Baseball Crank
Covering the Front and Back Pages of the Newspaper
June 9, 2009
POLITICS: Not As Projected

Cafe Hayek has a graphic illustration of how the unemployment numbers have been worse with the stimulus than the Obama team projected they'd be without the stimulus.

Whether or not you assign the Obama Administration any responsibility for making things worse four-plus months into the new president's term, and whether or not you blame Congressional Democrats (who took over under much better economic conditions over two years ago), the simple facts are:

1. The direct costs of the stimulus are known.
2. The projected benefits have not materialized as promised.

The primary reason, of course, is Crank's First Law of Government Financial and Economic Projections: they are always, always wrong. Nothing is ever accurately forecast by the government, because forecasting is hard even for the private sector experts, there are tons of variables, and there are too many incentives to shade the truth. The proponents of the policy, bearing the burden of defending it, have their work cut out for them in explaining why we're better off than if nothing at all had been done.

Reason and experience told anyone familiar with the issue that the stimulus was, on balance, a colossal expenditure of taxpayer money - money that really could have been used in the credit-starved private sector right now - that was going to pay zero dividends in the short run, and only small dividends greatly outweighed by its costs in the long run. But then, the point of the exercise was never about hepling the economy anyway, as any serious adult had to know.

Posted by Baseball Crank at 11:57 AM | Politics 2009 | Comments (18) | TrackBack (0)
Comments

Let's start with an observation that it was incredibly stupid for Obama to try to graph what unemployment numbers would have been in a different economic universe. It's just complete speculation, and he sets himself up for this kind of criticism.

The right, however, is jumping the gun to call the whole thing a failure. At this point, however, the only valid criticism you can raise is that the money has been spent too slowly. As the Cafe Hayek post states: "Meanwhile, as of May 29, a grand total of $44 billion of the $787 billion stimulus has been spent."

You can't call it failure unless the money has actually been spent.

Posted by: MVH at June 9, 2009 12:26 PM

It was known when the bill was voted on that only a small % of the money would be spent up front. Yet the entire argument for the package was that immediate help was needed. Nobody tried to defend the argument that long-term increases in government spending were the justification for supporting it.

Posted by: The Crank at June 9, 2009 12:35 PM

The need was immediate, but I'm not terribly concerned that the money is still being spent as of right now. I had no expectation that it would all be spent within 4 or 5 months, especially since there is need to be careful how the money is spent.

I would expect to see most of it spent over the course of one year. That might not be "immediate" enough for the critics, but it is acceptable to me. Again, the crisis was severe enough, and at the time it was projected to last long enough to make this effort worthwhile. And if it is spent on infrastructure, the taxpayers *do* get a return on that investment despite the fact that it is difficult to quantify.

Giving money to the credit folks would have been another method, but they had a strong incentive to sit on the money rather than spend it. As one of my business friends put it, companies are trying to hoard as much cash as possible in this climate, not finance expansion.

Posted by: MVH at June 9, 2009 1:45 PM

Another method would have been to buy every defaulted mortgage and tear down each house. That would have been much cheaper.

I'd have a lot more faith in the good faith of our Congress if they hadn't stuck a plum in there for ACORN. How in hell is that stimulus?

It is and always was about rewarding constituent groups and gathering power in DC. And loads of suckers fell for it.

Posted by: spongeworthy at June 9, 2009 2:38 PM

"It is and always was about rewarding constituent groups and gathering power in DC. And loads of suckers fell for it."

Just about every government law/spending program rewards some constituent group, including military spending. I don't judge policies on those basis. I don't always care *why* the government does it, just whether or not it is a good idea to do it.

Any government response to this crisis, no matter what your approach, would have rewarded some group that had some responsibility for getting us into this crisis.

Posted by: MVH at June 9, 2009 3:00 PM

I think it's too early to say the bill did no good at all - most of the money hasn't been spent yet, and if things show real signs of a turnaround by the end of the year, Obama will surely claim, perhaps with some merit, that it helped. But I'm still skeptical of it.

Posted by: Jerry at June 9, 2009 3:43 PM

Even if the economy "picks up" by the end of the year, it's all a mirage. We're heading for an even harder fall, folks. You can't encourage all this malinvestment and unnecessary liquidity without creating huge risks down the road.

Posted by: per14 at June 9, 2009 4:02 PM

There is no way to know what the unemployment figures would have been without the stimulus package; although, arguably, since only a small portion is yet to have been spent, the results so far may reflect that case.

Crank's First Law of Government Financial and Economic Projections is no doubt correct, but it does not necessarily follow that the better choice would have been to do nothing in the face of threatened eceonomic collapse. Given the "messy" nature of democracy, the bill coming from Congress was destined not to be the most sound approach. All in all, however, the effort does seem to have helped consumer confidence, which in turn helps thaw the chill in spending. We won't know for a while yet, how good or bad the choices were.

Lastly, I just love how the congressional Democrats were running the country the last two years of the Bush Administration. Where were George and Dick? Huntin' and fishin'?

Posted by: Magrooder at June 9, 2009 4:02 PM

Unfortunately, at the end of the day, when the economy eventually recovers, no one will really know the relative contributions of the various policy measures enacted to fight it. How do you separate out the effects of the stimulus from the effects of the federal reserve measures, for example?

That being said, Republicans should be careful about the relationship between government spending and economic growth. Does anyone really want to argue that the economic growth during the Reagan period was not at least in part due to government military spending?

Posted by: MVH at June 9, 2009 5:03 PM

Unfortunately, at the end of the day, when the economy eventually recovers, no one will really know the relative contributions of the various policy measures enacted to fight it. How do you separate out the effects of the stimulus from the effects of the federal reserve measures, for example?

That being said, Republicans should be careful about the relationship between government spending and economic growth. Does anyone really want to argue that the economic growth during the Reagan period was not at least in part due to government military spending?

Posted by: MVH at June 9, 2009 5:06 PM

MVH is sure paddling hard.

Crank,

You wrote that any serious adult knew that the whole point of the exercise was not stimulus. That's going to be the Democrats' excuse. No serious adults.

Posted by: stan at June 10, 2009 6:31 AM

"MVH is sure paddling hard."

The fact that it is nearly impossible to separate out the relative effects of fiscal vs. monetary stimulus is not really that controversial. I'm paddling downstream on this one.

Posted by: MVH at June 10, 2009 8:52 AM

"Congressional Democrats (who took over under much better economic conditions over two years ago)"
Heh - one of my much earlier comments on why I don't read RedState was that it was used by a Congressman(I believe) to push this same line, which put no thought and was dishonest at best. I think your response was along the lines of not liking when people pick and choose from blogs (even when it is Congressmen).
It's telling you're using this as well now.

"money that really could have been used in the credit-starved private sector right now"
MVH said it above about the limited amount spent, but the estimates also had states picking up, and not having the future-Presidential candidates dragging their heels. Wait, no, it has nothing to do with that part. Surely the model directly matches with the holdups the future Presidential candidates have put into place?
BTW, here's something about the credit market. I like the part about "investors' increasing appetite for risk".
http://online.wsj.com/article/BT-CO-20090611-714319.html
You're not saying that currentl public spending is crowding out private, are you? Since that's what it sounds like.

"But then, the point of the exercise was never about hepling the economy anyway, as any serious adult had to know."
Just as any adult knows the Republican's resistance to this was never about helping the economy either. Some people just can't admit this part of it.

Ah well, why encourage anyone to be adults when it is much easier to back them when they act like children.

Posted by: Dave at June 12, 2009 2:02 AM

So congressional Democrats didn't take over under much better economic circumstances?

Hoo-boy. You're going to need a link for that.

The rest of your comment alternates between gibberish and invective. Try again, this time with that link!

Posted by: spongeworthy at June 12, 2009 9:04 AM

Judging by the silence, am I correct in assuming that no one from the right has any issues with my statement that infrastructure investment does generate economic returns?

Posted by: MVH at June 12, 2009 11:16 AM

I don't.

I don't think funding ACORN qualifies as "infrastructure" so surely we agree there are degrees of investment and degrees of returns. And "economic returns" isn't by any means synonymous with "stimulus".

But as you state it there, no issues here.

Posted by: spongeworthy at June 12, 2009 12:50 PM

Depends on what infrastructure. Congress has been spending vast amounts on highway bills and the like as long as I can remember, and the pork-barrel abuses have only gotten worse. There is a vast amount of waste in this bill.

I'd be more comfortable with spending more on infrastructure during down years if it was done for the purpose of cost savings due to a weak labor market, but in the world of Davis-Bacon the government doesn't have that flexibility.

Posted by: The Crank at June 12, 2009 1:16 PM

"So congressional Democrats didn't take over under much better economic circumstances?"
You need to look into logical fallacies, and then into causation. Or spurious relationships, whichever.

"Try again, this time with that link!"
No idea what you're going for - I've been very blunt that I don't believe that the Republicans were doing what was best for the country(or economy), they were doing what is best for the party.
And I've been very blunt that I believe future Republican presidential candidates have been acting in their best (future) interest, which no modeling could take into account.

Both of these are easily reviewed and given credence to, regardless of political beliefs.

Or did you not understand my crowding out comment? I'm sorry, that's kind of a basic concept in economics, and it refers back to a post Crank made a while ago - I'm just checking up to see if it was an actual belief, or a throwaway line.
Almost no one believes that the current government debt has crowded out the private market over the past 8+ months, but that government debt has been a safe haven while chaos has been going on. This is not crowding out, though it behaves much the same.
It's that both the tolerance for risk dropped like a stone and the lack of belief that the premium paid for risk is enough given circumstances.

Posted by: Dave at June 12, 2009 5:28 PM
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