

There was no stimulus - chrismealy
http://www.nytimes.com/2010/10/11/opinion/11krugman.html

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solutionyogi
I am tired of Krugman's Op-Eds. He keeps telling us that Government should
spend more. Spend more on what?

Government can pay one set of people to dig holes and another set of people to
fill them up. Surely, it would create jobs but is this what we want?

We all agree that government needs to create 'productive' jobs otherwise there
is no point in spending money.

From his article, he notes that state government laid off school teachers (the
productive people) when the budget ran tight instead of firing the bureaucrats
who shuffle papers. Why does he expect that if Government were to spend more
money they would somehow create productive jobs and not more bureaucracies
which waste our hard earned money?

Reminds me of this quote:

"The curious case of economics is to demonstrate to men, what little they
know, about what they THINK they can design."

~~~
earl
If you read his columns, he's pretty explicit about what government should
spend money on: (1) infrastructure projects, which will both increase
employment now (particularly in the construction sector) as well as boost
future productivity; (2) the social safety net, so people aren't homeless or
starving (the people who receive these payments are also, as a bonus, nearly
guaranteed to spend all of the money).

Also, you complain about laying off school teachers while retaining
bureaucrats. What exactly do you think the ratio is between the two? Because
I'm guessing it's a lot higher than you expect, so given the size of the
budget deficits, there wasn't a ton of choice.

~~~
solutionyogi
You want Government to spend on Infrastructure, sure. Get ready to pay through
your nose for that infrastructure.

I am from NJ and they are trying to build up rail tunnel to connect to NY and
here's the cost comparison:

"Lotschberg Base Tunnel, world’s longest land tunnel, dug under a mountain at
the peak of the world economic boom and completed in 2007; 21.5 miles long,
about $4.5 billion (might be 1998 dollars, though); cost per mile: $209
million

Gotthard Base Tunnel, when completed in 2017 will become the world’s longest
railway tunnel; at least 35.4 miles plus additional tunnels, shafts and
passages totaling 94.3 miles, about $10.2 billion; cost per mile: $288 million

Channel Tunnel or “Chunnel”, connecting France and England, world’s longest
undersea tunnel; 31.4 miles, opened 1994, cost $7.4 billion (might be 1985
dollars and the cost overruns did lead to bankruptcy); cost per mile: $235
million

Wushaoling Tunnel, traveling through four regional fault zones; 13 miles long,
opened 2006, cost $845 million; cost per mile: $65 million

New Jersey-New York Mass Transit/ARC Tunnel, scheduled for completion in 2018;
3.5 miles long, cost $11-14 billion; cost per mile: $3.7 billion (I used $13
billion for this calculation)"

From [http://blogs.law.harvard.edu/philg/2010/10/08/new-jerseys-
ca...](http://blogs.law.harvard.edu/philg/2010/10/08/new-jerseys-canceled-
railroad-tunnel-in-perspective/)

Exactly how many jobs do you think infrastructure jobs will create? And what
about all those people who are not in infrastructure sector? What about the
school teachers which he keeps talking about?

Also, how does increasing social safety net CREATE new jobs? You are simply
handing out money.

~~~
yequalsx
When poor people get money they spend it. Almost all of it. Very little goes
into a bank account. This increase in spending leads to more jobs for obvious
reasons.

~~~
yummyfajitas
This is popular misconception. It sounds good, but it just isn't true.

<http://www-personal.umich.edu/~shapiro/TaxRebates.pdf>

~~~
anigbrowl
The reliability of that data is somewhat questionable, given that studies
since then have taken issue with these findings, both in relation to the 2008
tax rebates (1) and later analysis of rebates paid in 2001 (2).

1\. <http://www.voxeu.org/index.php?q=node/1541>

2\. <http://www.nber.org/papers/w10784>

Whichever interpretation one places on it, it strikes me that the arguments
for against payments are fundamentally identical to those regarding tax cuts.

~~~
yummyfajitas
Regarding link 1, it reports spending as a % of household income. That's a
silly way to report the data.

A quick google search suggests the average household income of $70k in greater
LA. Treating low income households as earning $15k (an overestimate) and
treating all other households as earning $70k (an underestimate, since low
income households are excluded), we find that high income households spend 2x
more as a result of stimulus. (Rough numbers, but it's the best I can do. They
don't provide all necessary data to get precise numbers.)

Link 2 is gated, I can't get in.

See also this paper, which shows the same effect happened in the current
recession.

<http://papers.nber.org/papers/w16246>

(Ungated: <http://ow.ly/2Fx1i> )

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dnautics
I'm not sure why the good doctor isn't worried about inflationary spirals. He
talks about deflationary spirals, but here's the situation I see:

Economy goes into a depression, so there's stimulus, to give jobs to either
government positions or favored private entities. The requisite money printing
causes inflation. Inflation causes the cost of living and operating businesses
to go up, which either sends jobs overseas (prompting government to inflate
more to create a better trade balance) or corporations (esp. small businesses
which are more sensitive to price indices and less likely to get stimulus) to
close shop. If jobs are lost, government must inflate more to pay for new jobs
or create more stimulus.

Rinse, wash, repeat.

All things being equal, I'd rather have a deflationary spiral, which can have
a levelling effect - as inflation erodes saving power - hitting the poor far
far harder than the rich.

~~~
jsz0
Perhaps a stupid question but given the deficits created by two wars, the post
9/11 spending spree, unfunded tax cuts, TARP, and the first stimulus package
why aren't we already deep into an inflationary spiral today? Is there
anything to suggest another $1-2T of government stimulus brings us to a
breaking point for inflation?

~~~
d2viant
It's very simple: People are still willing to lend money to the US government
at very low rates because the other areas for investment (i.e. the stock
market) are viewed as too risky.

Additional government stimulus has little to do with it at this point, that
will only come into play when inflation actually hits. When things change and
people become more tolerant of risk and less tolerant of low returns, all the
government deficits that have been accumulated will become a huge issue. When
lenders to the US government start demanding 5%+ on their money, the interest
payments on our debt will skyrocket.

------
stevedekorte
Then why do a bunch of the road work construction projects around San
Francisco have big (an likely expensive) signs saying they were paid for by a
federal stimulus program?

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bugsy
Let's not mention the bankster bailouts, clearly they did not happen according
to the propaganda rag that is the NYT.

~~~
mquander
Clearly. The reason they weren't mentioned is because nobody makes the claim
that the bank bailouts served to generally improve the economy; they were
primarily an attempt to loosen up the credit market.

They are not a very useful form of "stimulus," and it wouldn't make any sense
to judge the efficacy of tax cuts, or that of government spending on jobs,
based on the results of TARP.

~~~
bugsy
They were promoted by both majority parties not as stimulating the economy,
but of saving it from otherwise certain collapse.

They are also government spending which the NYT article claims hasn't
happened. The exact statement in the article is:

"Here’s what you need to know: The whole story is a myth. There never was a
big expansion of government spending."

------
swaits
Well, now I've seen everything!

------
lusis
So this is the new tactic? The reason it hasn't worked is because we haven't
actually DONE it? So where the hell did all my tax dollars go?

~~~
mquander
Krugman details exactly where he claims most of the stimulus money went. Go
read the link.

~~~
lusis
Actually he never actually DOES from what I can tell. He dances around the
issue and makes general claims but never actually says "X% went here. Y% went
here". He says things like "spending on safety-net programs, mainly
unemployment insurance and Medicaid, has risen" which means squat. Is he
implying that the administration misused stimulus funds to instead fund
saftey-net programs?

The fact of the matter is that the stimulus money went exactly where it was
intended. Government works programs and questionable "initiatives" (Unless
those signs I see every 10 miles are made up).

It just didn't work so the new tactic is to claim "It wasn't enough" or "It
wasn't actually spent".

~~~
mquander
I don't think it's fair to characterize that as the "new tactic." Liberals
were complaining that it wasn't enough while and ever since the Recovery Act
was passed. Krugman himself was yelling pretty loudly about it, cite:
[http://krugman.blogs.nytimes.com/2009/01/06/stimulus-
arithme...](http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-
wonkish-but-important/) At the time, liberals were advocating a $1-2 trillion
stimulus made up primarily of government spending, which is obviously not
remotely what we got.

Funding safety net programs is not really a "misuse of funds;" it was built
into the legislation. (Maybe it's a poor use of funds, but that's Congress's
fault more than the White House's.)

If you want specifics on how money was distributed, just go to the source:
<http://www.recovery.gov/> It looks like a bit more than a third of the money
allocated actually went toward "contracts, grants, and loans," which is the
category that one would expect to be creating jobs.

------
forgotAgain
There was a time when Mr Krugman was worth a read. That time ended a while
ago. Now his writing is a constant stream of attacks on those who disagree
with him. This latest is a new low when it comes to seriousness.

His current argument is that there has been no recent expansion in federal
government spending. His logic is that federal money given to states should
not be included in federal spending figures. Too bad the debt holder won't
agree.

~~~
earl
Sadly, no.

His argument (very plainly written in the article): there was no stimulus. The
exact quote is, "There never was a big expansion of government spending. In
fact, that has been the key problem with economic policy in the Obama years:
we never had the kind of fiscal expansion that might have created the millions
of jobs we need."

He then provides details: net government employment has fallen. There haven't
been any big infrastructure projects. State spending has fallen severely. Much
of the stimulus spending was tax cuts, which probably don't affect employment
much and we know well to not have the highest employment multipliers of all
possible spending choices. He carefully differentiates between federal and
government spending.

So, to summarize: you misstate his argument. You misstate the supporting
details. Either you can't read or you didn't understand anything he wrote. Who
exactly isn't serious?

~~~
dnautics
When I drive on the highways, I see all these ARRA signs all over the place.
Driving cross country last summer from San Diego to DC I ran through no less
than 8 cone zones. And again this summer from DC back to San Diego, I drove
through about as many (and took a shorter route too). At the university of
Maryland, they were building a "center for advanced physics research" using
ARRA funds - even though there were two whole wings in the chemistry
department that were empty, and we have reached 'peak undergrad' as the
demographic trend has the echo-boomer undergraduates receding. Have you driven
down 16th street? All of columbia heights is a disaster zone as federal
stimulus funds attempt to redo 18th century urban planning. DC is building a
trolley? (isn't there a reason why trolleys became obsolete in the mid-20th
c?) to service southeast (of course the limousine liberals like krugman would
never be caught in southeast DC)... Tearing up pennsylvania avenue in
anacostia made delivering food to the homebound poor extremely difficult... on
a saturday morning.

Oh, I suppose I should disclose that my research job at the University of
Maryland was underwritten with ARRA money? I suppose I'm a bit of a hypocrite,
then, for taking the job when I was opposed to ARRA, but when I signed on to
the job I really did think that the project was funded by the american cancer
society, and I felt too obligated to the boss and too much in need of a salary
to give it up when I found out the truth.

The problem is that Krugman is counting 'stimulus' by number of jobs. Well,
the fact of the matter is that the money was spent, leaving it to do its
horrible inflationary magic. Throwing money at a solution can either create
jobs, or pad the salary of people who already have money. Now, if I were an
employer, and got a fat wad of cash to do X, would I really distribute the
money to create jobs? Or circle the wagons and give myself and my current
employees a pay hike in anticipation of the inflation that's coming down the
pike?

~~~
yequalsx
" leaving it to do its horrible inflationary magic"? The inflation rate is
very low.

"Now, if I were an employer, and got a fat wad of cash to do X, would I really
distribute the money to create jobs?" That depends on the situation and
climate you are in. You would spend the money to create jobs by expanding your
business if it made sense to do so.

~~~
dnautics
" The inflation rate is very low."

No doubt. Government spending and debt expansion has up till now largely been
counterbalanced by private debt contraction. Also, as a poster below
explained, it takes time for money expansion to manifest itself as increased
prices. (hence my statement "coming down the pike").

Of course, private debt contraction will become increasingly harder as
inflationary pressures raise the cost of living and make borrowing money
(apparently) less painful over the short-and-medium runs.

