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[PyroDesu]

On the subject of economic multipliers, what do ya'll think about NASA, or space programs in general, as economic multipliers?

[mainiac]

On the subject of economic multipliers, what do ya'll think about NASA, or space programs in general, as economic multipliers?

That's a little different.  NASA is good because in the long run space exploration gives us useful things like Satellite networks and improved understanding of physics.  Stimulus multipliers are about boosting short term employment.  Now NASA spending is still spending so you can still attribute it a stimulus multiplier but keep in mind that multiplier only pertains to very specific economic conditions that have happened twice in a century (1929-1939, 2007-201?).  But that being said I'd guesstimate that the stimulus multiplier is probably somewhere in the range of .9-1.4.  Just heuristically we can say that it's probably more stimulative then housing credits since it's money that goes more directly towards payrolls and inventories so will be less likely to be saved (which is good from a stimulus standpoint).  But it's probably less stimulative then infrastructure spending since NASA is more long term spending and higher skilled labor while stimulus is better off highering less skilled labor and making purchases immediately.  So using Moody's criteria as a guideline I'd guesstimate somewhere between .9-1.4.

[GreatJustice]

Depends on what you mean by "ended the depression". If you mean in the literal, GDP sense, then that's mostly because GDP is driven by spending. Hence, the government spending a gigantic amount of money on tanks, planes, etc will drive up GDP even if the economy is in a bad shape. The same thing could be done if the Obama administration decided to spend a couple hundred billion/trillion dollars digging ditches in Nebraska, but it certainly wouldn't improve the economy in a meaningful sense.

Okay... let's follow this idea.

You agree that stimulus would return the economy to full employment.  Once the economy is at full employment that would mean more private spending and Fed policy would gain traction.  So we would stay at full employment even once the government starts firing ditch diggers to prevent inflation.  This would mean hundreds of billions of dollars in additional economic output that was not there before.

How is hundreds of billions of dollars in additional economic output not a meaningful improvement?  Or do you disagree with something in my previous paragraph?

Please be succinct, on point and do not reference some historical event to change the subject if at all possible.

Stimulus brings back some measure of the previous prosperity of the boom, but it's doesn't actually solve the problem in of itself. Instead, it creates further imbalances by strengthening the illusion of excess resources/saving where there are none.

See, the problem in the first place is that artificially low rates and an expansion of credit makes entrepreneurs think people have saved more resources than they actually have, meaning they should focus on long term projects as opposed to saving and consolidation. However, those resources don't actually exist, so eventually there comes a point during the boom when they realize that the saved resources are insufficient for all the long term projects, which they are forced to abandon at a loss. If stimulus spending is pursued at this point, some of the entrepreneurs are better off because they get to finish their projects, but the economy as a whole is worse off as resources are diverted to inefficient uses and the same problem is present, meaning the economy will be worse off in the long run. The classic analogy is of an architect who believes he has more bricks than he actually has; naturally, he designs a bigger house, but the later into the project he discovers his brick deficiency the more of it he has to scrap altogether.

Now with the ditch diggers,  resources were taken from productive or potentially productive ventures to allow for them to dig ditches. What we see is an increase in employment and GDP; what we don't is all the things that COULD have been made with what was instead used to dig ditches (/build tanks/bomb countries/etc).

There's a pretty good quote on this one:

Spoiler (click to show/hide)

As economists Friedman and Schwartz have noted, the decade from 1869 to 1879 saw a 3-percent-per annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.[46] Although per-capita nominal income declined very gradually from 1873 to 1879, that decline was more than offset by a gradual increase over the course of the next 17 years.

Furthermore, real per-capita income either stayed approximately constant (1873–1880; 1883–1885) or rose (1881–1882; 1886–1896), so that the average consumer appears to have been considerably better off at the end of the "depression" than before. Studies of other countries where prices also tumbled, including the US, Germany, France, and Italy, reported more markedly positive trends in both nominal and real per-capita income figures. Profits generally were also not adversely affected by deflation, although they declined (particularly in Britain) in industries that were struggling against superior, foreign competition.

So if you even consider it a recession, let alone a depression, it wasn't even close to being as bad as the 70s for people.

They're justifying the recession of 1869-1879 on good shit that happened 20 years later! by that reckoning the 1970's wasn't so bad because of good growth in the late 90's. That kind of quote doesn't really justify the "it should be fixed by now!" rhetoric.

The good shit that happened 20 years later was the icing on the cake (though keep in mind, its called the "Long Depression" because it supposedly lasted 24 years). In case you missed it,

the decade from 1869 to 1879 saw a 3-percent-per annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita.

So yeah. Calling it a recession is pushing it, let alone a depression.

And for their logic "there was no contraction of the money supply!" - the money supply was increasing at a MUCH slower rate than growth; that's a contraction by any sensible economic definition - less money per unit of production.

Wait, wait, wait, let me get this straight.

So the money supply was going up, but growth was going up faster, and by rather significant margins too. This resulted in overall price deflation. And you're saying that this means that it was a recession/depression.

Spoiler (click to show/hide)

->Why is deflation bad? * Because it causes recessions
->How do we know a recession is occurring? *Because deflation is occurring

Yeah, I know that's a simplification, but still. I can't argue that deflation isn't always bad if you literally consider it to be a Bad Thing regardless of whether or not it's accompanied by an actual recession.

[EveryZig]

And for their logic "there was no contraction of the money supply!" - the money supply was increasing at a MUCH slower rate than growth; that's a contraction by any sensible economic definition - less money per unit of production.

Wait, wait, wait, let me get this straight.

So the money supply was going up, but growth was going up faster, and by rather significant margins too. This resulted in overall price deflation. And you're saying that this means that it was a recession/depression.

I am pretty sure that in that statement he was arguing against the quote's claim of how "the alleged 'monetary contraction' never took place, the money supply increasing by 2.7 percent per year in this period", not directly about the goodness/badness of that deflation.

[mainiac]

Stimulus brings back some measure of the previous prosperity of the boom, but it's doesn't actually solve the problem in of itself. Instead, it creates further imbalances by strengthening the illusion of excess resources/saving where there are none.

See, the problem in the first place is that artificially low rates and an expansion of credit makes entrepreneurs think people have saved more resources than they actually have, meaning they should focus on long term projects as opposed to saving and consolidation. However, those resources don't actually exist, so eventually there comes a point during the boom when they realize that the saved resources are insufficient for all the long term projects, which they are forced to abandon at a loss. If stimulus spending is pursued at this point, some of the entrepreneurs are better off because they get to finish their projects, but the economy as a whole is worse off as resources are diverted to inefficient uses and the same problem is present, meaning the economy will be worse off in the long run. The classic analogy is of an architect who believes he has more bricks than he actually has; naturally, he designs a bigger house, but the later into the project he discovers his brick deficiency the more of it he has to scrap altogether.

Now with the ditch diggers,  resources were taken from productive or potentially productive ventures to allow for them to dig ditches. What we see is an increase in employment and GDP; what we don't is all the things that COULD have been made with what was instead used to dig ditches (/build tanks/bomb countries/etc).

There is a very simple empirical test for this theory. If your story is right then increasing the money supply during a depression would be exactly as inflationary as increasing it in normal times.  If my story is right then increasing the money supply during a depression would be far, far less inflationary then expanding it in normal times.

The logic is simple.  You treat the economy as logically reacting to a decline in real wealth.  If that were true then the price level would behave normally when the money supply is expanded.

And the output that the ditch diggers could have made would have been sitting around scratching their balls because they were unemployed.  Your model isn't very useful at explaining unemployment if it starts by assuming unemployment.

[Leafsnail]

And the output that the ditch diggers could have made would have been sitting around scratching their balls because they were unemployed.  Your model isn't very useful at explaining unemployment if it starts by assuming unemployment.

I think this is all that needs to be said to someone putting forward Friedman based ideas really.

[RedKing]

Barring the Great Depression (in which interventionist methods were used), certainly nothing before 1913 was quite so economically damaging as, say, stagflation.

....you do realize that the Great Depression occurred after 1913, right? Just sayin.

You do realize that I said "Barring the Great Depression", right?

You do realize that by saying "nothing before 1913", you automatically exclude the Great Depression, so it's completely unnecessary to mention, right? Grammar -- it's what's for breakfast.

Honestly, if you look at most economic failures in US history, they're caused when the Fed (or before the Fed's creation, the US government through the Bank of the United States) shrinks the money supply and raises interest rates. We've never had a period of hyperinflation like Weimar Germany, in part because the wealthy have always exerted considerable pressure in this country to KILL INFLATION WITH FIRE. Why? Because inflation is the enemy of accrued wealth. Deflation is the enemy of a functioning economy, but if you can afford to sit tight on your money, you'll make out like a bandit when the economy recovers.

Yet the wealthy were (and still are) instrumental in supporting the Federal Reserve system. Why is that?

Remember, the very first people to receive new money aren't affected by the price inflation that comes with the inflation of the monetary supply. Hence the concept of "negative interest rates". The very first people who receive the new money, coincidentally enough, are the exceptionally rich, who in turn would rather not have deflation. Money supply decreases wouldn't be as harmful were there not false expectations created by easy lending in the first place. Deflation isn't necessarily a bad thing.

Thank you for proving my point. The Fed (which is the primary tool for fighting inflation in the United States) is supported by the wealthy, because it fights inflation. Businesses love it when the Fed cuts rates, because low rates and an easy money supply make growth easier (although they also make risky financial speculation easier as well). But wealthy individuals benefit when the Fed raises rates and chokes off inflation, because the real value of their accumulated wealth is secured. In a deflationary cycle, their real value of their wealth is *increased* without any effort on their part. Now, if their wealth derives from some ongoing business activity, then yes -- they don't want deflation. But for those whose wealth is already made and don't work to produce additional wealth (I'm looking at you, Mr. Mitt "Unemployed" Romney), then a tight money supply is golden.

[GreatJustice]

Barring the Great Depression (in which interventionist methods were used), certainly nothing before 1913 was quite so economically damaging as, say, stagflation.

....you do realize that the Great Depression occurred after 1913, right? Just sayin.

You do realize that I said "Barring the Great Depression", right?

You do realize that by saying "nothing before 1913", you automatically exclude the Great Depression, so it's completely unnecessary to mention, right? Grammar -- it's what's for breakfast.

I mistyped that, I meant 1945. My bad.

Honestly, if you look at most economic failures in US history, they're caused when the Fed (or before the Fed's creation, the US government through the Bank of the United States) shrinks the money supply and raises interest rates. We've never had a period of hyperinflation like Weimar Germany, in part because the wealthy have always exerted considerable pressure in this country to KILL INFLATION WITH FIRE. Why? Because inflation is the enemy of accrued wealth. Deflation is the enemy of a functioning economy, but if you can afford to sit tight on your money, you'll make out like a bandit when the economy recovers.

Yet the wealthy were (and still are) instrumental in supporting the Federal Reserve system. Why is that?

Remember, the very first people to receive new money aren't affected by the price inflation that comes with the inflation of the monetary supply. Hence the concept of "negative interest rates". The very first people who receive the new money, coincidentally enough, are the exceptionally rich, who in turn would rather not have deflation. Money supply decreases wouldn't be as harmful were there not false expectations created by easy lending in the first place. Deflation isn't necessarily a bad thing.

Thank you for proving my point. The Fed (which is the primary tool for fighting inflation in the United States) is supported by the wealthy, because it fights inflation. Businesses love it when the Fed cuts rates, because low rates and an easy money supply make growth easier (although they also make risky financial speculation easier as well). But wealthy individuals benefit when the Fed raises rates and chokes off inflation, because the real value of their accumulated wealth is secured. In a deflationary cycle, their real value of their wealth is *increased* without any effort on their part. Now, if their wealth derives from some ongoing business activity, then yes -- they don't want deflation. But for those whose wealth is already made and don't work to produce additional wealth (I'm looking at you, Mr. Mitt "Unemployed" Romney), then a tight money supply is golden.

Now hold on. Did you just say the Fed FIGHTS inflation?

Spoiler (click to show/hide)

Inflation was next to non-existent prior to the Fed barring the period immediately following the American Revolution and during the Civil War. Actually, you'd be hard pressed to find examples of serious inflation without some kind of central bank intervention.

Furthermore, the (idle) rich generally don't literally save all of their money; they invest it in stocks and so on. Inflation makes these these assets generally rise a bit above the actual inflation rate, giving them a net benefit, and that's assuming they have no direct connection to the banking industry.

Stimulus brings back some measure of the previous prosperity of the boom, but it's doesn't actually solve the problem in of itself. Instead, it creates further imbalances by strengthening the illusion of excess resources/saving where there are none.

See, the problem in the first place is that artificially low rates and an expansion of credit makes entrepreneurs think people have saved more resources than they actually have, meaning they should focus on long term projects as opposed to saving and consolidation. However, those resources don't actually exist, so eventually there comes a point during the boom when they realize that the saved resources are insufficient for all the long term projects, which they are forced to abandon at a loss. If stimulus spending is pursued at this point, some of the entrepreneurs are better off because they get to finish their projects, but the economy as a whole is worse off as resources are diverted to inefficient uses and the same problem is present, meaning the economy will be worse off in the long run. The classic analogy is of an architect who believes he has more bricks than he actually has; naturally, he designs a bigger house, but the later into the project he discovers his brick deficiency the more of it he has to scrap altogether.

Now with the ditch diggers,  resources were taken from productive or potentially productive ventures to allow for them to dig ditches. What we see is an increase in employment and GDP; what we don't is all the things that COULD have been made with what was instead used to dig ditches (/build tanks/bomb countries/etc).

There is a very simple empirical test for this theory. If your story is right then increasing the money supply during a depression would be exactly as inflationary as increasing it in normal times.  If my story is right then increasing the money supply during a depression would be far, far less inflationary then expanding it in normal times.

The logic is simple.  You treat the economy as logically reacting to a decline in real wealth.  If that were true then the price level would behave normally when the money supply is expanded.

Well now, that one's easy. Actually, that's what killed classical Keynesianism for two decades.

Now, the "money supply" requires that the money is actually being exchanged in the economy. If the money is being hoarded despite vast amounts of money creation, something that is distinctly more likely during hard times, then inflation obviously won't occur, as is the case in Japan right now.

And the output that the ditch diggers could have made would have been sitting around scratching their balls because they were unemployed.  Your model isn't very useful at explaining unemployment if it starts by assuming unemployment.

The ditch diggers would have found other, more worthwhile sources of employment, if at lower wages (an essential part of the correction, actually). The shovels would have been used to dig things consumers desired, or else not been made at all, the metal would have been used for something people wanted, the land would have been used more productively, etc etc etc

Certainly, some measure of unemployment is present, especially in the presence of unemployment benefits and the minimum wage, but the ultimate result is renewed growth later regardless from resource consolidation.

And for their logic "there was no contraction of the money supply!" - the money supply was increasing at a MUCH slower rate than growth; that's a contraction by any sensible economic definition - less money per unit of production.

Wait, wait, wait, let me get this straight.

So the money supply was going up, but growth was going up faster, and by rather significant margins too. This resulted in overall price deflation. And you're saying that this means that it was a recession/depression.

I am pretty sure that in that statement he was arguing against the quote's claim of how "the alleged 'monetary contraction' never took place, the money supply increasing by 2.7 percent per year in this period", not directly about the goodness/badness of that deflation.

Okay. Yet he's also trying to argue that the period was actually a recession/depression. If there was net growth above 2.6% during the period where it hit hardest, then that's a rather silly claim. The definition of "monetary contraction" is only even debatably incorrect if the period was primarily characterized by growth, which completely undermines the rest of the argument.

[Nadaka]

http://news.yahoo.com/blogs/ticket/man-romney-face-tattoo-prepares-laser-removal-165623174--election.html

ha!

[Reelya]

And for their logic "there was no contraction of the money supply!" - the money supply was increasing at a MUCH slower rate than growth; that's a contraction by any sensible economic definition - less money per unit of production.

Wait, wait, wait, let me get this straight.

So the money supply was going up, but growth was going up faster, and by rather significant margins too. This resulted in overall price deflation. And you're saying that this means that it was a recession/depression.

I am pretty sure that in that statement he was arguing against the quote's claim of how "the alleged 'monetary contraction' never took place, the money supply increasing by 2.7 percent per year in this period", not directly about the goodness/badness of that deflation.

Okay. Yet he's also trying to argue that the period was actually a recession/depression. If there was net growth above 2.6% during the period where it hit hardest, then that's a rather silly claim. The definition of "monetary contraction" is only even debatably incorrect if the period was primarily characterized by growth, which completely undermines the rest of the argument.

Please, I feel like you're putting words in my mouth.

when I said "recession" i was echoing your use of the word in the prior statement:

So if you even consider it a recession, let alone a depression

...i was purely going off your use of the term, and assumed you were saying something which made sense (that the period was, or can be, considered a recession). Then, when I repeat your use of the terminology you jump on me with "AHA! you said 'recession' ". I was not making any specific claim about the period myself. It sounded like you were referring to it as a recession, so i used YOUR terminology in my reply.

My only point was to point out that GDP increasing faster than money supply is the same as a money contraction, for all practical intents and purposes. Any additional statements you tack onto that are your idea, not mine.

GDP growth precludes there being a recession, right? That's the definition. Which means USA is not in a recession right now.

[Darvi]

And yet you're the one who has to wash their mouth afterwards.

I forgot where I wanted to go with this metaphor.

[EveryZig]

The ditch diggers would have found other, more worthwhile sources of employment, if at lower wages (an essential part of the correction, actually). The shovels would have been used to dig things consumers desired, or else not been made at all, the metal would have been used for something people wanted, the land would have been used more productively, etc etc etc

I am pretty sure that unemployment has existed even before minimum wages were created.

[tryrar]

Reading the last few pages, you guys have really lost me. I guess being in the lower end of the income bracket, high economics is only a real abstract idea to me, so I have no idea what you guys are arguing. So, Greatjustice, could you please just succinctly sum up what you'd like to see the government do policy-wise?

[mainiac]

depression

Well now, that one's easy. Actually, that's what killed classical Keynesianism for two decades.

That's not a depression.  Maybe before criticizing Keynesianism you should learn the most basic thing about the situation it is most important for?

One of the key properties of a Keynesian depression is that real interest rates are abnormally close to zero or outright negative for secure assets.

Seeing as we were discussing depressions and what stimulus does during depressions the fact that you would bring a non-depression as a counter example of depression situation behavoir shows either profound ignorance or dishonesty.

And no, Keynesian economics did not die in the 1970s.  A bunch of galt wannabes just went to hide in their treehouse and pretended they were the academic center of the universe.  Meanwhile the US and every other major market economy continued to operate on Keynesian principles because guess what... they work.

As always you have proven that the audacity of ignorance is boundless.  I'm sure that it is indeed easy to come to an incorrect opinion on a matter which you do not understand.

[Eagle_eye]

It seems to me that the fact that there can be this much disagreement on what the proper policies are, despite the wealth of information available, is simply evidence that market economies don't work. We have the manpower and the resources to provide the necessities for all of humanity. Why do we have to make them dig ditches to get it? Markets make things that would otherwise be practical, like simply building housing for the homeless, or providing universal employment, impossible because of the potential side effects. I say just throw the whole thing out.