The Reason.com Stimulus Symposium

Leading economists sound off on the $800 billion stimulus package

February 11, 2009

Yesterday, the United States Senate passed a sweeping $800 billion stimulus plan that President Barack Obama says he would like to sign into law as soon as possible. “There is no disagreement,” Obama has declared, “that we need action by our government, a recovery plan that will help jump-start the economy.”

Reason.com asked a panel of leading economists for their response to the stimulus package.

Robert Higgs

1. Outside of the obvious pork and special interest goodies, what are the biggest problems you see with the stimulus package?

This legislation entails the addition of a huge increment to the burden of debt the public must bear, directly or indirectly. It redirects resources on a grand scale from uses consumers value to uses politicians value and thereby impoverishes the general public. I've written along these lines at greater length here and here.

2. Is there anything in the stimulus package that you think will work? If so, what?

All of it works. The trouble is what it works for, which is to reward virtually every special interest allied with the Democrats and to guarantee the recipients' future support for the pirates who are now sending the booty their way. It is eerily similar to the New Dealers' use of the Works Progress Administration and other big relief programs to buy votes and bulk up their political machine.

3. Obama says that doing nothing is not an option. Do you agree with that?

For the economy in general, doing nothing is vastly preferable to doing the stimulus package, but doing nothing is not a political option; indeed, it would be political suicide. Which shows that only by adopting economically destructive policies can politicians survive. Do you see something wrong in this picture? Given the dominant ideology and the political institutions that now exist, economically rational public policy is incompatible with political viability. See here. Having hit bottom, the politicians can only do one thing: keep digging. If Hell is down there, they'll reach it, sooner or later.

Robert Higgs is senior fellow in political economy for The Independent Institute and editor of the Institute's quarterly journal The Independent Review.

Comments

Sasha|2.11.09 @ 12:35PM|#

Given the lack of disagreement among economists, this thread should be pretty boring.

Naga Sadow|2.11.09 @ 12:37PM|#

Sasha,

I'll make it interesting for you. Here

|2.11.09 @ 12:37PM|#

If a poor person clears $100 every month after bills, debt service and necessities, they'll get a stimulus check. If an upper middle class person clears $100 every month after bills, debt service and necessities, they get nothing. That's not a recovery plan. That's a wealth distribution plan.

|2.11.09 @ 12:37PM|#

"There is no disagreement," Obama has declared, ...

It all depends on what the definition of "no" is.

VM|2.11.09 @ 12:38PM|#

well played, Naga!

Naga Sadow|2.11.09 @ 12:38PM|#

Oh! I didn't even notice that picture! That is awesome!

Naga Sadow|2.11.09 @ 12:39PM|#

VM,

That was for sasha only. I can't just send up warnings or the intended victim might avoid it. Sorry.

|2.11.09 @ 12:43PM|#

Naga does that to puppies, right before he kicks them.

He's evil I tell you....EEEEEEEEvalllll.

|2.11.09 @ 12:45PM|#

Naga Sadow: Good job, fuckwad. Now I'm not allowed to screw around on the internet because of your jackass link. I'm not against a good duckrolling, but fuck you.

Naga Sadow|2.11.09 @ 12:47PM|#

In my defense, I did aim it at sasha. Not you.

*shrugs shoulders*

Xeones|2.11.09 @ 12:50PM|#

Goddammit, Naga, some of us are at work.

|2.11.09 @ 12:52PM|#

"There is no disagreement," Obama has declared, "that we need action by our government, a recovery plan that will help jump-start the economy."

Oh, so there's a "consensus" among "qualified experts", so the "debate is over."

Deja fucking vu.

|2.11.09 @ 12:53PM|#

I actually feel better knowing that I wasn't the only one who clicked on Naga's link.

|2.11.09 @ 12:54PM|#

Note to everyone: always know how to immediately

1) kill the sound on your PC

2) kill a process on your PC (if you hit Ctrl-Shift-Esc Task Manager will pop up in Windows and you can kill the process; I forget what it is for the Mac)

3) kill the power on your PC

That is all.

|2.11.09 @ 12:54PM|#

Naga,

That's a federal crime. You must now be shunned for 48 hours.

Citizen Nothing|2.11.09 @ 12:58PM|#

Naga fucked me over yesterday. I'm watching you, Naga.

Naga Sadow|2.11.09 @ 12:58PM|#

All right, all right. I'll retire the link . . . for now. LOL!

Pro Lib,

Does this mean I gotta team up with Eddie Murphy?

|2.11.09 @ 12:59PM|#

Naga--Oh, I know, but you got me before with your dastardly deed.

Let's get with the shunning!

Other Matt|2.11.09 @ 1:01PM|#

This comment made my entire day:

The trouble is what it works for, which is to reward virtually every special interest allied with the Democrats and to guarantee the recipients' future support for the pirates who are now sending the booty their way

It's so true.

Munger got it right as to what to do, if anything. Not that it will happen, that was what the first $700B was for but nobody really did what it was sold on (idea wise).

Naga Sadow|2.11.09 @ 1:02PM|#

JW,

That sounds vaguely familiar . . .

|2.11.09 @ 1:02PM|#

No, with Nick Nolte.

Naga Sadow|2.11.09 @ 1:04PM|#

Nick Nolte? NNNNNNNNNNNNOOOOOOOOOOOOOOOOOOOOOOOOOO!!!

He'll snort all my coke and then rob my house to pay for more coke!

|2.11.09 @ 1:07PM|#

That sign is perfect; especially if it's in front of a gun store.


Doing nothing: always an option.

GinSlinger|2.11.09 @ 1:07PM|#

Since when is Megan McArdle a "Leading Economist"?

VM, look, McCloskey! FTW!!

robc|2.11.09 @ 1:07PM|#

2) kill a process on your PC (if you hit Ctrl-Shift-Esc Task Manager will pop up in Windows and you can kill the process; I forget what it is for the Mac)

You left out linux. But I know how to use the kill command, so it wasnt a problem.

You know, I assume half the time any link is a rickroll, but I wasnt expecting that.

|2.11.09 @ 1:08PM|#

He'll snort all my coke and then rob my house to pay for more coke!

Naga, you may be confusing him with Gary Busey. Or with me.

VM|2.11.09 @ 1:08PM|#

Naga- well played! as good as that time you secretly switched our designer coffee for folgers crystals!

Gin - I know! awesome!! woo hoo!

|2.11.09 @ 1:08PM|#

Naga - had to use my damn task manager to bail.. Thanks Pal.. I consider that as revenge for our "meniscus" exchange...

Sasha|2.11.09 @ 1:09PM|#

"I'll make it interesting for you. Here"

What kind of a shit-sucking pus-cunt posts a link to a site that kidnaps one's browser?

Useless cunt.

lagomorph|2.11.09 @ 1:15PM|#

>What kind of a shit-sucking pus-cunt posts a link to a site that kidnaps one's browser?

>Useless cunt.

I think you answered your own question.

|2.11.09 @ 1:15PM|#

Oh, so there's a "consensus" among "qualified experts", so the "debate is over."

You must be one of those of stimulus deniers.

Naga Sadow|2.11.09 @ 1:22PM|#

VM,

Folgers isn't the good stuff? Soooooory! We can't all sit in our ivory towers and afford designer coffee! Damn fat cat!

Domo,

I'd forgotten about that. Now that I thin on it, yes. I planned it all out. My revenge is complete.

Orange Line Destroyer|2.11.09 @ 1:25PM|#

All hail Obama, master of the universe, To deny him is to admit your racist behavior.

Orange Line Special|2.11.09 @ 1:32PM|#

McArdle isn't an economist AFAIK.

It's good that Reason spent the time to ask people something, but what good did it do? No one with any power is listening to what Reason has to say.

Instead, of making stupid time-wasting videos asking BHO fans questions, why can't Reason ask those with actual power questions.

Is Reason just a paper tiger?

Naga Sadow|2.11.09 @ 1:35PM|#

Chris!!!!!!!!!!!!!!!!!!!!!!!

matt2|2.11.09 @ 1:41PM|#

Chris, do you really think that you will be able to write a question that a politician clever enough to get elected to the presidency/Senate/House is not clever enough to dodge?

I'm not clicking on your insane little website, but the answer is no. Chris Kelly doesn't have a unique take that's really gonna stump them this time! SHUT THE FUCK UP.

Revan|2.11.09 @ 1:42PM|#

Oh, Star Wars references!

BDB|2.11.09 @ 1:43PM|#

Shut the fuck up, ChrisKelly.

|2.11.09 @ 2:29PM|#

Folgers isn't the good stuff? Soooooory! We can't all sit in our ivory towers and afford designer coffee! Damn fat cat!

Eight O'clock is both better and cheaper than Folgers. A home coffee grinder ~$10.

|2.11.09 @ 2:31PM|#

But what of Maxwell House? What of Maxwell House?

|2.11.09 @ 2:34PM|#

I'm increasingly concerned that Obama is going to nationalize the banks. That's what is apparently being pushed for.

The Geithner plan appears to be getting a luke warm reception, which is going to increase the pressure to "do something" arbitrary.

Another big problem is the push to slow the rate of foreclosures. I don't think anyone's really examined what a bad idea that is.

The underlying cause of this crisis is that the value of MBS's has gone to zero, due to rising subprime forecloseures, yes. But slowing down foreclosures isn't going to resolve that. Those securities are so toxic now that nobody is going to buy them regardless of what the foreclosure rate is.

What will happen instead is that the banks will continue to be unable to value those securities because of uncertainty over the default rate. Many of the homeowners that get bailed out are going to be back in default in a few months or years. As long as the subprime mortgages are still on the books, the securities based on the are going to stay toxic.

Foreclose, by contrast, would allow the banks to close out some of the bad assets, getting the toxic subprime debt off the books, and cleaning it out of the MBSes. Once those bad morgages are off the books, the MBSes could then be valued with less uncertainty. It's possible that MBSes would then become marketable again, allowing their value to be marked above zero.

Naga Sadow|2.11.09 @ 2:34PM|#

Maxwell House? Now you are just being silly. Does Maxwell House know that a guy named Juan Valdez gathers Folger's coffee beans every morning? I thought not.

J sub D,

I was teasing VM. I don't drink coffee due to an evolutionary response. Taste buds.

Paul Davis|2.11.09 @ 2:47PM|#

I am at work. I knew right away by context not to click on that link.

Use your head with these things.

alan|2.11.09 @ 3:12PM|#

3. Obama says that doing nothing is not an option. Do you agree with that?

No. The market economy has an underappreciated, but amazing ability to correct and reverse economic imbalances and problems on its own, and that economic self-correcting resiliency works best in the absence of government interference.

Excellent point that can't be overstated. In the main stream meme, the market is a mere passive receptor of government action (i. e. patient - doctor) instead of the aggregate of human activity that will eventually solve the problems created by previous government actions.

|2.11.09 @ 3:17PM|#

Hazel Meade-

Perhaps the best solution is the total, utter collapse of MBSs and if it takes a significant chunk of the banking industry with-too bad.

Banks make use of the state in order to foreclose. I do not want my money being confiscated for the purpose of permitting private parties to use the court sysytem to settle their differneces. It is, and has always been, a disaster. In a free society, there should not be a monopoly on the settlement of disputes. If one knee jerkedly responds that this would breed chaos, one had better come loaded with hard core specific empirical evidence to support one's knee jerk reaction rather than speculation.

What we need more than anything else is the disentangling of the entire financial sector from the public sector.

tarran|2.11.09 @ 3:18PM|#

I find the picture accompanying this post to be offensive. While I have no problem with people engaging in sexual acts using inanimate objects in the privacy of their homes, posting pictures of a store inviting people to engage in perversions is a bit much.

|2.11.09 @ 3:21PM|#

Thus, not one more penny should be allocated for the purpose of having the judicial system process foreclosures. Let the banking industry collapse. This would be a tremendous victory for free enterprise and the economy.

|2.11.09 @ 3:24PM|#

That would make mortgages unsecured loans, wouldn't it? What sane bank would lend money for the purchase of a house to anyone other than the wealthiest and most creditworthy under those circumstances?

Naga Sadow|2.11.09 @ 3:24PM|#

libertymike,

It won't collapse. The big boys will go down or be bought up by the other 9000 banking and financial institutions operating in these here United States.

|2.11.09 @ 3:25PM|#

Hazel,

The foreclosures occured as real-estate speculators walked away from properties they could no longer profit from. Few of these houses are owner-occupied, and even among those that are, most owners would be fincally much better off abandoning the property. Indeed, the rate of prime foreclosures increased just as much as the rate of subprime foreclosures.

For all practical purposes, the foreclosure rate is effectivley 100%. However, this does not mean the securites can't be valued. Their value is based on the underlying real-estate prices in the areas where speculation occured.

Even after compensating for the bubble pricing, such areas tend to have a high cost of living and level of taxation which would need to be offset. Such properties would also need work done to prepare and market them for sale. As such, I would estimate most such mortages would be worth about 12 cents on the dollar. Banks won't sell them for this amount because they think the government will pay more; they may well be right.

The rest is just politics.

Naga Sadow|2.11.09 @ 3:25PM|#

Pro Lib,

Hope and Change sucka fool! We'll just print more and give it away. Why didn't any else think of this before?

Citizen Nothing|2.11.09 @ 3:31PM|#

"We'll just print more and give it away."

Mugabe is way ahead of Obama on this front. I just hope that, as they've done in Zimbabwe, they eventually let us use competing currencies.

|2.11.09 @ 4:11PM|#

libertymike: Perhaps the best solution is the total, utter collapse of MBSs and if it takes a significant chunk of the banking industry with-too bad.

That's basically what has happened.

But a mortgage is a contract, and if you don't make your payments that's defaulting on a contract, so I have no problem with the state being involved.

lpcowboy: However, this does not mean the securites can't be valued. Their value is based on the underlying real-estate prices in the areas where speculation occured.

...I would estimate most such mortages would be worth about 12 cents on the dollar

That's part of the difficulty of valuing them. If the home is not foreclosed, then the value is going to be based on interest payments. If it is, then it's going to depend on the market price the bank can get for the house (also uncertain in this market).

Plus you have the derivatives based on them. Not sure how those work when homes are foreclosed. Derivatives are supposed to be pretty risky, so I'd imagine that the impact on their values would be very unpredictable.
That may be what's really driving the push to halt forecloseures. But it still seems shortsighted, since I doubt anyone is going to want to buy the stuff even if housing prices were stabilized.

But even 12 cents on the dollar would fix a value above zero that would help straighten out the balance sheets. The worst thing that could happen would be to have these assets hanging around for years to come, and keeping the banks from foreclosing is going to do just that. It's probably better to make them take their losses than to try to prop up the value of the MBSes artificially.

robc|2.11.09 @ 4:24PM|#

But a mortgage is a contract, and if you don't make your payments that's defaulting on a contract, so I have no problem with the state being involved.

The state's only involvement needs to be enforcing the default clauses of the contact, which is foreclosure. Other than arresting people for trespassing if they refuse to leave when the bank seizes the house, what do they need to do on that end?

|2.11.09 @ 4:45PM|#

Mark J. Perry:

3. Obama says that doing nothing is not an option. Do you agree with that?

No. The market economy has an under appreciated, but amazing ability to correct and reverse economic imbalances and problems on its own, and that economic self-correcting resiliency works best in the absence of government interference.

The reason the market has that power is because of the focused individual efforts of each market participant. The government cannot focus its efforts in the same manner because the interactions between market participants and the government is of a non-market nature. State worshipers love to point out that the government is the major actor in the economy, neglecting to remember that the government does not indulge in market transactions, instead interacting with it through direct plunder and hindrance. The Market functions through voluntary transactions, whereas the interactions between government and the market are too far removed from any resemblance to voluntary anything, that it cannot be confused as being voluntary, except by the staunchest of State worshipers.

|2.11.09 @ 4:47PM|#

The state's only involvement needs to be enforcing the default clauses of the contact, which is foreclosure. Other than arresting people for trespassing if they refuse to leave when the bank seizes the house, what do they need to do on that end?

Nothing. I'm objecting to the state intervening to prevent foreclosures. libertymike was complaining that foreclosure itself was a form of state intervention.

Little miscomunication between the anarcho-capitalists and the libertarians here i guess.

|2.11.09 @ 5:07PM|#

libertymike was complaining that foreclosure itself was a form of state intervention.

Strictly speaking, the foreclosure requires no state intervention at all, merely the borrower complying with the terms of the contract.

Now, if the borrower refuses to do so, the state may get involved in enforcing the contract, as it does in any contract that one party breaches and won't remedy voluntarily. I, for one, have no problem with that.

|2.11.09 @ 6:32PM|#

This is how loud I want to scream.

|2.11.09 @ 6:48PM|#

R C Dean and Hazel Meade-

IN many states, including Massachusetts, a party seeking to foreclose MUST use the judicial system in order to take the property that secures the loan. In the Bay State, the foreclosing party must go through the Land Court. Period.

Sure, Harry and Loiuse who executed a note and mortgage in favor of New World Order Bank indeed have breached their contract if they have not paid the mortgage. So what. Just because party A breaches its contractual obligations to party B does not mean that everybody else should subsidize party B's efforts to hold party A to the terms of the contract. Particularly if party B is a bank that has dictated matters-e.g.-the legal framework through "representative democracy".

|2.11.09 @ 8:03PM|#

libertymike: so they should use a private security agency to throw the now-squatters off the bank's property? Or what exactly?

Wouldn't the security agency have to use government roads to get to the house?

pungi|2.12.09 @ 10:03AM|#

abolish the Fed counterfeiting pyramid scheme and the IRS. that's stimulation.