econ fruits: explain the "treasury view" to me...

[Van Cruncheon]

...because it makes ZERO fuckin' sense. every dollar spent by the government "crowds out" any dollar potentially spent by private investment, making a stimulus impossible? is this what the anti-keynes set -- because that's what they are now; their ideology is anti-keynesianism and little else -- has come to?

breaking this down, i am at a loss. so the dirty socialist liberocrats spend a buck on high-speed rail. does that mean that a private investor can no longer spend an equivalent dollar on high-speed rail? or that said investment dollar is blocked in another industry, in some sort of weird economically-nullifying butterfly effect? or does that money come out of private investment coffers, leaving them poorer and unable to sponsor some other project? and were any of this even remotely logical, how does that render the stimulus ineffective -- is every dollar spent by the government a' stimulatin' effectively zeroed out by some poor depressed investor? is a worker hired by the state or a private contractor taking state money now unavailable to a private investor? is this some weird opportunity cost voodoo that makes sense in silly words on powerline blogs but has all the mathematical coherency of crichtonesque pseudoscience? did i just gaze too long into brad delong's limpid eyes and swoon over his clintonian charms? I DUN GET IT.

mandark, save me!

[Van Cruncheon]

also, i blame THIS, the treasury view of action figure collectible sets:

[Van Cruncheon]

or, more to the point:

Why would a Wookiee, an eight-foot tall Wookiee, want to live on Endor, with a bunch of two-foot tall Ewoks? That does not make sense! But more important, you have to ask yourself: What does this have to do with the current economic crisis? Nothing. Ladies and gentlemen, it has nothing to do with this crisis! It does not make sense! Look at me. I'm Eugene Fama defending paleoconservative economic policy wonks, and I'm talkin' about Chewbacca! Does that make sense? Ladies and gentlemen, I am not making any sense! None of this makes sense! And so you have to remember, when you're wonderin' about the future of your employment, readin' about Keynes and frettin' over the Obama stimulus package, does it make sense? No! Ladies and gentlemen of America, it does not make sense! If Chewbacca lives on Endor, the stimulus will fail!

[Van Cruncheon]

...and here's something brought and shiny and stupid to STIMULATE the economic manchildren and village idiots:



woo! look how it shines! it MUST be worth something!

[MCD]

also, i blame THIS, the treasury view of action figure collectible sets:

(Image removed from quote.)

The Naruto

[Rman]

I think it personally depends on the investment.  Take New Jersey for example.  New Jersey has an extensive public transport system that allows its resident to commute to NYC for work very easily and relative cheaply when you factor gas and automoblie costs.  The bridges and tunnels in the metro area would not be able to support the daily commute of Jersey residents who work in NYC.  

If it was not be NJ Transit, NJ would be literally f*cked.  Many of those commuters pay high--the highest in the nation--property taxes, which provides revenue for the state of New Jersey for schools, hospital and government jobs.  These homes and public sector industries support smaller businesses--restaurants, plumbers, carpenters, cleaning services, and on and on.  So I believe it is the nature of the investment that matters.

[Van Cruncheon]

but that's just a case for judicious investment of ANY variety -- not specifically government or private investment. i agree: good investments are good!

the neoclassicals phrase the treasury view such that government investment doesn't move unemployment, which also doesn't make a whole lot of sense, either. perhaps that might be true if you had a completely fixed labor pool for any given economic sector, but that definitely isn't the case!

[Cormacaroni]

Define 'economic stimulus'. Do you mean it will stimulate the private sector to start spending more autonomously? Or do you just mean any additional money spent anywhere by anyone represents a stimulus?

If the former, I'm sort of a believer in 'you can lead a horse to water...'. An economist I work with recently demonstrated that the last 10 economic stimulus packages implemented by the Japanese government had zero positive effect on the real economy. I'm guessing it's simply because the private sector sees that money is being spent, but because the economy is still clearly in recession, they don't want to commit their own money to it yet. They know that the govt. is spending this money because it (thinks it) has to, not because it has any faith in the strength of the economy. So why should they be convinced? Since things in Japan failed to get better despite all the govt. money, the conclusion is that they actually got worse due to the stimulus. If you get the same counter-intuitive results 10 times in a row, you have to start looking around for some sort of explanation for it, no matter how counter-intuitive.

If it's the latter, then yes, obviously the position as you interpret it is nonsense. The govt. spends money, there should be a stimulative effect from that alone, ignoring sentiment.

[Van Cruncheon]

my wife attempted to figure it out: "so if the government builds a school, a private company can't build a school because the government got there first? why can't you build two schools -- we need more schools!"

EUGENE FAMA ANNIHILATED BY STARGATE FANGIRL

[Cormacaroni]

Or: you need a car. Maybe two cars.

The government gives you a free car. Do you run out and buy a 2nd car? Or do you wait a bit, in case they decide to give you another one? Hey, you never know! It happened once!

[Van Cruncheon]

Define 'economic stimulus'. Do you mean it will stimulate the private sector to start spending more autonomously? Or do you just mean any additional money spent anywhere by anyone represents a stimulus?

If the former, I'm sort of a believer in 'you can lead a horse to water...'. An economist I work with recently demonstrated that the last 10 economic stimulus packages implemented by the Japanese government had zero positive effect on the real economy. I'm guessing it's simply because the private sector sees that money is being spent, but because the economy is still clearly in recession, they don't want to commit their own money to it yet. They know that the govt. is spending this money because it (thinks it) has to, not because it has any faith in the strength of the economy. So why should they be convinced? Since things in Japan failed to get better despite all the govt. money, the conclusion is that they actually got worse due to the stimulus. If you get the same counter-intuitive results 10 times in a row, you have to start looking around for some sort of explanation for it, no matter how counter-intuitive.

If it's the latter, then yes, obviously the position as you interpret it is nonsense. The govt. spends money, there should be a stimulative effect from that alone, ignoring sentiment.

as i, a non-economist understand it, the japanese stimulus packages failed for the same reason the current u.s stimulus package may fail -- they started strong, but the initial money ultimately wasn't enough and the follow-through was lacking. the act of throwing money at something doesn't create a sustainable infrastructure, which the tech bubble pop in 2001 shoulda taught everyone. (i don't accept the argument that private enterprise is any better at creating a sustainable infrastructure than the government; it's just that in capitalism, private enterprise gets a lot more chances.)

[Cormacaroni]

There were about 10 of them in a decade...effectively an almost constant supply of govt. cash. How much more was the govt. supposed to do? It's like bringing the crash cart to the grave.

[Van Cruncheon]

well, krugman thinks the japanese stimulii did in fact save them from a depression, but were poorly conceived and applied in such a way that they didn't lead to growth. normally, that reads like an excuse -- again: good investments are good! -- but when you look at the haphazard nature of the stimulus packages and how they were applied, it makes sense. unfortunately, krugman aso argues that the u.s. is doing the same damn thing -- we're bailing, but the holes remain unpatched.

[Cormacaroni]

Well, there was no inconsistency to the way they were applied because there was no consistent government over the period. But you can certainly look at the results of the first six packages (fuck all) and see why people would have concluded that maybe increasing the size of the next package might be just good money after bad.

For the record, the economist above also expects next-to-no positives from the US stimulus package. Ultimately, growth requires confidence, and a stimulus package from the government has come to be factored in from the outset by the market. Everyone can see right through it to the underlying problems, so they keep their money locked up.

[ToxicAdam]

I think people complain about high speed rail (taking your example) is because it is a very narrow focused service to provide for such a large amount of money. DC-Boston-NY is one of the most populous regions in our country and only 3 million people used the high speed rail service there.

It would seem you could spend that money on bridges, highways, tunnels and benefit a wider amount of people and businesses all across the nation instead of just a few pockets of America.

-- --

Drinky, where does government get the money to create all of this sustainable infrastructure? Money trees? This current stimulus package is exactly as you described, short term benefit with barely any long-term legacy costs built in.

[drozmight]

supply side economics has failed us Bernanke, suck it...

time to test out Keynes' theory.

[Van Cruncheon]

i don't disagree with that, fo' sho' -- i just don't see how a poorly-designed stimulus package validates the treasury view. private investment isn't being nullified, destroyed, or even gated by government investment; in fact, if the stimulus wasn't there, there'd be even LESS reason for them to relinquish their dollars, by that argument. again, all it does it reinforce the tautology that investments must be well-considered to work!

[Cormacaroni]

I think people complain about high speed rail (taking your example) is because it is a very narrow focused service to provide for such a large amount of money. DC-Boston-NY is one of the most populous regions in our country and only 3 million people used the high speed rail service there.

It would seem you could spend that money on bridges, highways, tunnels and benefit a wider amount of people and businesses all across the nation instead of just a few pockets of America.

-- --

Drinky, where does government get the money to create all of this sustainable infrastructure? Money trees? This current stimulus package is exactly as you described, short term benefit with barely any long-term legacy costs built in.

That's a rather narrow view of the benefits of high-speed rail. It's not just the people who use it who benefit from it; businesses who get new customers in their area because of it benefit, real estate values in areas that are rendered more convenient benefit from it, folks who commute by car benefit from less crowded roads...

[Van Cruncheon]

I think people complain about high speed rail (taking your example) is because it is a very narrow focused service to provide for such a large amount of money. DC-Boston-NY is one of the most populous regions in our country and only 3 million people used the high speed rail service there.

It would seem you could spend that money on bridges, highways, tunnels and benefit a wider amount of people and businesses all across the nation instead of just a few pockets of America.

-- --

Drinky, where does government get the money to create all of this sustainable infrastructure? Money trees? This current stimulus package is exactly as you described, short term benefit with barely any long-term legacy costs built in.

again: HURRR GOOD INVESTMENTS ARE GOOD

and yes, the money DOES grow on trees. we print more, it gets leveraged against international currency holdings and state debt, we go into an inflationary period, and then we apply all the crazy economic tools we can like jacked up interest rates to curb it. currency is a sociological construct -- specifically a macrosociological one -- so please please PLEASE relinquish the idea that it has a fixed value before we "foc" you right outta this thread.

that said, i am not arguing that the stimulus package, as signed by The Holy Obama, is perfect or even good, although i will gladly argue that it is far better than nothing (or the equivalent of nothing: a bunch of tax cuts for the top bracket limousine set). i am asking for folks to help me make sense of the treasury view as anything other than the anti-keynesian fear of letting the government have too much money.

[ToxicAdam]

Our government will make great investments into our future. I can't wait!!!

[recursivelyenumerable]

I don't think it's that hard to understand.  The idea is that every dollar that goes into high-speed rail or whatever ultimately represents actual resources (as in machine time, labor time, materials, etc.) that go into it.  Any resources going into a certain project are unavailable for use by others, so total input remains constant, and if the projects we're redirecting stuff into are no more efficient in creating value than the ones we're redirecting it from (and in a libertarian worldview this must be the case otherwise the market would've done the redirection already), total output will also remain constant or decline.  The rub of course is that during times of recession there's said to be an underutilization of capital and people (unemployment), due to the system that's supposed to orchestrate their use (finance, capital markets etc.) being fucked up, so the resources underlying your high-speed rail dollar could just come from the excess.

I think the libertarian response would be that there can't really be such a thing as an output gap, it's just a surface illusion, and I'd like to sketch out an argument for that POV but I'm too tired right now.

[Van Cruncheon]

Our government will make great investments into our future. I can't wait!!!

if only we had a straw-and-sticks standard for our currency, how you might bestride this world

[Cormacaroni]

i don't disagree with that, fo' sho' -- i just don't see how a poorly-designed stimulus package validates the treasury view. private investment isn't being nullified, destroyed, or even gated by government investment; in fact, if the stimulus wasn't there, there'd be even LESS reason for them to reinquish their dollars, by that argument. again, all it does it reinforce the tautology that investments must be well-considered to work!

Well, i agree that private investment is not necessarily nullified by public spending. Jobs will get created and stuff will get built. However, to extend the analogy above...if the government didn't buy you a car...you might be unhappy about it. But you'd still want/need a car. At some point, you'd probably cave in and buy it. The lines between 'growth', 'recession' and 'depression' are few % either way. Most people and businesses keep spending to much the same extent anyway, because they have to. For the stuff they don't have to spend on because someone else is doing it for them, well, they wait.

[Cormacaroni]

I don't think it's that hard to understand.  The idea is that every dollar that goes into high-speed rail or whatever ultimately represents actual resources (as in machine time, labor time, materials, etc.) that go into it.  Any resources going into a certain project are unavailable for use by others, so total input remains constant, and if the projects we're redirecting stuff into are no more efficient in creating value than the ones we're redirecting it from (and in a libertarian worldview this must be the case otherwise the market would've done the redirection already), total output will also remain constant or decline.  The rub of course is that during times of recession there's said to be an underutilization of capital and people (unemployment), due to the system that's supposed to orchestrate their use (finance, capital markets etc.) being fucked up, so the resources underlying your high-speed rail dollar could just come from the excess.

I think the libertarian response would be that there can't really be such a thing as an output gap, it's just a surface illusion, and I'd like to sketch out an argument for that POV but I'm too tired right now.

Good post but this only makes sense for a closed system, which the massively global US economy is not.

[drozmight]

i am asking for folks to help me make sense of the treasury view as anything other than the anti-keynesian fear of letting the government have too much money.

I think it's because in their view the Keynesian theory has been proven false... the government spent shit loads of money like a shopaholic up to the early 80's to try and stave off recessions and then still there was some sort of deep recession at the end of the 70's the Keynesians could explain...


GAW... I listened to an NPR Planet Money on this and I can't remember it that well... must've been reading while listening.

[Van Cruncheon]

i don't disagree with that, fo' sho' -- i just don't see how a poorly-designed stimulus package validates the treasury view. private investment isn't being nullified, destroyed, or even gated by government investment; in fact, if the stimulus wasn't there, there'd be even LESS reason for them to reinquish their dollars, by that argument. again, all it does it reinforce the tautology that investments must be well-considered to work!

Well, i agree that private investment is not necessarily nullified by public spending. Jobs will get created and stuff will get built. However, to extend the analogy above...if the government didn't buy you a car...you might be unhappy about it. But you'd still want/need a car. At some point, you'd probably cave in and buy it. The lines between 'growth', 'recession' and 'depression' are few % either way. Most people and businesses keep spending to much the same extent anyway, because they have to. For the stuff they don't have to spend on because someone else is doing it for them, well, they wait.

again, that presumes that all resources are fixed and finite; that there's only one general way to build a high-speed rail system. it also assumes that building light rail precludes other alternatives; that one can't create competing or complementary private components and/or services.

 of course, as you pointed out earlier, the REAL impediment to creating competing or complementary services in the private sector is a fear of market instability unassuaged by government spending, but that has nothing to do with the treasury view.

as for the "government gives you a car so you don't buy one" argument: again, this is a case of a bad investment by the government. if we build a rail service, is it also preventing private industry from doing so -- especially when private industry didn't seem interested in doing so during boom times? it doesn't validate the treasury view insomuch as it suggests that the government oughtta make its investments very carefully -- as it did NOT in our current stimulus bill.

[Cormacaroni]

In a perfect world, of course they'd make investments that can legitimately be expected to stimulate the economy. In reality, there would never be enough time to vet 800 billion of such investments. So we end up with all the stuff that various lobbyists have wanted to spend money on forever for entirely different reasons. I think we can safely exclude your hypothetical 'savvy investment' scenario from all future discussion on the grounds of its phenomenally low probability of actually occurring.

[recursivelyenumerable]

So I think the real issue is whether there can truly be such a thing as underutilization of capital and labor in a market economy.  As I understand it the classical view was that underutilization could never prevail for any significant span of time because the market would always revert to equilibrium and someone would employ the excess resources.  (Say's law: supply creates its own demand)  Keynes' view was that general gluts could get "stuck" and last much longer.  But I'm guessing libertarian economists might say that what appears to be persistent underutilization is really an indication that the excess resources aren't that useful anymore, and need to be adjusted to the new environment.  Trying to force the issue and fully employ labor and capital anyway is ultimately destructive as it delays the necessary adjustments.

(note that I don't really believe this, I'm just trying to think what the argument might be)

[Eel O'Brian]

Our government will make great investments into our future. I can't wait!!!

and they'll be using nearly a third of my staggering 30k fatcat businessman gross income to do it

as i ebay treasured possessions and ruin my credit even further to meet this fair share, i feel a warm glow of pride knowing that somewhere in the future i have given a child the opportunity to put themselves in the exact same position i'm in

also i like how that naruto towers over batman, spider-man, and iron man

[Kestastrophe]

In regards to the Japanese economy, I was under the impression that they were in a deflationary spiral the last 10 years or so.

[Tauntaun]

also, i blame THIS, the treasury view of action figure collectible sets:

(Image removed from quote.)

The Naruto

SMH.  They best show some respect, that nukka gonna be hokage one day, then what? 

[Van Cruncheon]

In regards to the Japanese economy, I was under the impression that they were in a deflationary spiral the last 10 years or so.

yeah, which their stimulus packages were intended to pull them out of -- and didn't wholly.

[Kestastrophe]

There are some huge caveats when using deflationary stimulus as an example against government spending.

[Mandark]

tennin's got the gist of it.

Theory goes like this:  Every dollar of government deficit spending is paid for by issuing debt.  That means Investor X decides to spend his money on bonds, rather than investing in private capital (or consuming goods and services).

Hypothetically, the stimulus spending just takes away from money that would have created jobs in the private sector through investment and demand for stuff.  Leaving aside value judgments of whether the private or public spending choices would be more worthwhile, it sounds plausible enough and is sort of true in the long run of a healthy economy.

Only it's not a healthy economy right now and waiting for the long run means an unmitigated 2G2D scenario.

The big flaw in the treasury view is its assumption that savings equals capital investment.  There's a whole process which turns bank accounts into business loans, and that process is broken.  Nobody wants to lend or borrow right now.

So when the government sells debt to private entities now, it's mostly taking dollars that might as well have been rotting in the mattress and getting them moving along.  Velocity of money is what the eggheads call it.

[Madrun Badrun]

also, i blame THIS, the treasury view of action figure collectible sets:

(Image removed from quote.)

that's awesome.  Naruto would kick all their asses except batman because he's smart and naruto isn't. 

also batman has the better crotch stand.