Paul Krugman is off his rocker.

Quote :

"August 10, 2009 Op-Ed Columnist Averting the Worst By PAUL KRUGMAN So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government. Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The nation has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, we’re probably around nine million jobs short of where we should be. And the job market still hasn’t turned around — that slight dip in the measured unemployment rate last month was probably a statistical fluke. We haven’t yet reached the point at which things are actually improving; for now, all we have to celebrate are indications that things are getting worse more slowly. For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss. A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators — world trade, world industrial production, even stock prices — were falling as fast as or faster than they did in 1929-30. But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year. So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government. Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid. All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now. In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse. The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II. Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall. All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution. And aren’t you glad that right now the government is being run by people who don’t hate government? We don’t know what the economic policies of a McCain-Palin administration would have been. We do know, however, what Republicans in opposition have been saying — and it boils down to demanding that the government stop standing in the way of a possible depression. I’m not just talking about opposition to the stimulus. Leading Republicans want to do away with automatic stabilizers, too. Back in March, John Boehner, the House minority leader, declared that since families were suffering, "it’s time for government to tighten their belts and show the American people that we ‘get’ it." Fortunately, his advice was ignored. I’m still very worried about the economy. There’s still, I fear, a substantial chance that unemployment will remain high for a very long time. But we appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why. "

I'm embarrassed that I resorted to him in the past as an appeal to authority. He has been subtly and not so subtly in the past 6 months or so been trying to give this administration a virtual blow job, but this latest op-ed is an "I'm down on my knees, come shove it in, I'm ready" moment. The bolded parts I take particular disagreement with

Quote :

"All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now."

Hmm, so, if federal spending was a much smaller portion of GDP in the 30s, what did it matter if they kept spending at normal levels or not? And I'm having a hard time understanding how budget deficits in anything but the shortest of terms is a good thing.

Quote :

"Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse."

We simply don't know that. Period. It's a great position to be in to say "look, it worked", but it is unprovable one way or the other if it did. We have a good idea that things would have been quite a bit worse if the "too big to fail" had have been allowed to, but we don't know where we'd be today.

Quote :

"reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan"

Where the fuck does this come from? If they were so reasonable, why weren't they used with the stress test which still drastically missed the mark?

Worst piece of trash I've ever read from PK.

8/10/2009 5:53:32 PM

Quote :

"I'm embarrassed that I resorted to him in the past as an appeal to authority."

I give you credit for admitting this. Seriously.

8/10/2009 5:59:38 PM

^ that's good, because Fail Boat admitted to me via PM that he pines for your credit.

8/10/2009 6:13:06 PM

what do the bank stress tests have to do with employment projections?

8/10/2009 6:13:50 PM

^^ I give credit where it's due.

8/10/2009 6:16:26 PM

Quote :

"^ that's good, because Fail Boat admitted to me via PM that he pines for your credit."

Look, as much as we hate each other, I'm not such an obtuse douche that I'm going to talk shit to the guy when he posts a comment like that, lets not derail yet another thread (hey, maybe I'm just biased on this one )

Quote :

"what do the bank stress tests have to do with employment projections?"

That was a key piece of the stress. Higher unemployment implies more foreclosures implies more stress on the banks. I think before the recent NFP they had the rate at 8 or 8.5% while the real rate was at 9.6%.

So it's reasonable to assume that 1 million jobs are saved, yet they assumed during the round of stress tests that it would be 2 million more on top of this? Umm, eh, urrr..what?

When people were seeing how much higher above the rate was over what was forecasted, there was talk for a few days in the blogosphere that they should run them again but most of the people I read quickly came to the conclusion that the stress tests weren't anything more than a dog and pony exercise where the result was planned before anything ever happened. As long as mark to market rules are relaxed, the banks can go on indefinitely like nothing bad has happened. What is going to happen is they'll mark down as much property as their balance sheet and stock price can handle every quarter and at some point an actual economic recovery will intersect that trend line and everything will be back to normal. The banks that have more dreck on their books (C, BAC, FNM, FRE, and by CDS extension, AIG) will probably continue to get more help as needed because they are "too big to fail".

[Edited on August 10, 2009 at 6:27 PM. Reason : .]

8/10/2009 6:23:13 PM

The biggest mistake you could make is to think that he isn't right.

8/10/2009 6:23:22 PM

it's kind of impossible to know whether any economists are right or wrong about this sort of thing (within reason) until years from now

8/10/2009 6:29:09 PM

Quote :

"Worst piece of trash I've ever read from PK."

I remember reading his stuff in college and thinking that he had a pretty good grasp of what was going on. Lately, he's just gone off the deep end.

Hell, back in 2000 - 2001, Krugman practically called for the creation of a bubble in housing. We're not nearly out of the woods yet with this one. Declaring a Great Depression to have been averted is premature at worst, and at best, merely a prelude to a "Lost Decade".

8/10/2009 6:31:16 PM

Quote :

"Look, as much as we hate each other, I'm not such an obtuse douche that I'm going to talk shit to the guy when he posts a comment like that, lets not derail yet another thread (hey, maybe I'm just biased on this one )"

It wouldn't have rung so hollow if hooksaw was also the kind of person to come out and admit his missteps.

But, i think this topic has potential, and this will be my last comment on that issue.

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

Krugman did seem a little goofy to me on his recent interview on The Colbert Report, and was surprisingly fond of the current administration.

But he is also a die-hard Keynesian, which has taught for decades that FDR simply didn't do ENOUGH during the Great Depression (and IIRC, Keynes told FDR this at the time). Krugmans statements are well in-line with this thinking.

I would also be inclined to agree that the spending definitely softened some of the blows. If I get bored enough later, i'll compile some graphs that make me think this, but it boils down to the idea that the billions of dollars dumped in to the economy aren't just going to disappear, they have to go somewhere.

And I also thought it poignant that he noted that the nature of our GDP has shifted significantly in the past few years, as well as saving rates and usage of credit, which means the government actions have to be different as well. Within about 12 years, the GDP went from being mostly production to mostly consumer spending. In recent months, businesses and companies have been saving a lot more, which means you can't depend simply on tax cuts to result in increasing the GDP (not that this has ever been a definite correlation anyway). Which means you can sit back, watch things get worse, and hope they get better, which would be too difficult for any president to do (particularly one who's slogan was "yes we can" and not "we'll wait and see"), or you can try to "patch" things with a stimulus until production/consumption ratio "corrects" itself (that is, assuming it can). Basically, if the economy was still mostly production, there's little that could be done to "stimulate" things, if there was no one to produce for. But with the economy being mostly consumption, it's relatively easy to stimulate consumption, which is what the government is trying to do.

Quote :

"it's kind of impossible to know whether any economists are right or wrong about this sort of thing (within reason) until years from now"

very true... economists have always been like broken clocks

[Edited on August 10, 2009 at 6:46 PM. Reason : ]

8/10/2009 6:45:51 PM

what if the problem that caused all of this was big government? or did I just blow your mind?

8/10/2009 6:48:21 PM

The Western countries that fared the best during the Great Depression were the countries that ignored Keynes the most. The UK basically ignored Keynes after '31 and was probably the country that most quickly recovered from the GD. Where as unemployment was actually on the rebound prior to WWII in the US.

But really, this is a win win situation for Krugman. If we don't slide into a depression, then government spending works. If we do, then it would have been much worse if we hadn't of done anything. Virtually impossible to prove wrong.

8/10/2009 7:01:11 PM

Quote :

" But he is also a die-hard Keynesian, which has taught for decades that FDR simply didn't do ENOUGH during the Great Depression (and IIRC, Keynes told FDR this at the time). Krugmans statements are well in-line with this thinking."

I think it's one thing to stay true to your ideals, but it's just patently absurd in the absence of any shred of evidence to claim 1 million jobs were saved. The only group I've heard tout this bullshit...is this administration.

I'm convinced he is angling for some sort of a cabinet seat or some sort of preferred status either in the near term or in the next election.

Quote :

"but it boils down to the idea that the billions of dollars dumped in to the economy aren't just going to disappear, they have to go somewhere"

But, so far, the money has done just that. What was the most recent number, only like 75 billion of the allotted stimulus has been spent so far? All TARP that was loaned to the banks has more or less been just sitting on their balance sheet (or, for GS and co it is being gamed in the stock market) as there isn't anyone to lend to.

Quote :

"Basically, if the economy was still mostly production, there's little that could be done to "stimulate" things, if there was no one to produce for."

China called, they'd like to disagree. Granted, we can't really believe their statistics but their economy appears to be recovering better than our own (even though I don't believe it, but that is yet to be seen).

Quote :

"But with the economy being mostly consumption, it's relatively easy to stimulate consumption, which is what the government is trying to do."

But the government can't do this indefinitely, they probably can't even do it for long enough for the economy to turn on it's own.

Quote :

"But really, this is a win win situation for Krugman. If we don't slide into a depression, then government spending works. If we do, then it would have been much worse if we hadn't of done anything. Virtually impossible to prove wrong."

Kinda, though, he has been fairly ardent about it not being enough and calling for a second. So, if the recovery does come sooner than many many people think it will, I believe the case can at least be made that he was at least 50% off and then you can question just how much that first stimulus mattered.

8/10/2009 7:27:00 PM

Quote :

"China called, they'd like to disagree. Granted, we can't really believe their statistics but their economy appears to be recovering better than our own (even though I don't believe it, but that is yet to be seen). "

Assuming this was the case, you'd have a hard time selling the idea that communism can work.

Quote :

"But, so far, the money has done just that. What was the most recent number, only like 75 billion of the allotted stimulus has been spent so far? All TARP that was loaned to the banks has more or less been just sitting on their balance sheet (or, for GS and co it is being gamed in the stock market) as there isn't anyone to lend to. "

What is the issue with this? Isn't this by design?

The economy has been sliding downwards since 2005, the new stimulus was enacted in 2009, and it's been 6 months. What reasonable person could expect to see a complete reversion in 6 months? assuming it takes half the time to recover as it took to fail, we can't expect truly significant gains for another 2 years.

And we have seen tiny gains recently, which seems to correlate with the relatively tiny amount of the stimulus spent, but we won't know for sure until the stimulus is allowed to run its course. Expecting miracles in .5 years for a problem that's been building for nearly a decade, and has been symptomatic for around 4 years is just not reasonable, I don't think.

8/10/2009 8:45:52 PM

tiny gains? by continuing to lose jobs? WOW

8/10/2009 8:47:01 PM

Quote :

"but it boils down to the idea that the billions of dollars dumped in to the economy aren't just going to disappear, they have to go somewhere."

It had to come from somewhere too. A dollar spent means a dollar borrowed, all you did was change hands. It is possible for Fiscal stupidity to make Monetary policy more effective, but it is unclear whether the harm from starved capital markets exceeds the benefits from further boosting the money supply.

And this summed up my thoughts nicely:

Quote :

"But the even more incredible unproven (and in fact entirely non-verifiable) part of the statement was that we were even headed for a second Great Depression anyway. Many of us from the sidelines said that this looked like a recession similar in magnitude to that of the early 1980’s, and in fact that appears to be exactly what we got. The whole “second Great Depression” meme is merely a giant straw man used first to stampeded ill-conceived spending legislation through Congress with little scrutiny and now to provide a fake alternative against which Obama and company can declare victory. Krugman is so far in the tank, its impossible for me to even think of him as an economist any more. The Nobel Laureate who now retails non-verifiable claims. The fact is that this was a normal recession blown out of proportion first by the Bush and later by the Obama administration. From the very beginning, it looked much like the recession of the early 1980’s or the bank crisis of the early 1990’s, and it recovered for the same reason - there are fundamental strengths in the economy. In fact, the length of the Great Depression was in fact the aberration, caused more by FDR’s wild proposals (the worst of which was the National Industrial Recovery Act) which tended to dampen the investment that normally picks up at the bottom of the cycle to take advantage of reduced asset values and input costs."

http://www.coyoteblog.com/coyote_blog/2009/08/from-nobel-laureat-to-political-hack.html

8/10/2009 9:36:09 PM

Lately, there seems to be a glut of both physical and social scientists who seem to think that a Nobel prize entitles them to start making fatuous statements about causation for spinmeisters without having solid, peer-reviewed papers backing them up. This is another example.

8/10/2009 9:51:10 PM

You might hurt economists' feelings by calling them social scientists.

8/10/2009 9:52:54 PM

Quote :

"but it is unclear whether the harm from starved capital markets exceeds the benefits from further boosting the money supply. "

What harm? The capital markets were more than flush with capital from abroad and home (via newly relaxed leverage limits) and all they did was misallocate it for nearly a decade.

8/10/2009 10:23:35 PM

'harm' and 'benefit' in that sentence refer to private economic activity.

Banks must lend. Giving them the option to lend an unlimited amount to the government during rough economic times means they will not be forced to lend to their customers. As a result, even though short term interest rates and inflation were at historical lows, longer term rates were not. As such, the rest of the economy was starved of credit by the government consuming all the credit there was, and even then several bond issues failed. So, it is possible that the flurry of Fiscal stimulus actually counteracted some of the Monetary stimulus, prolonging the recession. I suspect it is too soon to know.

8/10/2009 11:50:37 PM

Quote :

"Giving them the option to lend an unlimited amount to the government during rough economic times means they will not be forced to lend to their customers."

What?

8/11/2009 6:51:59 AM

more evidence that Krugman doesn't get it:

Quote :

"But they're probably reacting less to what Mr. Obama is doing, or even to what they've heard about what he's doing, than to who he is. That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that's behind the "birther" movement, which denies Mr. Obama's citizenship. Senator Dick Durbin has suggested that the birthers and the health care protesters are one and the same; we don't know how many of the protesters are birthers, but it wouldn't be surprising if it's a substantial fraction."

8/11/2009 9:12:11 AM

i wonder how many 'birthers' are for obama's health plan

8/11/2009 9:17:06 AM

I'll reiterate it for the nth time now, I seriously believe Krugman is in the tank for Obama and is angling for..something. Maybe a SoT position in the event that they get tired of Geithner? Maybe as Chief Economic Adviser?

8/11/2009 10:42:13 AM

I don't think Krugman is necc angling for a position in the admin because he's said on previous occasions he wouldn't want a position like that (says his outspoken temperament isn't suited for that type of work).

Plus, most of the bail outs that Krugman hails actually happened under the Bush admin. So this isn't a love note to the Obama admin, its a love note to Big Government in general.

But, if I had to play mind reader, I would guess this is actually a love note to Krugman himself.

Krugman has been worrying about the possibility of a liquidity trap in the U.S. since the late 1990s. Now, his "prediction" has finally come true (or so he thinks) and he really wants to hammer home the fact that he was leading the pack on this and that his policy prescriptions (non-traditional monetary policy and fiscal policy) are what saved us from a second Great Depression. The only sentence missing from this article is "Big government saved us, I've supported Big Government, Feel Free to Say Thanks!"

[Edited on August 11, 2009 at 11:21 AM. Reason : ``]

8/11/2009 11:19:49 AM

Oh and since we're talking about Paul Krugman, I thought I would mention that I got a pretty kick ass t-shirt last week. Its from Cafe Press and it has this logo:



I've actually wanted this t-shirt since 2005, but I didn't have the cash when I first saw it. Then I didn't think about it again until Krugman got the Nobel last year.

Its too bad he has become a true believer in the progressive movement, but I still read his column every week.

If any one wants one...
http://www.cafepress.com/ninjasfordean.9397837

8/11/2009 11:26:44 AM

Socks, I'm confused as hell here. You were as best I remember left leaning. Then you went in the tank for McPalin, now you're back to being a Paul "Big Gov" Fanboi.

Did I miss something along the way?

8/11/2009 12:18:44 PM

I'm a market-oriented, left-leaning centrist (they called 'em Third Way Democrats in the '90s).

I think a lot of like-minded centrists voted for Obama because they thought a lot his progressive rhetoric (re-negotiating NAFTA etc) was just posturing and that at heart he was really a centrist.

I did the same thing with McCain. I thought McCain's conservative rhetoric was just posturing and that at heart he was really a centrist. You can disagree, but that's why I supported him.

I don't know why everyone thinks my positions are so confusing. If I really thought McCain was Bush II, I would have never voted for him. I don't regret my decision, but I don't regret the outcome of the election either. With the exception of Health Care reform, I think Obama has been managing domestic issues better than I expected. It all seems fairly consistent to me.

8/11/2009 12:38:09 PM

So you're a market oriented centrist, but applauding Big Gov Paul?

8/11/2009 12:48:03 PM

Well, like I said earlier, I hate that Krugman has become a true believer in the progressive movement and there a lot of things I disagree with him on (health care being the biggest right now, I guess). In this article in particular, I think he over states his case by a wide margin (as usual).

But, I don't think his position is entirely unreasonable when you ignore the inflammatory rhetoric. Would big government policies (specifically fiscal stimulus) help an economy stuck in a liquidity trap? Sure. Would bailing out banks help prevent a financial meltdown if they would have closed other wise? I think so.

Of course, there are a lot of assumptions involved in all of that. Are those assumptions right? Is Krugman actually correct? I think sarijoul already answered that one.

Quote :

"it's kind of impossible to know whether any economists are right or wrong about this sort of thing (within reason) until years from now"

History will let us know how close Krugman got to the mark. My point is that his over all arguments are not unreasonable, even if he makes a few outlandish claims in order to drive his point home.

8/11/2009 1:25:01 PM

Quote :

"I think Obama has been managing domestic issues better than I expected."

$10 Trillion in Debt.
Take-over of the US auto industry
Massive Stimulus spending for gov't pork projects.
Ramping up more war in Afghanistan.
Push for gov't take-over of the Health Sector.
Cap n Trade tax
Corrupt gaggle of staff and Czars.

My Gosh man, what were you expecting?

8/12/2009 12:16:36 AM

So exactly what happens when a government becomes bankrupt?

8/12/2009 2:18:52 AM

^^

Quote :

"$10 Trillion in Debt. Take-over of the US auto industry Massive Stimulus spending for gov't pork projects. Ramping up more war in Afghanistan. Push for gov't take-over of the Health Sector. Cap n Trade tax Corrupt gaggle of staff and Czars. "

I have said that the stimulus package was poorly designed in the sense that most of the spending doesn't occur for months and it doesn't provide enough aid to state and local govts (who are now having to raise taxes to balance their budgets). But, I still have no idea whether the package will do more good than harm on net since. So I am reserving judgement until we see what actually happens (I also think that McCain would have supported doing something similar if he was President, even though he did not support the actual stimulus package that came out this year. I mean, he did support the TARP bill in 2008, which was just another big government intervention to save the economy).

Afganistan is where we should have been devoting most of our resources all along (I also believe McCain would have essentially done the same thing).

Cap and Trade is actually a good idea. Even if congress is unable to create a perfect bill, this is an important first step in fighting climate change (something McCain would have supported as well).

On Health Care, I think Obama's goals are relatively similar to those voiced by McCain during the campaign--increasing competition in the health insurance market to lower premiums and increase coverage. As I have said before, I think Obama should talk to Jason Furman (who is on his NEC) about market-oriented alternatives, but there is still time to work things out and Obama has said he's open to different approaches.

As far as the rest goes, my ideal candidate would not have extended more loans to the Big Three automakers. But, my ideal candidate wasn't running. McCain supported the first round of bail outs in 2008, so I would not be surprised if he was President if he would have supported a second round of bail outs. So I can hardly fault Obama for doing a worse job than expected on this issue, if I expected that McCain would likely do something similar.

[Edited on August 12, 2009 at 8:14 AM. Reason : ``]

8/12/2009 8:05:21 AM

^
I agree with you Socks that McCain wouldn't have been much better than Obama. While he would've only open the spigot of socialism to a slow trickle, Obama is trying to spin it wide open.

8/12/2009 10:24:24 AM

Quote :

"Cap and Trade is actually a good idea. Even if congress is unable to create a perfect bill, this is an important first step in fighting climate change (something McCain would have supported as well)."

LOL, what a fucking joke. First off McCain has already stated he is against the current bill. Second, if the government actually cared about "global warming" then they'd enact a straight up carbon tax. All this bill is is an excuse to expand the government.

8/12/2009 4:35:56 PM

^ McCain actually introduced the very first cap-and-trade bill in congress himself a few years, friend. He concedes the foundational approach of cap-and-trade is sound and the rest is haggling over details. And you should read up on the economics behind the two approaches and you will see that cap and trade is just as effective as a carbon tax at reducing emissions (there are other considerations that may make you favor one or the other, but you mention none of them).

But, you don't actually believe in climate change anyways, so what are you complaining about?

PS* Just to make this point more explicit, what McCain is saying now as a runner-up Presidential candidate and member of a minority party need in no way reflect what he would have done as President. Obviously, we can't know what he would have done, so anything I said about what I think would have happened in an alternative universe is just a guess (which I thought would go without saying....).

[Edited on August 12, 2009 at 4:50 PM. Reason : ``]

8/12/2009 4:41:20 PM

Quote :

"McCain actually introduced the very first cap-and-trade bill in congress himself a few years, friend."

Thank you for bringing that up, however I was already well aware of it. He's against this bill not for political posturing, but b/c it does nothing for the environment, expands the gov't, hurts US citizens, and feeds special interests.

And yes, I believe that human's influence on the global climate is insignificant and that there's more to worry about in this world, like maybe the millions dying every year in Africa. But let's be honest, the gov'ts of the west don't care about the poor in Africa.

8/13/2009 9:07:19 AM

For what it is worth (which may not be much), the creators of cap-and-trade prefer a tax.

Quote :

"Cap-and-Trade's Unlikely Critics: Its Creators Economists Behind Original Concept Question the System's Large-Scale Usefulness, and Recommend Emissions Taxes Instead In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits. Now legislation using cap-and-trade to limit greenhouse gases is working its way through Congress and could become the law of the land. But Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren't abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned. "I'm skeptical that cap-and-trade is the most effective way to go about regulating carbon," says Mr. Crocker, 73 years old, a retired economist in Centennial, Wyo. He says he prefers an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem ... Another economist, David Montgomery, advanced their ideas in the 1970s, converting their theories into the complex mathematical formulas to demonstrate that they weren't merely an idea but were also economically feasible. Mr. Montgomery, too, is a skeptic of cap-and-trade for greenhouse gases. He prefers an outright tax. "You get huge swings in carbon prices with a cap, which creates more volatility and uncertainty for business," he says."

http://online.wsj.com/article/SB125011380094927137.html

[Edited on August 13, 2009 at 9:38 AM. Reason : .]

8/13/2009 9:32:37 AM

Quote :

"An empirical analysis of the data from 23 OECD countries shows a strong negative relationship between both (a) the size of government and GDP growth and (b) increases in government expenditures and GDP growth. A 10 percentage point increase in government expenditures as a share of GDP is associated with approximately a one percentage point decline in the growth rate of real GDP. An analysis of a larger data set of 60 countries reinforces the conclusions reached by analyzing OECD countries. After adjustment for cross-country differences in the security of property rights, inflation, education, and investment, higher levels of government spending as a percentage of GDP exert a strong negative impact on GDP growth. "

http://www.house.gov/jec/growth/function/function.pdf

8/17/2009 2:34:43 PM

that's all fine and dandy, and I realize that I should like the conclusions, but...

Quote :

"After adjustment for cross-country differences in the security of property rights, inflation, education, and investment, higher levels of government spending as a percentage of GDP exert a strong negative impact on GDP growth."

just sounds like a gigantic fudge-factor that can be used to skew the stats one way or the other. and yes, I see that it comes from house.gov.

8/17/2009 6:48:13 PM

^ Good point. I forgot to clarify. The graph above is actual real GDP growth (i.e. it does not include control variables for the above-mentioned factors).

The second paragraph in my previous post (the one quoted above) refers to a regression referenced later in the study, which attempts to see what impact the size of government has on real gdp growth after those factors are accounted for. There aren't actual adjustments taking place, but rather the inclusion of control variables in a regression. Running a simple linear regression will overstate the negative impact of the size of government. By adding additional independent variables that are also thought to explain the variation in real GDP, the authors were able to better isolate the independent effects of the size of government on real GDP growth. The data used for the control variables are all from external sources, so no arbitrary numbers were used.

There are so many additional exogenous variables unaccounted for (although these explain 54% of the variation in real GDP), so this is far from exact, but this, and other studies that come to similar conclusions, should at least give us pause when considering the current trajectory of government expenditures.

8/17/2009 10:19:22 PM

^^^ lies, damned lies, and statistics...

Look at page 12 (as marked) of that document you posted.

First, with the exception of Ireland, all the other countries experienced a slow-down in GDP growth rate over the period, which indicates an over-arching force not measured is having a big effect.

Second, the country with the highest change in government spending as a percent of GDP, had the 3rd best GDP growth rate in 1996. So despite the massive increase in government spending, they experienced merely an average decrease in GDP growth.

You surely know that correlation does not mean causation, and the statistics they are showing don't come close to showing a causation between gov. spending and GDP growth rates. You could argue that they indicate that we could double our gov. spending as a % of GDP and still only decrease our GDP growth rate by .2 % points, still being above-average in GDP growth vs. our peers.

8/17/2009 10:51:24 PM

Quote :

"Look at page 12 (as marked) of that document you posted. First, with the exception of Ireland, all the other countries experienced a slow-down in GDP growth rate over the period, which indicates an over-arching force not measured is having a big effect."

That isn't relelvant. What is important is the relative change among all countries, not the absolute change. The purpose of this particular exhibit is to show, on average, how countries with large increases in government expenditures during the 1960-96 period experienced large decreases in real GDP whereas counties with small increases in government expenditures experienced much smaller declines in real GDP than the former group.

Quote :

"Second, the country with the highest change in government spending as a percent of GDP, had the 3rd best GDP growth rate in 1996. So despite the massive increase in government spending, they experienced merely an average decrease in GDP growth."

Looking just at 1996 doesn't tell us much, thus why the emphasis was on the long-term changes. (else you could point to 2007-08 GDP growth in the US and incorrectly claim it declined solely due to an increase in government expenditures)

Quote :

"You surely know that correlation does not mean causation, and the statistics they are showing don't come close to showing a causation between gov. spending and GDP growth rates. "

Of course correlation does not mean causation, but having a tenable economic explanation is necessary to even suggests causation, which the authors thoroughly explain throughout the paper (starting on page 3) and subsequently test empirically via regression analysis (starting on pg 10).

Quote :

"You could argue that they indicate that we could double our gov. spending as a % of GDP and still only decrease our GDP growth rate by .2 % points, still being above-average in GDP growth vs. our peers."

The authors' estimate was a 10% increase in the percentage of government expenditures would lead to a 1% decrease in real GDP. I don't put tremendous weight behind the following estimate itself, but it demonstrates the magnitude that such a small decline in real GDP has on living standards:

Quote :

"If government expenditures as a share of GDP in the United States had remained at their 1960 level, real GDP in 1996 would have been $9.16 trillion instead of $7.64 trillion, and the average income for a family of four would have been $23,440 higher"

[Edited on August 18, 2009 at 9:35 AM. Reason : .]

8/18/2009 9:06:42 AM