economists say it will not work

[hackster]

economists (?) say it won't... they say doing nothing would have been better...

oh boy.

McClatchy Washington Bureau | 02/12/2009 | Will the stimulus actually stimulate? Economists say no

 

[Onion Eater]

"All this is 25 years of government expansion jammed into one bill and sold as stimulus," said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

I agree.

I had previously planned to write a paper for Debate Politics about Obama's plan to bring high-speed internet to rural and inner-city communities and compare it with the Depression-era rural electrification program.

Arizona, where I live, is prosperous and pays far more in taxes than the government ever spent on bringing freeways and electricity to the West. But, right across the border, Mexico is poverty stricken. Clearly, their problem is not climate. It is actually nicer down there than in large parts of Arizona. Their problem is that the Mexican government never made any long-term investments in infrastructure that would have allowed Mexicans to compete head-to-head with Americans.

I was going to argue that bringing high-speed internet to everybody in America, including the rural poor and inner-city youths (you know, rednecks and gangbangers) might not seem like a good investment in the short run, in the sense that those people's fees would actually cover the costs. But, in the long run, it would be the only thing that will allow America to compete with countries like India. India certainly has their eye on the ball and, if we're not careful, they are going to pull ahead of us in the coming decades.

Most of the people in American during the Great Depression lived on farms and, even with all that labor, we as a country could barely feed ourselves. And, sadly, most of that labor was spent in pure drudgery, like pumping water by hand and picking cotton or otherwise processing agricultural products with primitive, muscle-powered machinery. It was electricity that lifted us up from being an agrarian society to being an industrial society. And it will be high-speed internet and education that will make us the leaders of the computer age, just as we were once the leaders in manufacturing.

Instead of treating the poor like charity cases, it is better to make the tools available to them that they can use to break out of their poverty. If poor people do not make use of those opportunities, then to hell with them. But, if they do, then eventually they and their children will wind up paying far more in taxes than the government ever spent on them.

Unfortunately, as far as I can tell, "infrastructure" is just a buzzword for more pork. Obama has no long-term plan to help America compete in the 21st century. Adding an extra lane here and there to existing freeways and stuffing insulation into the attics of government buildings is not exactly inspired. The great majority of the stimulus spending appears to be pure pork. It is Democratic pork instead of Republican pork but, other than that, nothing has changed.

Frankly, I expected more of President Obama.

 

[Harry Guerrilla]

"All this is 25 years of government expansion jammed into one bill and sold as stimulus," said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

I agree.

I had previously planned to write a paper for Debate Politics about Obama's plan to bring high-speed internet to rural and inner-city communities and compare it with the Depression-era rural electrification program.

Arizona, where I live, is prosperous and pays far more in taxes than the government ever spent on bringing freeways and electricity to the West. But, right across the border, Mexico is poverty stricken. Clearly, their problem is not climate. It is actually nicer down there than in large parts of Arizona. Their problem is that the Mexican government never made any long-term investments in infrastructure that would have allowed Mexicans to compete head-to-head with Americans.

I was going to argue that bringing high-speed internet to everybody in America, including the rural poor and inner-city youths (you know, rednecks and gangbangers) might not seem like a good investment in the short run, in the sense that those people's fees would actually cover the costs. But, in the long run, it would be the only thing that will allow America to compete with countries like India. India certainly has their eye on the ball and, if we're not careful, they are going to pull ahead of us in the coming decades.

Most of the people in American during the Great Depression lived on farms and, even with all that labor, we as a country could barely feed ourselves. And, sadly, most of that labor was spent in pure drudgery, like pumping water by hand and picking cotton or otherwise processing agricultural products with primitive, muscle-powered machinery. It was electricity that lifted us up from being an agrarian society to being an industrial society. And it will be high-speed internet and education that will make us the leaders of the computer age, just as we were once the leaders in manufacturing.

Instead of treating the poor like charity cases, it is better to make the tools available to them that they can use to break out of their poverty. If poor people do not make use of those opportunities, then to hell with them. But, if they do, then eventually they and their children will wind up paying far more in taxes than the government ever spent on them.

Unfortunately, as far as I can tell, "infrastructure" is just a buzzword for more pork. Obama has no long-term plan to help America compete in the 21st century. Adding an extra lane here and there to existing freeways and stuffing insulation into the attics of government buildings is not exactly inspired. The great majority of the stimulus spending appears to be pure pork. It is Democratic pork instead of Republican pork but, other than that, nothing has changed.

Frankly, I expected more of President Obama.

I think that was a great assessment of what needed to be done.

I still think however we should be more agriculture based but with a huge inclusion of internet telecommunication.

I also think Asia and Oceania will be the next economic power houses of the future.

I'm considering moving there for that purpose.

 

[OutoftheBox]

The key words for rebounding an economy is jobs/work. Without the additional incomes (millions), the economy won't be able to strengthen. Debt is the dead weight cancer in our current economic system. Now how we go about creating so many jobs with decent incomes while paying off such huge debts that currently exists in the US is beyond my comprehension. To print and borrow money like there is no tomorrow seems only to tighten the noose around our necks. POV

 

[Kushinator]

Frankly, I expected more of President Obama.

We might disagree on many things, but that is post of the year criteria.

 

[hackster]

Originally Posted by Onion Eater View Post
Frankly, I expected more of President Obama.

We might disagree on many things, but that is post of the year criteria.

Meet the new boss, same as the ol' boss...

 

[theTANTALIZER]

Our government is the new loan shark. Wonder if Tony Soprano will be added to the cabinet next.
__________________

Meet the new boss, same as the ol' boss...

 

[RiverDad]

Their problem is that the Mexican government never made any long-term investments in infrastructure that would have allowed Mexicans to compete head-to-head with Americans.

No, their problem is that they're Mexicans. We can each apportion the causality between governance styles, governance institutions, culture and genetics as we see appropriate. Don't forget that back in the dark recesses of history, Mexico and the US used to have nearly identicial GDP/capita levels of wealth. Early America was not known for its Rich Uncle Federal Government.

 

[obvious Child]

economists (?) say it won't... they say doing nothing would have been better...

oh boy.

McClatchy Washington Bureau | 02/12/2009 | Will the stimulus actually stimulate? Economists say no

Well, that "better" amounts to having the financial and banking sectors collapse and rebuild them one piece at a time. That's instant depression.

Still, no one has a viable plan. The GOP plan is a joke. Tax credits are too slow just like fiscal policy. Furthermore, the tax cuts they want are simply too tiny to do much of anything. Plus it is a behavioral fact that when people get a big chunk of cash, they save most of it.

What would be better in terms of tax cuts is to mail everyone a check for $50 in a debit card every other week for a year. Don't do it as a check as people will deposit it. Using it as a debit card creates real incentives to go burn it and the small amount gets over the behavioral saving problem. Or we could mail them a check but they cannot deposit it in their bank the week they cash it.

 

[ALiberalModerate]

Basically, what we have to do in order to get out of this is pretty much the following:

1. Curb the mortgage defaults. If we continue down the road we are on and most households that are at risk of foreclosure end up in foreclosure, then we are right now only at the tip of the iceberg in terms of the housing crash and will be looking at rampant debt deflation, which guarantees an economic depression.

2. Nationalize the large insolvent banks, carve them up, and sell them off.

3. Spend, spend, spend, and spend. We need to be spending at least the equivalent to the decline in GDP over the last year. We are probably looking at another stimulus after this one, easily as big as this one. The cost in deficits will not nearly be as large as the future lost revenue as a result of years of recession. The inevitable inflation that will result once economic growth resumes will be much easier to curb than the alternative of deflation today.

We tried the do nothing, leave it to the market alone approach when we were in a situation like this before. That would be from 1929 to 1933. GDP declined by 12% from 1929-1930, by 16% from 1930 to 1931 and by 23% from 1931 to 1932. When taxes were raised in the misguided attempt to balance the budget, all that had already happened. Government was tiny back then. Hoover in many ways would make Ron Paul look like Bernie Sanders. Think about it, government was 4% of the economy then. If that was not enough of a limited government then what would be?

The New Deal ushered in 8 to 10% economic growth a year, and we still were not fully out of the Depression until World War II. You know when you dig a deep enough hole, it takes years of near unprecedented growth to dig out of it. We simply cannot afford to have another utopian libertarian economic experiment like we had under Hoover. It seems to me that the free market cultists, and I use that term because most people believe in a free market, but to some its like a religion.... these free market cultists, the only thing they are really proposing to do differently than what Hoover did was they would have not restricted trade. Well, thats certainly a move in the right direction, but its not nearly enough. Sometimes we have to take some fairly radical steps to get out of a crisis and this one of those times.

 

[obvious Child]

I'd love to see an argument how tiny tax rebates can do much of anything.

People tend to forget that the Bush 2001 tax legislation enacted a super accelerated depreciating schedule. Essentially firms could buy equipment and depreciate it entirely within a few years. That's a HUGE incentive to place orders. Giving every family a measly $500 bones won't do jack.

 

[missypea]

Basically, what we have to do in order to get out of this is pretty much the following:

1. Curb the mortgage defaults. If we continue down the road we are on and most households that are at risk of foreclosure end up in foreclosure, then we are right now only at the tip of the iceberg in terms of the housing crash and will be looking at rampant debt deflation, which guarantees an economic depression.

2. Nationalize the large insolvent banks, carve them up, and sell them off.

3. Spend, spend, spend, and spend. We need to be spending at least the equivalent to the decline in GDP over the last year. We are probably looking at another stimulus after this one, easily as big as this one. The cost in deficits will not nearly be as large as the future lost revenue as a result of years of recession. The inevitable inflation that will result once economic growth resumes will be much easier to curb than the alternative of deflation today.

We tried the do nothing, leave it to the market alone approach when we were in a situation like this before. That would be from 1929 to 1933. GDP declined by 12% from 1929-1930, by 16% from 1930 to 1931 and by 23% from 1931 to 1932. When taxes were raised in the misguided attempt to balance the budget, all that had already happened. Government was tiny back then. Hoover in many ways would make Ron Paul look like Bernie Sanders. Think about it, government was 4% of the economy then. If that was not enough of a limited government then what would be?

The New Deal ushered in 8 to 10% economic growth a year, and we still were not fully out of the Depression until World War II. You know when you dig a deep enough hole, it takes years of near unprecedented growth to dig out of it. We simply cannot afford to have another utopian libertarian economic experiment like we had under Hoover. It seems to me that the free market cultists, and I use that term because most people believe in a free market, but to some its like a religion.... these free market cultists, the only thing they are really proposing to do differently than what Hoover did was they would have not restricted trade. Well, thats certainly a move in the right direction, but its not nearly enough. Sometimes we have to take some fairly radical steps to get out of a crisis and this one of those times.

God I missed your posts, SD. Welcome back :2wave:

 

[RiverDad]

Well, that "better" amounts to having the financial and banking sectors collapse and rebuild them one piece at a time. That's instant depression.

Not at all. There are plenty of banks in lower tiers which are still profitable in this economic environment. What you do is orchestrate their movement up the banking food chain by letting the whales die. You carve up the big banks and sell the profitable securities and business lines to smaller banks and then have the Fed hold the toxic assets.

This serves three purposes:

1.) It rewards the good bankers for following good lending practices and it punishes the bad bankers for gambling and trading on moral hazard.
2.) It removes the bad bankers from the career ladder, so that they pay a personal price for their decisions. This sends a sound message through the entire banking industry.
3.) It disaggregates the banking industry by carving up the big whales thus increasing competitive dynamics within the banking industry.

Still, no one has a viable plan. The GOP plan is a joke. Tax credits are too slow just like fiscal policy. Furthermore, the tax cuts they want are simply too tiny to do much of anything. Plus it is a behavioral fact that when people get a big chunk of cash, they save most of it.

If inflated homes prices and taking on too much debt are what got us into the problem, then surely the Democratic plan to reinflate home prices and take on even more debt will surely work, right?

 

[obvious Child]

Not at all. There are plenty of banks in lower tiers which are still profitable in this economic environment. What you do is orchestrate their movement up the banking food chain by letting the whales die.

Maybe. However, many lower tier banks have also gone belly up not to mention very few of them have sufficent assets to acquire significant portions of the dying lot. And when you carve up the big banks, you're going to likely result in fire sale prices or at least lower then normal market prices. This in turn causes other banks to write down their assets and lookie we got another vicious cycle. Even worse, if we cannot get any price for certain assets, then the market rate becomes worthless and all of the banks that have such assets take charge offs. Again, vicious cycle. This is kind of why the Fed is NOT doing this. They shotgun marry failing firms to firms that are good in order to prevent the M2M problem. Hence why Lehman really was the start of the charge offs as their L2 and L3 products started the dominoes.

You carve up the big banks and sell the profitable securities and business lines to smaller banks and then have the Fed hold the toxic assets.

You're ACTUALLY proposing Good Bank/Bad Bank? :shock:

This serves three purposes

That implies there are people left after M2M gets through with them.

If inflated homes prices and taking on too much debt are what got us into the problem, then surely the Democratic plan to reinflate home prices and take on even more debt will surely work, right?

lol. Like hemlock.

 

[RiverDad]

Maybe. However, many lower tier banks have also gone belly up not to mention very few of them have sufficent assets to acquire significant portions of the dying lot. And when you carve up the big banks, you're going to likely result in fire sale prices or at least lower then normal market prices. This in turn causes other banks to write down their assets and lookie we got another vicious cycle. Even worse, if we cannot get any price for certain assets, then the market rate becomes worthless and all of the banks that have such assets take charge offs. Again, vicious cycle. This is kind of why the Fed is NOT doing this. They shotgun marry failing firms to firms that are good in order to prevent the M2M problem. Hence why Lehman really was the start of the charge offs as their L2 and L3 products started the dominoes.

I was presuming that the good money going into bad banks would be redirected to increasing the capital base of the smaller, healthier banks. Of the smaller banks that are already troubled, of course they'd not be targeted as recipients.

If gov't funds must be used I'd advocate that the moral hazard issue be addressed head-on. Reward cautious bankers and end the careers of the gambling bankers. Wipe out the bondholders and shareholders of the big banks and reward those of the smaller banks. The lesson here is that even with a bailout being required, the individuals and the institution and the shareholders and the bondholders will not benefit from the bailout, it'll be white knights who get the helping hand in acquiring the carcass.

In my opinion such a move would be more popular with the public in that it has a very visible punishment component and completely undercuts any notion of inside dealing and protecting the elites. I think that it's an open question on whether this strategy would boost market confidence - there will be turmoil, as you point out, but some of that can be mitigated, but the turmoil is flushed out into the open rather than keeping asset values buoyed behind closed books and under the control of the people who didn't practice banking responsibly. On the flip side, perhaps the public and potential clients will have confidence boosted with new, and capable, banks and bankers climbing the food chain. Too many elites believe that it is their god-given right to be masters of the universe. Such a flushing out of banking debris might be good for the psyches of a weary public dealing with their own financial worries and job losses.

 

[obvious Child]

I was presuming that the good money going into bad banks would be redirected to increasing the capital base of the smaller, healthier banks. Of the smaller banks that are already troubled, of course they'd not be targeted as recipients.

So essentially we're having the taxpayer buy the good assets and then give them to the lower tiered banks in exchange for some preferred/common stock?

If gov't funds must be used I'd advocate that the moral hazard issue be addressed head-on. Reward cautious bankers and end the careers of the gambling bankers. Wipe out the bondholders and shareholders of the big banks and reward those of the smaller banks.

The problem with wiping out the boldholders is that many of them often have bonds that predate this mess quite significently. Those who did their due diligence and loaned when Citi and others were not engaging in risky business should not be punished. Besides, gambling banks are part of capitalism. The whole derivatives market is essentially a gambling market. But banks make large sums of money from it and firms hedge risk. We need that.

The lesson here is that even with a bailout being required, the individuals and the institution and the shareholders and the bondholders will not benefit from the bailout, it'll be white knights who get the helping hand in acquiring the carcass.

That doesn't sound like it will inspire consumer confidence in the banking system. Which is really what we need more then anything else.

Still, your proposal doesn't solve the potential massive mark downs. The Fed is very hesitant to let several of the remaining few go because of the market down problem. The more I think about it, the more I think we should have let Lehman brothers survive.

 

[RiverDad]

So essentially we're having the taxpayer buy the good assets and then give them to the lower tiered banks in exchange for some preferred/common stock?

If we're drilling down towards bad solutions, we shouldn't strive to get to the very worst solution, which is what we're doing now by rewarding bad behavior. This proposed solution is a less-bad solution. If taxpayer money HAS TO go in for a fix, then lower tier banks are at least being rewarded for prudent management rather than top tier banks being rewarded for risky management. Secondly, the fact that lower tier banks managed themselves responsibly should inspire greater confidence that they can steer a course through this mess better than entrusting taxpayer money to the people who were steering the ship as it ran aground.

The problem with wiping out the boldholders is that many of them often have bonds that predate this mess quite significently. Those who did their due diligence and loaned when Citi and others were not engaging in risky business should not be punished.

Bonds are tradeable, so even if they bought their bonds years ago, the due diligence responsibility lies with the investor, not the taxpayer. If they didn't sell when Citi was changing their management style then they should eat the loss.

Besides, gambling banks are part of capitalism. The whole derivatives market is essentially a gambling market. But banks make large sums of money from it and firms hedge risk. We need that.

Look, these bankers argue that they deserve their large remuneration packages because they are sophisticated enough to out-think their competitors. Well, they weren't. Let's give the players on the farm team a chance to hit in the big leagues and hope that the judgment and performance that they exhibited in the farm leagues can be scaled up to play in the big leagues. Judgment, style, environmental awareness, and execution matter. The smaller players who didn't get bedazzled by the notion that the price of real estate will never fall and constructed their risk portfolio accordingly have demonstrated a competence not seen by the big players.

That doesn't sound like it will inspire consumer confidence in the banking system. Which is really what we need more then anything else.

Perhaps my cursory explanation doesn't inspire confidence, but get the competent bankers out into the media universe explaining to people that their banks have been making profits while all of these major league players have been losing their shirt and that this new generation of bankers are going to take their winning ways to the big league and clean up the mess created by their incompetent colleagues and I'd venture that this message, repeated ad nauseum would indeed boost consumer confidence, at least to a degree greater than what we have before us at present.

Still, your proposal doesn't solve the potential massive mark downs. The Fed is very hesitant to let several of the remaining few go because of the market down problem. The more I think about it, the more I think we should have let Lehman brothers survive.

All they need to do to restrict the downside to create a bundling of securities that cannot be duplicated, kind of one-off valuations, and they can side-step the M2M rule. Alternatively the suspend M2M for this process.

Hey, I shouldn't have to think up a solution to every aspect of the problem, let the quant jocks earn their keep and find a solution.

 

[Harry Guerrilla]

Basically, what we have to do in order to get out of this is pretty much the following:

1. Curb the mortgage defaults. If we continue down the road we are on and most households that are at risk of foreclosure end up in foreclosure, then we are right now only at the tip of the iceberg in terms of the housing crash and will be looking at rampant debt deflation, which guarantees an economic depression.

A very small percentage of people with mortgages are at risk for defaulting, it is unnecessary to do anything.

Rewarding people who made crappy decisions is not a good idea.

2. Nationalize the large insolvent banks, carve them up, and sell them off.

Insolvent banks should be allowed to collapse.

With the power vacuum, new and smaller banks can expand and employ new workers to take more market share.

3. Spend, spend, spend, and spend. We need to be spending at least the equivalent to the decline in GDP over the last year. We are probably looking at another stimulus after this one, easily as big as this one. The cost in deficits will not nearly be as large as the future lost revenue as a result of years of recession. The inevitable inflation that will result once economic growth resumes will be much easier to curb than the alternative of deflation today.

A decline has to happen.

The economy is unbalanced and it must happen.

Continuing to inflate the money supply is stupid and extremely dangerous.

We tried the do nothing, leave it to the market alone approach when we were in a situation like this before. That would be from 1929 to 1933. GDP declined by 12% from 1929-1930, by 16% from 1930 to 1931 and by 23% from 1931 to 1932. When taxes were raised in the misguided attempt to balance the budget, all that had already happened. Government was tiny back then. Hoover in many ways would make Ron Paul look like Bernie Sanders. Think about it, government was 4% of the economy then. If that was not enough of a limited government then what would be?

Contraction in the money supply was the primary cause of the depression because government took over the role of lender of last resort. It did not know what to do in that regard.

It used to be that the larger banks served this purpose. That is why the fed is unnecessary.


We also decided to try and raise tariffs on imports which caused a trade war.
Other countries followed suite and raised their tariffs.

The New Deal ushered in 8 to 10% economic growth a year, and we still were not fully out of the Depression until World War II. You know when you dig a deep enough hole, it takes years of near unprecedented growth to dig out of it. We simply cannot afford to have another utopian libertarian economic experiment like we had under Hoover. It seems to me that the free market cultists, and I use that term because most people believe in a free market, but to some its like a religion.... these free market cultists, the only thing they are really proposing to do differently than what Hoover did was they would have not restricted trade. Well, thats certainly a move in the right direction, but its not nearly enough. Sometimes we have to take some fairly radical steps to get out of a crisis and this one of those times.

Hoover was not operating a Libertarian utopian experiment. He did not do what Libertarians would have done, that is just a false premise.

We do not operate under a free market.

The depression was solved by the draft and WW2 not the new deal.

 

[Pinu7]

Basically, what we have to do in order to get out of this is pretty much the following:

1. Curb the mortgage defaults. If we continue down the road we are on and most households that are at risk of foreclosure end up in foreclosure, then we are right now only at the tip of the iceberg in terms of the housing crash and will be looking at rampant debt deflation, which guarantees an economic depression.

Maybe. However, I a skeptic that there will be a solution to truly ending such toxicity in these assets.

2. Nationalize the large insolvent banks, carve them up, and sell them off.

ummm...no. Obviously this is wrong for many reasons.

Complete nationalization of anything is generally a bad idea since the private sector always fears the uncertainty resulting from the actions of spasmodic actions from politically motivated federal institutions.

3. Spend, spend, spend, and spend. We need to be spending at least the equivalent to the decline in GDP over the last year. We are probably looking at another stimulus after this one, easily as big as this one. The cost in deficits will not nearly be as large as the future lost revenue as a result of years of recession. The inevitable inflation that will result once economic growth resumes will be much easier to curb than the alternative of deflation today.

Definitely not. No amount of Government spending will raise America's equity, albeit if the returns from the "investments" are larger than the cost.

However, as Onioneater said, that prospect is hopeless do to the majority of the bill is wasteful pork spending.

Government spending is almost always bad because we live in a democracy with an ignorant populous who cares more about sex scandals than the effects of their legislation.

We tried the do nothing, leave it to the market alone approach when we were in a situation like this before. That would be from 1929 to 1933. GDP declined by 12% from 1929-1930, by 16% from 1930 to 1931 and by 23% from 1931 to 1932. When taxes were raised in the misguided attempt to balance the budget, all that had already happened. Government was tiny back then. Hoover in many ways would make Ron Paul look like Bernie Sanders. Think about it, government was 4% of the economy then. If that was not enough of a limited government then what would be?

No, the great depression was also caused by government action. Hoover retracted capitol(to balance the budget) during a recession which caused the depression. Even the "progressive" economists admit this.

The New Deal ushered in 8 to 10% economic growth a year, and we still were not fully out of the Depression until World War II. You know when you dig a deep enough hole, it takes years of near unprecedented growth to dig out of it. We simply cannot afford to have another utopian libertarian economic experiment like we had under Hoover. It seems to me that the free market cultists, and I use that term because most people believe in a free market, but to some its like a religion.... these free market cultists, the only thing they are really proposing to do differently than what Hoover did was they would have not restricted trade. Well, thats certainly a move in the right direction, but its not nearly enough. Sometimes we have to take some fairly radical steps to get out of a crisis and this one of those times.

The effectiveness of FDR's plan is debatable.

 

[ALiberalModerate]

Maybe. However, I a skeptic that there will be a solution to truly ending such toxicity in these assets.


ummm...no. Obviously this is wrong for many reasons.

Complete nationalization of anything is generally a bad idea since the private sector always fears the uncertainty resulting from the actions of spasmodic actions from politically motivated federal institutions.

I think the main problem with nationalization of failing large banks is that the public sector simply does not have the expertise to run them. Of course, they will contract that out to the private sector. Still such centralization would not work as a long term solution. However, what is being proposed is not nationalization as a long term solution, but rather getting in and getting out, a quick carve up.

Definitely not. No amount of Government spending will raise America's equity, albeit if the returns from the "investments" are larger than the cost.

However, as Onioneater said, that prospect is hopeless do to the majority of the bill is wasteful pork spending.

Any spending primes the economic pump. Even handing money to crack whores results in economic activity. Its almost universally accepted among mainstream economists that public sector spending can be very stimulative for economic growth in the short term. Sure, it creates inefficiencies in the long term, but the concern right now is the short term. Basically, the huge amount of spending in the 30s and 40s is what transformed the nation from a developing one to the strongest economy on earth.

The main reason why the economy has not contracted more than it has is that the public sector is around 24% of the economy and does not contract when other sectors do. If it were not for the public sector and health care sector (another largely recession proof sector), GDP would have fallen far more than it has thus far.

No, the great depression was also caused by government action. Hoover retracted capitol(to balance the budget) during a recession which caused the depression. Even the "progressive" economists admit this.

That certainly did not help, but that happened after we were already in a depression. GDP had already severely contracted by late 1932. Hoover believed in a very non interventionist federal government. He was well to the right in this regard than even the most conservative Republicans are today.

The effectiveness of FDR's plan is debatable.

Not to anyone that lived through it. He was even Reagan's childhood hero.

 

[Ethereal]

Any spending primes the economic pump. Even handing money to crack whores results in economic activity. Its almost universally accepted among mainstream economists that public sector spending can be very stimulative for economic growth in the short term. Sure, it creates inefficiencies in the long term, but the concern right now is the short term. Basically, the huge amount of spending in the 30s and 40s is what transformed the nation from a developing one to the strongest economy on earth.

This is the problem with our economic outlook. It's always based upon short-term, politically-based valuations. It doesn't seek to secure long-term stability in terms of growth and balance. Every time the government delays a self-correction or props up a failing market it creates lumps and bubbles in our economy that simply show up down the road, which they conveniently blame upon the free-market despite all evidence to the contrary. I remember you were trying to pawn this collapse off on the CDS market even though it was merely a side-effect of government mandate and policy impetus.

That certainly did not help, but that happened after we were already in a depression. GDP had already severely contracted by late 1932. Hoover believed in a very non interventionist federal government. He was well to the right in this regard than even the most conservative Republicans are today.

Hoover did not permit wage rates to fall at the onset of the Depression and he "encouraged" leading industrialists to expand their operations in the face of an anemic economy. He also oversaw a massive inflation in available credit which he used to prop up shaky positions on Wall Street. Hoover prevented the liquidation of bad assets and debt and laid the foundation for FDR's New Deal.

"we might have done nothing. That would have been
utter ruin. Instead we met the situation with proposals
to private business and to Congress of the most gigantic
program of economic defense and counterattack ever
evolved in the history of the Republic. We put it into
action. . . . No government in Washington has hitherto
considered that it held so broad a responsibility for leadership
in such times. . . . For the first time in the history
of depression, dividends, profits, and the cost of living,
have been reduced before wages have suffered. . . . They
were maintained until the cost of living had decreased
and the profits had practically vanished. They are now
the highest real wages in the world.
Creating new jobs and giving to the whole system a
new breath of life; nothing has ever been devised in our
history which has done more for . . . “the common run
of men and women.” Some of the reactionary economists
urged that we should allow the liquidation to take
its course until we had found bottom. . . . We determined
that we would not follow the advice of the bitterend
liquidationists and see the whole body of debtors of
the United States brought to bankruptcy and the savings
of our people brought to destruction."
-Herbert Hoover

Do those sound like the words of a non-interventionist to you?

Not to anyone that lived through it. He was even Reagan's childhood hero.

Perception does not a reality make.

 

[ALiberalModerate]

This is the problem with our economic outlook. It's always based upon short-term, politically-based valuations. It doesn't seek to secure long-term stability in terms of growth and balance. Every time the government delays a self-correction or props up a failing market it creates lumps and bubbles in our economy that simply show up down the road, which they conveniently blame upon the free-market despite all evidence to the contrary. I remember you were trying to pawn this collapse off on the CDS market even though it was merely a side-effect of government mandate and policy impetus.

The bulk of those toxic assets were made possible by unregulated Credit Default Swaps.

Lets look at this. This government intervention into the economy starting in 1933 and continuing until today resulted in nearly 70 years of what economists refer to as the great moderation, the longest period in American history without an economic depression, and a period where recessions were shallower and shorter lived than they were prior. So, if government intervention creates imbalances that show up down the road, then it looks like they take about 70 years to show up, which is a pretty good deal when you consider the historical alternative. Thats a pretty good tradeoff if you think about it. You could live your entire life before these lumps and bumbles blow up on you.

Hoover did not permit wage rates to fall at the onset of the Depression and he "encouraged" leading industrialists to expand their operations in the face of an anemic economy. He also oversaw a massive inflation in available credit which he used to prop up shaky positions on Wall Street. Hoover prevented the liquidation of bad assets and debt and laid the foundation for FDR's New Deal.


Do those sound like the words of a non-interventionist to you?

He was trying to polish the turd of his historical legacy after the fact. The key word here is "encouraged", he asked them, he did not make them. Thats hardly interventionist. Thats like saying if I ask you to volunteer for a charity one weekend that I am forcefully intervening in your life.

The fact of the matter is, the public sector as a percentage of GDP was tiny back then. It was smaller than anyone in politics is proposing today. Under Hoover the federal reserve did not act and the money supply dropped by a third while he was in office.

Hoover's stance on the economy was based largely on volunteerism. From before his entry to the presidency, he was a proponent of the concept that public-private cooperation was the way to achieve high long-term growth. Hoover feared that too much intervention or coercion by the government would destroy individuality and self-reliance, which he considered to be important American values. Those ideals, as well as the economy were put to the test with the onset of The Great Depression. At the outset of the Depression, Hoover claims in his memoirs that he rejected Treasury Secretary Mellon's suggested "leave-it-alone" approach.[23] Critics, such as liberal economist Paul Krugman,[24][25] on the other hand, accuse Hoover of sharing Mellon's laissez-faire viewpoint. It is often inaccurately stated that Herbert Hoover did nothing while the world economy eroded. President Hoover made attempts to stop "the downward spiral" of the Great Depression.[26] His policies, however, had little or no effect. As the economy quickly deteriorated in the early years of the Great Depression, Hoover declined to pursue legislative relief, believing that it would make people dependent on the federal government. Instead, he organized a number of voluntary measures with businesses, encouraged state and local government responses, and accelerated federal building projects. Only toward the end of his term did he support a series of legislative solutions.

Herbert Hoover - Wikipedia, the free encyclopedia

Perception does not a reality make.

True but perception certainly is more reliable than historical revisionism 70 years later.

 

[Pinu7]

Any spending primes the economic pump. Even handing money to crack whores results in economic activity. Its almost universally accepted among mainstream economists that public sector spending can be very stimulative for economic growth in the short term. Sure, it creates inefficiencies in the long term, but the concern right now is the short term. Basically, the huge amount of spending in the 30s and 40s is what transformed the nation from a developing one to the strongest economy on earth.

Stimulative does not truly equal economic growth unless the return from the investment is larger than the cost which is virtually impossible if congress is a medium.

You're also wrong about short term growth. Excessive inflation and the deterioration of the bond market are both long and short term liabilities to a nation.

Federal spending could be positive, but that's unlikely.

That certainly did not help, but that happened after we were already in a depression. GDP had already severely contracted by late 1932. Hoover believed in a very non interventionist federal government. He was well to the right in this regard than even the most conservative Republicans are today.

Point taken.

 

[im_rambo]

Basically, what we have to do in order to get out of this is pretty much the following:

1. Curb the mortgage defaults. If we continue down the road we are on and most households that are at risk of foreclosure end up in foreclosure, then we are right now only at the tip of the iceberg in terms of the housing crash and will be looking at rampant debt deflation, which guarantees an economic depression.

2. Nationalize the large insolvent banks, carve them up, and sell them off.

3. Spend, spend, spend, and spend. We need to be spending at least the equivalent to the decline in GDP over the last year. We are probably looking at another stimulus after this one, easily as big as this one. The cost in deficits will not nearly be as large as the future lost revenue as a result of years of recession. The inevitable inflation that will result once economic growth resumes will be much easier to curb than the alternative of deflation today.

We tried the do nothing, leave it to the market alone approach when we were in a situation like this before. That would be from 1929 to 1933. GDP declined by 12% from 1929-1930, by 16% from 1930 to 1931 and by 23% from 1931 to 1932. When taxes were raised in the misguided attempt to balance the budget, all that had already happened. Government was tiny back then. Hoover in many ways would make Ron Paul look like Bernie Sanders. Think about it, government was 4% of the economy then. If that was not enough of a limited government then what would be?

The New Deal ushered in 8 to 10% economic growth a year, and we still were not fully out of the Depression until World War II. You know when you dig a deep enough hole, it takes years of near unprecedented growth to dig out of it. We simply cannot afford to have another utopian libertarian economic experiment like we had under Hoover. It seems to me that the free market cultists, and I use that term because most people believe in a free market, but to some its like a religion.... these free market cultists, the only thing they are really proposing to do differently than what Hoover did was they would have not restricted trade. Well, thats certainly a move in the right direction, but its not nearly enough. Sometimes we have to take some fairly radical steps to get out of a crisis and this one of those times.

Here we have a typical democrat at work.

I may not know what we should do but I know what we shouldn't do, and that is spend, spend, spend. I think we learned that from the last "Stimulous Package" put in place by W.

Which might I add did nothing but decline the situation to a worse point.

 

[Kushinator]

The bulk of those toxic assets were made possible by unregulated Credit Default Swaps.

Please clarify. Are you saying that because some investment banks purchased default insurance on packaged loan securities, people stopped paying their mortgage payments. You see, a credit default swap would not pay out unless their was actual default.

Yes i do think it is shady to be in the business of basically shorting peoples mortgages, but they did not cause those actions.

Lets look at this. This government intervention into the economy starting in 1933 and continuing until today resulted in nearly 70 years of what economists refer to as the great moderation, the longest period in American history without an economic depression, and a period where recessions were shallower and shorter lived than they were prior.

Giving oneself credit (the economists you refer to) for something out of their control is common. After the production capacity of Europe and Asia was obliterated, i would assume it would take 10 or 15 years to rebuild, while America becomes the economic giant. The global system reset after WWII, the fact that it took 63 years until another economic nightmare emerges is a testament to the men and women around the world that made economic growth possible, not some notion of omnipotent FDR policies.

So, if government intervention creates imbalances that show up down the road, then it looks like they take about 70 years to show up, which is a pretty good deal when you consider the historical alternative. Thats a pretty good tradeoff if you think about it. You could live your entire life before these lumps and bumbles blow up on you.

I disagree. Look at the speed of technological innovation post WWII, and say with a straight face that it is valid to compare situations of pre 1900.