No.
Why?
Because two main causes of recession have been "supply-side" shocks.

1) Bursting Housing Bubble - Now people with skills matched for building/selling/flipping houses must find work in other sectors, not an easy task. Funding green energy or health care information technologies won't help reduce this structural unemployment (unless a construction worker can get a PhD over night). Expect continued high unemployment.

2) Credit Crunch - Even if the causes of the financial crisis are difficult to understand, the consequences are straight forward. Borrowers wanting money are finding it more difficult to co-ordinate with savers that want to lend money. This makes it harder for businesses to invest in new projects. If you're in wind-energy or electronic medical records business, subsidies in the fiscal stimulus package may help you out. Everyone else won't be so lucky. This package does not even try to address this problem (and it probably can't).

Instead of debating tax-cuts v. public works, we should be asking our representatives why a stimulus package will work at all.

[Edited on January 9, 2009 at 11:34 AM. Reason : ``]

1/9/2009 11:29:32 AM

What will work all knowing Sucks?

1/9/2009 11:31:56 AM

^ Continue re-capitalizing banks to ease credit crunch. Other wise, get used to slower growth for the foreseeable future. Hope things turn around end-of-next year. That's the bitch about supply shocks, not much you CAN do.

[Edited on January 9, 2009 at 11:40 AM. Reason : ``]

1/9/2009 11:40:16 AM

Actually, there are reasons to believe it might work depending on your theory of recession.

If it is a case that the economy has shifted such that people are less willing to lend each other money, then the given quantity of money in the economy will travel less quickly and therefore support less consumption even though the productive capacity is readily available.

As such, this problem can be solved two ways: allowing deflation to make each individual dollar buy more and therefore support more consumption, or throw out more cash. Well, since congress didn't like Bernanke's helicopter idea, the only mechanism to create more cash is the federal reserve which spends all it has in the vaults to keep short-term interest rates low. Well, as the government borrows more to cover larger deficits, it drives up short-term interest rates, which the fed buys to drive short-term rates back down. If the fed has run out of deposits in its vaults then it conjures money to cover it. Tada: the fed creates new money, lends it to the government, and the government spends it, more money in the system to cover productive capacity.

1/9/2009 11:51:11 AM

Quote :

"No. Why? Because two main causes of recession have been "supply-side" shocks. 1) Bursting Housing Bubble - Now people with skills matched for building/selling/flipping houses must find work in other sectors, not an easy task. Funding green energy or health care information technologies won't help reduce this structural unemployment (unless a construction worker can get a PhD over night). Expect continued high unemployment. "

By the way, Federal building renovation and Highway/bridge construction/renovation are big parts of the bill. I'm fairly certain those are blue collar jobs.

Quote :

" 2) Credit Crunch - Even if the causes of the financial crisis are difficult to understand, the consequences are straight forward. Borrowers wanting money are finding it more difficult to co-ordinate with savers that want to lend money. This makes it harder for businesses to invest in new projects. If you're in wind-energy or electronic medical records business, subsidies in the fiscal stimulus package may help you out. Everyone else won't be so lucky. This package does not even try to address this problem (and it probably can't). Instead of debating tax-cuts v. public works, we should be asking our representatives why a stimulus package will work at all. "

Allowing corporations to write off back taxes from 5 years ago actually nets in immediate gains in capital that will strengthen them to hold steady through the recession, or reinvest if they happen to be a company thats already sitting on a mountain of cash. As for borrowing money, given that the government is now backing mortgages, I think financial institutions will have an easier time lending cash to reputable corporations.

Furthermore, tax credits across the middle class will increase consumer spending as historically any tax money returned is viewed by recipients as disposable income.

1/9/2009 11:52:42 AM

Quote :

"By the way, Federal building renovation and Highway/bridge construction/renovation are big parts of the bill. I'm fairly certain those are blue collar jobs."

And plenty more! Just ask America's mayors for their "shovel-ready" infrastructure projects:

http://usmayors.org/mainstreeteconomicrecovery/documents/mser-report-200812.pdf

Some highlights:

Quote :

"Scottsdale, AZ: Reloca5on of historic Stagebrush Theater and construc5on of adjoining 10,000sf performing arts facility. $5,000,000 Lake Havasu City AZ CDBG Economic Development: Business Center $16,000,000 Lake Havasu City AZ CDBG SARA Park Equestrian Area (grading, restrooms, power, water, grandstands) $440,000 Orland Park IL Energy Solar collec5ng pool cover; Centennial Pool $1,500,000"

Those sure do sound like "blue collar, transportation infrastructure" jobs to me, and not something at all like a pork bonanza...

1/9/2009 12:09:28 PM

You linked a theater

Industrial park

Solar Energy pool cover.

Pretty sure two of the three would actually have legitimate public use.

1/9/2009 12:17:29 PM

Pretty sure they're not the kinds of "blue collar, transportation infrastructure" being implied, either. But let's not facts get in the way, shall we?

Plenty of "pork" has a legitimate public function for those who live close enough to enjoy it. It still doesn't make it "not pork."

Besides, you've got the source material - I just started near the top and picked some items which struck my fancy. I'm quite sure a diligent person could find plenty more examples.

1/9/2009 12:20:01 PM

I don't quite understand what your point here is.

First and foremost, someone has to build those structures, we don't have autonomous robot droid builders yet.

Secondly, I'm pretty sure you're on the wrong page for highway projects:

http://www.fhwa.dot.gov/

Should help you out.

1/9/2009 12:24:20 PM

Yes, I suppose such a blindingly obvious point might be difficult for some folks to actually understand.

Let's see if I can make it clearer:

1) Mayors from around the country are advertising their "shovel-ready" infrastructure projects as an argument for an "infrastructure stimulus"
2) Many of these projects are nothing but local wishlists, e.g., "pork"
3) Local wishlists aren't exactly "transportation infrastructure"

So, fine. If throwing a few billion here and there at pork-barrel projects is fine and dandy with you (since, as it were, our glorious robot overlords are not yet here), just come out and say it.

Go ahead.

"I'm fine with pork because it still creates jobs. Nevermind that those jobs are wasteful and economically inefficient, they're jobs."

It's really not that hard.

1/9/2009 12:34:10 PM

What I have hard time understanding is why exactly you're trying to make an argument.

I'm not commenting on the longterm economic impact of federal work programs, I only replied to the OP's first point that the stimulus package did nothing for construction workers.

Now, in a round-a-bout way, you agree with me that construction jobs will be created.

Which means you agree with my point.

Which is why I'm confused as to why the hell you're arguing with me.

1/9/2009 12:45:49 PM

Quote :

"1) Bursting Housing Bubble - Now people with skills matched for building/selling/flipping houses must find work in other sectors, not an easy task. Funding green energy or health care information technologies won't help reduce this structural unemployment (unless a construction worker can get a PhD over night). Expect continued high unemployment. "

Don't worry, I heard a lot of the Mexicans were going back across the border

1/9/2009 12:47:16 PM

SandSanta,

I didn't realize that building bridges was the same as building houses (maybe all "blue-collar" workers are interchangeable like gears in watch). Even assuming that they were, what portion of these bridges and roads will be built in areas that are suffering from high unemployment? I've never seen an estimate, but it is a particularly important question. Especially considering the fact that falling housing prices makes labor less mobile (try selling your house in this market).

As far as your comments on the credit crunch goes, I'm not sure what you're arguing. If your argument is that actions already taken by the federal government will make it easier for businesses to get loans in the future, how is that an argument FOR the current stimulus package? You make a good point that write-offs may help the symptoms of the crunch, but how much will it help? The magnitude is just as important as the direction. And how does this justify the rest of the package??

Also, you should probably read up on how effective tax cuts are at increasing consumer spending. The record isn't that great.

[Edited on January 9, 2009 at 12:51 PM. Reason : ``]

1/9/2009 12:50:23 PM

^^^Look, it's very simple.

These are not actual "infrastructure" jobs. At least not many of them. Much of what is proposed is simply a wishlist of giveaways to various cities which have nothing to do with "infrastructure."

Will they create jobs? Sure - the same way that paying one person to dig ditches and the next to fill them would create "jobs." It's just not the sort of jobs which are economically useful. Which seems to be the main justification underlying said "stimulus."

Meanwhile, if the whole point is to simply create economic activity, I fail to see how this is really all that much better (or effective) than cutting folks another check, aside from the fact that they may sock it away in a mattress somewhere. Squandering money on any number of frivolous projects dreamed up by mayors is not an economically efficient way to handle this kind of "stimulus," however - we may as well just start paying people to dig ditches.

"Creating" jobs is easy. Creating useful ones not so much so. Simply "creating" jobs is not that good of a reason for piling on another bigass helping of debt in the name of "stimulus," particularly when those jobs aren't all that economically efficient.

[Edited on January 9, 2009 at 12:58 PM. Reason : ^^^]

1/9/2009 12:53:25 PM

Tke-Teg, ironically, you're on point

1/9/2009 12:53:58 PM

define "work"

1/9/2009 1:27:26 PM

^ It will not reverse current trends in unemployment, investment, etc. In other words, it will not "pull us out of recession."

1/9/2009 1:41:51 PM

the stimulus is better than what we were planning on doing

1/9/2009 1:48:44 PM

http://www.nytimes.com/2009/01/09/opinion/09krugman.html?_r=1&ref=opinion

damn this guy is even a dem and he doesnt think obamas plan is good enough

1/9/2009 2:33:27 PM

yeah he wants obama to spend even more money into the trillions. You have to think about what would actually pass in congress....

1/9/2009 3:45:25 PM

i'm kinda getting worried about these job creation projections

first it was 2 million new jobs...then 2.5 million new jobs...then 3.5 million new jobs(like 2 hours ago)...now 4.1 million new jobs(just saw that now)...makes me think they dont really know wtf is going on

1/10/2009 3:41:03 PM

of course it wont work. it didnt work in the 30's why would it now?

its bullshit like this that EXTENDED the depression

took a world war to end it

1/10/2009 7:03:57 PM

^ haha, you're an idiot.

1/10/2009 8:54:20 PM

^ really raising the level of debate, aren't we?

I am personally agnostic about the net-impact of the New Deal (it really depends on how broadly you define the term). But you don't have to be an idiot to think that "it" did more harm than good. In fact, in one survey, almost half of economists think it did.

In 1995, Robert Whapels surveyed 178 randomly selected members of the Economic History Association about their views on various topics of economic history. One of the topics was:

Quote :

"Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression."

27% of economists surveyed agreed with this statement and 22% agreed with provisos.
http://www.jstor.org/pss/2123771

How many PhDs have you earned to call these people idiots? Now there is obviously a lot of nuance to this sort of question that isn't being fully captured, but maybe you should consider that as even more reason to reserve placing judgments on complex economics issues based on simple-minded politics.

[Edited on January 11, 2009 at 1:12 AM. Reason : ``]

1/11/2009 1:04:14 AM

Yes, however, there was quite a bit more to the new deal then just building roads.

Price controls and cartels artificially keeping prices high
new minimum wage
new social security
public demonizing of business leaders
expanded government persecution of businesses for regulatory violations
etc.

1/11/2009 5:34:57 AM

^ Thanks

^^ No shit "taken as a whole" it served to prolong the problems. When the stimulus plan starts including all the elements just listed, then Grace moves from idiot status. Maybe idiot wasn't the right word, but ignorant certainly was.

1/11/2009 8:56:41 AM

^^ SandSanta,

True, but what makes you think building roads is a good way to encourage recovery? Why should we think the New Deal should have only stuck to infrastructure projects (or that it would have worked better if it had)? Is there any evidence that these projects are good at stimulating demand? To bring things back to the present for a second, you never answered my previous question. Do we have any idea how many of the currently proposed infrastructure building projects will be in areas with high unemployment?

This is an important question because these programs are most helpful as stimulus projects if they provide jobs to the jobless. If bridges and roads are not being built in high unemployment areas, they will mostly serve to compete workers away from existing private projects (this ignores the question of whether the unemployed have the skills to build bridges). Since falling housing prices makes labor less mobile, this makes the question of geography even more important.

Back to what aspects of Roosevelt's policies did the most good. I would personally say that fiscal policies like building roads and shit are not very effective at stimulating growth. More important were Roosevelt's monetary policies, like creating deposit insurance to encourage people to take their money out of their mattresses and back into banks.

This is exactly what economist Christina Romer's research on the Great Depression finds (she was also recently appointed to chair Obama's CEA). In this 1992 paper, she find that a 1% decrease in federal-budget-surplus-to-GNP ratio would have likely only increased output (relative to normal) in the 1930s by 0.23 percentage points. By contrast, a 1% increase in M1 growth increases output by 0.82 percentage points. 0.82 > 0.23.
http://www.jstor.org/pss/2123226

So here's the take away: will building roads help? Maybe (depends on where you put 'em). Will they help enough to justify creating a $700 billion grab bag of unrelated federal handouts??? Not in my opinion and no one has said anything in this thread to make my think otherwise.

[Edited on January 11, 2009 at 11:04 AM. Reason : ``]

1/11/2009 10:35:00 AM

^ woops. Those multiplier estimates should be in terms of the growth rate of output, not absolute output. Too late to edit. Oh well.

Anyway, here is an easier way to interpret her results:

Quote :

"Christina Romer's article indicates that expansionary monetary policy was 3.5 times more effective at increasing output growth than expansionary fiscal policy during this period."

Combined with the fact that fiscal policy wasn't all that expansionary during the 1930's (FDR raised taxes as well as spending, leaving the federal-surplus-to-GNP-ratio only slightly negative), we find that almost all economic recovery before 1942 was the result of monetary expansions. And this totally ignores the efficiency considerations of price controls and similar programs.

Really, if you're looking for evidence that fiscal policy is going to pull us out of this mess, you won't find it in your history books on the Great Depression. And I want to remind you that our situation really isn't as similar to the GD as the pundits like to make it sound. So maybe it calls for a different set of policies????

[Edited on January 11, 2009 at 11:25 AM. Reason : ``]

1/11/2009 11:12:27 AM

Interesting, you are using Romer as weapon in your arsenal against the plan...and yet, here she is being a champion for it

http://tinyurl.com/98y4ms

How do you resolve that conflict?

1/11/2009 11:28:35 AM

It will work as well as the first stimulus package worked.. only a lot more costly.

I wonder if the people backing this one were against the first handout.

1/11/2009 11:45:47 AM

^^ Politics???? It isn't exactly unheard of for economists to change their tune on major policy issues (at least publicly) when they start working at the President's discretion. Here's Paul Krugman and Brad Delong calling out Glenn Hubbard, GW Bush's CEA chairman for doing the same thing Obama's CEA chairman is doing (changing her mind for apparently political reasons).

Quote :

"The administration's top economist certainly changed his mind about deficits very late in the game. Glenn Hubbard, chairman of the Council of Economic Advisers, recently denied that deficits raise interest rates and depress private investments. Yet Mr. Hubbard is also the author of an economics textbook; as Berkeley's J. Bradford DeLong points out on his influential Web site, the 2002 edition of that textbook explains how, yes, deficits raise interest rates and depress private investment."

http://www.pkarchive.org/column/011703.html

History repeats itself...AGAIN!
Of course, hypocrisy and politics are only games "the other team" plays, right????

[Edited on January 11, 2009 at 11:54 AM. Reason : Don't argue politics. Argue policy.]

1/11/2009 11:49:16 AM

It couldn't be that you took a snippet of her earlier work and misapplied it because you're not an economist and you aren't entirely sure of what you are saying? You are the guy that can't see where a home construction worker would be used in "green technologies" construction. I don't really pay attention to much more after that.

[Edited on January 11, 2009 at 12:06 PM. Reason : .]

1/11/2009 11:59:38 AM

^ I took work that Christina Romer has done on fiscal policy during the Great Depression and applied it to a discussion on the role of fiscal policy during the Great Depression. *You're* the one that used a single article to infer she would not support the current fiscal stimulus package. I engaged you in that conversation because I don't think that interpretation is out of bounds. Indeed, it is an interpretation that has been made by people with actual Econ PhDs using subsequent research Romer has conducted.

Quote :

"The Romers' research actually undercuts the Keynesian approach in a more fundamental way. They find that tax cuts to offset a recession are ineffective, but their reasoning would also apply to government spending increases to offset a recession. In other words, if she believes her own research, Christina Romer should be a strong critic of her new boss's policies."

http://www.forbes.com/home/2009/01/07/romer-obama-stimulus-oped-cx_dh_0107henderson.html

I personally think this reading of Romer's subsequent research is a bit ham-handed because it ignores important differences between the impact of tax cuts and public spending, but looking at this paper on the impact of tax policy and her previous paper on fiscal policy during the Great Depression, I don't think this criticism is unfair (no more so than Krugman and Delong's criticism of Hubbard's position on deficit spending based on a single text-book chapter).

Now, I had assumed that you were trying to use Romer's current political positions to make inferences about her past research (since I was focusing explicitly on papers from 15 years ago). Thus, I made the point that it isn't unheard of for economists to sing different songs when its in their self-interest to do so. So anything she says now isn't very helpful in helping us understand what she meant then. But If that wasn't your goal, and you don't think Romer is being inconsistent, I'm not sure why you are trying to make these inferences to begin with.

[Edited on January 11, 2009 at 12:40 PM. Reason : ``]

1/11/2009 12:17:20 PM

Quote :

"Thus, I made the point that it isn't unheard of for economists to sing different songs when its in their self-interest to do so."

You are correct in assuming this is not uncommon. As director of economic policy for the Obama campaign, Jason Furman contradicted his own research in dismissing McCain's health-care proposal to replace the employer exclusion with a tax credit.

http://gregmankiw.blogspot.com/2008/09/post-partisan-health-policy.html

As for fiscal stimulus, this article highlights some of the empirical evidence, which is not encouraging. http://www.forbes.com/opinions/2009/01/08/obama-stimulus-income-oped-cx_bb_0109bartlett.html

One interesting aspect that hasn't been talked about much:

Quote :

"Finally, the impact of increased public works spending on state and local governments cannot be ignored. Most federal transportation spending goes for projects initiated by them. When they think there is a chance that the federal government will increase its funding, they tend to cut back on their own spending in hopes that the feds will foot the bill. A study by economist Edward Gramlich found that the $2 billion appropriated by the Local Public Works Act of 1976 postponed $22 billion in total spending as state and local governments competed for federal funds and actually reduced GDP by $30 billion ($225 billion today). There are reports that California and other states are halting highway, school and bridge construction already underway. While it may be that they are simply reacting to a shortfall in tax revenue, it would be naive to think that the prospect of stimulus spending from Washington isn't a factor as well. As The New York Times recently reported, states "are clearly holding out hope that President-elect Barack Obama will pump some federal money into the stalled infrastructure projects, and some may even be delaying work until they have a chance to make the case for federal spending.""

[Edited on January 11, 2009 at 3:06 PM. Reason : .]

1/11/2009 3:05:53 PM

how many more "stimulus packages" are we going to get before someone in charge realizes that printing money out of thin air is a BAD IDEA. When are they going to get the point that GOVERNMENT is the problem here

1/11/2009 4:24:32 PM