Posted tagged ‘Stimulus’

While the Cat’s Away…

April 10, 2012

She who is always wrong™ may want to check on what her September April call-ups are doing.  Here’s Adam Ozimek in McArdle’s space pointing out four things just about all economists agree upon, and among them he lists the virtues of the stimulus:

Economists may differ on whether the American Recovery and Reinvestment Act was worth the cost overall, but they are in solid agreement that as of the end of 2010 it lowered the unemployment rate. Very few disagreed with or were uncertain about this. In contrast, a significant number questioned whether the recovery act was worth the cost. Importantly, in the space for comments, Stanford’s Pete Klenow emphasized what Scott Sumner and others would say is the central issue: “how much was it offset by less aggressive (than otherwise) unconventional monetary policy?” But even stimulus skeptics should keep their criticisms in perspective: economists strongly reject the idea that stimulus is to blame for our economic woes.

In addition, economists strongly agree that the bank bailouts also lowered the unemployment rate. Of course as Austen Goolsbee commented: “the fact it was necessary doesn’t mean we should be happy about it.”

McArdle, canny as she is, has been careful not to go too far into the weeds on this one.

She doesn’t seem to have said that stimulus as a concept could only fail — as some notables (cough-cough, Mitt) on her side of the aisle have done and continue to do.  But she has consistently said that only a Platonic ideal of a stimulus had a hope, and that any real world attempt is a waste of time.  (Bonus question for those who follow that link.  Spot and name the dire distortion of the history that lies behind her carefully tweezered quote from Paul Krugman.)

BTW: here’s what Krugman actually had to say about the stimulus in 2010:

The good news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should. The bad news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should.

Josh Bivens at EPI has a good overview of the evidence that the stimulus is working. As he says,

“A serious look at the evidence argues that this debate should be closed: ARRA has played a starring role in pushing the        economy into positive growth.”

And here’s Krugman this spring:

On the policy side, major new stimulus may not be in the cards — but there is a real divide in the US between modest stimulus proposals that have some chance of getting implemented and major austerity moves that also have some chance of being implemented. The difference between those two policy variants could be the difference between unemployment below 7 percent two years from now and unemployment back above 9 percent. So this argument has real short-term policy relevance.

So much for McArdle’s bravura, data-less claim that

…we have had two major cases that massively favored Keynesian economics [the New Deal and the Obama stimulus] but Keynesian politics failed both times.

And as for her conclusion that

…at some level, there’s no point in spending a lot of time designing policies which can’t be enacted in any conceivable democratic polity.

…well, if by “any conceivable democratic polity” you mean one in which one of two major political parties had decided to transform itself into an authoritarian cult, then yes — the GOP, using the procedural rules of the US Senate, certainly limited what was possible.  It requires a heroic act of willed blindness to the elephant in the room, though, to see that outcome as an inescable, sadly necessary cost of democracy.

But just on the merits of this one guest post, I’d say that McArdle runs a serious risk if her audience gets used to even occasional economically literate commentary.  Perhaps even that Amen Chorus might notice a lack of couture bedecking the empress.

Image:  Henri Rousseau, The Equatorial Jungle, 1909

Stupid Reporter Tricks: NYTimes/Economics Writing Edition

December 9, 2008

You would think that there was little harm one could do on a mostly straight report on the emerging details of the Obama Adminstration’s stimulus plan.  But it turns out that Peter Baker and John M. Broder managed to find a way.

As I say, most of their article on the Obama plan to spend an enormous sum on public works was what it advertised itself:  a list of the projects that the new administration will fund in the hopes of achieving both short term job growth and long term return on capital improvements in things like transit and the electric grid, among much else.

But then they had to go do the obligatory reportorial “on the other hand,” seeking out a quote from an economist for that noted wellspring of intellectual rigor, the American Enterprise Institute. The AEI’s Mr. Viard obligingly offered up a bit of what he hoped would slip by as Econ 101 (or Ec. 10, for those who share my experience of that venerable course number as used at Cambridge Community College).  He said that…

…public works spending should not be authorized out of the “illusory hope of job gains or economic stabilization.”“If more money is spent on infrastructure, more workers will be employed in that sector,” Mr. Viard added. “In the long run, however, an increase in infrastructure spending requires a reduction in public or private spending for other goods and services. As a result, fewer workers are employed in other sectors of the economy.”

Sounds so simple, and so obviously right, doesn’t it?

Except, except, except…that there are two unstated assumptions here that render the quoted claim more or less nonesense

The first is that the economy is working so close to full capacity that effort in one sector needs must crowd out activity in another.  That is, at full or near employment, or so economists I consulted before writing this post told me, an aggressive public works program would indeed impose an added demand on labor (and other inputs) that could jostle other activities out of the way…but the notion that such expenditures merely rob Peter to pay Paul in a time of high and growing unemployment and a flight of capital from investment is, to put it kindly, misinformed.

For historical support for that statement, go back over the recent skirmishes over whether or not the New Deal worked.  See e.g. this and this, both from estimable Edge of the American West blog.

The other faulty assumption sneaks in there in that by-weasels much-loved phrase:  “In the long run.”

Not to belabor the Keynes connection, but, besides being the location in which we are all dead, the long run does display meaningful differences from the here-and-now. Yes — it is true that debt acquired now must be repaid in the future.  (Sort of–as historians of capitalism like Fernand Braudel have noted, the creation of a permanent, floating, tradeable government debt was one of the keys to Britain’s rise to economic dominance in the eighteenth century, and has played a significant role ever since.)

But the fact that economic conditions change over time does bear on the situation:  deficit spending to prevent disaster in a downturn can have, as mainstream economists have understood for a while, a signficant positive effect on future output (see the New Deal posts reference above).  Wild unfunded spending on stupid wars and transfer payments to the rich in a bubble-boom, not so much, but this isn’t a post about that.

In other words:  Viard’s disingenous argument that paying tomorrow for a hamburger today is a bad idea only works if you’ve already consumed enough Big Macs to make you sick.  That’s not the case right now, as most of us have grasped — which, among other reasons, is why we are not anticipating the inauguration of President John McCain.

Well and good:  so far all we know is that Viard is an ideologically blinkered guy doing what folks do who work for shops like the AEI — trying a little spin to influence the unwary.

But that’s my point.  If Viard wants either (a) to be as simpleminded as the above quote suggests, or (b) to be carefully, accurately deceptive in the way he frames an argument he knows to be weak (take your pick), that’s his look out.  What about the Times’s guys?

They are the ones at fault here.  They fell into the lazy reporter’s idea of  “balanced” journalism, where the conception of balance requires only that you transcribe a quote from somebody willing to say something opposed to the prior source’s quote.

This is a common enough trap in political reporting — reference any number of stories from the last twelve months.

But I think economics writing might be particularly at risk for sloppiness of this sort.  Economics is technical enough for the detailed analysis behind claims to be beyond most non-economist reporter/writers.  It is uncertain enough, incomplete enough as a discipline so that dissent and argument is not just plausible, it’s required.

But that still doesn’t mean you can just let any nonesense fly by.  Most reporters covering complex subjects — all science writing for example, most medical reporting and so on — know less about the technical issues within any particular story than their sources will.

(Peter Gammons is the one certain exception to this.  He knows more about his speciality, baseball, than all but a handful of those inside the clubhouses.  But the Commisioner, as Gammons is known, is a demi-god, and the rest of us aren’t.)

The solution is the same as it always is.  Get a reality check. Call someone.  I’m no journalist. (I was once, of the cub variety, but I haven’t committed serious reporting for decades). But I work at a place with a pretty good econ department, and it wasn’t hard to pick up the phone and the email cursor and ask a few people some questions.  Total time involved — about ten minutes to put the word out; return of answers within a couple of hours.  All deadline-friendly, in other words.

The rub of this all is that there are some very good econ reporters out there.  The Times employs one of the best of them in David Leonhardt. He would have known that Viard was blowing smoke.  That the two writers on this story did not would still have been o.k., if they had merely done what reporters used to do as a matter of course:  get a reality check.  Call someone who actually knows more than you do.  Just ask if the claim makes any kind of sense.

To put all this another way:  the two reporters on this story ought to have been alerted to their problem by the internal evidence of their own quote.  Viard’s statement, if true, is too obvious to have escaped smart people like Obama’s advisors — the Goulsbees and the Summers of the world.

If stimulus can’t work, if there is the kind of law-of-nature certainty that deficit spending defeats itself then, now, and always, then you would easily be able to find both economic-historical evidence and lots more heavyweight folks to say so than some guy flacking for a partisan “think” tank.  No?  Maybe, just maybe then, you’d think there was a problem here.

As a reporter for the “newspaper of record” you have to be able to run that simple minded a smell test.  If you can’t, or won’t?…well, to echo the master:

Why oh why can’t we have a better press corps?

Image:   Bernarda Bryson Shahn, “A Mule and A Plow,” poster for the Resettlement Administration, c. 1935-1937.

Stimulate This: Build the Grid First

November 24, 2008

As everyone in range of youtube now knows, President Elect Obama* is committed to spending what it takes to revive the American economy.  A very welcome development, after months of spending what it takes to transfer risk from the rich to the rest of us.  But still, such ambition does beg a question:  stimulate what?

My basic approach to this question is the obvious one:  pouring money into an economy works to stimulate activity, but it works best if you spend the money on things that have the capacity to evoke more economic activity in their turn.

That is — while there is a new new deal urgency to provide relief to those suffering the worst in this economic downturn (i.e., the jobless and the foreclosed), there is a ceiling to the broader economic impact that such relief can provide.  Take a look at this excellent post by Eric over at The Edge of the American West in which a fisking of John Maynard Keynes’ letter to Roosevelt in 1938 underscores what was understood  then (and still holds true) about the limits of relief as anti-recession policy.  (See also this for an analysis that extends into the role of WW II spending on recovery.)

So if you really want to promote long term economic growth from within a depression/recession, you have to buy some tickets in the game.**  Or, to put it more formally, you have to use the power of government spending to build capital that will in turn prove to be economically useful over a much longer time-frame than the immediate quarter or even year in which the Treasury prints the necessary cash (debt) to round out all those zeroes being talked about in Washington right now.

From where I sit (staring out over the MIT campus), that means spending on projects rich in science and technology — or at least ones that foster the uses of what science and technology produce: ideas and physical things that contribute to human well-being.

So what I’d like to do here is to begin a discussion, if possible, of what we should do with the stimulus process that could be informed by what science and engineering approaches suggest are the best long term investments in the country’s economy.

A couple of suggestions to get us going, then:

For one, there is just a broad based investment in the American research establishment.  It makes little sense to try and pick winners in the next great idea competition; the trick is to fund as many of the best people as you can find and let them come up with ideas that enhance human well-being (and thus produce a lot of economic activity in their wake).

That’s the thinking behind this post (and this follow-up) in which I made a pitch for a major investment in human capital:  paying for the education and early research careers of a much larger pool of young scientists and engineers than we now support.

It’s a good idea in just about any economic climate, and would have some stimulus effect — but in all honesty it falls between the relief and stimulus poles of any future plan.  The need to support young scientists is becoming acute as universities both public and private confront the joys of endowments and state/federal budgets that are under the pressures we all know.  Also, though we will see economic and cultural benefits from the discoveries to be thus enabled, the time frame is a little loose.

For a more concrete idea, try this:  early action on one thing the Obama team has already said it wants:  a new “smart” power grid.

The new grid is a prime example of the sort of stimulus I think we need because, first, it will pay for itself over a reasonable amortization period, given the potential improvement over current losses in the power distribution system.

But more than that, the new grid is crucial because it enables much else that we want to do for economic, environmental, and national security reasons.  We need a dramatically enhanced power transmission system to handle the particular demands on the transport of electricity from the proposed increase in renewable generating capacity in the wind/solar belts of the largely underpopulated middle and southwestern desert portions of the country.

Those places are a long way away from most of the major population centers that will use the power thus generated, which means we need as efficient a grid as possible.  But the issue is more pressing than that.  An industry study [link to PDF] suggests that wind/solar power being less controllable and more irregular than conventional plants, puts unusual demands on a grid.  The one we have now won’t hack it, and it will prove to be a significant design and construction plan to get one in place that can.  See this NYTimes piece for a first cut through the reasons why.

All of which means that funding now for a new grid meets two goals:  immediate classical Keynsian stimulus, with jobs created right here right now, and long term capital investment of the sort that only government can undertake. Think of this as 21st century analogue to the construction of the interstate highway system, without many of the ecological side effects.  A win-win in other words.

(FWIW, as a more direct heir to the road building of both the thirties and the fifties,  I’d love to see an investment in high speed passenger rail that would eliminate the need for air travel on any journey of less than 300 or so miles around the major hubs — the same basic arguments apply, but because the benefits are felt most immediately in regions rather than nationwide, a harder sell).

So over to you, dear readers:  what else should our better part of trillion bucks of new government capital spending buy?

*I still love writing tht.

**The reference is to this old joke.

***Faraday is here both for his contributions (enormous) to the creation of the electric economy and for his yet to be topped line on the reason to support scientific research.  Asked by Prime Minister William Gladstone of what use was electricity, he replied, “Why, sir, there is every possibility that you will soon be able to tax it!”

Image:  Alexander Blaikle, “Michael Faraday*** delivering a Christmas Lecture at the Royal Institution,” c. 1856.