"God does not play dice with the universe. He plays an ineffable game of his own devising, which might be compared, from the perspective of any of the other players, to being involved in an obscure and complex version of poker in a pitch-dark room, with blank cards, for infinite stakes, with a Dealer who won't tell you the rules, and who smiles all the time." - Neil Gaiman and Terry Pratchett from the book Good Omens
Today's Fun Fact:
Climate change too boring of an apocalyptic scenario for you? Here's a new thing you can lose sleep over. Right now scientists calculate that there is a roughly 1 in 45,000 chance that the asteroid Apophis will collide with the Earth sometime in 2036. Just as a point of comparison, the odds of you winning the jackpot in the IL state lotto is 1 in 20,358,520. That means that it is 450 times more likely that all life on Earth will be extinguished in 2036 than it is that you will win the lotto. Regardless, I'd still recommend doing all we can to keep Bruce Willis and Ben Affleck alive till 2036, just in case.
So it's been another busy week for me again at work and alas, that has meant another skimpy week for you, my loyal reader(s). As I am sitting down to write this the House has just passed the new compromise version of the stimulus package and the Senate may pass it later today so that Congress can take their planned recess. Funny how fast things can move when people are itching to get to vacation. I also have always found it amusing that we use the term "recess" in government, since the only other place it's used is in grade schools. Something about the image of John McCain, Harry Reid, Nancy Pelosi, and Lindsey Graham all running out of the Capitol at 3:00 to get a big game of kickball together just makes me smile. But I digress . . .
I don't want to go into too much depth on the stimulus bill; I'll just say that I think it's definitely imperfect but it's better than nothing so I'm glad that it's passing. There is one particular aspect about this entire stimulus debate that has really irked me, and it is again the lack of ideologues to find a middle ground. All I have heard from the right the past 2 weeks is overtures urging all of us to bow down and prey at the altar of the almighty tax cut. And from the left you get the opposite, an urging that the stimulus should be no tax cuts and all spending.
Well, what does the empirical data tell us? Rachel Maddow (and other liberals) have been quoting ad nauseam this report from Moody's:
The highlights being that food stamps, unemployment benefits, and infrastructure spending are all vastly superior to tax cuts. This is being used as one of the justifications for why the stimulus plan should be void of all tax cuts. Of course, that's just one study. Here is one from the Congressional Budget Office (CBO) via the Economist:
What strikes me most about this table is the incredible range of each category. Almost all of them can be either a negative or positive multiplier (i.e. really good ideas or really bad ones).
The bottom line for me on this is that no one really knows what is best. I see absolutely 0 evidence to support a stimulus package of all tax cuts and I don't really see a reason to go all the other way either. It seems to me that the prudent option is a mix of both, and that's exactly what the current stimulus bill is (about 60/40 spending and tax cuts). Personally, I'd prefer there be a lot more going to infrastructure, green energy, and education but you know what? I'm not going to demand perfection because I realize that there are millions of other American taxpayers that will be asked to pay for this whose goals aren't exactly in line with mine and I just wish there was more of that spirit in Washington. Even though I politically understand why the Republicans have chosen such a hard line with regard to this bill, it still saddens me. The doomsday cries of "if this legislation passes, it'll be a very bad day for America" (John McCain) are met with the over-optimism of "this bill is the right size and scope necessary to truly help us turn things around" (Rep. Ed Perlmutter). As usual, the truth lies in the middle. And, suprisingly, you know who actually has it right? Bill O'Reilly: "I wish I could predict what will happen, but I can't. And I believe no one can. This economic collapse is simply too complicated and chaotic."
3 comments:
I'm just saying, the whole thing still makes me nervous. You still have not sufficiently convinced me, John, that mortgaging our futures to an even higher degree will do anything but dig a deeper hole for us to fall in.
Also, related question. If other countries are getting richer, doesn't that mean--if we think about the collective world economy--that it is natural that the U.S. will get poorer? Could it be that our attempts to artifically stop this adjustment from happening are just going to make it worse, by continuing to overvalue the price of... well... everything in the world?
I'm waiting for you to explain why I've got everything hopelessly, embarrassingly wrong.
The way I look at it is that if we're going to inject $800 billion into the economy we should look to see where we can use that money redundantly. For example, the infrastructure part of the package will not only benefit the people who are hired to do the work, but the companies that make/rent the equipment and supplies. After that, the companies/workers can turn around and use that money AGAIN for other things (payroll, groceries etc...) which in turn cycles over and over.
So, like John, I think the middle ground is the best option here. Without the tax cuts the workers would just have to turn around and pay a higher percentage of that money back to the government thereby ending the spending cycle
Becks: the problem with your thinking is that you have a static definition for "rich." While Americans may look at things like tax brackets and the size of the middle class, other countries may look at wealth through standard of living. So while the cost of 'things' might go up, the cost of 'living' does not. (I'm not making sense of my thought here.)
Phil Gramm wasn't wrong when he said that the collective attitude of the people can effect the economy. It has a lot to do with perceived value, which took a hit when so many things went to shit at once. Is the actual value of a house the cost of labor plus materials? Or is it the appraised value? Or is it the actual cost at which you can sell it?
I don't know. I'm rambling. And it is Saturday. Enjoy your weekend all.
Becky - First, to try and clarify Weir's thought (if I can) about US wealth, the capitalist idea is that constant progress makes the pie (i.e. the collective world economy) bigger. That means that, yes, the U.S. is likely to get a progressively smaller piece of that pie, but since it will be a smaller piece of a bigger pie there's no reason to think that our standard of living will not continue to increase. Think of it in terms of the standard of living that an uber-rich 19th century westerner had vs. today's upper middle class. Of course, that's just the economic side of it. Many environmentalists argue (fairly persuasively, in my opinion) that the 1st-world countries' standard of living is unsustainable from a resource standpoint and there is no way that everyone will ever be able to achieve the standard of living we currently enjoy. But that's a totally separate topic.
As for your other point about mortgaging our future, I'm convinced only that what we're doing is better than doing nothing. I have no idea if it will work or not. Significant government action worked very well in Sweden in their banking crisis in the early 90s, and not well at all in Japan during the same time. There are both big similarities and important differences to us (which, predictably, politicians like to oversimplify and/or ignore in support of whatever position they hold). Classical Keynesian economics says that when an economy contracts, demand falls (due to rising savings rates and consumer uncertainty). This, in turn, causes supply to fall and firms start laying people off, which further cuts demand (due to less people with paychecks and even more uncertainty) and you can get into a downward spiral. But it's important to realize that it's all very rational from a consumer standpoint. Why wouldn't you try to sock away money for the proverbial rainy day, especially when it looks awfully cloudy outside? But it's the opposite of what the economy needs. So the theory is that the government can be the consumer of last resort to prop up demand (and thus supply) to stop the downward spiral and get it going in the other direction.
BUT . . . to really be effective ideally the government is supposed to have run a budget surplus during the good times so that it can now dip into the piggy bank during the bad times.
We, of course, have not done that. You can have lots of arguments over our former Presidents' actions pertaining to Iraq, Katrina, privacy, and a thousand other things but the one thing that I believe was indefensible was his economic policy. I seriously don't know a single economist (that didn't work in his administration) that thinks he did even an adequate job in that regard. The Republican mantra was low taxes and small government. That's all well and good. But low taxes and growing government is just a recipe for disaster. He oversaw a doubling of the national debt (and the Iraq war is only a very small piece of that). As a result, at a time when we should be in one of the best positions to implement fiscal stimulus (coming off almost unbroken quarterly growth for the past 17 years) we are instead in one of the worst positions.
But that doesn't mean that we shouldn't still try to stimulate the economy, it just means that we have decreased our chances of it being succesful. Or, probably more accurately, we've just hampered ourselves once recovery starts to happen.
It's an interesting message that the government has to pitch right now. It's basically "we've all been irresponsible and lived beyond our means for too long and we all need to change our ways. But not yet. We actually need you to be more irresponsible for a little while until we tell you to stop."
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