Economics

When Does Deficit Spending Start To Matter?

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Arnold Kling has some interesting observations on deficit spending mania and intellectual hubris in the age of Obama:

at which level of additional government spending would the path of U.S. real GDP be the highest?

(a) $100 billion in spending above the baseline
(b) $1 trillion in spending above the baseline
(c) $100 trillion in spending above the baseline

If you use a constant multiplier [for government spending] of 1.57, the right answer is (c). Yet we know that this is not the right answer. At $100 trillion in additional government spending, the United States would be operating like Zimbabwe, with similar results.

………..

The Obama Administration is being populated with outstanding academics, like Larry Summers and Cass Sunstein. It is not surprising that the academic world is expressing a lot of confidence in giving them huge amounts of power…….Right now, the typical academic cannot imagine Obama's team doing anything stupid. The upper class in Britain felt the same way about its generals in 1916.

Matt Welch on Obama's budget prospects from Reason magazine's January issue.

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  1. Yes, I agree, Obama and his team will ruin our economy.

    I, however, have a plan. I, along with some of the writers here at reason, will gain an audience with Obama. This shouldn’t be difficult since I have blown most of his staff over the last year.

    Then I will start to perform oral sex on myself. Obama will become entranced by mad auto fellatio skills. Then the reason staff will sneak up behind Obama and overtake him. I am assuming Balko will want in on this action.

  2. Editors: I think the time has come for some sort of moderation on these forums.

  3. Well I guess that is one approach I had not thought of. It make about as much sense as throwing $700 Billion and then some into the toilet and then printing some more.

  4. A lot of people seem to have the idea that government spending is magic pixie dust which just drives people into a productive frenzy when we sprinkle it on them.

    The basic problem is today is that we have spent vast amounts of resources building to many fancy houses. Now we’ve got to shift resources away from building fancy houses and on to other things. Government spending won’t help that. Indeed, it will slow things down by diverting the market signals that allocate production.

  5. Editors: I think the time has come for some sort of moderation on these forums.

    me too.

  6. The Obama Administration is being populated with outstanding academics, like Larry Summers and Cass Sunstein.

    Much like science-informed policy the appropriate response is pitchforks and torches.

    Pol Pot was an academic.Roosevelt had a “brain trust”.JFK had the smartest guys in the world advising him on Cuber and French Indochina.

    Sarah Palin looks pretty good in comparison.

  7. I’m totally against moderation. You would think the annoying trolls would tire of it all eventually.

  8. brian,

    hilda solis and carol browner are better examples of intelligent thinkers in the obama cabinet than larry summers and cass sunstein.

  9. “The folks working on the stimulus package are not people who have spent time in middle management in a large organization, where you see how life differs from a calculus problem or a term paper.”

    Well, now we are rethinking the wisdom of giving intellectuals power merely because they are intellectuals? That maybe a highly educated mind might likely be an inexperienced and hubristic one unaccustomed to admitting to not knowing what they don’t know? Will wonders never cease?

  10. The hoi polloi has been buying this multiplier bullshit whenever the local sports franchise owner/extortionist needs a new stadium, why would they sacrifice the slightest fraction of a second pondering it now when there are American Idle results to review online? What is the easiest way for me to opt out of the “benefits” and opt out of the obligation to pay for it?

    Sarah Palin looks pretty good in comparison.

    Very punny, but no she doesn’t.

  11. Cuber

    *snerk*

  12. we would not have a deficit if the rich were not taking a free ride on the backs of the workers. tax the rich more and no more deficit.

  13. When did it start to matter? Sometime around 1913, I’d say.

    -jcr

  14. There’s a reason why academics are the biggest running joke on Wall Street. …and have been since I don’t know when.

    Academics and smart people, generally, have to be wary of that special kind of stupid that only seems to affect them. Ever heard the saying, “Only an intellectual could fall for something like that.”? The problem with our overlords screwing with the economy isn’t their motivations or ideology or intelligence or education or character…

    I don’t know how bad things are gonna get, or what the world’s appetite will be for our debt next year or five years from now, but we shouldn’t have to suffer these bastards.

    It almost makes you want to move to Montana or something with all the “libertarian” freaks those weirdo Ron Paul newsletters were aimed at, doesn’t it?

    Nah… It’ll never get that bad.

  15. A wise man once told me to be very slow to believe that what you want to be true is really true. Sage advice for the intellectuals among us (not me).

  16. Ever heard the saying, “Only an intellectual could fall for something like that.”?

    Everyone has tendencies to self-delusion; intellectuals are usually just the best at deluding themselves and also the least likely to get called on it by those around them.

  17. It’s all well and good to be wary of ‘government by the smartest’. The pitfalls were covered in

  18. Well, if big government by dilettantism and mediocrity has failed, and big government by the best and he brightest has failed and will fail . . .

    perhaps the problem isn’t whether or not the Right People are In Charge? But rather the size and scope of government?

  19. Kolohe: I disagree, we have a government that uses “common” rhetoric in order to advance an agenda that provides those in charge with more power and wealth. The only thing that is changing is that the rhetoric is now phrased academically; same transfer of wealth and loss of freedom.

    I’m unable to judge which is more sickening; crushing dissent through reactionary jingoism or through flowery words and academia.

  20. Whoops, forgot to make my point. We haven’t gone in any sort of direction, the people that make those decisions are all very smart. It’s only the rhetoric that changes.

  21. There’s a reason why academics are the biggest running joke on Wall Street

    Now that is rich. If it wasn’t for those motherfucker in Wall Street we wouldn’t have been in this deep shit in the first place. The solution to the economic problems here is to hang few heads that are running Wall Street. Madoff would be a good start.

  22. the people that make those decisions are all very smart.

    I give credit to Cheney for being a smart guy and a shrewd operator. I’ll even give Rove credit in the narrow sphere in which he was an expert. The secretary of energy was an engineer with a Cornell undergraduate and an MIT doctorate. And Rumsfeld’s main problem was not his brains, it was that he was poor manager wrt setting priorities (The snowflake thing – not what they said but how they worked – was just one piece of evidence of a serious problem) But by and large, the typical undersecretary, and the typical white house staffer, where most of the decisions happen (and where the scope of the higher up decisions are shaped) were simply not all that smart. A generation of conservatives, that protested the leftward tilt of academia by mostly avoiding it, led to an over-reliance on appointments from Hillsdale College and Regent University.*

    Now, I’m not saying that the new eggheads won’t make mistakes. They will. Some will be disastrous. And I just as soon the government do less. But to misquote the bard “if it t’were done, t’were well it t’were done well.”

    *True, this is strictly speaking more a criticism along credentialist lines rather than aptitude. But it’s my belief there’s a correlation. I simply don’t trust the quality of graduates coming from those institutions at this time.

  23. I’m totally against moderation. You would think the annoying trolls would tire of it all eventually.

    It’s the bad economy. They’ll get jobs once Obama starts his American Structured Securities Rescue Act for a Prudent Economy or “Stimulus” package.

  24. The solution to the economic problems here is to hang few heads that are running Wall Street. Madoff would be a good start.

    Word. Or, we could give them trillions of dollars instead. They’ll never see it coming!

  25. I think the real question isn’t “How are we going to fix this?” so much as it is “How soon can I move to western Europe?”

    I figure at this point the US in its current form is hopelessly fucked and there’s not much to do but watch it all finish falling apart over the next decade and maybe pick up the pieces afterward (assuming you’re still in the country).

  26. I can’t be the only one who thought that was the best lefiti post ever. Even if it wasn’t the real sockpuppet.

  27. There’s a reason why academics are the biggest running joke on Wall Street. …and have been since I don’t know when.

    roflmao all the while wallstreet was the real joke, right? roflmao

    the world capitalist system is going down

  28. I can’t be the only one who thought that was the best lefiti post ever.

    I disagree. High-school style taunting doesn’t impress me.

    -jcr

  29. Deficit spending only matters in the MSM/press when there are people with Rs behind their names to blame it on. When the people in charge are Ds then it is okay.

    In reality it matters when it becomes too high of a percentage of GDP.

  30. I think the time has come for some sort of moderation on these forums.

    It already exists, it is called INCIF.

  31. A lot of people seem to have the idea that government spending is magic pixie dust which just drives people into a productive frenzy when we sprinkle it on them.

    I tend to think of it more as a ritual sacrifice. Instead of ripping the living, beating hearts out of young girls, we summon forth the rotting corpse of John Maynard Keynes, and burn billions of dollars on the altar of “Doing Something”.

    ——

    It almost makes you want to move to Montana

    Don’t do it. Move to New Hampshire; you’ll be happier, there.

  32. If the multiplier actually panned out every time, wouldn’t we all just be swimming in wealth and why would we even question whether or not we should spend government money on a project?

  33. czar: western europe is fucked worse than us.

  34. In approximately 5 days, the mainstream press will, for some odd reason, stop bitching about how horrible high deficits are, and start telling us they are awesome and good.

  35. (c) $100 trillion in spending above the baseline

    See, Barack is all set to deliver 1000% economic growth, but all you naysayers won’t let him.

  36. I think the real question isn’t “How are we going to fix this?” so much as it is “How soon can I move to western Europe?”

    Why bother? Soon we will have Western Europe here.

  37. Depending on the day, I’m either:

    a) In favor of moderation of comments

    b) Neutral on the question of moderation of comments, but happy to point out that the comments section are an intellectual cesspool where it is impossible to engage in any useful debate, and are generally a disgrace to your magazine.

  38. Obviously meant that the comments section *is*, not are, an intellectual cesspool. Look what it’s done to me.

  39. perhaps the problem isn’t whether or not the Right People are In Charge? But rather the size and scope of government?

    Exactly right, RC. When they have accreted the power simply to throw trillions of dollars (taxed or borrowed) around like Monopoly money, it doesn’t matter who “they” are. That’s more power than anyone should ever have.

  40. “we would not have a deficit if the rich were not taking a free ride on the backs of the workers.”
    – – – – –

    If the workers would get up off the damn floor and go to work, nobody would be able to stand on their backs, would they?

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