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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (452829)	1/31/2009 11:14:54 AM
From: jlallen	Read Replies (2) \| Respond to of 1571120

The idea is a good one.... But there is not enough stimulus and too much pork in this bill as it stands...

To: Road Walker who wrote (452829)	1/31/2009 11:27:10 AM
From: TimF	Read Replies (3) \| Respond to of 1571120

If energy subsidies and other forms of spending make sense, they makes sense to have as part of the normal budget process. They aren't for the most part quick and timely stimulus items. Another point about the stimulus idea, is that people are on the whole more educated and specialized in modern times than in the past. You can't just "stimulate anything" and have the unemployed flow to that area. We aren't going to turn investment bankers in to construction workers, or mortgage brokers in to "green energy" researchers. We don't need to just stimulate in general, we need to have the economy make a transition moving employment from declining sectors to new areas where demand is, or likely will, open up. I'm skeptical about the whole idea of government stimulus, but if your not (like the economist I quote below), than the best stimulus is probably some form of tax cut (perhaps on payroll taxes, if your aim is to increase employment, or if you have a problem with "tax cuts for the rich"), so that you stimulate the economy, but let the market determine where the extra workers can be best employed. ------ From Dark Age to Renaissance Arnold Kling I'm feeling somewhat lonely these days. My understanding of macroeconomics is closer to that of Paul Krugman, Mark Thoma, and Brad DeLong than it is to that of Robert Barro, John Cochrane, or Eugene Fama. And yet I am a stimulus skeptic. I'll reiterate why I am a skeptic. But what I really want to get into is my view of the intellectual history of macro since the 1970's. I think that Krugman's phrase Dark Age of Macroeconomics aptly describes the whole period. First, about the stimulus. My objections are: 1. We have a heterogeneous labor force, and that will require Hayekian market adjustment, not central planning. Look at this data from page 96 of the Goldin-Katz book, which shows the percentage of the labor force with various levels of education: year/high school dropouts/high school graduates/some college/college graduates 1950 58.6 24.4 9.2 7.8 2000 8.7 29.6 32.0 29.7 Can we ignore the implications of this for macroeconomics? I think not. See my lectures. 2. The stimulus plan is highly partisan and ideological in nature. Obama may claim to be Lincoln, but the content of the plan is Radical Reconstruction. The aim is to reconstruct the economy with a smaller private sector and a larger public sector. Any notion of "timely, targeted, and temporary" is out the window. The Radical Reconstructionists don't much care that a lot of their "stimulus" will begin after the recession is more than three years old. 3. I have a Minsky-esque view of the nature of the crisis. That is, we have gone from being risk-loving (ponzi finance, in Minsky's terminology) to ultraconservative (hedge finance, as he calls it). I don't think we can (or should) put back together the Humpty-Dumpty of securitization and leverage that we had before. Businesses need to expand out of good, old-fashioned profits. Fiscal stimulus ought to be aimed at improving profitability... econlog.econlib.org ----- Reply to Robert Waldmann Arnold Kling He writes a long post that agrees with some of what I write and disagrees with some of my views. I said that the labor force is becoming more heterogeneous. As far as I can understand it, you are arguing that the Beveridge curve has shifted out... In other words you seem to be arguing that natural rate of unemployment has increased Not quite. The more heterogeneous labor force does not necessarily raise the natural rate of unemployment. However, it makes it harder to recover from an adverse shock. In the 1950's, when 4/5 of the labor force (and an even higher proportion of cyclical unemployment) is low-skilled workers, it does not matter where you raise demand--you're bound to increase the demand for the workers who were unemployed. That is still true in 1970, when 2/3 of the labor force has a high school education or less. Fast forward to now, when 2/3 of the labor force has some college education, and they are a significant component of unemployment. Now, in order to get them back to work you need to add demand that specifically uses their skills. This is a much harder trick to pull off. My Hayekian point is that this sounds like a task better suited to the market, not for Washington--hence my remark about "central planning." I think that a stimulus that allows the private sector to figure out resource allocation (my preferred approach being a cut in the employer contribution for Social security) is more likely to be effective than a stimulus where the government tries to figure out the resource allocation (health care IT, "green jobs," etc.). My third point about Minsky is that policymakers have got it all wrong by saying that we need to get lending going again. At this stage of the cycle, business expansion is going to come from profits, not from leverage. In layman's terms, the situation now is that borrowers don't want to borrow, and risk averse investors don't want to lend. The policymakers are trying to prop up/cajole banks into getting borrowers and investors to do what they don't want to do. Why fight the market? If consumers don't want to be NINJAs any more (a reference to buying homes with no income, no job, and no assets), fine. If firms don't want to be in debt up to their eyeballs any more, fine. Let's let folks recover the way they want to. In the case of business, that means prudent expansion based on earnings, not ponzi finance. econlog.econlib.org