Paraphrasing the article: the US economy has a $15 trillion capacity, but the lack of effective demand has reduced our projected output to $14 trillion. By spending $650 billion we can make up that difference in output with the help of Keynesian multipliers.
I certainly sympathize with the parent. For the last three months I canvassed for Greenpeace pushing a reinvestment in renewable energy. One gentleman whose door I knocked on was skeptical (way more than just this one guy, door-to-door canvassing amidst recession is a great job if you enjoy getting kicked in the nuggets 100 times/day). He speculated the green movement was just another attempt to sell a newly packaged bubble to the American people.
So are we foolish to pursue this short-term fix? Is the reinvestment plan fairly characterized as a short-term fix?
To the first question I can at least express the hope that this investment will leave us with something inherently useful: much needed improvements to our infrastructure. We've been riding the wave of cheap energy from the petrochemical revolution for the last 100 years (thanks Steve Jobs Playboy article) and that is certainly appearing to mainstream America as a habit to kick.
To the second question, maybe it will help to explore the long term consequences of not meeting our productive capacity. By analogy we can consider the consequences of not meeting our capacity to educate. Imagine if America lost an entire year of engineering graduates. A short fall in capacity may result in a long-term compounded drop in overall engineering output.
Only if the multiplier is significnatly greater than 1. One of Obama's advisors made her bones showing that the multiplier for govt spending tended to be around 1 at and that the multiplier for tax cuts was around 1.5 both at current levels.
"at current levels" is important. If the multiplier is always greater than 1, the right thing to do is to have an infinitely large stimulus because the return will likewise be infinite. Does anyone believe that would happen?
I get the feeling that while this is intuitively the best idea, it is also far riskier. What if allowing the economy to tank sends us into some kind of never before seen death spiral? The stakes here are extremely high and there is much that is not understood. Considering the circumstances, it seems better to take conservative actions which, though they may not be a great solution, at least prevent disaster.
Fearmongering about the end of the world can cut both ways, but it usually cuts in the direction you were already leaning.
(1) Actually, the "stimulus"-caused inflationary death spiral has been seen before. However, I'm not going to argue that this will or will not happen as a result of the currently proposed stimulus. Fact is, I have no idea.
The average auto worker is not producing 100k worth of value and the average banker is not producing 500k of value on wall street. But don't try and tell them that.
EX: The jobs bank program is not a big deal if you run the numbers assuming constant growth forever.
They also all focus on how American workers at Japanese owned plants make so much less. They never mention that American-auto company executives make orders of magnitude more than their Japanese counterparts.
PS: The Japanese Yen just increased 25% so a lot of these US vs Japan comparisons are not as unbalanced as you might think.
Indeed. It is the fault of the United States for legalizing (through exception in the RICO Act) corrupt organization of labor. http://en.wikipedia.org/wiki/Trade_union#Criticism
unions are regarded as a form of legalized conspiracy and extortion. American racketeering statutes still include an exemption for union activity.
That's because the total amount of money for executive compensation at US auto manufacturers is in the noise.
BTW - GM could probably handle the wages and pension if it got Toyota's work rules AND could concentrate on building the cars that it can sell at a profit and stop selling the ones on which it barely makes any money. The UAW won't accept Toyota's work rules at "American" auto makers and Congress insists on CAFE.
The folks who want an economy car prefer Toyota, Honda, etc. They'll only buy GM at a significantly lower price, which means that GM has to make money elsewhere. (And, thanks to the rule that says that GM's imports don't count toward CAFE, it gets to make them under UAW's GM rules.)
Completely agree on the executive compensation. Maybe the union should be abolished and management and employees should be given enough dividend producing equity to care about the actual profitability of the company. If management and the union drive these companies out of business, I'm paying their stupid pension.
[1] http://www.evolvingexcellence.com/blog/2008/12/its-work-rule...
It's not clear that there is "the correct amount". There's probably a correct amount in a given line of work at any moment in time, but that's not actionable.
The problem with trying to guide the economy is that the guiders always have an agenda.
Remember "he meant well" is an insult.
My point is simply that a light hand is probably better, but avoiding acting when things are getting really bad is a horrible idea.
Govt doesn't do "light hand". Moreover, doing the wrong thing is worse than doing nothing. The US govt is still trying to protect textile jobs in the Carolinas. (It would be mean to point out the mess that is govt efforts wrt the auto industry.)
When proposing/supporting regulation, it's poor form to assume that it will be done "correctly" by "the right people". Instead, you should assume what we actually observe - that it will be done badly, if not maliciously, by incompetents.
If you want to assume "correctly by the right people", make an existing govt system IN THE US work that way.
You're assuming (1) "a light hand" is a stable situation and (2) that the folks doing the acting will do
Example of the government using a "light hand" the borders. Food safety inspections. Most pollution controls.
There are plenty of areas where the government's approach is to wait for problems and then step in. The millions of illegal immigrants in the US is not really a hard problem to stop from an enforcement standpoint, but in this case the government seems to focus on the appearance of doing stuff vs actually doing stuff.
Would this be the borders where they seize laptops and randomly harass people? Or, the borders that are completely uncontrolled?
I don't think that "light" means "a random mix of hard and none".
> Food safety inspections.
I'd put that under incompetent, not light.
> Most pollution controls.
You're joking, right?
> but in this case the government seems to focus on the appearance of doing stuff vs actually doing stuff.
"in this case" suggests that focusing on appearance is the exception, not the rule. It may not be the majority, but ....
Methinks the long run has finally arrived. Keynes and pals, as he predicted, are gone.
Keynes is overused much like prescription antibiotics.
"Prescribing Keynesianism to some politicians is like prescribing crack to a coke addict. In the 1970s, the patient hit rock bottom. The U.S. had high unemployment, and the Keynesian solution stopped working. The national government spent and spent, but unemployment only got worse. Then came inflation, something Keynesians had no answer for."
The problem is we have been borrowing and spending like crazy both publicly and privately. We've had the accelerator pushed to the floor, how do we go faster now?
Keynes (again as I remember) recommended these fixes for short term problems. Our problem is systematic over spending.
Obama et al. are prescribing aspirin because they believe the patient has a hangover, when the country really needs chemotherapy for debt cancer.
The bad debt that has accumulated needs to be accounted for, losses have to be taken, companies need to go into bankruptcy (which is often reorganization, not necessarily going out of business.)
We can't "cheat" our way out of this with Keynes.