

Nate Silver: Double Dip or Not, Economy Is Falling Farther Behind - codex
http://fivethirtyeight.blogs.nytimes.com/2011/08/04/double-dip-or-not-economy-is-falling-farther-behind/

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nhebb
_While Washington was busy debating whether or not to sabotage the recovery by
failing to raise the federal debt ceiling_

Up to now, Washington has thrown every Keynesian trick in the book at this
recession, and it doesn't seem to have had a substantial impact. I think the
original stimulus would have had a better impact if it had included a lot more
infrastructure investments than "give a man a fish" type expenditures. I'm not
a student of economics, and I won't try to pretend to be one on this forum,
but haven't we run out of Keynesian options if we want to continue with the
current economic policies?

Nate Silver's leading line above makes me think of Germany [1]. They were the
only government to take a position of austerity, were widely criticized for
it, but they're the only major Western economy that rebounded from the
economic crisis. The U.S. government, on the other hand, lacks the unity and
political will to lead a turnaround.

[1]
[http://www.nytimes.com/2010/08/14/world/europe/14germany.htm...](http://www.nytimes.com/2010/08/14/world/europe/14germany.html)

~~~
ekidd
_Up to now, Washington has thrown every Keynesian trick in the book at this
recession, and it doesn't seem to have had a substantial impact._

I don't think this accurately represents the arguments of the Keynesian
economists. Krugman, to pick an example, calculated that high unemployment
rates would cause us to miss out on at least $3 trillion of wealth creation,
and he called for about $1.5 trillion in infrastructure investment. The
government would capture perhaps 25% of the restored growth in taxes, so the
federal government would come out at least $750 billion behind. But in theory,
America as a whole would be wealthier. (All numbers from memory.)

The actual "stimulus" consisted of about $700 billion, of which maybe $350
billion was actually spent on things that Krugman thought would help the
economy. He predicted that this was far too small to have any real impact, and
that we would therefore spend years in a weak economy. (We later spent
additional money on unemployment insurance; I don't know how this affects the
models.)

So while you could very easily disagree with Krugman's theory, his models
accurately predicted the results of the stimulus: A minor, temporary boost
that would be insufficient to actually fix anything. So at least one high-
profile Keynesian called it correctly, although you might argue that he just
got lucky.

Personally, I don't know enough economics to have an informed opinion on my
own. But we have at least 15 million Americans who _should_ be creating
wealth, and who are currently sitting around doing nothing. I'd love to see
that get fixed, especially because the last 20 years of Japanese history
suggests that if we alternate between rounds of weak stimulus and austerity
measures, we might be stuck in this economy for decades.

~~~
nhebb
I remember Krugman writing that a $1.5 billion stimulus was needed, but is a
stimulus of that magnitude really feasible? We spent half that and had trouble
with funding enough "shovel ready" projects. I think it's harder to infuse
$1.5 trillion into an economy than he takes for granted, without pissing much
of it away.

~~~
jellicle
So you're going to argue both sides of the question? You're really going to
argue that every trick in the book has been tried, and that the amount that
non-lying economists recommended to spend wasn't feasible? Which is it?

In actuality, the correct answer is that there are a vast supply of projects
going undone for lack of money - crumbling bridges, roads, water pipes, sewer
pipes, high-speed rail, just to get started - and that if there had been the
political will to spend money on those types of manpower-intensive projects,
the economy would be in much better shape today. (You get new bridges, smooth
roads, AND a working economy.) Instead a vast amount of money was spent, most
of it going to benefit a few thousand of the richest people in the U.S., who
have dutifully saved their profits in off-shore tax havens, creating no
economic benefit.

~~~
nhebb
I'm not arguing. Economics is so closely tied to politics that economic
debates become just as tedious as political ones.

When I think of economics, I think of the quote by statistician George Box,
_"All models are wrong. Some are useful."_ Economic models are more prone to
error than mathematical models in science because they are so complex and
can't really account for the human element. And ultimately, their usefulness
is subject to their ability to be implemented.

~~~
Spyro7
I did not down-vote you (as a matter of fact, I up-voted you because I am not
a fan of ninja down-voters and I think that you ask interesting questions).
However, it is evident that you are not a formally trained economist.

Economics is _not_ closely tied to politics. If you ever want to have a look
at what real economics is, please go to <http://ssrn.com/> and read some
economic articles on subjects that interest you. One thing that you will
rapidly notice is that politics has almost nothing to do with formal, academic
Economics (and this consitutes the _great_ bulk of the activity that goes on
in the field of Economics).

It is worthwhile to distinguish between normative economics and positive
economics. Positive economics, which constitutes the majority of the
discipline, seeks to describe, explain, and record economic phenomena.
Normative economics, which is the louder minority, seeks to prescribe
solutions to problems by using economic theory.

The problem with modern Economics is that the loudest voices within the field
are listened to because of their political viewpoints and not their economic
expertise. Dr. Krugman in particular has the habit of mixing normative and
positive economics without providing a careful distinction between the two.
This is a huge problem, and it makes the entire field look bad. However, what
can economists that are not popular do about this? The mass media has very
little interest in impact studies of obscure policy changes done in third
world countries, so we just keep churning away in the background.

While I would not say that George Box is wrong outright, I would say that this
quote from him is not entirely accurate as it could be when applied to
Economic modelling. You see, by definition an Economic model is merely a
simplification of a real world phenomena. Of course, all simplifications are
"wrong" because they are not intended to be "right" they are merely intended
to be approximations.

Economic models are more prone to error than Mathematical models and models in
the Natural sciences because they are, in essence, brutally simple models of
Human behaviour. Their usefulness is not subject to their ability to be
implemented, but is is subject to the context of the problem at hand and what
the expectations are for the model.

For example, one thing that I did recently was to analyze some time series
data to analyze a market for seasonality. The predictions of my model for the
next two quarters were not even close to being exact, but the seasonality
estimates were spot on. A model's usefulness must be determined within the
context of its overall purpose.

~~~
Hyena
I think whether economics is closely tied to politics depends on what you're
asking after. There are two sets of economists: social scientists and
engineers. The latter seem to work primarily for government and their work _is
necessarily_ closely tied to politics. But there are plenty of economists who
like to propose solutions to current issues who don't work for the government.

The former are less tied to politics, but much more closely to it than, say,
physics.

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troymc
Fun exercise: If something grows at 3.5% per year, how long does it take to
double in size?

Answer: About 20 years. The exact answer is ((log 2)/(log 1.035)).

~~~
kqr2
A handy rule of thumb for doubling is 70/(rate of growth).

~~~
troymc
Yes... Unfortunately, some people think that's the correct way to calculate
doubling time for _all_ rates of growth. Some pop investing books even elevate
that rule to some kind of magical status.

One way to see why it's a good approximation is to do a Maclaurin series:

(log 2)/(log(1+r/100)) = c/(log(1+x)) where c=(log 2) and x=(r/100)

= c/(x - [x^2]/2 + [x^3]/3 - ...) ~ c/x = 0.693/x = 0.693/(r/100) = 69.3/r ~
70/r

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jleyank
Another concern might be that the jobs are (slowly?) (rapidly?) being created,
they're just not being created in N. America. Growth might be suppressed until
this trend reverses or new activity appears to soak up the unemployed.

~~~
bho
Well, sure. As the economy moves to be more global, jobs previously held by
the US are now moving to China. Just a few weeks ago Goldman Sachs announced
layoffs in the US, but added jobs in Singapore and Brazil. This is only going
to continue.

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tomjen3
Interesting way to look at the economy, but I am not sure I buy it since the
growth since the last war was really fueled by the fact that only America had
unharmed factories.

~~~
watmough
So-called 'trend growth' has been fueled by fossil fuels, with massive
increases in the ability to exploit oil fields quickly, occurring since the
40's.

Basically, civilization is a heat engine, where prosperity, power, industry is
directly tied to how much energy we can burn. Increasing prosperity demands
increasing energy.

In the case of the US, oil production peaked in 70's, and the US has struggled
to increase oil supplies since then. The show-downs with OPEC in the 70's that
led to bad recessions are an example of the struggles.

As of 2005, World oil production has been basically flat. There's plenty of
oil left, the problem is that despite trillions of dollars of CAPEX, it just
can't be pumped fast enough to support 6 billion humans at increasing living
standards.

Hence, World prosperity is probably staying level, but redistributing itself
Eastward towards Asia.

edit: Per NBC, there are 45 million Americans claiming foodstamps in order to
feed themselves. That's a very scary contrast with how the US normally thinks
of itself.

~~~
redthrowaway
>Per NBC, there are 45 million Americans claiming foodstamps in order to feed
themselves.

That number is set to increase with severe cuts to entitlements and the
unlikelihood of another extension of unemployment benefits.

Americans have really drunk the Kool-Aid on the notion of American
exceptionalism. The idea that America is somehow special, possessed of some
manifest destiny and unable to lose has been so deeply engrained in the
American psyche, and for so long, that even now the notion of failure seems
too fanciful to enter the common narrative. America is not special. It's been
favoured by politics and luck, but there's nothing keeping it on top besides
continued prosperity. Look at Japan for an example of what could easily
happen: a high-tech economy with a massive banking and manufacturing sector,
that collapsed then...never really restarted. There are, in fact, many
parallels between the Japanese and American recessions. While Japan is still a
massive innovator, the benefits have not trickled down to the average Japanese
citizen. China long ago took over as the biggest economy in Asia, and could
easily supplant the US globally if current trends continue.

To face these challenges, the US has...Congress. The leadership vacuum in
Washington is downright depressing. Amidst bitter political bickering, the
disaffected masses turn to the demagoguery of the Tea Party, further
perpetuating the political morass. Can anyone see a viable, _achievable_
solution? Cutting the deficit is critically important, yet any proposed method
of doing so seems likely to hurt the economy at a time when it simply can't
take it. Everything seems poised to get much worse before it gets better.

~~~
watchandwait
America is exceptional, just read the founding documents, there's been nothing
like the American experiment in liberty before or since. That freedom resulted
in unprecedented prosperity and innovation. The Tea Party movement seeks to
restore that, and their plan of budget austerity is the only path forward. The
other way-- profligate spending and stimulus-- is the path that Japan took and
it failed.

~~~
redthrowaway
That you believe that just further speaks to my point.

