That increasing deficit spending with new government projects, handouts and social programs will really get us out of a recession? I mean FDR tried it and it didnt work, WWII is what really ended the depression, not government spending

12/17/2008 3:17:25 PM

First!

And no.

12/17/2008 3:24:36 PM

WWII was government spending.

[Edited on December 17, 2008 at 3:25 PM. Reason : .]

12/17/2008 3:24:51 PM

btw, handouts and social programs aren't meant to get us out of a receission. They're meant to help make sure those hit hardest by the receission/depression don't, you know..... die

12/17/2008 3:26:03 PM

Quote :

"That increasing deficit spending with new government projects, handouts and social programs will really get us out of a recession?"

No. I do believe it will help us stave off a Depression, though.

12/17/2008 3:31:11 PM

At the time of massive economic turmoil, government needs to step up the plate and start spending, otherwise you get worse economic turmoil.

12/17/2008 3:32:38 PM

WWII involved massive government deficit spending. The government created large numbers of (occasionally mandatory) jobs in what is known as "the military," and dumped untold amounts of money into many major industries. It also imposed enormous market restrictions.

In short, it resulted in pretty much exactly the kind of commie economic policy you're worried about Obama implementing.

12/17/2008 3:34:31 PM

but in the end we are just increasing the debt, increasing inflation and devaluing our currency and credit on the world economic stage. And I know Bush was no economic conservative with his spending but this proposed Obama thing is even worse, the latest estimate was like 1 trillion in stimulus.....we dont have the money

12/17/2008 3:36:07 PM

bottom line by now is..... do you have a fucking better idea?

Hoover sat on his thumbs, and he gets crucified for it.
FDR spent like crazy, and he gets crucified for it.

what do you suggest?

12/17/2008 3:37:30 PM

im no economist, but id say let the market correct itself. it has a way of doing that. i just dont see raising the debt of this country as a good idea


And this thread is not me going off on a soapbox about waht we should do and what will work. i am asking a legitimate question about this proposed plan

[Edited on December 17, 2008 at 3:40 PM. Reason : .]

12/17/2008 3:38:40 PM

Quote :

"Does Anyone Really Think"

not really.

12/17/2008 3:40:38 PM

And WW2 did not get us out of the depression. What improvement their was were three fold:
The banishment of the New Dealers from government and their replacement with recognized business leaders improved the investment and regulatory climate
The government drafted 40% of the nations workforce out of the private sector. Compare that to the 12% unemployment immediately before the war.
Wage caps combined with inflation to produce incredibly high company profits and extremely high demand for workers; contrast this with the 1930s when government efforts were directed towards doing the opposite with codified wage floors and unionization, with opposite results (low profits and extremely high unemployment).

If we set low caps on worker salaries today then within a year unemployment would fall dramatically and company profitability increased.

[Edited on December 17, 2008 at 3:55 PM. Reason : .,.]

12/17/2008 3:40:46 PM

Quote :

"im no economist, but id say let the market correct itself. it has a way of doing that. i just dont see raising the debt of this country as a good idea"

So basically, you just want to sit around and let shit get really bad.

12/17/2008 3:42:09 PM

no, what he doesn't want to do is make things (which are already bad) even worse by spending money we don't have.

[Edited on December 17, 2008 at 3:50 PM. Reason : *]

12/17/2008 3:50:00 PM

Does anyone realize that the market never does anything "itself" ? This disembodies thing you call "the market" is a vast conglomeration of businesses, individuals, and government regulation. I don't think the kind of capitalism some people would like has ever existed, and I also don't think it would ever work.

12/17/2008 3:52:30 PM

"Hoover sat on his thumbs, and he gets crucified for it.
FDR spent like crazy, and he gets crucified for it."
As neither sat on his thumbs (See Hoover's numerous interventions from tariffs to dramatic tax increases to wage floors), the only depression era president that ever actually sat on his thumbs was Ulysses S. Grant during the Long Depression which lasted for almost four years as unemployment reached 14%. An even worse depression occured in 1893 while Chester A Arthur twiddled his thumbs. That depression lasted for almost four years and unemployment reached a staggering 16%.

Now, compare these do nothing presidents to Hoover and FDR which managed to drag the 1929 depression into a 13 year struggle where unemployment reached 33%.

12/17/2008 3:55:41 PM

Keynesian deficit spending as a mode of economic stimulus is highly overrated, IMO.

Japan tried to spend it's way out of a downturn in the early 90's with massive infrastructure projects and spent the rest of the decade mired in a terrible recession, with out-of-control debt.

But hell, I work for a public works contractor, so at least my job is secure for the forseeable future.

12/17/2008 4:12:38 PM

it looks like the actions undertaken these days will keep us from going into a depression, but a prolonged recession is still imminent. i do know that you don't want to be caught dead in a gunfight with bullets still left. time will tell what worked and what didn't.

and while i'm no expert on the matter, i can feel it in my bones that if we invest the amount of money that goes into a typical war, into looking for a silver bullet to energy, we'll be in a better world than we are now.

12/17/2008 4:27:29 PM

There is no silver bullet in energy. Only alternatives that become more viable as fossil fuels price themselves out of the market. Pigovian taxes that reflect the externalities of fossil fuel usage would go a long way towards making these alternatives more viable.

Having Congress or the White House allocate market resources towards these technologies would be a massive folly. Between batteries, fuel cells, biofuels and other emerging technologies, we don't even know which one will prevail in the automotive industry or otherwise. The government does not need to be in the business of picking market winners.

12/17/2008 4:37:47 PM

in theory i definitely agree with^.

but any politician/congress who raises energy taxes during a recession is going to be crucified.

12/17/2008 4:39:57 PM

It's gotta be done soon.

The Highway Trust is broke.

http://articles.latimes.com/2008/jul/21/nation/na-highway21

[Edited on December 17, 2008 at 4:49 PM. Reason : 2]

12/17/2008 4:49:16 PM

Quote :

"They're meant to help make sure those hit hardest by the receission/depression don't, you know..... die "

Give me a fucking break.

12/17/2008 5:30:23 PM

excellent contribution!

12/17/2008 5:34:22 PM

^^ the ones during the Depression were. That's what Republican18 was referring to when he said "I mean FDR tried it"

12/17/2008 5:38:27 PM

Some of them were. Some of them were not. In any case, I didn't know you were talking specifically about Depression-era stuff.

12/17/2008 5:45:57 PM

depression = war

12/17/2008 5:48:52 PM

well, the depression was a war being waged against capitalism by radicals in the Roosevelt administration, and they were winning (as Randians would say, the business community was on strike for much of the period). That said, were it not for the war, FDR would have lost the 1942 election in my opinion.

12/17/2008 7:16:39 PM

its not so bad all things considered

12/17/2008 7:17:46 PM

Something that isn't being taken into much consideration, that I've heard at least, is the public debt. The National Debt, as a percentage of GDP, never exceeded 45% until 1943, when we were two years into WWII. It spiked shortly there after at over 100% GDP, but that was at the peak of fighting a two front World War.

In recent years, the national debt hasn't been that low since 1986. With two (relatively) small wars occurring in one overall theater, we're running a ND of 65%. A massive spike in spending could produce inflation that would further de-stabilize our standing with the countries who finance our deficit spending by purchasing American debt. I would think this should be taken into consideration.

I'm no economist, but 2008 != 1928 on a number of levels.

12/17/2008 7:34:37 PM

Here's the result of Japan's experiment with deficit spending to stimulate the economy.




[Edited on December 17, 2008 at 9:35 PM. Reason : 2]

12/17/2008 9:35:09 PM

The arguments I've read favoring spending as the best remedy for a liquidity trap are pretty convincing, to a layperson.

The dissenting economists I read are pretending that monetary policy can still have some sort of effect, so it's hard to take them seriously. Perhaps they want to set the discount rate to negative numbers?

Quote :

"WWII was government spending."

In fact, as a percentage of GDP, it was the largest deficit we've ever had.

12/17/2008 9:50:37 PM

The problem is that we've already spent $350 Billion to try to unfreeze the credit market, to no avail. Where has that money gone? Well, it's just sitting in the banks that Paulson decided to give it to. $15 billion to Bank of America. $45 billion to Citigroup. $7 billion to US Bancorp. The list goes on.

350. Billion. Dollars. Now maybe the argument could be made that we have prevented the liquidity trap from getting worse, but this TARP nonsense surely hasn't unfrozen anything, and it's cost a hell of a lot of money.

I just don't think that we are gonna spend our way out of this mess. It's time to take our medicine, rediscover the fundamentals of our economy that have made us the world's lone economic superpower, and stop trying to avoid a necessary downturn with even more disasterous loose-money policies and fiscal irresponsibility.

[Edited on December 17, 2008 at 10:22 PM. Reason : 2]

12/17/2008 10:20:24 PM

Quote :

"Where has that money gone? Well, it's just sitting in the banks"

Which is why the next round is going to be in the form of public spending and helicopter money

12/17/2008 10:25:16 PM

How does that attack the roots of this crisis, the frozen credit market and depreciating mortgage values?

12/17/2008 10:30:40 PM

It's extremely short sighted to think that a government spending money it doesn't have will help an economy.

12/17/2008 10:37:36 PM

Helicopter money sounds so much more fun that it really is.

Personally I don't think there's much that can be done to turn this around, I think it just has to be ridden out, housing values need to depreciate (they've been massively overvalued for the last 5-10 years minimum), and people need to learn to stop relying so heavily on credit.

12/17/2008 10:43:03 PM

Hi, Kurtis.

12/17/2008 10:48:30 PM

YO.

12/17/2008 10:51:39 PM

No, helicopter money is exactly as much fun as it sounds and I can't wait to go again.

12/17/2008 11:44:55 PM

I mean, I'm not going to turn down some "free" money, but I'm not a big fan of the anything that's been done so far to help with this "crisis."

12/17/2008 11:49:06 PM

sounds to me like we should start another world war

12/18/2008 3:22:02 AM

The Peruvian economist Hernando de Soto makes an interesting case that, at the core of this problem, is the fact that we've got a valuation problem. No one really knows what many of these assets are worth and throwing money at the problem does precisely nothing to change that fact.

12/18/2008 4:43:45 AM

that's true, and the value of the dollar has got to go down since they are just pumping money into markets that really doesn't exist except on paper.

12/18/2008 7:34:42 AM

Quote :

" housing values need to depreciate (they've been massively overvalued for the last 5-10 years minimum), "

Yep. The housing market crash isn't a problem. It's a solution to a problem.

People wanted affordable housing. Well, now they've got it.

12/18/2008 8:42:45 AM

^ Troof

it's amazing how often you hear on TV and radio how the govt need to "prop up" housing prices. You never hear anybody responding with "the housing prices need to settle to their natural level"

12/18/2008 9:43:32 AM

Thats because millions of homeowners owe more on their mortgages than their homes are worth. All current homeowners suffer when their homes lose value, but especially those locked into inflated mortgages. The more values drop, the harder it is for those struggling homeowners to sell and pay off the difference, so defaults spike.

Negative amortization is a real bitch.

[Edited on December 18, 2008 at 11:34 AM. Reason : 2]

12/18/2008 11:31:39 AM

i know "why", but it doesn't make it the right thing to do.
People have been complaining for years that house prices are too high and they can't afford to buy one. Now they're coming down and attempting to settle at historical income:price ratios, and we're trying to stop it. It will be painful for people who will be underwater, but it still needs to happen. As I learned in another thread, anyway, home sellers generally aren't on the hook anyway if they sell their homes for less than what they owe.

12/18/2008 11:53:58 AM

alright... there are winners and losers either way, and...

People who own or have a mortgage out on their home are more likely to be vegging around and watching crap news than those who don't. Does it make sense to you why the news is saying that crap now?

12/18/2008 12:03:26 PM

Well, it is a natural effect of markets to overshoot. As such, we should expect house prices to fall too far causing needless further harm to the participants of the housing market. If we could figure out when house prices are going to be close to their optimal price and then the government does something to get buyers buying, that might be utility maximizing.

12/18/2008 12:46:42 PM

Quote :

"that's true, and the value of the dollar has got to go down since they are just pumping money into markets that really doesn't exist except on paper."

Krugman just wrote this about inflation:

Quote :

"the essence of a liquidity trap is that the real interest rate is too high, even when the nominal rate is zero. So the theoretically “correct” answer, if you can swing it, is to create expected inflation, pushing the real rate down. As I put it, perhaps too glibly, the central bank needed to “credibly promise to be irresponsible.”"

12/18/2008 1:19:28 PM