The Economy

[kandrathe]

As I said from the start, constructing counterfactuals is difficult, and you need some theory to base it on. If you start with an Austrian theory that says all government intervention is definitionally wasteful, then obviously, the 1933-1939 recovery is just a pale shadow of what it might have been sans New Deal. If you start from a Keynesian theory, then the recovery is modest, but a vast improvement over what it would have been with balanced budgets and the gold standard. If you start from Friedman, then the recovery is entirely due to reflating the currency, and the New Deal is just a sideshow. But no matter where you start from, and under what model, you have no crystal ball. You are reliant on your presuppositions, and have no tangible evidence to go on. What evidence we do have clearly shows that the economy recovered somewhat. Either you see that as an impressive recovery from a massive crash, or you see it as a recession prolonged by unwise choices. But there is no magic to tell us which is true.

On this, we will have to agree to agree. Yes. I agree with you.

That seems a bit harsh, but obviously we're going to disagree about this. But it seems clear to me that the government-created jobs at least served an important welfare function, and were at least economically neutral. With unemployment as high as it was, any job was a pretty good job, and infrastructure built with lazy labour is better than nothing at all. The alternative, even in the best-case scenario, would have been greater suffering in the short run, even if it was better for the economy in the long run (which I'm not convinced of.)

In lieu of starvation, I too would leap at a WPA, or CWA job.

This argument would be stronger if it weren't for the fact that Germany and Japan, the most devastated wartime powers, were also the most impressive economic successes in the post-war period, including becoming auto industry powers. But yes, being a full-fledged, un-bombed industrial power was certainly a huge help to the US economy in the postwar period.

Well, let's talk about the Marshall plan, and the post war benevolent dictatorships we called "occupations". It wasn't all sunshine and roses as we sometimes nostalgically reminisce about, but they were left in better shape than we found them after capitulation. We probably treated Germany and Japan better than we did our allies. And, let me just add my plug here for the Soziale Marktwirtschaft.

[kandrathe]

But they do. The closest the budgets have ever come in the US to being balanced were under Carter and Clinton. The "conservatives", Reagan and Bush, have been the most wastrel administrations around.

The counter argument being that in order to do so, Carter and later Clinton gutted the one service the nation cannot do without, national defense. Reagan, and Bush felt compelled to spend effort to revitalize our national defense. Reagan due to his desire to end the Cold War, and Bush because of that World Trade Center incident.

Balancing budgets is not easy work. But by and large, it's been work done by "spendthrift" Democrats, and not "conservative" Republicans. Just look at the tables you linked; the correlation is obvious.

Hahahahahahahahahahahahahahahahahahahhahhhahhahahahahahahahahaha...

No seriously. :lol:

I don't mean a balanced budget. I mean pay down the debt. You know, so that we don't spend 15% of tax revenues on debt service. I would also note that as of Clinton/Bush, there are no Democrats and Republicans, only self serving demagogues and publicans.

[Jester]

The counter argument being that in order to do so, Carter and later Clinton gutted the one service the nation cannot do without, national defense. Reagan, and Bush felt compelled to spend effort to revitalize our national defense. Reagan due to his desire to end the Cold War, and Bush because of that World Trade Center incident.

The US already spends more money on its military than any dozen countries of the world put together. And, of highest dozen others, almost all are locked in a military alliance with the US. The US military budget is very close to the entire rest of the world: everyone vs. the US, in pure dollars, would only be a slight loss for the US! Count NATO allies, and it wouldn't even be close: this is the largest peacetime mass of military power, ever. There is no cutback under any president that changes the basic fact: the US has the most expensive army in the world, by miles and miles. Cutting it back to merely a few hundreds of billions of dollars would hardly leave the country militarily crippled. There's a huge yawning gap between having to "do without" a military and "spending slightly less colossal sums" on it.

As for Ronnie's role in bringing down the Evil Empire, his belligerent policy was certainly a contribution, but the major cards were already played by the time he came to office. War in Afghanistan, stagnating economy, increasing nationalist unrest, and inability to innovate were already present by 1980. Soviet defense spending had, in real terms, been increasing more or less steadily since Nixon was president, and did not particularily accelerate under Reagan. They actually somewhat flatlined, and while the Soviets were all a-twitter about SDI, they never really did anything about it in terms of spending. But, for whatever reason, nobody talks about Ford or Carter for their genius in causing Soviet overspending.

In the end, it was Gorbachev's reforms that did them in. Fear of American technology and military spending was a part of their long-term motivation, and constant harassment in foreign policy was costly, but ultimately, the American part in the collapse of the USSR is secondary: the Soviets killed their own empire, through bungling their dictatorship, then through bungling their attempt to democratize.

I don't mean a balanced budget. I mean pay down the debt. You know, so that we don't spend 15% of tax revenues on debt service. I would also note that as of Clinton/Bush, there are no Democrats and Republicans, only self serving demagogues and publicans.

If you can find a way to pay down the debt while running budget deficits, I think I might be able to find you a job at one of those fancy hedge funds that just imploded, because that would be some impressive skill.

Or, in other words, administrations that don't balance the budget aren't even at step one towards paying down the debt. The administrations that have at least gotten to step one are Democratic, not Republican.

-Jester

[kandrathe]

The US already spends more money on its military than any dozen countries of the world put together. And, of highest dozen others, almost all are locked in a military alliance with the US. The US military budget is very close to the entire rest of the world: everyone vs. the US, in pure dollars, would only be a slight loss for the US! Count NATO allies, and it wouldn't even be close: this is the largest peacetime mass of military power, ever. There is no cutback under any president that changes the basic fact: the US has the most expensive army in the world, by miles and miles. Cutting it back to merely a few hundreds of billions of dollars would hardly leave the country militarily crippled. There's a huge yawning gap between having to "do without" a military and "spending slightly less colossal sums" on it.

Perhaps we spend too much, and everyone else spends too little. If we were to just look at Aircraft Carriers... USA 24 (12 are the huge Nimitz class 4.5 acre ships), rest of the world has 13 small ones. 2nd place is Britain with 3 Invincible class (two in commision), and the HMS Ocean.

As for Ronnie's role in bringing down the Evil Empire, his belligerent policy was certainly a contribution, but the major cards were already played by the time he came to office. War in Afghanistan, stagnating economy, increasing nationalist unrest, and inability to innovate were already present by 1980. Soviet defense spending had, in real terms, been increasing more or less steadily since Nixon was president, and did not particularily accelerate under Reagan. They actually somewhat flatlined, and while the Soviets were all a-twitter about SDI, they never really did anything about it in terms of spending. But, for whatever reason, nobody talks about Ford or Carter for their genius in causing Soviet overspending.

I think the "peace through strength" rhetoric backed up by a palpably strong military, and the increasing sophistication and bulk of the US nuclear missile program helped to convince the Soviets that they might not win the nuclear gambit.

In the end, it was Gorbachev's reforms that did them in. Fear of American technology and military spending was a part of their long-term motivation, and constant harassment in foreign policy was costly, but ultimately, the American part in the collapse of the USSR is secondary: the Soviets killed their own empire, through bungling their dictatorship, then through bungling their attempt to democratize.

Um, well sort of. I view it more that they decided to stop failing at what they knew (state run economy), and thought they could just jump in and be successful at something they knew nothing about (capitalism). Of course, it would have been pretty humiliating to ask the West for help, so they bungled forward with what they thought were the appropriate reforms. For example, one reason that capitalism can be successful in Europe and the US is that we have a long history of common law to resolve property disputes.

If you can find a way to pay down the debt while running budget deficits, I think I might be able to find you a job at one of those fancy hedge funds that just imploded, because that would be some impressive skill.

Which is what I meant originally, when I blamed the politicians of following Keynesian theory only when it suited them. Keynes did not advocate balanced budgets in the good times, but surplus budgets. When is the last time the US ran a surplus budget, or reduced our national debt? Answer: FY 1998 to 2001 -- So what happened in 2001 to change the good times? Tech bubble, Iraq War, Afghan War and Sept 11. The problem with Keynesian theory it seems is that there is always something to which we consider a national emergency sufficient to continue to use the charge card, rather than pay it down.

[Jester]

Perhaps we spend too much, and everyone else spends too little. If we were to just look at Aircraft Carriers... USA 24 (12 are the huge Nimitz class 4.5 acre ships), rest of the world has 13 small ones. 2nd place is Britain with 3 Invincible class (two in commision), and the HMS Ocean.

You don't just outspend your allies, behooving them to step up to the plate. You also vastly outspend your potential enemies. In sheer dollar terms (understanding that this is not the whole game) you could take them all on together, twice over.

Which is what I meant originally, when I blamed the politicians of following Keynesian theory only when it suited them. Keynes did not advocate balanced budgets in the good times, but surplus budgets. When is the last time the US ran a surplus budget, or reduced our national debt? Answer: FY 1998 to 2001 -- So what happened in 2001 to change the good times? Tech bubble, Iraq War, Afghan War and Sept 11. The problem with Keynesian theory it seems is that there is always something to which we consider a national emergency sufficient to continue to use the charge card, rather than pay it down.

And what I'm saying is that there are Democratic administrations (the Keynesian ones) that have made substantial strides towards that goal, only to watch them undone by subsequent Republican administrations (the not-Keynesian ones.) Blaming Keynesian ideas or their followers therefore makes less sense than the more obvious targets of blaming Ronald Reagan and George "Dubya" Bush, who cut taxes and raise spending at the same time. (Not to mention starting expensive wars of choice halfway around the world, all the while talking about how they'll pay for themselves...)

-Jester

[Zenda]

Not to mention starting expensive wars of choice halfway around the world, all the while talking about how they'll pay for themselves...

While I agree with most of what you said here, I don't think Bush made that up just to serve as an argument.

http://en.wikipedia.org/wiki/Post-invasion...E2%80%93present

"In 2008 Iraq accounted for more than $12.5 billion of the $34 billion US weapon sales to foreign countries (not including the potential F-16 fighter planes)."

Personally, I liked this viewpoint most...

http://www.atimes.com/atimes/Middle_East/JI24Ak02.html

"As executives, retired generals and Pentagon officials flit from one industry-underwritten conference to another, bemoaning imagined cutbacks and belt-tightening, the real bad news for their business would be good news for everyone else - namely peace, diplomacy, democracy and human rights."

[kandrathe]

You don't just outspend your allies, behooving them to step up to the plate. You also vastly outspend your potential enemies. In sheer dollar terms (understanding that this is not the whole game) you could take them all on together, twice over.

I assume that is what the "peace through strength" strategy involves. Of course, it is also what leads the US to negotiate with bullets and appear to be a bully to the rest of the world. A position, we both agree is distasteful and probably untenable indefinitely.

And what I'm saying is that there are Democratic administrations (the Keynesian ones) that have made substantial strides towards that goal, only to watch them undone by subsequent Republican administrations (the not-Keynesian ones.) Blaming Keynesian ideas or their followers therefore makes less sense than the more obvious targets of blaming Ronald Reagan and ...

It's not quite that simple. Perhaps (from the Republican's POV) during Democrat tenure in office they ignore threats to national security to the point where it has fallen upon Republican administrations to "set the world in order" again. Standing from the outside (of D's and R's), it has actually become a silly game of tit for tat as each party sweeps into office, nullifying the former executives orders, and trying to implement special counsels to vilify the former leaders. As an L, my interest is that the US federal government perform its number one mandate, which is to defend the liberties of the citizens. So, I have less quarrel with my government going after 911 terrorists in Afghanistan, than I do with them handing out free prescription drugs to wealthy old people. Both are probably a misuse of tax revenue, although the former has some meter of constitutional authority.

George "Dubya" Bush, who cut taxes and raise spending at the same time. (Not to mention starting expensive wars of choice halfway around the world, all the while talking about how they'll pay for themselves...)

Of course, in the world of political double talk speech, it seems that way. I think I demonstrated in some detail (analyzing each quintile group) a few months ago how the "Bush Tax Cuts" actually raised taxes upon the wealthy. So, allowing them to expire actually helps the upper 2 quintiles, and hurts the middle two quintiles.

Let's look at some real numbers for the Dubya years (from the aforementioned Section 1, table 1.1) ...

Year __ Revenue ____ Expenses __ Deficit/Surplus
2000 __ 2,025,457 __ 1,789,216 __ 236,241
2001 __ 1,991,426 __ 1,863,190 __ 128,236
2002 __ 1,853,395 __ 2,011,153 __ -157,758
2003 __ 1,782,532 __ 2,160,117 __ -377,585
2004 __ 1,880,279 __ 2,293,006 __ -412,727
2005 __ 2,153,859 __ 2,472,205 __ -318,346
2006 __ 2,285,491 __ 2,708,677 __ -423,186
2007 __ 2,415,852 __ 2,770,097 __ -354,245
2008 __ 2,590,258 __ 2,813,592 __ -223,334

We must also consider that Clinton had to deal with a Republican Congress and Dubya had to deal with a Democratic one the last few years of his term. I see revenues dip sharply during the recession (tech bubble and 911), and expenses start to grow as Bush traded political support for legislative excess in exchange for support of his war efforts. I also see that revenues rise sharply from 2004 to 2008 (after the Bush Tax Cuts go into effect), and had the Keynesian's truly have been in power, they would have held the budget flat at around the 2002 level resulting in surpluses for the four years 2005 to 2008. From a Keynesian POV, wouldn't the increase in government spending during the Bush years contributed to the over stimulation of the economy?

[kandrathe]

Personally, I liked this viewpoint most...

I see you are still smoking that drug that deludes you into believing that once the US and Europe scale back their war departments the world will just settle down into peaceful coexistence.

Psst. Did you happen to notice that North Korea is trading off testing nukes, and ICBM's? I would like to elect you to lead the task force assignment of bringing them sunshine, flowers, and good will. In fact, just spend some time near the DMZ in South Korea and when you get back, tell me your impressions.

How would you explain the success of the "peace only" strategy for the Tibetans?

[Jester]

We must also consider that Clinton had to deal with a Republican Congress and Dubya had to deal with a Democratic one the last few years of his term. I see revenues dip sharply during the recession (tech bubble and 911), and expenses start to grow as Bush traded political support for legislative excess in exchange for support of his war efforts. I also see that revenues rise sharply from 2004 to 2008 (after the Bush Tax Cuts go into effect), and had the Keynesian's truly have been in power, they would have held the budget flat at around the 2002 level resulting in surpluses for the four years 2005 to 2008. From a Keynesian POV, wouldn't the increase in government spending during the Bush years contributed to the over stimulation of the economy?

My arguments as well as yours about the efficacy of the Bush tax cuts were on the table long ago, and can be searched for by anyone interested. Needless to say, I don't think they increased revenues.

The "Democratic congress" argument would make sense, except that it shows the opposite of what you seem to be suggesting. The deficit grows (or surplus shrinks) and remains high during the whole Republican dominated period from 2000-2006, and drops in 2007-2008, when the Dems were in control. Still looks to me pretty clear where the pattern is.

Bush did not need to trade anything for legislative access. Why would he? His party controlled the Congress, Senate, and White House for six years. There was no need (or desire) for bargaining.

From a Keynesian POV, most of the money spent under Bush might as well have been taken to an incinerator. Money spent halfway around the world on wartime projects might have a stimulus benefit for Iraqis, but the effect would be very blunt for Americans. This is not WWII; there was no mobilization of industry, only boatloads of money being spent abroad, on things which have no domestic multiplier whatsoever. The best you'd get would be the replacement of military equipment, the salaries of soldiers, and rebuilding contracts, none of which is a very large boost back home. The cost, on the other hand, was enormous, and hamstrung the government for dealing with the current crisis.

-Jester

[kandrathe]

The "Democratic congress" argument would make sense, except that it shows the opposite of what you seem to be suggesting. The deficit grows (or surplus shrinks) and remains high during the whole Republican dominated period from 2000-2006, and drops in 2007-2008, when the Dems were in control. Still looks to me pretty clear where the pattern is.

Again, the view from 100,000 feet is not all that accurate. To describe the causality of Republican excess by the correlation to GDP is wrong headed. The devil is in the details.

Bush did not need to trade anything for legislative access. Why would he? His party controlled the Congress, Senate, and White House for six years. There was no need (or desire) for bargaining.

Again, Demagogues and Publicans. I can't differentiate the two parties anymore, except one contains the "religious" wing nuts, and the other contain the neo-Luddites.

From a Keynesian POV, most of the money spent under Bush might as well have been taken to an incinerator. Money spent halfway around the world on wartime projects might have a stimulus benefit for Iraqis, but the effect would be very blunt for Americans. This is not WWII; there was no mobilization of industry, only boatloads of money being spent abroad, on things which have no domestic multiplier whatsoever. The best you'd get would be the replacement of military equipment, the salaries of soldiers, and rebuilding contracts, none of which is a very large boost back home. The cost, on the other hand, was enormous, and hamstrung the government for dealing with the current crisis.

I can believe that for the money spent on the Iraq war, but still more than 70 to 80% of the budget went to domestic spending (namely SSI, Defense, & Medicare).

[Jester]

Again, the view from 100,000 feet is not all that accurate. To describe the causality of Republican excess by the correlation to GDP is wrong headed.

Well, I apologise for making the obvious argument with numbers you yourself quoted. I'll refrain from trying to examine the evidence when you've declared, apparently on first principles, that it's fruitless.

Or, wait. No I won't. :rolleyes:

The devil is in the details.Again, Demagogues and Publicans. I can't differentiate the two parties anymore, except one contains the "religious" wing nuts, and the other contain the neo-Luddites.

I once thought that. Then Dubya happened. Not likely to make that mistake again. The choice might be between bad and worse, but it is definitely between bad and *worse*.

I can believe that for the money spent on the Iraq war, but still more than 70 to 80% of the budget went to domestic spending (namely SSI, Defense, & Medicare).

Okay. But Bush didn't particularily raise spending on anything except things related to the war. So, there would be little to no extra stimulus from the status quo. The extra cash that bumped a surplus into a deficit was, by and large, money spent on Iraq.

-Jester

Afterthought: This just showed up on the Freakonomics blog, seemed apropos. (Always keep taxes in mind, though. That's a big part 'o the chart.) Data from here.

[Zenda]

Psst. Did you happen to notice that North Korea is trading off testing nukes, and ICBM's?

Do you remember the Cold War? Similar things were said back then. That "war" simply stopped when the "evil" side decided it had enough of playing along :blink:

If you are suggesting North Korea to be the new "enemy", consider that they might be too small to play the role :whistling:

How would you explain the success of the "peace only" strategy for the Tibetans?

In case you missed it: the Tibetans have little success, "peace only" strategy or not. Having said that, I doubt they would have had better chances trying to fight the Chinese army ;)

[Jester]

Do you remember the Cold War? ... That "war" simply stopped when the "evil" side decided it had enough of playing along :blink:

I am struggling to understand any sense in which that is a true statement.

-Jester

[kandrathe]

Do you remember the Cold War? Similar things were said back then. That "war" simply stopped when the "evil" side decided it had enough of playing along :blink:

Ok, so go convince the "evil" side to stop playing along. Until then, we'll continue to posture a position of strength and encourage 6 party talks.

If you are suggesting North Korea to be the new "enemy", consider that they might be too small to play the role :whistling:

No, but let me choose Amsterdam to be the first nuked city rather than Seattle, or Seoul.

In case you missed it: the Tibetans have little success, "peace only" strategy or not. Having said that, I doubt they would have had better chances trying to fight the Chinese army ;)

They were just fine, until they were invaded and kicked off their land. It just happens they weren't in an alliance, um, like say NATO.

[kandrathe]

Afterthought: This just showed up on the Freakonomics blog, seemed apropos. (Always keep taxes in mind, though. That's a big part 'o the chart.)

Ok, first, just let me say that the entire article is a pretty one sided and reeks of "Blame Bush".

One comment I noted was, "Along similar lines, legislation adopted in one year can affect the budget many years into the future." Which is what I said about 6 posts ago. So, I'm willing to give Clinton the credit in not mucking up the course that was already charted, and I'm willing to give Bush the blame for his obvious mistakes and their effect on the economy.

It seems the masters of "lying with statistics" got together and chose a bunch of parameters to skew the raw data to show what they want to show. One key phrase is "We focused the analysis on 2009 through 2012.", which is unfair since the Obama stimulus spending package barely gets going until 2011. What concerns me is that the "Obama Agenda" already registers as significantly contributing to the deficit, when he's only been in office for less than 6 months. It will be interesting to revisit this in 2015 and see where the Obama deficit stands.

I would agree that the Iraq and Afghan wars constitute a large part of the deficit. To be fair, the prescription drug benefit was added at a time when the coffers were full and both the publicans and demagogues were trying to figure out how to spend the boon (rather than pay down the deficit). I would also be fine with repealing that bill, reforming SSI, and Medicare, and scaling back some of our foreign military presence.

Ironically, the "Prescription Drug Benefit Act of 2002" was introduced in the Senate by... Joe Biden.

[Jester]

Ironically, the "Prescription Drug Benefit Act of 2002" was introduced in the Senate by... Joe Biden.

Sorry, which one is this? My google-fu seems to have failed me.

-Jester

[kandrathe]

Sorry, which one is this? My google-fu seems to have failed me.

It is confusing how the stuff gets actually spent. The House usually initiates a Bill, then the Senate drafts a corresponding Bill, then they get together in conference committee and hammer out the final bill, which goes to the House, then to the Senate, and if it passes all the way, it finally gets to the President to sign or veto. Here is the CBO page.

[Jester]

What I couldn't find was where Joe Biden comes into the picture. Do you have any information there?

-Jester

[kandrathe]

What I couldn't find was where Joe Biden comes into the picture. Do you have any information there?

The 2002 set of amendments were led by Joe. The original 2001 Bill, S.10, was sponsored by Daschle, and cosponsored by Joe, and the rest of the progressive (socialist) caucus.

You can go to Thomas.gov, search for bills by text or sponsorship.

[Jester]

The 2002 set of amendments were led by Joe. The original 2001 Bill, S.10, was sponsored by Daschle, and cosponsored by Joe, and the rest of the progressive (socialist) caucus.

You can go to Thomas.gov, search for bills by text or sponsorship.

Ah, there it is. It seems to be one of a great number of similar things, all brought in around the same time. I'm afraid my limited skill on parsing congressional bills has run dry. Was Biden's role key, or trivial? I can't tell.

From what I can see so far, however, this was an initiative that went through both houses in several parts, and with lots of co-sponsors. The House bill appears to be introduced by a Republican, Rep. Nancy Johnson? The one you linked to above, H.R. 4954?

-Jester