I was back-checking some economic facts based on some things that I wanted to blog about. In the process, I came across the following blog post from the Heritage Foundation. I don't monitor this blog, I just came across it in a Google search. But it says almost all of the things that I had wanted to say, so I thought it would be worthwhile to just link to it in this case. Having read it, it didn't make sense to end up restating it.
http://blog.heritage.org/2009/01/23/the-fallacy-of-stimulus-spending/
I think this is really worth a read for understanding the basics of why stimulus fails. Neither the economists that are "newly converted" to spending stimulus or those that were always die-hard fans are, that I have seen, explaining why they claim it will work in the face of contrary historical evidence. It has been tried before and has never worked. I don't think that can be overstated.
What do they call it again when you do the same thing over and over expecting a different result?
As I mentioned in an earlier post's comments, I don't think WWII can be used as a successful case study of fiscal stimulus since there are special factors surrounding a war economy that can't be applied to today's situation.
I should also note that I don't think this means that a discussion as to whether infrastructure projects make sense or not isn't worth having. But I think it should be considered on its own merits and not as part of a stimulus discussion.
The spending portions of the stimulus package will not only be wasteful spending that will increase our national debt (ie. put us further in debt to other nations), but also expands the power of government - which I think we should always be wary of, no matter who's administration it is.
Saturday, January 31, 2009
Thursday, January 29, 2009
The Great
I read a really good quote last fall: "It took the government to put the 'Great' in 'Great Depression'".
We are being pounded by the steady drumbeat of the need "to do something". Last year I remember reading a quote from a congressman when the TARP bill was being passed that "we need to act fast - there's no time to figure out if we're doing the right thing, we just have to do something". Ugh.
Obviously the Obama administration is pushing the stimulus package heavily. Just today it passed the House easily. The media for the most part just repeats the tired old lines.
Here's what people should pay more attention to: Keynesian-style stimulus doesn't work. It didn't work in the 1930's, or the 1970's, or in Japan in the 1990's. And we want to do it now why?
I think a big reason is because on the surface it sounds right. There is a real problem here of intuition leading people astray. But intution often doesn't work well in analyzing complex systems. I've seen no actual explanation about why the proposed stimulus is going to work and why it won't be a long-term problem. In fact, the supposed argument for why it will work completely ignores the long term problem.
Why aren't people more disturbed that they do not point to a case where government spending expansion has worked in the past to get an economy out of recession?
I was happy to see a report of an ad taken out in Newspapers by several leading economists, Nobel Laureates among them, coming out against any kind of stimulus. See it here.
I know that such opinions are going to get lost in the noise. There is a tendency toward *wanting* the government to be big brother - to take care of us. Someone to just come and *do something*, *anything* to just make this go away. Arguments about reality be damned.
These are the types of opinions that were lost in the noise when *last year's* tax stimulus was passed. Or when the TARP bill was passed. Or when the "Big Three" car company bailout bill didn't pass - but Bush did it anyway (with Obama's urging right along with it).
Another big factor here is a sort of self-selection issue. That is, those who are most likely to pursue government positions are those that believes government is the answer to any problem. Plato recognized this dynamic thousands of years ago and said that the best rulers would be those that don't want to rule. Which is quite a paradox indeed.
We are being pounded by the steady drumbeat of the need "to do something". Last year I remember reading a quote from a congressman when the TARP bill was being passed that "we need to act fast - there's no time to figure out if we're doing the right thing, we just have to do something". Ugh.
Obviously the Obama administration is pushing the stimulus package heavily. Just today it passed the House easily. The media for the most part just repeats the tired old lines.
Here's what people should pay more attention to: Keynesian-style stimulus doesn't work. It didn't work in the 1930's, or the 1970's, or in Japan in the 1990's. And we want to do it now why?
I think a big reason is because on the surface it sounds right. There is a real problem here of intuition leading people astray. But intution often doesn't work well in analyzing complex systems. I've seen no actual explanation about why the proposed stimulus is going to work and why it won't be a long-term problem. In fact, the supposed argument for why it will work completely ignores the long term problem.
Why aren't people more disturbed that they do not point to a case where government spending expansion has worked in the past to get an economy out of recession?
I was happy to see a report of an ad taken out in Newspapers by several leading economists, Nobel Laureates among them, coming out against any kind of stimulus. See it here.
I know that such opinions are going to get lost in the noise. There is a tendency toward *wanting* the government to be big brother - to take care of us. Someone to just come and *do something*, *anything* to just make this go away. Arguments about reality be damned.
These are the types of opinions that were lost in the noise when *last year's* tax stimulus was passed. Or when the TARP bill was passed. Or when the "Big Three" car company bailout bill didn't pass - but Bush did it anyway (with Obama's urging right along with it).
Another big factor here is a sort of self-selection issue. That is, those who are most likely to pursue government positions are those that believes government is the answer to any problem. Plato recognized this dynamic thousands of years ago and said that the best rulers would be those that don't want to rule. Which is quite a paradox indeed.
Saturday, January 24, 2009
Openness
I don't think there is anything more impressive about Obama's presidency as his apparent commitment to openness and accountability.
This is more than just a great catharsis after the extremely-closed and obviously-deceitful Bush presidency. I think that it sets an incredible precedent going forward for what we will expect from our government. Fingers crossed that it sticks.
And hopefully it doesn't just stick in the Executive branch, but needs to spread to the Legislative branch.
I hope I can look back at this post someday and agree that it really did mark the start of a lasting change in what we expect from our government.
It's really incredible to be able to sit at a computer and watch a weekly address from the president at your convenience. Whether or not you agree with what is said, it just feels completely proper that it be done that way.
It'll be interesting to see how it goes once the "honeymoon period" for the presidency is over.
I'd love to see weekly addresses made available from both the majority and minority leaders of both the House and Senate as well. Maybe in time.
Hm - is this hope I'm feeling? ;-)
Although I don't agree with the economics behind the stimulus plan, pledging to make it transparent is very positive. To promote that openness, here's this week's address discussing the stimulus plan - for posterity, and in case you didn't see it yet.
This is more than just a great catharsis after the extremely-closed and obviously-deceitful Bush presidency. I think that it sets an incredible precedent going forward for what we will expect from our government. Fingers crossed that it sticks.
And hopefully it doesn't just stick in the Executive branch, but needs to spread to the Legislative branch.
I hope I can look back at this post someday and agree that it really did mark the start of a lasting change in what we expect from our government.
It's really incredible to be able to sit at a computer and watch a weekly address from the president at your convenience. Whether or not you agree with what is said, it just feels completely proper that it be done that way.
It'll be interesting to see how it goes once the "honeymoon period" for the presidency is over.
I'd love to see weekly addresses made available from both the majority and minority leaders of both the House and Senate as well. Maybe in time.
Hm - is this hope I'm feeling? ;-)
Although I don't agree with the economics behind the stimulus plan, pledging to make it transparent is very positive. To promote that openness, here's this week's address discussing the stimulus plan - for posterity, and in case you didn't see it yet.
Tuesday, January 20, 2009
National Day of Renewal and Reconciliation
I want to start out this post by saying that today has been quite an historic day. Inauguration of the first black President of the United States is a good thing, a good milestone. It isn't said much, but there's even a further step than that - since Barack Obama is mixed-race. We've come far and fast as far as historical timeframes are concerned.
I've always been impressed with how Barack Obama has addressed race - which has been largely by not bringing it up. Through his actions he is basically saying - I'm not black, I'm not white, I'm American. I wouldn't be surprised if he actually has said essentially those words before.
I find that as a person I think Obama is admirable. Being a smoker is even a fine flaw, and makes him perhaps more human than the media and his image-handlers want to make him out to be.
Although Obama wants to put more emphasis on being pragmatic than ideological, there is no questioning that he has an ideology. And well he should. But that's where we part ways, as - from what I can tell - we come from different philosophical camps.
This being inauguration day and change-over of whitehouse.gov I figured I'd check it out and see what the makeover looked like (not that I spent much time checking out the old whitehouse.gov).
I saw they had a blog, so I figured I would check it out.
I can't fully explain why, but I found Obama's first Official Proclamation kind of creepy.
The meat of it is this:
I have a real problem with the "serve one another" concept. I am very willing to help other people, but calling it "serving" other people I think is really problematic. Serving implies that their priorities come first. Everyone putting everyone else's priorities first doesn't make sense - and it leads to those "in power" setting the priorities for you. I think your personal priorities *should* in fact come before those of others.
I also am uncomfortable with the "remaking the nation" concept. This seems like a way overly-broad statement. Maybe that just means it ends up meaning nothing - but it really makes it sound like there is an agenda for radical change *away* from the founding philosophical principles of the country, not *toward* them. As far as I'm concerned, we've already been moving away from them - and toward is where we should be headed.
I think also that it comes across to me as an act of great hubris to declare your own inauguration day as a "National Day of" something. Maybe other presidents have done this too, and I just haven't paid attention before.
All in all, a good day. Bush was in fact a disaster, and in many ways Obama will bring positive change. But I'm definitely looking out for the types of change that I don't think we need.
I've always been impressed with how Barack Obama has addressed race - which has been largely by not bringing it up. Through his actions he is basically saying - I'm not black, I'm not white, I'm American. I wouldn't be surprised if he actually has said essentially those words before.
I find that as a person I think Obama is admirable. Being a smoker is even a fine flaw, and makes him perhaps more human than the media and his image-handlers want to make him out to be.
Although Obama wants to put more emphasis on being pragmatic than ideological, there is no questioning that he has an ideology. And well he should. But that's where we part ways, as - from what I can tell - we come from different philosophical camps.
This being inauguration day and change-over of whitehouse.gov I figured I'd check it out and see what the makeover looked like (not that I spent much time checking out the old whitehouse.gov).
I saw they had a blog, so I figured I would check it out.
I can't fully explain why, but I found Obama's first Official Proclamation kind of creepy.
The meat of it is this:
NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by the authority vested in me by the Constitution and laws of the United States, do hereby proclaim January 20, 2009, a National Day of Renewal and Reconciliation, and call upon all of our citizens to serve one another and the common purpose of remaking this Nation for our new century.
I have a real problem with the "serve one another" concept. I am very willing to help other people, but calling it "serving" other people I think is really problematic. Serving implies that their priorities come first. Everyone putting everyone else's priorities first doesn't make sense - and it leads to those "in power" setting the priorities for you. I think your personal priorities *should* in fact come before those of others.
I also am uncomfortable with the "remaking the nation" concept. This seems like a way overly-broad statement. Maybe that just means it ends up meaning nothing - but it really makes it sound like there is an agenda for radical change *away* from the founding philosophical principles of the country, not *toward* them. As far as I'm concerned, we've already been moving away from them - and toward is where we should be headed.
I think also that it comes across to me as an act of great hubris to declare your own inauguration day as a "National Day of" something. Maybe other presidents have done this too, and I just haven't paid attention before.
All in all, a good day. Bush was in fact a disaster, and in many ways Obama will bring positive change. But I'm definitely looking out for the types of change that I don't think we need.
Monday, January 12, 2009
Economic Statism
This is completely opposite of the predominant meme these days, but I am firmly in the camp that government should not be meddling in the affairs of the economy - neither in bad times, nor in good.
In the last 100 years, the government has so slowly inserted itself into economic affairs that at my age (36) it almost seems hard to imagine it could be different. And there is no end in sight. And it is getting worse.
But I firmly believe that the government is to blame for the magnitude of the problems we are currently seeing in the economy. Not just the magnitude, but even the ultimate causes.
What I believe, and I don't think others understand or take into consideration, is that this isn't even so much an issue of good intentions or bad intentions. Several things done with good intentions have disasterous affects. It's not enough to have good intentions.
So not only do I think that government is to blame for where we are, but that is compounded by the fact that now more and more people lean in the direction that it is goverment that will get us through it. More good intentions. More bad results.
Our President-elect, in fact, has said that it is only Government that can get us out of the mess we are in. Some of the things that will be proposed, will no doubt make some sense. But on the whole I think the government has us on a slippery slope aimed at the ground.
It is important to realize that economics exists independent of government. The laws of economics are based on the actions of a complex system of millions of entities (people and businesses) that even if you try to control cannot be. That is why "black markets" for goods and services are created in places where control is attempted. Economic principles exist independent of government mandate - which is why trying to manipulate outcomes leads to problems. You could say it this way - government can control economies, but not economics. Reality always comes back to bite you in the ass when you turn your back on it.
Case in point - the "Great Depression" was precipitated by a disasterous managing of interest rates by the Fed. This was done politically, to prop up the British Pound, which was attempting to maintain a level pre-WWI strength peg to gold, which its post-war economy couldn't maintain. But economics can't be controlled. This led to overly-loose credit, which fuelled massive overconsumption, which was unsustainable and led to the crash and depression.
Sounds familiar. In 2004 or so I clearly remember a cover of The Economist magazine dedicated to the fact that the Fed was afraid of deflation and would be slashing rates. This led to already-overly-loose credit markets becoming even more so, which fuelled massive overconsumption, and well you see where this is going.
Not satisfied with having caused the problems back in 1929, the government then became part of the problem in making the depression last as long as it did. In fact, when "The Fed" was created in 19-something-teen, it was to try and make recessions shallower. And yet the recessions after the Feds creation were deeper, culminating of course, in 1929 and the miserable 1930's.
I say all of that even though I'm getting sick of the media and politicians invoking the depression in comparison to current conditions. The reality is that the conditions are nowhere near the depression.
This has been called by many, including President-elect Obama, the "worst economic crisis since the depression."But this is an outright lie. The recessions in the 1970's and 1980's were worse than this, on objective measures. Could it become worse? Of course - and it will be a self-fulfilling prophesy - because it will be the government's actions that will get us there.
But most will believe what government tells them. That the "free market" has failed and it is now time for government to take more control.
And there's the issue. This wasn't a country founded on the principle of control. It was founded on the philosophy of liberty. And especially in the last 100 years we've moved farther and farther away from that. Many times the side-effect of things done with good intentions.
The worst thing about the current thinking is that it is failing to draw the right lessons from what we've seen unfold over the last year. Many people are probably learning the right lessons actually, but it makes the government flail.
The lesson to draw is that debt has to be managed rationally. There are levels at which consumption is not sustainable - and, on average, we blew through those levels up until 2008. If anything, Government should be preaching *that* message.
The economy can grow again, and sooner, if government gets out of the way. Don't prop up failing companies and claim that it is saving an industry. Don't make future generations bail us out of the mess we're in now (by massive deficit spending). The bottom line is that government doesn't create jobs, businessmen do.
We're definitely headed toward more pain, courtesy of the government.
The worst signs are this:
* Even though the majority of Americans were against the TARP bailout bill, congress passed it anyway. The House temporarily had some balls, but they sold out fairly quickly.
* Even though the majority of Americans were against an "auto bailout", and even though congress didn't pass an "auto bailout", the executive branch still performed an "auto bailout".
The positive signs in this were that a majority of Americans were against both of these things. But that didn't stop the government of course. And it won't stop them going forward.
Worse still, a charismatic leader will be better able to convince a majority that increased economic statism is in their best interest.
And on it goes.
In the last 100 years, the government has so slowly inserted itself into economic affairs that at my age (36) it almost seems hard to imagine it could be different. And there is no end in sight. And it is getting worse.
But I firmly believe that the government is to blame for the magnitude of the problems we are currently seeing in the economy. Not just the magnitude, but even the ultimate causes.
What I believe, and I don't think others understand or take into consideration, is that this isn't even so much an issue of good intentions or bad intentions. Several things done with good intentions have disasterous affects. It's not enough to have good intentions.
So not only do I think that government is to blame for where we are, but that is compounded by the fact that now more and more people lean in the direction that it is goverment that will get us through it. More good intentions. More bad results.
Our President-elect, in fact, has said that it is only Government that can get us out of the mess we are in. Some of the things that will be proposed, will no doubt make some sense. But on the whole I think the government has us on a slippery slope aimed at the ground.
It is important to realize that economics exists independent of government. The laws of economics are based on the actions of a complex system of millions of entities (people and businesses) that even if you try to control cannot be. That is why "black markets" for goods and services are created in places where control is attempted. Economic principles exist independent of government mandate - which is why trying to manipulate outcomes leads to problems. You could say it this way - government can control economies, but not economics. Reality always comes back to bite you in the ass when you turn your back on it.
Case in point - the "Great Depression" was precipitated by a disasterous managing of interest rates by the Fed. This was done politically, to prop up the British Pound, which was attempting to maintain a level pre-WWI strength peg to gold, which its post-war economy couldn't maintain. But economics can't be controlled. This led to overly-loose credit, which fuelled massive overconsumption, which was unsustainable and led to the crash and depression.
Sounds familiar. In 2004 or so I clearly remember a cover of The Economist magazine dedicated to the fact that the Fed was afraid of deflation and would be slashing rates. This led to already-overly-loose credit markets becoming even more so, which fuelled massive overconsumption, and well you see where this is going.
Not satisfied with having caused the problems back in 1929, the government then became part of the problem in making the depression last as long as it did. In fact, when "The Fed" was created in 19-something-teen, it was to try and make recessions shallower. And yet the recessions after the Feds creation were deeper, culminating of course, in 1929 and the miserable 1930's.
I say all of that even though I'm getting sick of the media and politicians invoking the depression in comparison to current conditions. The reality is that the conditions are nowhere near the depression.
This has been called by many, including President-elect Obama, the "worst economic crisis since the depression."But this is an outright lie. The recessions in the 1970's and 1980's were worse than this, on objective measures. Could it become worse? Of course - and it will be a self-fulfilling prophesy - because it will be the government's actions that will get us there.
But most will believe what government tells them. That the "free market" has failed and it is now time for government to take more control.
And there's the issue. This wasn't a country founded on the principle of control. It was founded on the philosophy of liberty. And especially in the last 100 years we've moved farther and farther away from that. Many times the side-effect of things done with good intentions.
The worst thing about the current thinking is that it is failing to draw the right lessons from what we've seen unfold over the last year. Many people are probably learning the right lessons actually, but it makes the government flail.
The lesson to draw is that debt has to be managed rationally. There are levels at which consumption is not sustainable - and, on average, we blew through those levels up until 2008. If anything, Government should be preaching *that* message.
The economy can grow again, and sooner, if government gets out of the way. Don't prop up failing companies and claim that it is saving an industry. Don't make future generations bail us out of the mess we're in now (by massive deficit spending). The bottom line is that government doesn't create jobs, businessmen do.
We're definitely headed toward more pain, courtesy of the government.
The worst signs are this:
* Even though the majority of Americans were against the TARP bailout bill, congress passed it anyway. The House temporarily had some balls, but they sold out fairly quickly.
* Even though the majority of Americans were against an "auto bailout", and even though congress didn't pass an "auto bailout", the executive branch still performed an "auto bailout".
The positive signs in this were that a majority of Americans were against both of these things. But that didn't stop the government of course. And it won't stop them going forward.
Worse still, a charismatic leader will be better able to convince a majority that increased economic statism is in their best interest.
And on it goes.
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