"Measuring the Effect of Infrastructure Spending on GDP"

Susan Woodward and Bob Hall say the multiplier for infrastructure spending is likely to be around 1.0:

Measuring the Effect of Infrastructure Spending on GDP, Woodward and Hall: The Obama administration’s focus on infrastructure spending raises the natural question of the effect of government purchases on total GDP. Does government spending stimulate other categories of spending, especially consumer spending? Or does government spending displace other categories, so GDP rises by less than the amount the government spends?

Valerie Ramey has written a paper with the results of her recent work on the question and with a full bibliography of earlier work. Her answer is that consumption and other categories stay about the same when the government spends more. In other words, the increase in GDP is about equal to the increase in government spending. To focus on changes in government spending that are not themselves responding to conditions in the economy, she considers military spending. She finds that GDP rises by about the same amount as an increase in military spending. ... [see original post for graphs]

If you think that the Obama administration is ambitious in spending a trillion dollars over several years on infrastructure projects, note that military spending maxed out at $7 trillion per year during the war, rescaled to the current size of the economy. During the expansion, GDP rose pretty much the same amount as did military spending. ... Notice, however, that when military spending fell after the victory, GDP did not fall nearly as much. Consumption and other components expanded rapidly to take up the resources freed from military activities and there was little sign of adverse effects from the lower military spending. ...

We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package. We should not count on any inducement of higher consumption from the infrastructure stimulus but we should also not worry that infrastructure spending might displace consumption and other categories of spending.

Looks like a trillion dollars may not be enough.

Update: Paul Krugman:

Don’t know much about history: ...Bob Hall and Susan Woodward argue against the multiplier effect of infrastructure spending by pointing out that GDP and military spending rose by about the same amount during World War II.

Um, rationing?

With the onset of World War II, numerous challenges confronted the American people. The government found it necessary to ration food, gas, and even clothing during that time. Americans were asked to conserve on everything. With not a single person unaffected by the war, rationing meant sacrifices for all.

[Bangs head against the table]

Update: Greg Mankiw:

Spending and Tax Multipliers: ...In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: ... Similarly, the results in Valerie Ramey's research suggest a government spending multiplier of about 1.4. ...

By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. The puzzle is that, taken together, these findings are inconsistent with the conventional Keynesian model. According to that model, taught even in my favorite textbook, spending multipliers necessarily exceed tax multipliers.

How can these empirical results be reconciled? One hypothesis is that that compared with spending increases, tax cuts produce a bigger boost in investment demand. This might work through changing relative prices in a direction favorable to capital investment--a mechanism absent in the textbook Keynesian model.

Suppose ... that tax cuts ... take the form of cuts in payroll taxes... This tax cut would reduce the cost of labor and, if labor and capital are complements, increase the demand for capital goods. Thus, the tax cut stimulates demand not only by increasing disposable income and consumption spending (the textbook Keynesian channel) but also by incentivizing more investment spending. A similar result might obtain if the tax cut included, say, an investment tax credit.

This hypothesized channel seems broadly consistent with the empirical findings of Blanchard and Perotti, Mountford and Uhlig, Alesina and Ardagna, and Alesina, Ardagna, Perotti, and Schiantarelli. The results of all these authors suggest you need to go beyond the standard Keynesian model to understand the short-run effects of fiscal policy.

My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in ec 10. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes.

Romer and Romer do not look at government spending multipliers, so we don't know if the government spending multiplier is smaller/larger than the tax multiplier if they are estimated in the same model (note, though, the the confidence band for Romer and Romer's tax multiplier is 1.3 to 4.7, so a multiplier smaller than Ramey's estimated value of 1.4 for government spending - though not strictly comparable since it comes from a different model - is within the confidence bounds of these estimates; confidence bounds for Ramey's estimates are not reported). I should also note that Romer and Romer isolate different types of tax cuts, the multiplier of 3.0 (plus or minus about 1.7) is for exogenous tax changes intended to promote economic growth, not tax changes intended to stabilize the economy. Their results for tax cuts used for stabilization purposes are not encouraging:

The behavior of output following countercyclical tax changes ... suggests that policymakers' efforts to adjust taxes to offset anticipated changes in private economic activity have been largely unsuccessful.

Finally, many estimates of the Keynesian government spending multiplier can be criticized on the same grounds that the tax cut advocates like to cite. The installation of infrastructure increases economic growth in the future, but these dynamic effects are missing from the standard Keynesian analysis (and using history as a guide is not very helpful since we have had very few surges in government spending devoted to infrastructure spending, and we have little data on the effects of fiscal policy - or any policy - in severe downturns since they are so unusual). If the dynamic effects were to be included in the infrastructure spending mulitplier, the multiplier would be larger.

Update: From Free Exchange:

Tax or spend?, Free Exchange: Greg Mankiw is getting nervous thinking about all that infrastructure spending. He's down with stimulus, but like all good conservatives, he recognises that tax reductions are preferable to spending increases. And he has evidence! Sort of:

In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: A dollar of government spending raises GDP by about a dollar.

That's not very good. The government spent gobs during the Second World War and consumer spending didn't rise a bit. But Paul Krugman takes a closer look...

Um, rationing? ...

That's right, the government was doing its best to crowd out consumer spending, so as to reduce resource competition, which would have increased the prices of commodities and munitions. But Mr Mankiw goes on:

By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. The puzzle is that, taken together, these findings are inconsistent with the conventional Keynesian model. According to that model, taught even in my favorite textbook, spending multipliers necessarily exceed tax multipliers.

That's somewhat true. The Romers do write:

Recall that we find that a tax increase of one percent of GDP lowers real GDP by about 3 percent, implying a substantial multiplier.

But there are plenty of questions about the extent to which this is applicable to countercyclical tax cuts, particularly since the authors specifically eliminate countercyclical tax changes from their sample in order to eliminate bias generated by omitted variables. If Keynesian tax changes are fundamentally different, then we can't learn anything about fiscal stimulus from this paper. And this may be why Barack Obama is happy to have Christina Romer in his administration.

And this may also be why Mr Mankiw's position no longer enjoys the support of his fellow conservative, Martin Feldstein, who wrote in August:

Those of us who supported this fiscal package reasoned that the program would boost consumer confidence as well as available cash. We hoped the combination would cause households to spend a substantial fraction of the rebate dollars, leading to more production and employment. An optimistic and influential study by economists at the Brookings Institution projected that each dollar of revenue loss would increase real GDP by more than a dollar if households spent at least 50 cents of every rebate dollar.

The evidence is now in and that optimism was unwarranted. Recent government statistics show that only between 10% and 20% of the rebate dollars were spent. The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.

Now there are other ways that a tax change might boost economic activity than consumer spending, and Mr Mankiw describes some potential alternative mechanisms. A tax cut in this environment certainly won't do any harm, and Mr Obama will likely include some tax reductions in his initial stimulus package. But it's difficult to make the case that a spending stimulus won't be as effective, at least, as a tax cut. Time to get those shovels in the ground, I think.

Comments

[Bruce Wilder]

"We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package."

And, "we" believe this, because . . . ?

During the Second World War, a full-on propaganda effort was underway to minimize consumer spending, complete with ration books, restrictions on production for consumer demand and urgent bond drives and recycling campaigns. You could not have purchased silk stockings or a new refrigerator, even if you had, unpatriotically, wanted to. You might have had difficulty buying an extra egg or a stick of butter.

[mmckinl]

Military spending during WWII was labor intensive ... manufacturing, shipbuilding ...

Spending on infrastructure is no longer labor intensive. Materials will likely be the bulk of the cost, and those materials are Not labor intensive either ie: cement, asphalt, steel. Labor will mostly be for operators or other highly paid workers ... Infrastructure spending will take time to implement. The money will not get flowing for many months. Sure it will be allocated, but not spent into the economy for at least six months, the bulk of it will take longer than a year.

Infrastructure spending is worthwhile, necessary and stimulative but it will appreciably help an economy that is in a free fall with jobs being lost at an accelerating rate in the hundreds of thousands. By the time Obama's infrastructure stimulus reaches the economy it will already be a basket case.

What we need now are job saving ideas. It is far easier, quicker and cheaper to save a job than to create one.

We need "Medicare for All". This saves jobs right away, especially in the public sector in states and local governments.

This re-capitalizes business especially manufacturing but also any business currently employing many people. Strings could be attached such as a no layoff rule whereby companies would run 32 hour workweeks paying for 40 supplemented by the paid health insurance. States would be mandated to take any extra money and use it for unemployment benefits and\ or pension fund replenishment.

Medicare for All would also make our businesses more competitive at home and abroad. All the other G7 nations have government sponsored health insurance giving their businesses a subsidy.

... We need to save as many jobs as possible as soon as possible ...We need Medicare for All ASAP. Obama has the momentum, the people on the ground and the moral authority to get this done. Will Barack be a manager or a leader ?

[Lafayette]

This analysis must have implied a good many judicious assumptions.

Just look at the BEA data (which is here).

Note that the BEA numbers are divided into Sectoral Groupings of Private Enterprise and Government. How the money is spent will necessarily affect any conclusion that can be made from GDP numbers.

Let's presume that all the monies spent are accounted for as Government Spending (Federal, State and Local), which totaled, in 2006 numbers about 12.5% of total GDP. This makes its way into the economy by coming up under the various Private Enterprise sectors. But, not necessarily in the same year, which complicates the analysis.

Understanding the impact of Government Spending upon total GDP (including Private Enterprise), therefore, takes some assumptions I am not prepared to make (since such a manipulation is beyond me).

The article is positing the conclusion that the total knock-on effect is 1. Meaning that the monies show up only in Government Spending, not Private Enterprise. To my unenlightened mind, that means the knock-on effect is zilch. And I have great difficulty in believing that conclusion.

But, one can make a back-of-the-envelope calculation that a trillion dollars, as Obama insists is the total value of his program, let's assume it is made over two years. (The economy will have mended itself anyway in that time.) That means $500B a year which is barely 4% of total Government Spending.

Which isn't all that much.

Obama can commit the American Treasury to that amount. This is no wild-eyed scheme at building the Great Society. He is just trying to save the World-as-we-know-it. He will deserve the credit for that.

But, I figure, at the same time, the economy will start saving itself. One day we will all collectively say, "Hey, I have had enough of this gloom 'n doom!". And we will start spending instinctively as the propensity to Consume kicks in.

Still, this is NOT in any way Transforming the Economy. It is his expenditures in Health Care and Education that will bring the most meaningful transformations. And, in terms of GDP, both added together represent a whopping 20% of the economy. Which means there is yet another $4/500B to be found. (Hello, Robert Gates, can we see your DoD-accounts please? ;^)

[Lafayette]

En passant

Let's note as well another interesting fact of the GDP numbers.

The way the BEA (national Bureau of Economic Analysis) calculates them, they show that:
- 18% reflect Goods Producing industries (consisting of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing), whilst
- 68% represent Services Producing industries (consisting of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and business services; educational services, health care, and social assistance); and
- 4% I.T. industries (consisting of computer and electronic products; publishing industries (includes software); information and data processing services; and computer systems design and related services).

Interesting, n'est-ce pas?

NB: Sectoral descriptions within parentheses above directly quoted from the BEA GDP spreadsheet.

[datadave]

wow, sounds great: a one to one ratio. bang for the buck! Now I wonder how much 'bang for the buck' we got with the 7 Trillion monetary infusion?

In the construction world myself and I add to concerns about just how many jobs will be created with 'infrastructure' building. A lot of big contractors well-connected will rake it in...but few workers will be added to the rolls. "shovel-ready" doesn't mean a huge line of 'blue ant's' working at shovels...those few guys waiting around to use their shovels are really just an occasional assistant to the excavator machine operator to help clean up the mess the machine makes.

[Lafayette]

dd: those few guys waiting around to use their shovels are really just an occasional assistant to the excavator machine operator to help clean up the mess the machine makes.

If the Construction Industry is at 12.7% unemployment (October), are you suggesting that they are all "occasional assistants"?

[Massimo GIANNINI]

I think that German Minister simply replied to Krugman's post "The German problem". I think that countries that are lending money to United States deserve at least some respect. Krugman is accusing Germany to free-ride on others fiscal stimuli when actually US is free-riding on borrowed money from abroad. Why is he now so worried about Europe? Get United States, and UK in order first, financially wise, and let's try to make a more compelling economic and logic case for "crass Keynesianism". United States led the World in this financial mess and he is writing that Germany "adds significantly to the severity of the global downturn". Come on let's be serious about Keynesianism, economists are still discussing its multiplier effects. That seems to me the usual concept of leverage which led to this crisis.

[bakho]

It matters how the money is spent.

She is answering the wrong question. The question she really asks, "Is the multiplier much greater than 1.0 if spending is NOT targeted on projects that have a multiplier greater than 1? Military spending is notorious for having a low multiplier effect.
If money is spent on bridges to nowheres, useless projects that suck money for upkeep and things that get blown up in Iraq the return on spending is less than 1.

If she looked at spending on railroads in the period from 1850-1870 she would get a different answer. We know that different projects vary widely in multiplier effect.

The question we need to answer is, "How do we spend money to make the multiplier as large as possible?" If we actually identify projects that are likely to have high multipliers and target the spending to those projects, will the multiplier be higher than 1?

Just because Bush administration used our Treasury as a giant slush fund for his "base" does not mean that a future president cannot use criteria for spending that would actually improve the infrastructure.

If a new administration actually based spending on anticipated return on investment, that number could be much higher than 1. (DUH?)

[ken melvin]

Still naive and again simplistic. After WWII people had money in their savings and a pocketful of wishes. There was tremendous demand for cars, refrigerators, plumbing, ..., then TVs. Now, there is no pent up and even if there was the money would go offshore. The only multiplier is if the money is spent on US made or if 'tis spent on infrastucture for the future (not freeways).

[J Thomas]

So, this is paper is completely a hack. They're looking at WWII when there was essentially no civilian economy, and trying to compare it to today. Why would any reasonable person give it a second look? Well, because they might by accident have collected some interesting data that they have utterly and completely misinterpreted.

But why would Mark Thoma present it as if there might be something legitimate about their conclusions? He seems like a smart, reasonable guy otherwise. It isn't April 1.

Maybe he wanted to check whether anybody was paying attention?

[Massimo GIANNINI]

Contrary to what Prof. Mankiw writes the reality is that we do not know how much the multiplier effect is and we cannot know in advance because economy is dynamic. The only distinction should be between productive spending and not very productive. To compare military spending and infrastructure is in this respect misleading to say the least. In an open economy a major difference exists for the multiplier if the sectors are tradeable and the spill overs are all domestic. Again you can always increase military spending and make wars abroad. That's why infrastructure is likely to have higher multiplier than military spending being also more productive...

[Garage Wine]

Woodward and Hall are making a giant leap.

Take a look at the paper they cite: there is only one mention of infrastructure spending in the entire paper.

It's a shame that Woodward and Hall are so intellectually sloppy. They could have looked at the work of Barro and others who actually look at infrastructure spending directly.

[Nels Nelson]

I'm an economist that works as a planner for a state transportation department. Our state currently has a backlog of $18 billion in projects. Additional infrastructure funding is needed but I will point out two concerns.

First, the majority of projects will be reconstruction and rehabilitation of existing infrastructure and as such will have an impact on the economy that can be best described with Bastiat's Broken Window Fallacy. They will not result in an increase in the productive capacity of the economy.

Second, even at present funding levels, there are barely enough construction firms for the number of projects we're currently letting. There will need to be a large increase in their number. Few of the employees in the retail and service sectors will be able to transition to jobs in road and bridge construction. We are not looking at this aspect of the stimulus program from a systems perspective as to its ability to deliver a significant increase in construction activity. It will take years to do this.

[Bruce Wilder]

The Bridge to Nowhere might be an interesting case study. It was a bridge to an island, where few people live, but that island is where the regional airport is, so it is not as if there would be no traffic. And, once in place, the economics of living or working on the island changes; bridges create somewhere, and it would be surprising, if it didn't, sooner or later, spur further development.

The problem with the bridge to nowhere was that it was fantastically expensive, given the existing volume of traffic. But, "build it and they will come" sometimes works out rather nicely. Building a first-rate internet infrastructure, for example, could accelerate a lot of economic development. Building that much touted electrical grid really could accelerate the shift toward windpower.

Maybe, someone should consider hiring Dani Rodrik.

[Barkley Rosser]

The Woodward and Hall paper is a wild overstatement, and it has been even more badly interpreted over on marginal revolution. Ramey finds a government spending multiplier of 1.4, not 1.0. The only time there was one near 1.0 was during WW II, when we were at full capacity and there was rationing of consumer goods. Big surprise there was no consumer spending response. This is simply irresponsible writing and marketing.

[paine]

"military spending maxed out at $7 trillion per year during the war,"
properly scaled up

nice number
expands the cramped house bound mind some don't ya know

i agree more or less
we need to really limber up
uncle's check writing hand

how 'bout we get uncle to hire a harry hopkins circa '34
and give him george marshall's credit line circa '42

[paine]

"Ramey finds a government spending multiplier of 1.4, not 1.0. The only time there was one near 1.0 was during WW II, when we were at full capacity and there was rationing of consumer goods

bark
i think bruces are wild scooped ya on this
substantively speaking
up top

hey so the two bums are on babbit retainers

they still aren't trying the crowd out bit

the corporate lackey league is on the run bark

like wild asses hit by a swarm of bees

here come progress

[paine]

"even more badly interpreted over on marginal revolution"

surprise ???

their brand name has only one meaning

watch out
pocket protector types
with market driven passive agression
dwell here

marginal convolution

[paine]

"Maybe, someone should consider hiring Dani Rodrik"

agreed

excepting lobos like herr bark
and deeply educational souls like mark

the best main frame brain in the biz
by my limited lights
is dani boy

[paine]

the biz being
economic policy formation

el stig still roars loudest as meta econ con

[bob mcmanus]

Mankiw is just monstrous on this, and cites that damn Romer & Romer paper again.

"By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. The puzzle is that, taken together, these findings are inconsistent with the conventional Keynesian model. According to that model, taught even in my favorite textbook, spending multipliers necessarily exceed tax multipliers." ...Mankiw

As long as liberals admit that tax cuts, any tax cuts at all, increase growth, the supplysiders will win. Or transfer payments, or any means to put cash into people's hands at all.
Taxes => transfer payments => taxes why not skip the middleman? Taxes => gov't spending/investment/jobs => taxes is the circulation.

Keynes advocated gov't spending & investment, not measures to just increase consumption.

And the Romers, if misinterpreted, need to get out front of this bs fast & hard.

[anne]

http://krugman.blogs.nytimes.com/2008/12/11/dont-know-much-about-history/

December 11, 2008

Don’t Know Much About History
By Paul Krugman

Bob Hall and Susan Woodward * argue against the multiplier effect of infrastructure spending by pointing out that GDP and military spending rose by about the same amount during World War II.

Um, rationing? *

"With the onset of World War II, numerous challenges confronted the American people. The government found it necessary to ration food, gas, and even clothing during that time. Americans were asked to conserve on everything. With not a single person unaffected by the war, rationing meant sacrifices for all."

[Bangs head against the table]

* http://woodwardhall.wordpress.com/2008/12/11/measuring-the-effect-of-infrastructure-spending-on-gdp/

** http://www.u-s-history.com/pages/h1674.html

[Chris Douglas]

As a layperson, this report strikes me as a bunch of hooey. My observation of both WW II and the Iraq War is that both were themselves essentially stimulas packages, if not in intent, with necessarily limited additional impact.

Of COURSE defense spending has limited multiplier. As government spending goes, spending on wars has about the same effect as throwing money up in the air, especially with much of it directed overseas. It has nothing whatsover in parallel with spending on infrastructure on the homefront, with spending directed through local area contractors and dollars rippling through their communities, let alone infrastructure such as, say, the improvement of roads to populated but remote, economically depressed areas, or urban mass transit offering efficient transportation to those labor forces lacking it.

Are the authors just willfully obtuse?

[paine]

"As long as liberals admit that tax cuts, any tax cuts at all, increase growth, the supplysiders will win"

i'm no liberal

but why will the laffering stock "win" ???

[paine]

i welcome the spot light on the arsenal of democracy years
it oughta be
our national paradigm of first choice right about now

not the black hats still admit the balance duget multiplier without the tax illusion
very tempting eh ??
for the bold ones among us

borrow our way to a green balance trade economy
monetize what we must
cap and trade mark ups as we need

[Massimo GIANNINI]

Read carefully the conclusion of Prof. Mankiw: "My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model". Few weeks ago he wrote a post "Memo to the POTUS-elect" asking him to be bipartisan. Was Prof. Mankiw a Bush's adviser before? Is he willing now to be Obama's adviser? Where was he during 8 years of Bush's economic policy to give now advice to the other political party?

[Phillip Huggan]

it's a bridge to Santa

[kthomas]

@ Chris Douglas "My observation of both WW II and the Iraq War is that both were themselves essentially stimulas packages, if not in intent, with necessarily limited additional impact."

Something tells me you fought in neither. My grandfather fought in WW2 (Aluetian Islands and Battle of the Bulge), and would shoot you for such a comment.

[Jack]

God, Mankiw's a scumbag.

[bob mcmanus]

but why will the laffering stock "win" ???

1) What do you think a FICA holiday will look like when it gets thru the Senate?

2) It may be fun to say:"Tax cuts increase growth as long as they go to incomes below this level, but decrease growth if they go to incomes above this level." but the politics are terrible. The top quintile starts at 100k, and they think they
are barely middle class. Call them rich and tax them, without taxing 75k, and your tax cut dies.

Exactly why are taxes on incomes above, say 150k, contractionary? It's just too complicated.

You have to tax everybody pretty hard to get real progressive taxation.

[Barkley Rosser]

Regarding Mankiw, there is yet another twist: his Principles text. It has done more to downplay the multiplier in the teaching of Principles of economics than anything I can think of. Increasingly it is barely taught, and many students have never even heard of it. From time to time I teach Urban Economics, and multipliers are definitely strong locally, and models of urban economies have them, but I find that I must teach the idea from scratch to all the students who had Mankiw's execrable text for Principles. His parading of this stuff is poorly done paper by Woodward and Hall is just more of this campaign to exorcise the multiplier, or at least the government spending multiplier.

[Beezer]

If no one's spending any money, then the government dollar's all you got. Spend it. Private money doesn't do infrastructure unless government leads. And right now, infrastructure is the primary need for capital investment in America.

Our infrastructure is a shambles and poorly designed for this century. Work on it. Start anywhere. Just start.

Establish universal health care. This is a subsidy most of the rest of the developed world already uses. It's not going to diminish the top end care, wealthy people get that now and they will get it after universal health care. More importantly, in a better world no one should go without basic health care.

Get all government buildings off the grid. How's that for a project. Solar and geothermal work just fine and you don't need any inventions to do this.

We need a new train system. Build some tracks. Build some trains. Build some base power generation to supply the power for these trains, and all the electric/hybrid cars about to flood the market.

The auto industry is right on the verge of completely changing its product. Don't kill our domestic capacity now. It does need massive re-tooling. The new products will dramatically reduce our oil hemorhage. Does that multiply anywhere?

Pass laws mandating the use of efficient lighting. Stop the sales of what we still sell now that's very wasteful. Another hemorhage reducing action.

One trillion. Heck, we probably need 10X that. A deflation recession is probably as good an opportunity to start as you're going to see. Try doing it with 10% inflation.

[anne]

The comment that is directly relevant is that of Paul Krugman; while economic growth was directly in line with growth in military spending during the World War, so the multiplier from government spending could be considered 1, there was strict control over or limits to private spending during the war:

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=121&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1929&LastYear=1941&3Place=N&Update=Update&JavaBox=no#Mid

December 3, 2008

Private Gross Domestic Investment Index, 1929-1970 *

1929 ( 5.259) High

1940 ( 6.215) Recovery above 1929 high
1941 ( 7.590) High
1942 ( 4.011)
1943 ( 2.368)
1944 ( 2.926)

1945 ( 3.863)
1946 ( 9.914)

Notice the decline in the investment index from 1942 to 1945.

[anne]

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=121&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1929&LastYear=1941&3Place=N&Update=Update&JavaBox=no#Mid
http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N

December 3, 2008

Private Gross Domestic Investment Index, 1929-1960

Nonresidential Index *

1929 ( 5.742) High

1940 ( 4.433)
1941 ( 5.219) Recovery below 1929 high
1942 ( 3.072)
1943 ( 2.568)
1944 ( 3.410)

1945 ( 4.791)
1946 ( 7.065)

[anne]

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=121&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1929&LastYear=1941&3Place=N&Update=Update&JavaBox=no#Mid
http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N

December 3, 2008

Private Gross Domestic Investment Index, 1929-1960

Residential Index *

1929 (13.092) High

1940 (12.164)
1941 (12.925) Recovery below 1929 high
1942 ( 6.538)
1943 ( 3.884)
1944 ( 3.345)
1945 ( 3.933)

1946 (16.564)

[anne]

The controlled decline in private investment gives a sense of why there appears to be a limit to the multiplier, but this represents a forgetting of history that is shocking whether careless or purposeful.

[halbhh]

Even modest tax changes that benefit lower income individuals and families are a good candidate for inclusion in the stimulus simply because obviously lower income families spend a higher portion of their money, and save less.

So for instance, the per child deduction could be increased, and the exemptions increased, etc., to quickly put more money into lower-income pockets through changes in withholding. This is in addition to Obama's stated "middle class tax relief".

Also, why not stop discounting the value of the "saved" portion of the last tax rebate -- lower consumer credit card debt (than otherwise would have been) is good in several ways *if* there are other measures that increase the confidence level. When consumers consider new purchases, it's with an eye on their current credit card debt levels, some $5700 on average I've seen recently. Less debt= more liberal spending, etc.

These choices are *not* either-or , they should be thought of as both-and.

We can used both infrastructure investment such as electric grid preparation for wind farm to electric car transmission *and* tax cuts.

Spread the stimulus. Avoid the harm of concentrating it narrowly (inflated demand and prices in one sector). Make it more democratic (shared).

[the buggy professor]

1) On December 2nd, 2008, Greg Mankiw linked to two earlier studies that --- so he claimed --- arrived at the same conclusions about various kinds of fiscal-stimuli policies and their multiplier-effects on short- and mid-term GDP growth.

The two papers used fairly similar time-series data over several decades for the US . . . 1955-2000 for one study and 1960-2000 for the other. And of the three fiscal stimuli-policies that the two articles examined --- i) a deficit-spending fiscal policy shock, (ii) a deficit-financed tax cut, and (iii.) a balanced budget fiscal shock ---only the first had a an impact-multiplier higher than 1.0 after 20 quarters.

………………………….

2) The two articles in question?

The first was a 2002 study carried out by Olivier Blanchard and Roberto Perotti, entitled “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output” click here The second study --- whose two authors, Andrew Mountford and Harald Uhlig, contended that their results closely matched those arrived at by Blanchard and Perotti ---appeared in 2005 and is entitled “What Are the Effects of Fiscal Policy Shocks”. Click here for it.

…..

And what, to be more specific, did the two studies conclude looking at roughly the same time-series data for the US? In Mountford’s and Uhlig’s own words, exactly this:

• "A surprise deficit-financed tax cut is the best fiscal policy to stimulate the economy

• A deficit[-financed government] spending shock weakly stimulates the economy.

• A government spending shocks crowd out both residential and non-residential investment without causing interest rates to rise."

…………….

3) As Mankiw noted in his blog-commentary about these findings,

“These finding are not consistent with standard Keynesian theory, according to which government spending multipliers are larger than tax multipliers and crowding out occurs through increases in interest rates.

And he went on to note that he wasn’t fully convinced by those findings, especially in the uncommon economic and financial circumstances of the day, shot through with uncertainties.

…….

4) Wait though! A closer examination of the two papers shows that Mountford and Uhlig exaggerated when they said their findings about the impact-multipliers of the three different fiscal stimuli-policies --- remember, for almost the same time period (1955-2000 vs. 1960-2000) --- more or less duplicated those of the earlier Blanchard-Uhlig study. In particular:

FOR A DEFICIT-FINANCED TAX-CUT POLICY, THE MULTIPLIER IMPACT ON GDP TURNS OUT TO BE AFTER:

.................................. 12 quarters ......20 quarters

Mountford/..Uhlig........3.22……….............1.32

Blanchard/Perotti..........1.30 ...................1.29

After three years, as you can see, the multiplier impact of a tax cut in M/U is about 2.5 times more effective in boosting GDP than in the B/P study. Both arrive at the same multiplier-impact after five years.

......

By contrast, the MULTIPLIER IMPACT FOR DEFICIT SPENDING IS FAR LESS

M/U . . . 0.67 (12 q) and -0.08 (20 q)
B/P . . . 0.65 (12 q) and 0.66 (20 q)

......

5) So far, so good. There emerges a considerable overlap in the two studies after 20 quarters, but the case for tax-cutting turns out to be much more persuasive for 12 quarters in the M/U study: in effect, 2.5 times more persuasive for the discovered GDP-boost.

And there’s more. Their overlapping conclusions extend into another, highly relevant macroeconomic concern. Specifically, both studies agree that private consumption will not fall because of a government deficit-financed spending shock --- which result contradicts real business cylce theory. And both agree that such consumption will not rise much either . . . a contradiction this time with Keynesian theory. So in many ways, a New Keynesian like Blanchard and presumably a New Classicist like Uhlig at Chicago arrive at a similar, un-orthodox position.

6) Enter, now, some big problems that lead Blanchard and Perotti in follow-up studies to far different conclusions than their earlier 2002 article that Mountford and Uhlig refer to.

.....

Specifically, in a paper that Blanchard prepared for a conference on his and Perotti's 2002 paper, he noted that Perotti extended their study of the USA on these scores to several OECD countries. The outcome? As it happened, Perotti arrived at much different results --- and these differences are ignored in the M/U paper that explicitly compares their results with B/P and claims that they reinforce one another.

Here, to be specific, is what Blanchard said in his short conference paper:

"First, when Perotti (2002) looked at the effect of spending changes [in these several OECD countries], say spending increases, he found that there was a positive effect on GDP, but the multiplier was much less than one. But he did not find the response of interest rates that would naturally explain that effect. Then, on the tax changes, he found a set of results which can, at best, be called disappointing."

........

7) Nor is that all. As things stand, in the Perotti follow-up study, it gets worse for the findings by Mountford and Uhlig (and the earlier Blanchard-Perotti study) that underscored the alleged superiority of tax-cuts for multiplier-impacts. In particular,

• For one thing, the signs in the Perotti follow-up study turn out to be negative for many countries, and no less surprising, very quickly so . . . (from Quarter 2 on.

• For another thing --- and worse yet for the claimed multiplier-impacts of tax-cuts --- if you divide the period studied, 1960-2000, into two periods (1960-80 and 1980-2000), then for the latter period ALL the multiplier impacts from Q1 - Q20 are negative for the USA as well.

And so? And so what confidence, then, can we have in the M/U paper? It looks ONLY at one period, the time-series data between 1955 and 2000 without any sub-classification into the periods before and after 1980?

......

8) On top of all that, other economists find that the multiplier impacts are far different for the current period --- 2008, which is, remember, the first one since the Great Depression when there has been a system-wide financial meltdown and credit-crunch, and (as in the 1930s) on a global basis to boot.

* At Econbrowser, Menzie Chinn sets out the multiplier effects of a $1 on GDP from tax cuts --- first temporary, then permanent --- and compares them with various deficit-financed government-spending policies: on unemployment-insurance, food-stamps, grants to local and state governments, and infrastructure spending. These multiplier effects, please note, aren't Chinn’s. No, they’re the work of Mark Zandi, the chief economist at Moody's, which he presented to a Congressional hearing this summer. (Note: I tried to find the original research on which the testimony was based, but couldn't access it at Moody's).

.
Zandi's findings? Exactly the opposite of Mountford/Uhlig and the 2002 paper by Blanchard/Perotti.
Tax cuts of any sort --- permanent or temporary or aimed at business or households --- have a very weak multiplier impact and government spending has a much larger impact between 1.36 (weakest: aid to local/state governments) and 1.64 for unemployment insurance-boosts and extension.

Note though. Without access to his research and data and modeling, we can’t be sure he’s allowed for various kinds of crowding out (on investment, consumption, and exports . . . deficit spending raising interest rates and most likely intensifying the safe-haven flight from abroad into the dollar.)

......

9) Anyone in favor of flipping a coin? Or consulting the Delphic Oracle? Or getting hold of Nancy Reagan's Crystal-Ball Soothsayer in San Francisco, assuming she hasn't already reincarnated as a last-ditch economic wizard in the White House of George W. Bush . . . maybe, who knows? hidden in a broom-closet?

….

Michael Gordon, AKA, the buggy professor

[anne]

http://www.epi.org/printer.cfm?id=3143&content_type=1&nice_name=webfeatures_snapshots_20081022

October 22, 2008

A Meaningful Stimulus for Main Street
By Ethan Pollack

Recent news that retail sales dropped 1.2% in September—on top of analysts' predictions of negative gross domestic product growth in the third quarter—leave little room for doubt that a new serving of stimulus is certainly needed. While Congress may be tempted to model the next round after the last one—that is, emphasizing large tax rebates—the current economy demands a final stimulus package that will provide maximum economic bang for the buck.

Economic benefits of a $1.00 stimulus provision from:

Food stamps - $1.73
Extending unemployment insurance - 1.64
Infrastructure spending - 1.59
Aid to states - 1.36
Payroll tax reduction - 1.29
Refundable tax credits - 1.26 *
Non-refundable tax credits - 1.02 *
AMT exemption - 0.48
Dividend and capital gains tax cuts - 0.37 **
Corporate tax cut - 0.30
Income tax cuts - 0.29 **
Accelerated depreciation - 0.27

* With a refundable tax credit all households would receive the same size check regardless of how much they owe in income taxes. A non-refundable tax credit would depend on how much is owed in income taxes.

** President Bush's tax cuts made permanent.

As money is spent, it creates beneficial ripples through the entire economy. The evidence is that most of the money from the recent tax rebate was saved rather than spent, thus blunting its stimulative benefit.1 By comparison, other options—such as infrastructure spending, aid to states, food stamps, and unemployment insurance benefits—are much more cost-effective because they target the needs most likely to channel money back into the economy. Mark Zandi from Moody's Economy.com estimates that each dollar of refundable tax rebates * only boosts GDP by about $1.26, while each dollar of infrastructure spending could provide a $1.59 boost. Not only are many of these stimulus options more effective, but they also have the added benefit of assisting those hardest hit by the downturn and tackling long-standing infrastructure needs that would lower transportation costs, decrease traffic, and increase business productivity.

Zandi's analysis also shows what doesn't work as stimulus: a variety of tax breaks for corporations and wealthy individuals, which cost over twice as much as they return to the economy.

Endnote

1. According to a CNN/Opinion Research Corp. poll, just 21% of individuals polled intended to spend their rebate, while 41% intended to pay off bills and 32% intended to put their rebate into savings. http://money.cnn.com/2008/03/24/news/economy/rebates_poll/index.htm?postversion=2008032412

says...

Japan in the 90s found that infrastructure spending does not take you out of recession. This is artificial in that it's not sustainable. When they go away the problems return. Thus infrastructure spending is a bridge to nowhere.

[J Thomas]

Japan in the 90s found that infrastructure spending does not take you out of recession.

Does the infrastructure spending need to be done? Would it be better to put it off and do it later?

If it needs to be done and we can afford to do it, we should do it whether it's what gets us out of recession or not. If there's something else that would get us out of recession that we can't do while we do infrastructure spending, then we should do that instead and then do the needed infrastructure spending when the economy has recovered.

Which do you think is the case?

[Thomas Smith]

The explanation offered by Mr. Krugman is limited to WWII and does not explain lack of multiplier during Korean War.

[Aaron from NJ]

Isn't the real issue of multipliers is what is the impact on GDP which most people seem to forget is

GDP = consumption + gross investment + government spending + (exports − imports),

GDP = C + I + G + (X-M)

Greg Mankiw blog states,

"Suppose, for example, that tax cuts are not lump-sum but instead take the form of cuts in payroll taxes (as suggested by Bils and Klenow). This tax cut would reduce the cost of labor and, if labor and capital are complements, increase the demand for capital goods. Thus, the tax cut stimulates demand not only by increasing disposable income and consumption spending (the textbook Keynesian channel) but also by incentivizing more investment spending. A similar result might obtain if the tax cut included, say, an investment tax credit."

also noted is

the extent of the multiplier effect is dependent upon the marginal propensity to consume and marginal propensity to import.

MPC is critical to the arresting of the fall of demand. If a consumer expects a change in income to be permanent, then they have a greater incentive to increase their consumption (Barro and Grilli, p. 417-8). MPC is key to all of these assumptions, that measures the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers)

[anne]

"Japan in the 90s found that infrastructure spending does not take you out of recession. This is artificial in that it's not sustainable. When they go away the problems return. Thus infrastructure spending is a bridge to nowhere."

Completely and utterly untrue in every way, but do keep on making things up.

[anne]

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1947&LastYear=2008&3Place=N&AllYearsChk=YES&Update=Update&JavaBox=no#Mid

December 8, 2008

Gross Private Domestic Investment, 1929-2007

(%Change)

1940 39.3
1941 22.1
1942 - 47.2
1943 - 41.0
1944 23.6

1945 32.0 Truman
1946 156.6

1950 41.2
1951 0.3
1952 - 9.6
1953 4.7 Eisenhower

"The explanation offered by Mr. Krugman is limited to WWII and does not explain lack of multiplier during Korean War."

Paul Krugman was of course correct.

[anne]

http://krugman.blogs.nytimes.com/2008/12/01/people-should-be-reading-adam-posen/

December 1, 2008

People Should be Reading Adam Posen
By Paul Krugman

Everyone's looking back to the 1930s for policy guidance — and that's a good thing. But we don't have to go back that far to see how fiscal policy works in a liquidity trap; Japan was there only a little while ago. And Adam Posen's book, * especially on, "Fiscal Policy Works When It Is Tried," ** is must reading right now.

* http://bookstore.petersoninstitute.org/book-store/35.html

1998

Restoring Japan's Economic Growth
By Adam S. Posen

** http://www.petersoninstitute.org/publications/chapters_preview/35/2iie2628.pdf

[skeptonomist]

Depressions are not felt in terms of GDP growth - it's the unemployment, stupid. GDP growth recovered quickly after 1933, and although there was a sharp setback in 1937, growth was very high at the start of WW II (no, this was not anticipation of the war - there was little increase in foreign trade or military spending until 1941).

So, no surprise that additional GDP growth during the war was mostly military. As Krugman says civilian consumption was rationed, but probably more importantly, many consumer goods were not being made anyway - if the factories are directed to make tanks and airplanes instead of cars, there is not much possibility for non-military growth, is there?

The war put everyone to work and created a huge reservoir of demand that sustained the economy long after the war. This is not exactly news - as I've said before, economics is a "science" in which the basic history and fundamental principles apparently need to be rediscovered every generation.

Of course, the situation now is like early 1930, not early 1941, and the idea is to forestall the very low employment and consequent low demand of the later Depression years. Would great long-term harm be done by putting lots of people effectively on the government payroll? The WW II experience say no - the transition back to a civilian economy caused only temporary problems. The key economic benefits of WW II thus seem to have been (a) getting everyone working; and (b) restricting production of consumer goods. Attempting to stimulate the private economy with tax cuts does not guarantee (a) and certainly does not do (b). A supply-side approach apparently ignores the fact that WW II was beneficial economically.

The model studies on later years quoted by Mankiw depend on long chains of assumptions and are probably not relevant to either 1930- or 1941-like conditions. The idea that all economic "constants" operative in 1930 or 1941 (or 2009) can be discovered by studies on very different later periods is absurd.

[skeptonomist]

I find it strange that so many people are talking about "the multiplier" as if there were a single number which could actually predict the effect of infrastructure spending (or anything else). Such a number is useful in an exemplary equation illustrating general principles, and would probably go with a caveat "everything else being equal", but that doesn't mean that it is something that is measureable and directly predictive in the real world.

[Lafayette]

NN: ... even at present funding levels, there are barely enough construction firms for the number of projects we're currently letting.

With nearly 13% unemployment in construction, this is supposed to be a problem or an opportunity. I'll go with the latter ...

[Lafayette]

Fiddle-faddle

skep: I find it strange that so many people are talking about "the multiplier" as if there were a single number which could actually predict the effect of infrastructure spending (or anything else).

Intuitively, the article's conclusion regarding the multiplier effect appears wrong. There are also some reasons, as shown in this thread, to believe that the methodology is questionable.

One can understand why BO is probably in the midst of looking for the One-handed Economist who does NOT say "On the other hand". There's far too much of this going on in the profession. In fact, it’s fatally prone to it, which is perhaps why economics does not gain more credibility at a moment when it is so sorely needed.

Whether there is a multiplier effect or not, and I am prone to think M > 1, let's just get on with it. We have no time to dawdle with such intellectual fussing about.

Rome is burning whilst economists fiddle-faddle. Turning the economy around is less a question of econometric exactness and more one of psychological circumstance. People NEED absolutely to believe something is being done.

Which, in the midst of the palaver regarding whether or not the New Deal actually worked, economists do not understand that consumers need to believe that it will work. Signaling the spiral into hell of Consumer Spending is one thing (at which economists excel), stopping and turning it around is quite another (at which a national psychology is at play).

Which is why even a symbolic rescue of Detroit is also necessary, regardless of what is really/truly necessary to get the American automotive industry permanently off its backside.

Fifteen or fifty or even one hundred billion dollars in a 13 trillion dollar economy is child's play.

[J Thomas]

Fifteen or fifty or even one hundred billion dollars in a 13 trillion dollar economy is child's play.

You're right. If we collected $15 billion from 300 million citizens it would only be $50 each. Completely insignificant. Surely you wouldn't mind giving $50 from your paycheck to save the auto industry and the economy.

So look, if we only took a single penny from every US citizen and gave it to me, that would be $3 million. I wouldn't ask for anything more. How about it, huh? If you can spare $50 for the auto industry, can't you spare a penny to set me up for life? Please please please. Hey, I worked on the Obama campaign. Can't we give a penny per American to everybody who supported Obama? I'm sure Bush would have done something like that if he'd thought about it.

How about it. Just $3 million and I promise I'll spend at least 2% of it a year, and spend the money wisely. You sure aren't going to get an auto company to keep a promise like that.

[Lafayette]

JT: You sure aren't going to get an auto company to keep a promise like that.

Oh ye of little faith.

Get serious.

[J Thomas]

Lafayette, I'm sorry but you're asking too much.

The situation has descended into farce and there's no possible serious response available.

I suppose with practice I could pretend I'm responding seriously. I understand serious lawyers take a course in humor, where they do things like look at the entire set of Marx Brothers films and fail the course if they laugh. Lawyers need to be able to take an absurd position and give no hint they know it's absurd. And of course that's become important for investment bankers and now auto executives. But I'm none of those things. I'm only a voter and a concerned citizen and stuff like that.

I'm looking at my retirement money. It lost half its value in the last few months. And I think about a few years ago, Bush was saying the social security money would all go away, and I didn't realise he knew about this stuff. I thought he was just trying to scare us into giving him the money. Now I wish I'd listened to him. If he let me play the stock market with my SS money I'd have had the fun of gambling on the stock market for a few years before it lost half its value and then over the next few years the rest inflates away etc. It would have been fun. This way I won't get anything at all.

I'm sorry, it just isn't a serious situation. It's an utter travesty. "Laugh or cry, there ain't no inbetween."

I suppose somebody who really took it seriously would want to buy a high-powered rifle and start hunting down the people responsible, one at a time. I can't think of another serious, appropriate response. But I just laugh.

[J Thomas]

I understand serious lawyers take a course in humor, where they do things like look at the entire set of Marx Brothers films and fail the course if they laugh.

Oh, that wasn't original with me.

http://project-apollo.net/ab/ab040.html

[Sandwichman]

it's the unemployment, stupid.

I wish I'd said that. All this "stimulus package" b.s. misses the point. Growth in GDP doesn't necessarily translate into a proportionate increase in employment. If employment was the real goal, economic stimulus would not necessarily be the means. Do you want to combat unemployment? Easy: reduce the hours and share the work.

[Lafayette]

Absurdity and humour

JT: Lawyers need to be able to take an absurd position and give no hint they know it's absurd.

May I remind you that a blog and a court-of-law are similar (adversarial argumentation) but not the same (no judgment is necessarily rendered).

Bush was saying the social security money would all go away

Yes and have you noticed that the sky is falling as well? If it pleases you to believe, like Chicken Little, that Social Security is a house of cards that is about to come tumbling down about our ears … then I suggest you watch more Marx Bros. films and avoid CNN/Fox News.

It ain’t gonna happin. We gotta chop money elsewhere, but not with SocSec. Besides, there are plenty of other places. DoD readily comes to mind. Our boys have enough toys. If money were spent, it could be on making them kill who they are supposed to kill and not just any afghan civilian.

Now I wish I'd listened to him. If he let me play the stock market

Yes, you made a mistake like a great many Americans. It is a generational phenomenon. Many parents lost their shirt in the crash of ’29. Their offspring still blithely believed in the dot.com boom that busted. And their offspring, third generation now (y’know, the babies of the boomer-babies) lost their shirts on this last Credit Mechanism debacle.

When are we going to learn?, I keep asking. Probably never, as intelligent and as well off a nation as we become, it is the nature of the beast to want more. So, people (I submit) deserve the consequences of their ill-considered decisions. Never put all your eggs in one basket, regardless of the enticing return alleged of that basket.

Which is what we do generation after generation after generation.

I'm sorry, it just isn't a serious situation

Oh, but it is. Any calamity as pandemic and profound as the SubPrime-caused Credit Mechanism Failure is very serious indeed.

What people fail to see regarding economic dynamics is that they are … uh, dynamic. That is, they unfold in a continuum. (Economics continues and continues and continues, it is not static.)

Perhaps Americans have been watching too many Hollywood catastrophe films. So, they are prone to believe that this catastrophe surely is the end of the world as we know it. But, no, it isn't. Life goes on ... after death, so to speak.

Neither will the dinosaurs become extinct. If any dinosaur should become extinct it is the gluttonous multizillioinaire type. And, that could happen, easily enough, with an increase in marginal income tax rates.

It is ridiculous that a nation should have allowed, as an expression of Ultimate Liberty, the gluttony of a select few to earn/pirate the lion’s share of return on capital. Total Wealth is not an acceptable criterion for political liberty. And it is a shame that Thomas Jefferson is no longer around to tell people how idiotic that notion truly is.

What Colossal Dumbness to have believed it.

I suppose somebody who really took it seriously would want to buy a high-powered rifle and start hunting down the people responsible, one at a time.

The idiot who first posted that these people should be shot is the bigger idiot. We don’t kill modern day Robber Barons for the Gross Negligence that has occurred on their watch. We do however put them in jail. And, then, we take two steps:
1) We pass laws that prevent such negligence of corporate managers, and,
2) We strengthen the agencies who have oversight duties, tasking them to root out and convict trespassers before the damage is done and not after.

I am waiting with bated breath to see the first indictments. Me along with the rest of America that has any semblance of faith remaining in the American Judicial System.

Betray that faith, allow the Robber Barons to get way with their loot -- and, yes, the rot will continue to sap our strength as a nation.

'Tis sad, 'tis sad ... but true.

[ken melvin]

Criminal courts are charged with keeping the unwashed masses in line. When it comes to the rich, civil may offer better recourse.

[J Thomas]

If it pleases you to believe, like Chicken Little, that Social Security is a house of cards that is about to come tumbling down about our ears …

It ain’t gonna happin. We gotta chop money elsewhere, but not with SocSec.

There's plenty of time. The more people get convinced that SS has been in trouble for a long time, the less they'll blame the politicians who put it in trouble all of a sudden. There are lots of ways to steal the SS money, not least that it's already been lent to the government and spent, and the government has promised to pay it back as needed.

Besides, there are plenty of other places. DoD readily comes to mind. Our boys have enough toys.

That's one way, Cut the military budget for awhile, and then get into a reasonably big war. Announce that the military is unprepared and underfunded and we have to spend fast to support our soldiers in wartime. We have to spend the SS money for the troops that are in harm's way, everybody has to do their part to sacrifice. Easy sell.

SS isn't going away today, but it's likely to be gone or irrelevant before I get my share.

[Lafayette]

JT: SS isn't going away today, but it's likely to be gone or irrelevant before I get my share.

As I said, "Oh ye of little faith".

Renouncing what people worked all their lives for? Of citizens who vote as a higher percentage of any other age class?

Not bloody likely ... ever.

[J Thomas]

Lafayette, I want to be wrong and I want you to be right. I will be very happy if I'm wrong and you're right.

It's just, if I invested according to what I want to happen I'd be putting my money into long shots instead of safe conservative choices like BOA and Wachovia.

[Les]

It seems to me that we should be looking at what is left behind after the stimulus package is spent, that is we should take a dynamic perspective as opposed to a static perspective. If it is public sector spending such as food stamps then nothing remains after the initial multiplier effect has run its course. If it is public infrastructure spending then we have some residual benifit depending upon whether the bridge actually goes somewhere. If we have private sector spending as a result of a permanent tax cut then we have the investment necessary to support the higher spending level as a permanent residual that benefits many subsequent periods.

[J Thomas]

Les, what if a permanent tax cut results in more investment in china and not here? That would be good for chinese citizens but maybe not much for US citizens.

I think the fundamental problem here is that in a global economy, US workers are not competitive with chinese workers. Our workers don't work nearly as hard and they get paid a whole lot more.

So the obvious way to solve the problem is to reduce the standard of living for people who work for a living, until we are on a par with china. First we need to roll back the environmental laws for places that people work. It's fine to have pristine environments for owners to frolic in, but that doesn't get the work done. Second we need to roll back the healthcare for workers and their families. They should get the level of healthcare they can actually afford on a chinese workers' income. Third we need to roll back salaries and wages.

It's absurd that so many americans can afford automobiles and gasoline. Much cheaper when it's understood that private automobiles are for people who can afford chauffers.

It will be a problem to achieve this when so many working people are voters. So we need to change the laws in ways that result in lots more people becoming convicted felons who can't vote. It might stabilise with say 70% of the population in prison, with another 7% guarding them and supervising them. Then we can run a lot of businesses paying prisoner wages -- very cheap. Convicts are reasonably cheap to house and feed etc. That should revive the US economy handily, at that rate we should compete with china pretty well.

I don't much like this solution. Can you suggest a better one? Ideally it would involve free trade, free markets, an unregulated global economy, and US government spending goes way way down while the median US standard of living rises.

[Lafayette]

MT: Looks like a trillion dollars may not be enough

Maybe it is, maybe not ... we have, really, no definitive present idea.

One can repair only so many bridges, fill only so many potholes, construct only so many new roads (that are probably not even needed.) Infrastructural Change, particularly in terms of Alternative Energy Options, is a long and difficult road through the wilderness. There are enormous technological complexities to confront, that we have only brushed upon in this forum over the past year.

First step is an Energy Road-map that is compatible with a sound Ecological Vision. That will take a few years to nail down in specifics and investment costs. Implementing the entire program will take far longer than Obama's two-terms in office -- if that happens.

Let's be careful regarding such a Road-map. Europe was all agog about windmill farms a few years ago, but is now rethinking that option. Its return-on-investment is by no means assured. And the outcry in populated areas against "wind-mill blight" is beginning to be heard. Off-shore and out of sight, that's OK.

Doing it all (meaning path from plan to investment funds to construction to commissioning) in two years is Mission Impossible and, given the technological complexity of everything that must be done, perhaps not even advisable. The time-frame is likely much longer.

Rome wasn't built in a day. Neither will changing America towards a more ecological and energy-frugal future.

And, we need a national debate to get most Americans singing off the same hymn sheet. Barack must get a bit more pedagogical to swing American behind the sort of effort that is really necessary.

One is reminded of Winston Churchill's "blood, sweat and tears" speech during WW2. (No, I'm not that old that I listened to it. ;^)

En passant

Then, there's my Infrastructural Change2 (quadratic). We are thinking only in terms of technology and or construction. When we should be focusing on both competent Education and Health Care programs, which are also woefully lacking.