Tuesday, September 13, 2011

History for Amnesiacs: The stimulus was a waste

I can't believe I have to repeat myself, but I've read too many comments like this:
"The last stimulus didn't help. Why would we raise taxes to do it again?"
If you measure the effects of the stimulus against the political promises (like employment won't go above X), you would be disappointed. But that's not much different from believing your new toothpaste is going to get the gorgeous girl to kiss you, or a business plan will play out perfectly.

In this case, the economy was sicker than economists thought. The stimulus medicine, while effective in stopping the unemployment spiral, didn't live up to all the predictions. I could blame Obama, or the provisions of the stimulus (called Porkulus in a lot of comments pages). But I'm a fact-based kind of person, so I look at this graph and say "thank God for the stimulus."

Anyone arguing that the stimulus did nothing, you better be able to refute this graph. Until someone refutes it convincingly, I call bullshit on "the stimulus did nothing."


DWPittelli said...

The graph shows the stimulus worked because in the crashes we had before the 1930s, the employment rate just kept going down to zero?

ModeratePoli said...

@dwp, of course I'm not silly enough to believe that. The problem is that we don't know where the floor is, and maybe there is more than one floor depending on what else gets messed up. The unemployment rate if civil war follows a crash is likely to be even lower, isn't it?

Please bring better arguments than this--I would think you have better, don't you?

DWPittelli said...

My point was that, unless you think the normal trajectory after a crash is for employment to keeping going down indefinitely, there is nothing in this graft that indicates the "stimulus" spending did any good for our employment situation.

It is your graph which is a very weak "argument" -- my pointing out its weakness is rock solid. At any rate, I challenge you to tell us why I am wrong, and why your graph should be seen as evidence for the utility of deficit spending, let alone evidence strong enough that we'd "better be able to refute" it.

ModeratePoli said...

@dwp, your point is better made when it's better presented, not as a snarky joke about employment going down to zero.

The data in the graph that supports my case has to do with the timing of the leveling-off--less than a year after the stimulus passing.

If you really think that unemployment would have been the same without the stimulus, you probably aren't a state employee in the sectors that were especially helped by the stimulus. (See this post.)

There is also the experience from Germany where the government programs support workers in their private sector jobs so they don't have to be laid off.

And yes, you should be able to explain the data, not just ignore it.

My support for the stimulus doesn't mean I believe that government spending should keep expanding. I pay attention to the growth of the deficit and the debt.

So, I do challenge you to honestly talk about the effect of the stimulus, including doubts you have about the orthodoxy you may be following also what evidence that the stimulus didn't help.

DWPittelli said...

Your initial claim wasn't exactly a picture of clarity. Your assumption (that your case is supported by "the timing of the leveling-off--less than a year after the stimulus passing") is a classic post hoc ergo propter hoc fallacy, which also ignores history. It is entirely normal for the "leveling off" of employment to occur 24 months after the fall, the time period shown in your graph.

ModeratePoli said...

@dwp, please stop dancing around the problem. When you accuse me of employing a fallacy, you are probably well aware that claims you make have the same sort of problem. You certainly can't claim that unemployment would have leveled off at the same level and same timeframe if there had been no stimulus, and that you have evidence to show it that doesn't have causation questions attached.

Causation, or merely correlation, is a huge problem in any economic or historical discussion, as you should be well aware. Here's another example: do you support and believe that the Reagan tax cuts caused the economic growth in the 1980's? That's the same sort of issue.

You also don't have an answer about the support from the stimulus for state government workers, who certainly would have been laid off in large numbers and added to the unemployment.

@dwp, I expect more honesty from you. That doesn't mean you have to agree with everything I say, but I expect you to be as self-critical as you are critical of others. You are welcome to keep commenting, but please be more honest and critical and less orthodox.

DWPittelli said...

I do not claim, and never claimed, that your graph shows that the stimulus did not work. I disputed your claim that the graph shows that the stimulus worked.

It is true that whenever the government pays a salary it has created or saved that particular government worker's job. But you overlook that the money used by the government (whether borrowed, taxed or printed) could have instead been invested or consumed elsewhere, creating more or less the same number of jobs in the private sector.

Whether the net effect on jobs or the economy is positive or negative depends on what the government is funding. If, for example, it is hiring people to build a bridge, then that is a net positive for the economy if the bridge is heavily utilized, or a net negative for the economy if it is a "bridge to nowhere." We can disagree as to whether the average state worker more resembles a useful bridge or a bridge to nowhere.

ModeratePoli said...

@dwp, the graph is evidence of the stimulus--evidence that can be disputed or interpreted differently, but to just dismiss it without explanation is ridiculous.

I've heard the claim that money spent on the stimulus could have (or would have) been spend elsewhere in the economy. That truism is not probably not true for 2008/2009, when the financial markets are so volatile and were actually frozen for a while.

So, no, no one else was making jobs at that time. It was just the federal government. If you disagree and think that other sectors were creating jobs, please show some evidence for it.

Again, you disappoint with your orthodox argument (money would have been used elsewhere). When will you start questioning your views in light of what's been happening around you? I'd really like you to answer that question.

DWPittelli said...

All the graph shows is that after 2 years of decline, employment flattened at a lower level, and then stayed the same. Since this has happened in previous market crashes without federal "stimulus" (e.g., 1857), it is not the evidence you claim it to be.

The fact that other sectors were not (net) creating jobs while the government was sucking an extra $800 million out of the economy is not evidence that that $800 million wouldn't have created at least as many jobs were it spent/invested in the private sector.

ModeratePoli said...

"The fact that other sectors were not (net) creating jobs while the government was sucking an extra $800 million out of the economy is not evidence that that $800 million wouldn't have created at least as many jobs were it spent/invested in the private sector."

This is where I have trouble with your honesty. You say the government was sucking $800K out of economy, which is wasn't unless you look at any deficit spending, including war, as sucking money out of the economy.

I'm not going to beg with you to be honest. If you don't have the capacity to see beyond your orthodoxy, you're just another close-minded dogmatist. And, you haven't engaged with my point on saving the state government jobs and that effect on unemployment.

Ignoring a point because it's strong is losing an argument. To show that I don't do it, I'll point out that your evidence of an economy recovering dates back to 1867!!!! Don't you have anything stronger than that to support your contention that the stimulus wasn't needed or helpful? Anything? You haven't given a scrap beyond the 1867 data point. That is pretty damn poor, and you should be able to admit it.

DWPittelli said...

1) I concede that it would have been better for me to have said "sucking resources out of the private sector" rather than out of the economy, as the move amounted to moving them from the private sector to the government sector. It was a reshuffling of, not a destruction of (or an addition to) the economy.

2) That's one more pertinent example than you have shown. I also made the claim that "It is entirely normal for the 'leveling off' of employment to occur 24 months after the fall, the time period shown in your graph." And you have made no attempt to refute this claim. Ignoring a point because it's strong is losing an argument, as you, ironically, point out.