wound up with 600 B and that was never going to be enough."

Good Lord, Al, when is it ever 'enough' with you folks? It's like a guy who's seriously in debt because of his overspending going to his bank and saying, "Look, if you just increase my credit limit by about five grand, everything will be fine."

I know it's a cliche that liberals think that all problems can be fixed by throwing money at them, but really, that does actually seem to be the case. We have a situation right now in Pittsburgh where the public transportation system is in bad shape financially. Meanwhile, the bus drivers are the highest paid in the country, but pay-cuts aren't even on the table, and not once has anyone suggested cutting fares to increase ridership. They're talking about layoffs, eliminating routes, cutting services, raising fares. "But cutting fares? Why we can't do that!"

Need I say that the Democrats and the unions have run the city for the last 60 years?

Keynes was right about spending to stimulate to the economy, but it works only under certain conditions and at certain times, which he realized. It is his disciples that took the principle and made it a cure-all for every situation, and that's killing us.

Quinn's Law No.1 : liberalism always produces the exact opposite result of its stated intent.

"it is hard to blame the financial industry for taking advantage of the conditions created by our political class (Republicans and Democrats) to make a lot of money."

Jeff, this is where the neo-cons and other corporate cheerleaders miss it: the financial industry and the political class are in many cases the same guys. It isn't mutual backscratching; it's Siamese twin-dom.

Of related interest...

http://www.frontporchrepublic.com/2010/08/neo-feudalism-and-the-invisible-fist/

A good place to start is Vox Day's blog

Since when is a columnist for WND ever supposed to be taken seriously? Their propaganda is so routinely over the top it makes Pravda look reasonable by comparison.

Since when is a columnist for WND ever supposed to be taken seriously? Their propaganda is so routinely over the top it makes Pravda look reasonable by comparison.

Vox's economic analysis is very insightful. You do yourself a disservice by dismissing through guilt by association. If nothing else, think broken clocks, blind squirrels, etc.

I smell the pestiferous odor of that living curse, "Fox News doesn't do news".
Differing opinions, takes, coverage, slants, can cause severe headaches, runny noses, & constipation. Moral, don't change the diet, feed the little beasties what they want & need. Half conscious is better than conscious, unconscious is best of all.
And forget that crap about an informed electorate.

"Keynes was right about spending to stimulate to the economy, but it works only under certain conditions and at certain times, which he realized."

OK Rob, how is now, with interest rates at 0%, not one of those times?

"Keynes was right about spending to stimulate to the economy, but it works only under certain conditions and at certain times, which he realized."

OK Rob, how is now, with interest rates at 0%, not one of those times?

0% is meaningless to people who are too leveraged to get a loan, and that statement would cover the majority of Americans right now.

"0% is meaningless to people who are too leveraged to get a loan, and that statement would cover the majority of Americans right now."

Which is why stimulus is all that is left as the Fed seems unable to get its act together. Treasury can issue 10 year debt for bupkus.

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

Also, since the crisis, both individuals and businesses are holding their cards close to their vests -- they are not spending. I remember some commentators at the time saying that it wouldn't work because many people were either going to save the money, or use it to pay down their debt. The government "spent" the money by giving it to the people but the people didn't spend it in turn. Low interest rates are not the only issue.

Jeff, CJ, this is how his current column starts off.

"Ever since Joseph Farah launched WND's national "Where's the birth certificate?" campaign, supporters of President Soetoro have come up with a panoply of increasingly bizarre justifications for his continued concealment of his birth records, school records, publication records and pretty much everything else that might provide the American people with more information about who this Obama character is."

"Or Soetoro. Or Soebarkah. Or something."

He may belong to Mensa (good at taking tests) and he may be aware of the economic foolishness of the past few years (Mensa membership not necessary, mere consciousness will do) but he is a crank on at least one issue and he writes for a venue whose proprietor is deranged. Interesting to read but not someone whose prescriptions it may be wise to follow.

Jeff, Taylor has a rule named after him and PK has a Nobel. I guess one picks ones poison. My spidy sense inclines me to Keynes. Here's Clive today,

http://www.ft.com/cms/s/0/f04d8600-b397-11df-81aa-00144feabdc0.html

Rob, that is why tax cuts (thanks Republicans and conservative/gutless Democrats) have a low multiplier. Reportedly Summers doesn't like infrastructure projects which was a serious mistake. A nation that was more ant-like than grasshopper-like wouldn't have cut taxes, borrowed in order to do unnecessary wars and poorly planned entitlements, and turned its financial sector into a casino. Rather it would have run surpluses in good times and it would have a back log of ready to go infrastructure improvements ready to go. Also the drop in state and local governments has offset a significant part of the stimulus - too much water treading.

Al,

Endorsement of Vox's economic analysis is independent from one's opinion of his other positions. As I said before, even if you view him as a broken clock, I think economics counts as one of the two times a day that he's correct.

It doesn't help when Krugman's defenders resort to either credentialism (Obama has a Nobel for crying out loud) or the tired "it wasn't big enough" excuse.

Al, you'll get no defense of Bush's overspending from me, or from most of the other folks here. Tax cuts won't "work" without spending cuts, neither will they work in combo with excessive borrowing. Bush was no conservative in this regard, and tax cuts by themselves are no more a cure-all than is government spending.

Having said that, it is incorrect to say that tax cuts per se are a bad idea, simply because they didn't work in a specific circumstance due to other factors. IMO it is always better for citizens to retain a higher share of their income.

"IMO it is always better for citizens to retain a higher share of their income."

Even when firehouses are being closed?

CJ, note that I used "credentialism" for folks (PK, Taylor) on both sides. You seem to have missed that. That is another way of saying one can't use credentials alone. On the other hand when one is insane on one thing

Rob, you seem to be using "kitchen table" analysis. What goes for individuals doesn't necessarily apply to a nation that is in control of its currency and can borrow at very low rates. What is necessary is to spend it on things of value. In terms of the big picture, a trillion or two over the short term is doable as long as we deal with long term at the same time. I have no confidence this will happen. We are likely screwed.

Krugman won his Nobel Prize for his Analysis of International Trade patterns and his study of Economic Geography, not for work related to the Business Cycle. Most of his academic work is of little interest or importance to everyday economic situations, and is of primary interest to other economists and traders.

Al, I'm not sure that Taylor represents "the other side" inasmuch as he's a Neo-Keynsian. Regardless, I obviously agree with your point that one can't rely on credentials alone.

On the other hand when one is insane on one thing

I'll give a guy credit for saying "water is wet," even if he says it in between mumblings about tinfoil hats and reptillian aliens from Procyon V.

Besides, Austrian economics is hardly all about Vox Day. Jeff mentioned him as a good resource, and I agree. However, there's plenty other Austrians out there if Vox's other opinions are a deal-breaker for you.

"Even when firehouses are being closed?"

Why is it that liberals always wring their hands and take the chicken-little approach about cuts in essential services when there is plenty of non-essential, even superfluous spending that could suffer the ax with no detriment to anyone's life? I see this in liberal Democratic controlled Pittsburgh all the time.

"What is necessary is to spend it on things of value."

More social programs, no doubt.

"More social programs, no doubt.'

Bridges, water and sewer systems, transportation. Things that need to be done (or are long past needing to be done) and which can now be financed at bargain basement rates.

No one is against efficiency but seeking to separate essential and non-essential in a crisis is likely to be ineffective (too drawn out for one thing). Like i wrote and as everyone on my side that I know of agrees, we need to seriously deal with our long term fiscal problems. The problem with the deficit is long term. It will be impossible to deal with if we go into a decade or so of slow or no growth.

Which is why stimulus is all that is left as the Fed seems unable to get its act together. Treasury can issue 10 year debt for bupkus.

Funny thing is that Vox predicted that Krugman would call for a large stimulus, that it would fail and that Krugman would stridently demand a much large stimulus on the grounds that the previous one was not nearly enough.

That is despite the fact that the original stimulus was nearly 1/3 larger than what Krugman wanted.

In terms of the big picture, a trillion or two over the short term is doable as long as we deal with long term at the same time. I have no confidence this will happen. We are likely screwed.

Well knock me down with a feather. Al has learned something from history!

Mike, where are you getting your information?

Paul Krugman - New York Times Blog
February 7, 2009, 5:36 pm
What the centrists have wrought

"I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.

The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger."

Note that this was while the plan was in the Senate.

"Funny thing is that Vox predicted that Krugman would call for a large stimulus, that it would fail and that Krugman would stridently demand a much large stimulus on the grounds that the previous one was not nearly enough."

Paul Krugman - New York Times Blog
January 11, 2009, 5:18 pm
A scary analogy

"I’d add that there may also be a political tipping point: if the stimulus package is too weak, conservatives will pile on after it fails to deliver, claiming that the whole concept has been discredited."

I guess you've given me more reasons to not take Vox seriously. The reality is that PK (and others like DeLong and Thoma) wanted a much larger stimulus and predicted what would happen if a stimulus was inadequate. The too smaller stimulus didn't "fail" of course, it did what one would expect from not enough and that is too little.

I live in a rural area, have a well, and grow much of my own food; perhaps it would have been worth it to have had no stimulus to see all you conservatives selling apples on street corners. Of course, given the likely outcome of the coming election, that may yet happen.

They know exactly what they are doing & why, they being the garbage in the White House, the Chicago Gutter Gang.

Differing opinions, takes, coverage, slants, can cause severe headaches, runny noses, & constipation.

Are your really incapable of refraining from slander while also insisting that different opinions deserve serious consideration and respect?

Perhaps one of our deficit hawks here can explain why extending the Bush tax cuts, which will cause incredibly large deficits, is supposed to be a brilliant policy move. What is the economic model that shows large deficits are good if they support the top five percent of incomes and the Wall Street casino, but smaller deficits are a waste of money if they support Main Street and the struggling middle and poor class?

Of course, given the likely outcome of the coming election, that may yet happen.

We'll likely see another presidential impeachment, just because it was so entertaining the last time. You are right to think we're screwed, a while ago Instapundit floated the idea of a default on the national debt.

Al, why did the stimulus contain only some $60 billion is straight infrastructure spending? Why was even President Obama surprised, if recent reporting is to be believed, at how few "shovel-ready" jobs there really were? If we're so concerned with infrastructure, why the huge giveaways to union wages in federal contracts?

Rob G. was spot-on in saying, "Keynes was right about spending to stimulate to the economy, but it works only under certain conditions and at certain times, which he realized."

What I hold against the Keynesians is their quixotic antagonism toward that which virtually every firm and household in the country desires desperately; to repair balance sheets, business and personal. That means increased savings, debt service, pre-payment, refinancing, etc. Why the Keynesians must fight this so ruthlessly is a mystery. An ideal stimulus might include big tax cuts or a major tax holiday -- not as a direct stimulus, but as a method of permitting the quicker repair of balance sheets -- alongside some major infrastructure spending. Instead we got a grab bag of state and municipal budget-plugging, massive pork, the evisceration of welfare reform, and a major lost opportunity.

[Cue Al as he blames the powerless Republicans for all this.]

It's amazing how well that "Fear the Boom and Bust" rap video was done. Every online argument over the stimulus more or less ends up replicating it to a "T".

http://www.wnd.com/index.php?pageId=81193

That's from 2008.

Paul, if you reread what I wrote, I referenced Republicans and conservative/gutless Democrats. Recall that the civil rights legislation of the 1950s happened with moderate and liberal Republicans voting with non-southern, non-conservative Democrats.

There are no longer any moderate or liberal Republicans in the Congress. The Republican strategy has been to stick togather and oppose Obama and the Democrats. They have been very consistent in this.

As you know the Senate is not a majoritarian institution and Lyndon Johnson is no longer President or Majority Leader.. It takes sixty votes to move things and (recall Shelby and Bunning) individual Senators can put holds on things.

Giving the numbers and our ridiculous Senate all it takes is unanimity on the part of the Rep and one or two corrupt/conservative Dems (say Ben Nelson) and things stall in the Senate.

Would I have liked Reid to have been tougher and Obama to have channeled Johnson, Roosevelt, and Truman? Sure, but that doesn't change the reality that Republicans have been willing to engage in behavior not to the advantage of the nation in the hope of scoring electoral gains.

We are screwed because we have a system designed in the eighteenth century by men who had what turned out to be unrealistic notions about public service and who abhorred faction. We have become a two party system in which one of the parties has become about getting power and doesn't have a clue how to govern (or has any interest in governing, for that matter) while the other has yet to figure out how to deal with this. I perceive a death spiral.

Your comment on infrastructure projects is well taken. As I believe I mentioned it would be nice to have a backlog of shovel ready projects that could be fast tracked should the economy slow down (as it always will). That would require us to be governed by practical folks who agreed on the value of stimulus and who planned for the next recession. Instead we got tax cuts and wars financed by borrowing and we have a significant ideological animus towards stimulus spending. You can see the vicious circle here. If you want a better stimulus you need to walk into the light and help.

One of the things a stimulus would do is fill in for a lacking AD until those balance sheets are cleaned up. What is your problem with that? The paradox of thrift is a reality that needs to be finessed. If that can be done and the pain beloved by the liquidationists avoided, well, what's wrong with that?

As I mentioned earlier, a financial crisis may not be the best time to fine tune a search for waste. Most of the local government folks (and certainly firemen and police) performed real work and when laid off will collect unemployment. Aid to state and local governments was necessary and inadequate. The drop in state and local government spending was an offset to the stimulus.

"That's from 2008."

OK, that still doesn't make the point you were trying to make.

Oh man, this is good:

"Would I have liked Reid to have been tougher and Obama to have channeled Johnson, Roosevelt, and Truman?"

All three directed wars fought in unapologetic defense of America and her interests. All three framed a picture of victory in war that would horrify liberals today, and dedicated huge resources to accomplish this. All three had fully formed notions of the statesmanship by which their goals might be achieved.

You refer to Legislative super-majoritarianism but conveniently neglect the Executive. These Republicans are really a pitiful lot, Al. What does it say about your champion that these mediocrities have fully confounded and are on the verge of crippling him?

"There are no longer any moderate or liberal Republicans in the Congress."

Baloney. There may well be several new ones after November. GOP moderates threaten both Obama and Biden's old Senate seats. The Maine Sisters are not moderates? McCain and Bush both pushed the same sort of immigration liberalism that Obama does. Bush and Pelosi signed a stimulus in spring 2008 together. Race to the Top is not all that different in conception from NCLB. The idea that there are no Republican liberals is preposterous. Even in Congress that wing of the Party is represented.

"We are screwed because we have a system designed in the eighteenth century by men who had what turned out to be unrealistic notions about public service and who abhorred faction."

We are screwed by rationalist modernity, brother. The Founders are noteworthy among modern men for perceiving this, which most moderns fail to.

The same confidence in "unrealistic notions" that you decry absolutely dominates every last corner of modern life. Whether it's the man who thinks health care for 300 million souls can be provided by a clique of lawyers in the swamps of northern Virgina, or that derivative contracts can be reduced by clever math and probabilistic modeling to predictions of future reality, or that we can know (in board strokes, of course) the weather on this planet hundreds of years in advance -- the hubris of the modern imposture dominates every horizon toward which a man looks.

"One of the things a stimulus would do is fill in for a lacking AD until those balance sheets are cleaned up.

How? A stimulus of millions of free $1000 credit cards would do that better. Helicopter Ben. Drop $100 bills from the sky. But even then, the rapidity of the popular retraction of money can surely swamp anything government can do. Every re-fi is a deflation. Every pre-payment. All savings rates, however defined.

Hey al,

What do you and Nobel winning economist Krugman have to say about the empirical work of Dr. Barro:

http://online.wsj.com/article/SB123258618204604599.html

What's that? Cat got your tongue?

Paul,

I'm going to continue to push back against the notion that "rationalist modernity" got us in our current pickle. All the qunats in the world could trade all the derivative contracts they want -- if the government didn't provide an implicit "too big to fail" guarantee via various bailouts and housing market distortions (Fannie and Freddie, et. al.) then their models would eventually fail, they would lose money (for some very unhappy investors) and all would be right with the world again. Instead, thanks to years of systemic underpricing risk (again, thanks to all sorts of government intervention in the market) their models risked a lot more money for a lot more people than a free-market would predict and we have TARP and endless bailouts via the Fed.

At some point, folks are going to wise up and say -- get out of the way and let folks screw up on their own.

"What's that? Cat got your tongue?"

No, but I do have a question. Just what does a multiplier derived from war time data - rationing, price and wage controls, full employment, etc have to do with our present situation? PK used the term "boneheaded" Tyler Cowen has comments on Barro's current effort. I remembered reading this one back when it was written; not impressed then, not impressed now. Outsourced to Brad DeLong,

http://delong.typepad.com/sdj/2010/02/a-stimulus-opponent-who-can-actually-find-his----.html

Jeff -- your framework cannot account for the rescue of, for instance, Long-Term Capital in 1998. No public money was staked in that crisis -- the NY Fed merely played host to the negotiations by which the big banks rescued Long-Term (and by implication themselves) from ruin. It was really not so very different from 1907 when JP Morgan organized the bankers to stake capital to save their own skins.

If your image of government oversight is too fastidious to even permit the Federal Reserve to play host to negotiations, why, you're out there in "end the Fed" land. And 1907 demonstrates that huge bailouts are possible even without central banks.

Here is an interesting fact: only one major bank refused to stake its capital to pull Long-Term away from the abyss, only one told the others to go pound sand. There was only one firm that, despite the plaintive calls of self-interest, stuck by its liquidationist guns on that day.

It was Bear Stearns.

"These Republicans are really a pitiful lot, Al. What does it say about your champion that these mediocrities have fully confounded and are on the verge of crippling him?"

Yes, and that with 80% of the country's media acting as his information agency?

Note that it's not just the Dems who are scared about November--the GOP mediocrities are as well, knowing full well that the folks who will elect or re-elect them intend to hold their feet to the fire. One can only hope that the Tea Partiers and other disenchanted right-leaning voters aren't suckered (again) into a GOP business-as-usual thing. They need to go into the voting booth with "We Won't Be Fooled Again" ringing in their ears, and they need to keep it No. 1 on their playlists.

On the weekend I saw some Republican leader, I forget whom, being grilled by Laura Ingraham about what will happen to the GOP should the expectations of the voters go unmet after November. He looked like a rabbit trying to face down a wolf, and it was a glorious sight to behold.

OK, that still doesn't make the point you were trying to make.

My point was partly hyperbole. Nevertheless, Vox pointed out the absurdity of Krugman's position on the stimulus back before Obama even started acting on it, and has been calling the failure of Krugman's position very accurately since. His explanations for the failure are far more logical than the Keynesian ones.

At any rate, what you liberals can't grasp is that the US is no longer the wealth producer that it was even 50 years ago. Much of our prosperity over the last 20 years has been caused by the increased efficiences brought about by rapidly advancing IT and foreign investment. We don't have a lot of capital of our own anymore to use as a basis for national borrowing; most of it was simply destroyed in 2008 when the banks went insolvent and no amount of borrowing and balance sheet manipulation can alter that fact. The US economy is already choking to death on the level of public and private debt that exists and Obama and other Keynesians want more, more, more!

You people are effin blind to the signs. So caught up in your ridiculous academic models and theories that you cannot even see the obvious signs.

al,

I stand corrected. That was actually an excellent piece you linked to by DeLong. I'm still not convinced that all this debt will be so easily repaid in the future (rates are low until all of the sudden when they are not).

But I must admit, DeLong does a much better job for your side than PK.

I will give Keynesians this: the theory that they helped us become so prosperous after WWII makes a lot of sense until you notice the minor fact that the US was the only economy with an intact industrial base after WWII. As I said, it's a minor point. The fact that the US was able to instantly corner most of the major global markets by default was just a little pick-me-up for the US economy.

Mike T, congrats, you may not be the first, but you are the first that I've seen, who does not parrot the idiotic formulation that war got us out of the Depression. It was the aftermath, a world wrecked, and one nation still standing with a formidable industrial plant.
Of course the two are connected, but the distinction is still important as morons will borrow the War part of it as some blithering connection to Keynesian policy.
I will only add that it was most decidedly mot a "minor" point. Making howitzers doth not a country's wealth increase & it was the peace time boom that retired the war debt.

And while I'm at it; I thought Mr DeLong taught Dance & Mime at Mrs Frebishes School for Young Ladies, you mean to tell me he does Economics as well?
Nice link to a forecast done in February, with GDP submerging faster then a leaky bathysphere, do we have any updates from our Swami? I just love it when they predict human behavior of millions of people coupled with Guvmint policies collapsing under our noses & go out for five years, What could be simpler?
Please, more links.

al (and Mike T and johnt) --

You'll all love this PK smackdown:

http://www.nationalreview.com/corner/245224/how-big-stimulus-did-krugman-want-veronique-de-rugy

He just makes himself such a juicy target...

And yes, just so al doesn't come back and say "I told you so" I recognize that in the column linked to Professor Krugman is making the argument that he thinks the stimulus won't be enough. But he does so by showing us that his Keynesian economics is bankrupt -- his equations have no connection to reality as they can't predict the impact of government spending on unemployment any better than al can or I can or even Cianfrocca can...

Jeff, this is from your linked article:

"That’s well and fine, but if I remember correctly, back in January 2009 Krugman was praising the administration for Christina Romer’s report on how, if passed, the stimulus would prevent unemployment from reaching 8.8 percent. The best line in this blog post is:..."

This is the last paragraph from the PK column NR references.

"Bottom line: even if I use the Romer-Bernstein estimates instead of my own — there really isn’t much difference — this plan looks too weak."

From Jan. 7 2009,

"1. The new CBO budget and economic outlook is out. Above is its forecast for the GDP gap — the hole stimulus has to fill. I’d guess that the CBO estimate, which has unemployment averaging 8.3 percent in 2009 and 9 percent in 2010, is actually too optimistic (see 3, below), but even so it puts the Obama plan in perspective: a 3% of GDP plan, with a significant share going to ineffective tax cuts, to fill an 8% or more gap."

http://krugman.blogs.nytimes.com/page/91/

BTW, I assume you all are reading the blog and not just the columns.

Jeff, I don't see any bankruptcy. Slope and trend line count for more than specific numbers. McArdle's linear projection calls for a stimulus larger than the output gap. Perhaps she is using Barro's multiplier. Recall that the political process forced some doubtful tax cuts onto the bill.

Paul, PK has some comments on Public improvements scattered in here.

al,

Oy vey! Here is the key Krugman graph:

"The key thing if you want to do comparisons is to note that I made estimates of the average effect over 2009-2010, while they do estimates of effect in the fourth quarter of 2010, which is roughly when the plan is estimated to have its maximum effect. So they say the plan would lower unemployment by about 2 percentage points, I said 1.7, but their estimate may actually be a bit more pessimistic than mine. They have the plan raising GDP by 3.7 percent, but that’s at peak; I thought 2.5 percent or so average over 2 years, again not much difference."

O.K., so whether or not Krugman thinks we should have had a massive stimiulus so that unemployment could drop by X%, his own estimates of what the weak stimulus would accomplish are incorrect -- we know because unemployment peaked at over 10% nationally and averaged around 9.3% for the year. The trend line for unemployment was going up in 2009 (and has basically stabilized at around 10% despite the fact that the government continues to spend money like a drunken sailor). McArdle is making the obvious point that any multiplier you deal with is going to encounter problems with economy of scale -- unless you are literally dropping money from the sky. Until consumers (and the U.S. government) deal with their debt problem (and related, we deal with the incentives to invest and grow a business) all the imaginary spending in the world won't revive American 'animal spirits'.

Ah, no. McArdle spun her story off of the CBO estimate of the effect of the stimulus. We can never know for sure what unemployment and growth would have been without the stimulus, hence we can only estimate the effect. Krugman's figures fall in the CBO's range. The actual figures are useless because we can never have and not have a stimulus over the same period..

http://cboblog.cbo.gov/?p=1326

Also Megan needs to justify her use of a simple linear extrapolation type model, not just throw it out there.

If we are going to need to wait this out until all that debt gets fixed, I do feel sorry for you all, I'm not going to live that long but you all have a real problem. Think Japan.

Paul, were you mentioning automatic stabilizers? Thoma has an interesting article. You'll need to fix the link, you should really allow more than one link, at least on technical matters.

httpCOLONSLASHSLASHwww.thefiscaltimesDOTcom/Issues/Budget-Impact/2010/08/31/Putting-Fiscal-Policy-on-Autopilot.aspx

The Thoma piece is very interesting indeed. Was that a recommendation of the dread TAX CUT in there?

The idea of a shovel-ready "project bank" sounds great -- until you recall the forest of regulation that covers every inch of federal contracting. Union wages and unspoken quotas, not to mention the inevitable corruption. Do we want a representative sample of racial and gender diversity in the contractors who will do the work, or do we want the most important projects contracted to the most competent people, or do we just want the contracts to go out fast and get done? Our policy is at such cross-purposes.

As for this new version of revenue sharing, I'm suspicious of it, not so much on economic grounds as on grounds of political science. Do we really want every state governor to have access to some sort of "automatic" cash-infusion, some means of getting access to capital without Congress having to even appropriate it? Imagine what frauds Illinois (regardless of party) might have accomplished by way of milking such a system. Would California get staked capital from the Treasury by some automatic means even when the state's pension fund insists on still assuming 8% annual returns?

Also, I do hope Thoma is savvy enough to realize that his various declarations concerning the incapacity of Washington go a long way towards undermining, by implication, his many other recommendations. "Our rulers can't seem to get anything good done but WE NEED TO DO MORE!" "Some things, it appears, are too sensible for Washington so what we really need is TEN MORE SENSIBLE THINGS TO DO!"

Finally, there is something disconcerting about the rapid resort to other forms of government, whenever the democratic ones fail to oblige the liberal's desiderata. For all the talk of democracy and equality, so many liberals appear ready at the drop of a hat to go in for straight rule-by-the-few principles.

The dysfunction in Washington is evident to most all of us. So of us believe a temporary (let us hope) dysfunction is no good reason to abandon self-government.

The liberals ought to come clean with their belief that self-government has failed, that Americans are not capable of living and ruling in equality.

Plenty of conservatives are perfectly willing to state their aversion to democracy. The Right has never been afraid to defend hierarchies, natural aristocracies and so forth. But to be lectured on such matters by liberals who have so clearly bid farewell to their own belief in equality and self-government, is a somewhat comically bewildering experience.

Mike T, congrats, you may not be the first, but you are the first that I've seen, who does not parrot the idiotic formulation that war got us out of the Depression.

Well, technically it did insofar as we turned the US military into the largest make-work program in history with it being ordered to level the economy of our competitors ;)

The liberals ought to come clean with their belief that self-government has failed, that Americans are not capable of living and ruling in equality.

They cannot because egalitarianism is one of the pillars of liberalism. This is why liberals will talk up the virtues of science right until some scientist wants to prove material equality between races and genders. Then it becomes a matter of religious piety, not science, for them.

The fact is that there is no actual proof for any form of equality. One could even argue based on the Old Testament that even God doesn't love all of humanity equally, as God makes it clear that He loved Israel more than the rest of mankind and by extension, the Church in the new covenant.

"The liberals ought to come clean with their belief that self-government has failed, that Americans are not capable of living and ruling in equality."

I haven't a clue as to what this means or how it was derived from Thoma's article or anything I've written. The "come clean" aspect of this belief would seem to indicate that it is something we liberals discuss amongst ourselves once the password of the day and double secret handshakes are exchanged.

The actual concerns, easily discovered by reading easily available sources, is that political structures have evolved that reward bad behavior. Among these are an electoral system that favors two parties and the Senate, both in terms of its rules and, for some, in terms of its existence.

Also Paul, your wording has us over-analyzing things. Capability as an innate ability isn't the problem. These words from your post (absent the notion of abandonment) sum up my feelings.

"The dysfunction in Washington is evident to most all of us. So of us believe a temporary (let us hope) dysfunction is no good reason to abandon self-government."

My concern is the role of luck and timing in the affairs of men. Think the Constitution before the French Revolution, Washington at the beginning, Lincoln at the CW, and Roosevelt during the GD. I posted a thought awhile back and Martin Wolfe has a piece on that very notion,

"Suppose that the US presidential election of 1932 had, in fact, taken place in 1930, at an early stage in the Great Depression. Suppose, too, that Franklin Delano Roosevelt had won then, though not by the landslide of 1932. How different subsequent events might have been. The president might have watched helplessly as output and employment collapsed. The decades of Democratic dominance might not have happened."

"On such chances the wheel of history turns. But this time was different: the crisis brought Barack Obama to power close to the beginning of the economic collapse."

http://www.ft.com/cms/s/0/5799a774-b534-11df-9af8-00144feabdc0.html

My concern is that our luck may have run out. If we are heading into a decade (or worse, decades) of stagnation it will not be pretty.

Was that a recommendation of the dread TAX CUT in there?

I will assume that you followed the link, at which time you saw this,

"If the Democrats and Republicans were really concerned about the long-term fiscal problems the government faces and the need for long-overdue tax reform, none of the cuts would be made permanent, even for middle-income taxpayers. Whether Congress has the courage to admit it, any measure it passes to make the Bush tax cuts "permanent" by necessity will be only a temporary action. Putting the federal budget on a sustainable path in all likelihood will eventually mean raising taxes, even on the middle class."

And Thoma's whole paragraph read,

"We need well-targeted tax cuts that stabilize both consumption and household balance sheets, and we need to link tax rates to economic conditions to avoid the political problems associated with these policies."

That is, we need to do standard macro of the salt water variety instead of supply side voodoo.

"Plenty of conservatives are perfectly willing to state their aversion to democracy.:

And that is the reason for my pessimism. The conservative party is dedicated mainly to acquiring power and the conservative intelligentsia is mostly dedicated to rationalizing or at most tut-tutting at that (consider that Heritage just hired David Addington!!!).

"Also, I do hope Thoma is savvy enough to realize that his various declarations concerning the incapacity of Washington go a long way towards undermining, by implication, his many other recommendations. "Our rulers can't seem to get anything good done but WE NEED TO DO MORE!" "Some things, it appears, are too sensible for Washington so what we really need is TEN MORE SENSIBLE THINGS TO DO!""

So we do nothing, I guess. This passage explains why conservatism can never be more than an incoherent collection of emotionally based impulses. This creates a vacuum, of course and we get debt, wars of aggression, and torture.

"The fact is that there is no actual proof for any form of equality..."

That's one way to look at it or we could go with the best aspirations of our ancient heritage.

"To no one will we sell, to no one will we refuse or delay, right or justice."

"One could even argue based on the Old Testament that even God doesn't love all of humanity equally, as God makes it clear that He loved Israel more than the rest of mankind and by extension, the Church in the new covenant."

Or we could go for other ancient texts that require us to buy into a god who sends angels to give dictation or who gives fee simple title to chunks of the planet. That's worked out well.

The conservative party is dedicated mainly to acquiring power

First, what conservative party?

Second - because we all know liberals are not at all about acquiring power.

I haven't a clue as to what this [liberal coyness on the subject of democracy] means or how it was derived from Thoma's article or anything I've written.

I refer to the ready instinct of most modern liberals -- especially if they are also economists -- to recommend rule-by-the-few forms of government, while still treating haughtily with anyone (like a traditionalist) who is simply more frank about his preference for rule-by-the-few.

But I forget myself. Whenever I try to introduce the common terminology of political science, from the Greeks until today, Al affects to become as clueless as an undergraduate.

So we do nothing, I guess. This passage explains why conservatism can never be more than an incoherent collection of emotionally based impulses. This creates a vacuum, of course and we get debt, wars of aggression, and torture.

I suppose this point was too subtle as well? If we all recognize that Washington is more or less incapable of governing through this crisis, how can I be irrational for pointing out that Washington is incapable of governing? Meanwhile, you are the rational one because you insist on giving this same Washington more power to govern?

Talk about luck, what about the luck of the swindler or crook who discovers that your "rationality" in this case gives him a very sure way to acquire power?

"But I forget myself. Whenever I try to introduce the common terminology of political science, from the Greeks until today, Al affects to become as clueless as an undergraduate."

Hi Paul, I thought it might be useful to wait until a good example came up and last night was it and Delaware is (sadly) typical. The problem with your paradigm is that it is useless. Everything eventually goes off the rails.

When you have a two party system and one party is ignorant and insane and the other cowardly there is a problem. Add in a corporate controlled media that is manned by lightweights consumed by trivia that only feeds the fear and ignorance of the public and things look bleak.

"Talk about luck, what about the luck of the swindler or crook who discovers that your "rationality" in this case gives him a very sure way to acquire power?"

This happened in Russia and Germany in the last century. In the former rule by the one or few (as you will) ran its course as did rule by the many or few (as you will) in the latter. When a nation's luck runs out the crooks take over.

Had the presidential election been in 1930, that likely would have been all she wrote for the U.S. Fortunately we don't face the same international situation but people are scared. Folks who act from fear are fools and fools do foolish things.