Robert Barro on the Stimulus Multiplier

I’ve been puzzling over the stimulus-advocate’s argument that government spending does not crowd out private spending, but in fact has a higher multiplier effect. I’m basically struggling against Krugman and DeLong, who know a tad more macro econ than I do, and not getting as much help as I needed from my regular econ blog reads because those guys (bless their souls) aren’t macro folks. But fitful and sporadic perseverance led me to this article by Robert Barro, who is a macro guy, and a quite eminent one at that. Here’s what he has to say.

The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system.

John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So, something deeper must be involved — but economists have not come up with explanations, such as incomplete information, for multipliers above one.

A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP — consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one.

This approach is the one usually applied to cost-benefit analyses of public projects.

His “plausible starting point” of a multiplier of zero is an assumption of perfect crowding out–each dollar of government expenditure crowds out a dollar of private spending. But he doesn’t stop with that starting point, and goes on to discuss empirical findings.

What do the data show about multipliers? Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that the World War II fiscal expansion provided the stimulus that finally got us out of the Great Depression. Thus, I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists.

He finds evidence from each of these wars for a multiplier of 0.8. He thinks that is actually overstated, but his reasons are somewhat ad hoc, so let’s just go with 0.8. That means every dollar of government spending boosts the economy by less than a dollar. That means crowding out is going on.

But the Obama administration assumed a multiplier of 1.5 (as did Bernstein and Romer). Where did that number come from? According to Chicago’s John Cochrane it came from the standard Keynesian model, where it was an assumption, not a finding.

So even if there are answers to my questions, I’m in good company asking them.

Just a few weeks ago Krugman responded, not directly to either of these posts that I dredged up, but but to effectively the same argument, calling the argument about government doing a better job of spending “a crude fallacy.”

[T]hese … crude fallacies are being enunciated, with confidence, by famous and influential economists. Here’s Eugene Fama, arguably our most famous and influential finance economist:

Again, here is my [Barro’s] argument in three sentences.

1. Bailouts and stimulus plans must be financed.

2. If the financing takes the form of additional government debt, the added debt displaces other uses of the same funds.

3. Thus, stimulus plans only enhance incomes when they move resources from less productive to more productive uses.

Are any of these statements incorrect? [Hooray, Fama agrees with me, too!–JH]

In his attack on me Krugman implicitly assumes that sentence 3 above is true; that is, the stimulus plan will on balance move resources from less productive to more productive uses…

… It’s completely wrong; the whole point is that stimulus is supposed to put resources that would otherwise be unemployed to work. But at this point, a large part of the economics profession no longer understands that. …

OK, I’m very glad to have this so explicitly from Krugman. He doesn’t think government has a higher multiplier than private sources. But he does accept the 1.5 number for government spending, contra Barro, but I have no idea what data he bases the assumption on. Based on Barro’s empirical analysis Krugman appears to be wrong about that.

But let’s set that aside for the moment and focus on what he says is the issue, “resources that would otherwise be unemployed.” I have two major problems with this this. One, as I have been saying all along, is the question of “where are all these unemployed resources?” The money must be sitting somewhere not doing anything, so where is it and how much is there? Second, Krugman argued that we needed a much larger stimulus package, and his argument about that was based on declines in GDP, with a particular claim that the stimulus wasn’t large enough to offset a decline in state and local government spending. But that’s not the same as basing it on the amount of unemployed resources. Krugman called for a stimulus of around $1.8 trillion. Does he believe that there was $1.8 trillion of cash sitting around doing nothing? Is that at all possible? Or am I missing something here?

___________________________________________________________________
* By which I include not just the stimulus, but the Iraq war and the massive discretionary spending under Bush (although I will give Afghan War spending a pass).

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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45 Responses to Robert Barro on the Stimulus Multiplier

  1. The jargon can be a little tiresome in the real world of practicality.

    Government is NOT a business nor should it be compared to private enterprise in the accomplishment of the goals regarding the interests and desires of the public sector.

    What is being worked out began over a century ago in Europe. The active parties doing the work are operating outside the view of common ordinary people. Which means that it is the individual preferences of those parties that are under consideration. The public is being controlled through the electronic media that dominates our thinking.

    Everything is in a state of change. Nothing is static.
    ..

  2. When the focus is on the cost of government in comparison to the interests of individuals in the private sector, attention gets shifted to the balance sheets.

    It might be difficult to get a handle on a billion dollars or even a tenth of that and that makes an important point. What would you do it you had a billion dollars or even a paltry hundred million?

    Seriously—give it some thought. A million dollars is easy to understand. It means a really nice house with all the accoutrements that go with it. It also means the necessity of hiring a trusted investment firm. The millionaire has a vested interest in job creation in order to grow his or her net worth..

    But, a billion dollars–a thousand million dollars? That means whatever floats your boat; but, does it mean the necessity of growing one’s estate? Hardly. Does a billionaire have any concerns for the need for creating jobs in the economy? Why? What a billionaire wants–demands–is a playing field devoid of any obstacles to his or her desires and interests.

    This is the more realistic focus for practical politics during these trying times.

    Will the middle class be destroyed? Will the safety nets of Social Security and health care be ripped away because of the costs involved? Shall we not feed and cloth ourselves because of the cost involved?
    .

  3. James Hanley says:

    What would you do it you had a billion dollars or even a paltry hundred million?
    I can’t speak for everyone, but I’d quit my job, move to Oregon, buy a modest house in Portland and a big spread up in the mountains. The rest I would stick into a variety of very safe and very easily monitored investments–a very risk-averse approach, concerned more with maintaining than growing. Would I be concerned about creating jobs with it? No, but it would end up doing that anyway through the actions of whomever ultimately borrows the money I’ve invested. And that’s the brilliant part of it, right? A rich person doesn’t have to care about creating jobs to end up doing it (indirectly) anyway.

  4. AMW says:

    I would move in next door to (or the next mountain over from) James. But I would have to buy my wife a similar estate in the high south; probably North Carolina. I would also make sure to move to NZ and invest money there long enough to get permanent resident status.

    More to the matter at hand, I highly suspect that most Billionaires have a massive amount of their net worth tied up in the value of their companies. They’re certainly not sleeping on piles of cash – though I would certainly try that, at least for one night.

  5. Billionaires invest in opportunities for top returns. That would be in countries with low wages, with few regulatory obstacles.

    They would never invest in U.S. opportunities except out of the goodness of their hearts. Some might; but, their incentives would all be about doing some good. Generally, they would make major investments would be made in foundations to build political clout for the purpose of removing obstacles standing in their way.

    The only incentives that would get them to invest in U.S. jobs would be a very high tax rate with generous deductible expenditures for job creation.. When a person is a billionaire, it makes little difference where you live.

    But, my point was all about the focus being on spending cuts. As if raising the tax up to fifty percent or more on incomes over a few million dollars a year is going to hurt anyone–especially you or me. But, taking away Social Security and Health Care will hurt you and me.

    Figure it out..
    .

  6. Lance says:

    For no particular reason other than I’ve had a couple of beers and access to the internet.

    Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else. – Lyndon B. Johnson

  7. ppnl says:

    I can’t speak for everyone, but I’d quit my job, move to Oregon, buy a modest house in Portland and a big spread up in the mountains. The rest I would stick into a variety of very safe and very easily monitored investments–a very risk-averse approach, concerned more with maintaining than growing. Would I be concerned about creating jobs with it? No, but it would end up doing that anyway through the actions of whomever ultimately borrows the money I’ve invested. And that’s the brilliant part of it, right? A rich person doesn’t have to care about creating jobs to end up doing it (indirectly) anyway.

    Maybe this is what is wrong with the economy. Nobody wants to take any risks. The whole housing bubble was caused by a vast amount of money trying to avoid risk. It was seen as a “safe as cash” investment that you didn’t have to think about.

    If I had access to a Bill Gates class fortune I would do something unforgettable. I dunno, land on the moon? Finance a maned mission to Mars? Build a 5th generation nuclear reactor? That kind of money only has meaning in terms of the cool stuff you could do. Even if I fail it still creates jobs and economic activity.

    Money is not creative. Only people are. All the money in the world put in “safe as cash” investments will still find some way to disappear. It did.

  8. This is a good subject for discussion.

    It should be spread to the dominate media. But, can you imagine Rush Limbaugh, Bill O’Reilly, or any on the right raising their voice with such disrespect against the big money experts?

    Right wing economists put out a lot of gobbledegook!

  9. AMW says:

    Pinky,

    Billionaires invest in opportunities for top returns. That would be in countries with low wages, with few regulatory obstacles.

    Everyone invests in opportunities for top returns, subject to their tolerance for risk. And all of that investment is simply not in low-wage countries. Plenty of investment occurs in the U.S. and other developed countries as well. Decreasing marginal returns operate everywhere.

    ppnl,

    If I had access to a Bill Gates class fortune I would do something unforgettable. I dunno, land on the moon? Finance a maned mission to Mars? Build a 5th generation nuclear reactor? That kind of money only has meaning in terms of the cool stuff you could do. Even if I fail it still creates jobs and economic activity.

    Jobs and economic activity aren’t the same thing as wealth. If your project truly and utterly failed, it would simply transfer resources from you to other people; it wouldn’t make the economic pie bigger.

    Not that I don’t applaud the sentiment of doing something world-changing with great wealth. It’s certainly admirable and we’d be better off if we had 100 billionaires with your spirit rather than 100 with mine and Hanley’s. But spending money isn’t a can’t-lose proposition.

  10. Everyone invests in opportunities for top returns, subject to their tolerance for risk.
    .
    Of course. That could al most go without saying. But, the point was about the super wealthy and our tax code that does not incentivize job creation. Notice the rush to dump stocks and buy T-bonds yesterday?

    We are living during a time in which major changes are in process. Looking objectively at the situation from an historical perspective it is easy to see that consumerism is having a major problem. There was a time when your automobile started to fall apart after 30 or 40 thousand miles. We had planned obsolescence. But those damned Toyota people came in here are put out cars that last for hundreds of thousands of miles. There goes the automobile industry that depended so heavily on shoddy production policies. The only thing that works–anymore–is war. How does a consumerist economy continue when everyone–pretty much–has whatever they want? What would a manufacturer want to make that could rust out in some warehouse?

    Until people are able to get out of this box we’re living in so we can get a look at what is really going on, we’re stuck in the swamplands of ideology.

    Good morning, America!!
    .

  11. The main point no one seems interested in discussing has to do with what consideration our leaders should toward helping us get a perspective on the big picture. For–as long as we remain stuck in the mud of our present economic quagmire–we aren’t going to move into the future with a very positive attitude about what our possibilities might be. We’re stuck in the past.

    It is aptly claimed that ideology distorts communication. And, so it does. Rather than gathering in excited groups discussing what can be, we sit around with the gloomy specters or nuclear war as a way out of the bind of consumerism wherein we find ourselves. We are slipping into major depression–which is all about a mind set the result of a double dip recession.
    .
    Welcome to the past.
    ..

  12. The previous post should be ignored in favor of this one:

    The main point no one seems interested in discussing has to do with what consideration our leaders should be portraying to help us get a more realistic perspective on the big picture. For–as long as we remain stuck in the mud of our present economic quagmire–we aren’t going to move into the future with a very positive attitude about what our possibilities might be. We’re stuck in the past.

    It is aptly claimed that ideology distorts communication. And, so it does. Rather than gathering in excited groups discussing what can be, we sit around with the gloomy specters or nuclear war as a way out of the bind of consumerism wherein we find ourselves. We are slipping into major depression–which is all about a mind set the result of a double dip recession.
    .
    Welcome to the past.
    ..

  13. James Hanley says:

    Looking objectively at the situation from an historical perspective it is easy to see that consumerism is having a major problem. There was a time when your automobile started to fall apart after 30 or 40 thousand miles.

    How does that hurt consumerism? If I don’t have to buy a new car every 3 years, then I can put all that new-car-money to something else, whether it’s a bigger house, a big screen tv with video game console and overall entertainment center, eating out more often, or traveling. So jobs are still created, and we consumers are better off (wealthier) because we get more stuff for the same amount of money.

  14. James asks, How does that hurt consumerism?
    .
    Consumerism doesn’t get hurt. It’s still out there waiting for a buying market to suck up whatever comes off the line. But, when you back off enough from the bull roar being handed down and you get a look at the bigger picture, you soon see that you are like the squirrel running in a cage–working to earn enough money to buy a bigger and better car, a bigger and better house, a bigger and better big screen TV, eating out more often at better restaurants, all kinds of stuff. That’s the point for crying out loud! After while, all of that stuff gets built at less cost by third world factory workers and the great consuming American public dwindles so most consumers have no money to buy the goods being imported. Even the cabinetry, appliances, and building materials are coming from foreign producers. If you don’t piece in the worker, you’ve screwed yourself out of a market to buy your goods. But, who gives a hoot? The market in China is going to boom. Invest your money over there.

    You might not give a lot of weight to structuralism; but, there it is right in your face.

    And, you conclude with, we consumers are better off (wealthier) because we get more stuff for the same amount of money.. Back int he fifties, we used to say, “No foolin’ Dick Tracy,. Who dug that one up for you, Sam Spade?”

    But, as is true so often, the law of dwindling returns kicks in. There are less and less consumers. If the trend continues, there will be but one consumer left and he will be king of the world.
    .
    The only thing that is constant is change.
    .

  15. Just in case my point is not being received in the spirit I am messaging it.:

    I’m not promoting an end to consumerism–that would be foolish. Consumption is an integral part of existence and in many ways. We must consume; but, a life well lived is one with discipline.

    There are other things of great importance to the life well lived. And, rather than consuming THINGS (trinkets?) that come off some production line in some factory, perhaps we could think of consuming education and other productions like the arts. Perhaps we could spend a great deal of effort on improving the environment cleaning up streams, highways and byways, lakes, rivers, and other natural treasures. Maybe our leadership could give some hype to those things? Of course there are costs involved just as there are millions of employment positions to be filled.

    We must be able to look at government in other ways than that it stands in the way of the pirates that are destroying our chances for a much better life style.

    Do you believe in education? Or is it just another way to earn a living like working in an automobile factory only a little less strenuous?
    .
    Give the thinking a chance.
    .

  16. Lance says:

    “Give thinking a chance.”

    Pinky,

    I’ve actually spent quite a bit of time thinking about this subject.

    There are other things of great importance to the life well lived. And, rather than consuming THINGS (trinkets?) that come off some production line in some factory, perhaps we could think of consuming education and other productions like the arts.

    While the arts and education are worthwhile human pursuits they are no substitute for the production of material goods. Education in and of itself can be edifying but a great deal of education is for the purpose of producing the material goods that make modern life desirable and even tolerable.

    Let us remember that fully half of the humans on earth live with out reliable electricity or access to clean water. Having recently been to eastern Ethiopia, very near the Somali border, I can tell you that we take for granted a lifestyle that is envied by these people. And not because of some venal empty desire on their part but quite frankly because these people live in crushing, life-shortening abject poverty.

    You should also know that technology, such as cell phones and computers, are among the things these people value the most. They realize that they can never hope to follow the trajectory of infrastructure improvement and wealth generation that have put us where we are, but they are shrewd enough to realize that information is the key to their future success.

    Also, all of the material “trinkets” you deride are purchased by people that choose to purchase those items. I don’t wish to offend you but who are you to decide that the items that these people desire are so valueless?

    In my mind I still have fresh images of dirt floor shacks and barefoot children carrying plastic jugs of water miles to their squalid homes. Of hollow faced men staring from the side of the road knowing that nothing they do will change their meager future. These people dream of a life that you disparage mostly because you find it philosophically unappealing.

    Before you accuse me of constructing a false dichotomy remember that our wealthy society came about as a result of letting people pursue their own desires and having a system of governance that, at least in principle, attempts to stay out of the “should” business.

    A free society allows for the idiosyncratic and yes even trivial desires of its citizens and societies that have tried to impose more “worthwhile” and “moral” constraints on their citizens have a dismal record of even providing basic needs.

  17. A free society allows for the idiosyncratic and yes even trivial desires of its citizens and societies that have tried to impose more “worthwhile” and “moral” constraints on their citizens have a dismal record of even providing basic needs.
    .
    I don’t mean to be insulting nor do I think that’s your intention.

    Here’s a couple links to check out:

    http://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/1576753018.

    http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man

    I’ve actually spent quite a bit of time thinking about this subject.
    .
    If that’s so, it certainly appears you have come to a conclusion and have, thereby, closed your mind to further consideration.

    The situation is far more complicated than reducing the national debt. The fact is that a “debt retirement tax” could soon take care of that problem hands down.
    .

  18. .
    We must recognize this site as being the product of an intelligent and very well educated person, James Hanley.
    .
    So, it seems more than likely we should see some of the narrow minded thinking about the economy and our warring policies getting some critical attention here–something highly educated people should be good at.
    .
    Sometimes it takes courage to stand up to the dogged administration policies by which we are almost forced to congrue if we are to keep our place.
    .
    ???????????

  19. James Hanley says:

    Pinky,

    There are less and less consumers.

    You’ve shown no evidence for that. In fact all that job creation in those other countries means we consumers are creating more consumers over there, many of whom will eagerly buy our goods and services as well.

    Don’t buy that? Check out thesegraphs on exports.

    Do you believe in education? Or is it just another way to earn a living like working in an automobile factory only a little less strenuous?
    Both. I believe in education, and I especially believe in the opportunity for education among the world’s poor, which only increasing wealth can provide. As for my job, it’s a job, much better, from my perspective, than most. I wouldn’t say it’s less strenuous than working in an auto factory–less physically strenuous, yes, but I’ve worked as a stocker in a building supplies store and I’m not bothered by physically strenuous work. Mentally it’s more strenuous for a number of reasons, so it’s not a joy every day just because I believe in its value. For me the most important difference is that working in a factory would be much more boring–greater repetition, less opportunity to experiment with new things.

  20. .
    Of course job creation in other countries also increases consumption in those countries. I have never disputed that–never.

    That’s not the point which is the economic jargon that is driving the national discussion regarding the “debt crisis” here in America.

    This article is a little lengthy; but, it is a good read. I’d be happy to discuss any points made by the author.

    http://www.thenation.com/article/159288/beyond-austerity
    .
    .

  21. James Hanley says:

    Of course job creation in other countries also increases consumption in those countries.

    Then where are we running out of consumers? We’re certainly not running out of them in the U.S., and we’re adding more in other countries.

  22. Come on, James.

    It’s obvious that the population is growing. So, the number of consumers also grows.

    But, it is also just as obvious that consumption is way down in America.

  23. James Hanley says:

    Phil,

    1. It’s not obvious that consumption is way down for any reason other than that we have a recession. You seem to suggest that there is and will continue to be a long-term decline in consumption. First, I don’t see any evidence for that. Two, since you seem to think there’s more to life than consumption, I’m not sure why you’d be bothered by a decline if it’s happening.

    2. As to the Nation article, it would take a full post to respond to all its errors. I don’t know if I’ll have the interest, but maybe.

  24. Lance says:

    Pinky,

    I read the Wikipedia entry about Confessions of an Economic Hit Man by John Perkins. It looks like a wild conspiracy tale tailored to appeal to people that believe that “globalization” is a grand conspiracy organized by a handful of greedy capitalists to enslave the rest of the world all the while giving the illusion that the west is democratically controlled by it’s citizens.

    Do you buy what Perkins is selling?.

  25. I’ve read two of Perkins’ books and I have to say they are eye openers. At first I thought he was just laying out a story to sell books. But, I don’t think so. It’s not conspiracy he talks about; but, a strategy in marketing on a global scale.
    .
    He’s easy to read>

  26. It’s not obvious that consumption is way down for any reason other than that we have a recession.. There are too many “other” things happening in conjunction with this “recession”. I our economic situation structurally. There are many relationships involved; wages, benefits, unions, spending cuts, resistance to any tax increases, unemployment, illegals working at sub-wages, dwindling union membership, and other things. Analyzing the relationships points toward purposeful action. I can’t just go with the “It’s a recession” idea. To bracket these few years as though they stand alone doesn’t work for me.

    You seem to suggest that there is and will continue to be a long-term decline in consumption. First, I don’t see any evidence for that. Two, since you seem to think there’s more to life than consumption, I’m not sure why you’d be bothered by a decline if it’s happening. What bothers me is the shrinking middle class. The exporting of manufacturing and the refusal to create government “make work” programs means that the “recession” is going to continue for some time. I think what’s happening in England is very telling. To think the middle and lower classes are just going to lay down and let this “thing” happen is crazy. These are tough times and some very dangerous strategies are being put in motion. Trouble is on the way.

    Go ahead, give the article a shot. I’d like to know all the errors in The Nation article.
    .
    BTW, it was forwarded to me from my Hanley nephew. :<}

  27. There’s another point I think needs understanding and that is that our NATIONAL situation cannot only be SEEN according to economics. But, it must also be seen in the light of history, sociology, political, religious, and ALL other disciplines with concerns.
    .

  28. Matty says:

    Phil,
    I’m afraid I’m not following all your arguments, probably because I’m a bit dense but also because you seem to be combining several different points and jumping between general philosophical claims and criticism of specific policies. Please could you summarise, what you think the basic problem is and your proposed solution if you have one.

  29. Sorry if my point isn’t coming over like I thought it was.

    It is that America’s current situation is being framed as an economic one.complete with its own jargon. So, we get caught up in phraseology, words, figures, and even graphs all of which takes our focus away from any other disciplinary perspectives. It’s as though the only thing that counts is whether or not financial frugality is under consideration–and then, whether or not one school is more “up to date” than another.
    .

  30. James Hanley says:

    Phil,
    Structural problems, illegal aliens, unions, etc….none of that adds up to declining consumerism. You specifically said it’s declining, but you’re throwing in a kitchen sink list of problems; none of which address consumerism. Except the shrinking middle class bit, perhaps, but that’s a myth. I stand by what I’ve written about the middle class before.

    As to commenting on the article, I’m trying to paint my porch, I’m going away for several days next week, and classes start immediately after that. My blogging output is likely to be very light for the next couple of weeks. But I’ll try to get to it.

  31. .
    We live during post modern times labeled post structural.
    .
    If I specifically said [consumerism is] declining, I misspoke myself. I would have meant that consumers are consuming less as a result of their financial status–less disposable income adds up to less income being spent; so, consumption on an individual basis is declining–here in the United States. Consumers are buying less and that impacts the economic condition that is in decline.

    My point was that the discussion was too narrowly focused in on the monetary economics of the problem. Thus, it avoided the humanistic concerns included in a broader perspective including the other educational disciplines.

    Saying, Structural problems, illegal aliens, unions, etc….none of that adds up to declining consumerism., could take us to a dispute on semantics. But, my point was all about relationships between the things involved in the structure. And, the structure of America’s current dilemma does include “illegal aliens, unions, etc.” So, if that’s the kitchen sink, then, yes, I have thrown it in.

    I find it hard to believe that a person with your credentials, working in academia, cannot see the greater socioeconomic picture involved in our present situation.

    Are we mincing words over the meanings of consumer, consumerism, and consumption? If consumerism is an ism how can it be declining? Where? In the mind of some theoretician? But, consumption can decline as can the number of consumers. And, consumption is down even as it is buttressed by such stimulus programs as Food Stamps and Unemployment Insurance benefits.

    To discuss our national problem as though it were merely a problem of economic discipline completely ignores the reality of the social upheavals involved. Look at what is happening in London. That has to be taken into consideration. Was it C. Wright Mills spoke to intransigence?
    .

  32. James Hanley says:

    Phil,

    I don’t disagree that there is a larger socioeconomic picture. Recessions and economic transitions are always painful for some segments of the population. It’s not fair to them, and there is always the danger they will respond in non-productive ways (or what political scientists call “abnormal political action”). But I don’t see illegal aliens as the problem (they save people money, allowing them to use some of that money employing other people, however indirectly), and I don’t see unions as the solution (they primarily shift money from consumers to themselves).

    I see the solution as getting the economy rolling again, and the question is how do we do that? Keynesians say government stimulus will do it. If they’re right, then that’s what we should do. But if they’re wrong, their policy could do more harm than good, exacerbating our problems and lengthening the recession and its ill-effects on people. That’s why I think this narrow focus is important. Just closing the door on illegal aliens (whose numbers have decline significantly in the past several years) won’t help the economy recover. Just encouraging unionization won’t help the economy recover. That’s all treatment of certain symptoms, not the illness itself.

    so I fundamentally disagree with you when you argue against “America’s current situation being framed as an economic one.” Rightly or wrongly, I think it is an economic situation, so I think that is the proper way to frame it. It’s not that those other “disciplinary perspectives” don’t exist (and I could, and have, gone on about the political aspects, from my own disciplinary perspective), but that most of them are effects, not causes. Sure, I could be wrong. I’m just an average academic, and certainly no genius. But I haven’t seen any compelling argument that the economic issue–more precisely the political economic issue–isn’t the real crux of the problem.

  33. .
    Of course, I am working out my thinking on this situation. I think you can see that. I am subject to changing my thinking. So, I shouldn’t be held completely to any statement I may make. Everything has to be qualified in the overall context. By the way, I appreciate you are engaged. So, thanks for taking the time. (Incidentally, I am currently involved in an effort to get local unions involved in the creation of community unions. Can you imagine the nature of the resistance I am finding?)
    .
    “Illegal aliens” was an unfortunate choice of words for me. I really should have pointed at immigrant workers as well as at other racial, ethnic, and gender minority groups. America has lost–I am reading and hearing in the daily blabs–somewhere around 30,000,000 manufacturing jobs during the last thirty years or so. Generally, those jobs paid a minimum of nearly twenty dollars per hour along with certain benefits including unemployment insurance. That lost is supplanted by service sector jobs almost all of which require very low skill levels–lawn care, flipping burgers, shoveling snow, that sort of work and all of which offer pay around $8.00 per hour with little or no benefits at all. Comparatively fewer high paying jobs have been created in the software and computer industry. Home maintenance and improvement sales jobs are up and generally pay quite well. The telephone marketing industry was on the way up; but, those jobs were quickly sent off shore to the Indian continent.

    You are correct! That is an economic issue–no doubt.

    But, it is also a part of the larger picture which smacks hard of a strategy to cut costs for investors–thus increasing profit potential. Not very much can be said against that. . But, this is the area that I believe consideration must be given–the strategy to change the economics of America in favor of the investor class.

    What can be said against that as long as consideration is narrowly focused on the economics? Not much! And, that is especially true in light of the hue and cry against “big government” and sly comments that government should “get out of the way” and that private industry is the big job creator of all time. The facts are that government should be taken into consideration as the job creator for this time.
    .

  34. James Hanley says:

    Phil, at the risk of just responding to factoids rather than your overall point…

    America has lost…somewhere around 30,000,000 manufacturing jobs during the last thirty years or so.

    As manufacturing output has continued to increase throughout that time (except in ’08 and ’09). That is, American manufacturing is doing fine–it’s producing more with less input. So it’s not an indicator of a declining economy but an expanding and growing one.

    Generally, those jobs paid a minimum of nearly twenty dollars per hour along with certain benefits including unemployment insurance.

    Where did those high wages for low-skilled labor come from? They came from the pockets of consumers who had to pay more for products. Those wages declined when real competition was allowed through the lowering of trade barriers, and suddenly consumers could get better goods at lower cost. That, too, is a sign of an improving economy, not a declining one.

    As to illegal aliens, I did in fact take you to mean immigrants in general, and so I should not have emphasized simply that illegal immigration had fallen. But I think immigrants add to the country’s economic vitality. Even though we have been in a period of near-record high immigration levels job growth through the ’80s and ’90s surpassed the growth in the labor pool, so that unemployment rates declined.

    How, in general, can you be sure that government is the job creator for “this time”? On what basis are you sure that government policies have not in fact been (at least partly) responsible for the crash and the resulting loss in jobs? What is the evidence that it is wrong to suggest government get out of the way and let the private sector create jobs?

  35. Matty says:

    But, this is the area that I believe consideration must be given–the strategy to change the economics of America in favor of the investor class.

    Are investors a separate class to workers? I assume you are thinking of those who make a (large?) income from their investments but investors also includes working people saving for pensions or rainy day funds to help them when the economy goes sour. I currently work long hours for relatively little money but manage to put a bit into a pension fund. For me wanting investments to do well is not about wanting to gild a second yatch but hoping I don’t have to spend my last years going through the bins outside restaurants, am I greedy?

  36. James Hanley says:

    Matty,

    You put me in mind of one of my grad school professors, who in response to a Marx-inspired question about labor vs. capital mused, “I’m labor, but with my pension I’m also capital–what does that mean for for our understanding of Marx today?” Not that Phil is being Marxist, but the dichotomy between labor and capital is becoming increasingly fuzzier all the time, what with Roth IRAs and 401ks. Assuming we do want to shift economic incentives away from the wealthy investor class, can we do that without screwing over you as well?

  37. .
    As manufacturing output has continued to increase throughout that time (except in ’08 and ’09). That is, American manufacturing is doing fine–it’s producing more with less input. So it’s not an indicator of a declining economy but an expanding and growing one.

    Yeah, I”ll buy that; but, it’s totally an economic view and I’m arguing for some other perspectives. I’m fully convinced that manufacturing will, eventually, be able to work one hundred percent on the labor of robotics. And, I got a sense that that is not only a good thing; but, it is a great thing. I’ll go for it.

    But, what about the people who are displaced? What do they do for food and lodging?

    Immigrants bring down the costs of labor–no doubt. They are in the minority and live on the barest minimum; so, it is all upscale to them. And, they work hard to keep their jobs. That’s good–no doubt. So, they provide incentive to employers to hire them over the spoiled white worker who wants big pay for little effort. Of course, no employer is going to throw money at a gold-bricker when immigrants are willing to be productive at very low cost in a competitive market.

    How can I be sure the government can create jobs? What does that take to understand how it works? They are called “Make Work” plans, programs like the WPA and the NRA of the Roosevelt era. I remember them as a youngster in Saginaw during the 1930s. On one side of the block where we lived, men showed up one day with pick axes, shovels, and wheel barrows. Maybe there were three of four dozen men and they were there for most of the summer and well into the fall. First, they pick axed the old road and put it in wheel barrows which were emptied into trucks for taking away to some land fill. Then the dug ditches and laid sewer pipes and whatever else goes under roadways. Finally, engineers came in to survey the layout and the process of digging and leveling began. Finally, states were driven and forms were put in for the underlayment. Once all the preparations were done, the black top was laid down over the gravel. My folks used to say the men were hired to lean on the shovels. But, they fed their families and felt good about themselves. Their depression left and they were lifted up. It took more than a year to build four blocks of two lane road. And, that was being done all over the city and repeated in thousands of cities across America.

    Now, the idea is that if we can keep the government from make work programs, then private industry will come in with big machines and the job will be done in less than a week with just a half dozen workers running the machinery.

  38. You’re correct that I’m not Marxist.

    Even so, credit does have to be given to Marx for work he did on explaining competitive capitalism. To paint everything about him with the thought that he was all bad is stupid.

  39. James Hanley says:

    Phil,
    But, what about the people who are displaced? What do they do for food and lodging?
    But as manufacturing jobs were disappearing and the labor pool was growing, the unemployment rate was declining, or at worst staying steady. So clearly the economy was creating jobs for those displaced people. The only real problem was stickiness in labor mobility–the new jobs weren’t necessarily created where the displace factory workers were, and they weren’t always willing to move to where the jobs were. But the jobs were created.

    As to make-work programs, sure government can create jobs that way, but you’re only looking at the direct outcome. What if that government spending is displacing private spending that would create jobs? If make work programs are a short-term solution, what happens over the long-term? In your example, is it really wise to use more labor to do a job that can be done more efficiently (i.e., spending less, leaving more $$ left over to do other things with) with less labor? Sure, government can create jobs, but that’s not the same thing as making the economy productive. Notably the government make work programs of the 1930s didn’t end the Depression, although they certainly helped out some individuals (of course those individuals might have been helped out more by an actual economic recovery).

    it’s totally an economic view and I’m arguing for some other perspectives.
    When the issue is an economic one, I’m not sure why I shouldn’t favor an economic view over other perspectives. My perspective is that when we start favoring those other perspectives we start getting a warped view of how to deal with the problems–which at their basis are economic–and we end up exacerbating the underlying economic problem, which causes persistence in the off-shoot problems you’re focusing on, and so the cycle continues without actually solving any of them.

  40. James Hanley says:

    Sorry to be exceptionally mulish today, but no, I don’t have to give Marx credit for explaining competitive capitalism. I think he got it very wrong. He began with too many inaccurate assumptions–labor theory of value as an inescapable fact rather than a conceptual shortcut, coherent and cohesive social classes, and a simplistic dialectic with a fixed end point*–to have ever gotten it right.

    ______________________________
    *Although I do think there is real truth to the idea of a dialectic. I’m just not sure whether it’s actually material, actually ideological, or a combination of both (I think the latter, but that could be a lazy cop-out), and I’m persuaded that there is in fact no end point (or if there is, in the big picture, it’s essentially a market system, rather than a communistic one).

  41. When the issue is an economic one, I’m not sure why I shouldn’t favor an economic view over other perspectives.

    Because your fellow Americans are in trouble when it comes to their basic needs?

    My perspective is that when we start favoring those other perspectives we start getting a warped view of how to deal with the problems–which at their basis are economic–and we end up exacerbating the underlying economic problem, which causes persistence in the off-shoot problems you’re focusing on, and so the cycle continues without actually solving any of them.

    So, we’re back to my point which is that we should get involved in discussions for the pursuit of solutions to solve our problem.

    http://en.wikipedia.org/wiki/Lifeboat_%28film%29

  42. I never wrote that everything Marx had to say about competitive capitalism deserved credit. Instead, here is what I did write; credit does have to be given to Marx for work he did on explaining competitive capitalism. In fact, he pretty much got the entire conversation about capitalism going, didn’t he? Who else was talking about it?

  43. James Hanley says:

    Because your fellow Americans are in trouble when it comes to their basic needs?

    Isn’t ability to afford basic needs an economic issue? Seriously, I’m not sure what these other perspectives are that you’re favoring. Perhaps I am narrow in focus, but I don’t see what all those other perspectives add to the debate, especially given that I don’t even know what other perspectives we’re talking about. But if people–otherwise ordinarily productive people–are having trouble affording their basic needs then we have an economic problem and we need to focus on solving that economic problem. I think everything else is a distraction.

    If Marx hadn’t started the conversation about capitalism perhaps we would have had a more intelligent discussion about it all along.

  44. I’m not sure what these other perspectives are that you’re favoring.

    I don’t think I’m favoring any perspective; but, I’ve mentioned the humanist, sociological, historical, and maybe some others.

    If Marx hadn’t started the conversation about capitalism perhaps we would have had a more intelligent discussion about it all along.

    I don’t know about that. But, anyway, Marx defined Competitive Capitalism. All things tend toward change and that applies to capitalism as well. There are also Monopolistic and State Capitalism. And, democracy changes too. I’m sure! Even political science changes, doesn’t it?

    If we’re any good at all as human beings, we have to recognize that we are changing as well. Things are different today than they were in the past. But, we got here coming from the past. We are not in some epoche’ that just popped into existence.

    Actions have consequences and that helps us understand that what we have now is the result of actions and forces out of the past.
    .
    Sounds almost too simple to even say it. But, maybe we should accept it as part of our thinking?
    .

  45. Matty says:

    OK I think I see where Phil is coming from.
    People’s lives are more uncertain as a result of the economic situation.
    When they turn to economics to find out how to get back the old certainty they find a lot of technical discussions that don’t sound relevant.
    The non-economist therefore decides that economics cannot solve their problems.

    It’s seductive, it’s even true to some extent, getting another job may not save the marriage that broke up under the strain of unemployment, but it also assumes that because the discussion is hard to follow it is irrelevant, which doesn’t follow.

    It would be nice if it were easier to find a low to middlebrow explanation of how economic policy X will increase my ability to get what I want but my faliure to find that explanation says nothing about the policy and even less about economics as a whole.

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