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Interview with Robert Barro on Keynesian Stimulus

Submitted by chemjeff on Tue, 02/10/2009 - 02:19
in

This is a terrific interview and should be read by everyone on both sides of the stimulus debate.  Barro has actually done work in Keynesian economics (Krugman did not, incidentally) and he is skeptical of the stimulus.  And, he lucidly explains why tax cuts are to be preferred over spending when it comes to economic stimulus:

...when you cut taxes there are two different effects. One is that you cut tax rates, and therefore give people incentives to do things like work and produce more and pay more -- maybe, depending on what kind of taxes. And then you also maybe give people more income. This income effect is the one that's related to this Keynesian multiplier argument, where it's usually argued that government spending should have a bigger effect. So that's the income effect. But the tax-rate effect, inducing people to do things like work and produce more and invest more, is a whole separate effect, and that could easily be much bigger than the multiplier thing, than the income thing.  

 

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Doesn't hold water

Submitted by Paleo-Skeptic on Tue, 02/10/2009 - 05:33.

Since the first of the year, the witholding tables have changed.  I now keep another $7.38 of my check due to the changes in the federal income tax.  But I'm paying another $50 to the state.

So, the overall effect is a loss of $42.62.

Barro believes that I wouldn't work a 12-hr shift because of this.

I say he's mistaken.

 

the productivity spike over the past quarter has been astonishin

Submitted by RisingTide on Tue, 02/10/2009 - 11:12.

demand for work is sticky -- if you can't get child care for that 12-hour shift, you may not work it. however, if paid enough for expenses and some above that, you may decide to work, or not, and the amount of the incentive above and beyond expenses may work more the way Basso thinks.

The housing tax cut is idiotic. boo on Collins and Allen.

not conclusive

Submitted by chemjeff on Tue, 02/10/2009 - 11:07.

You make more than $3.50 an hour ($42.62/12), don't you?  Then it's still worth it to you to keep working that additional shift.  At some point, though, you don't gain any additional money by working, and that's when you start thinking about not taking that extra shift.

now that's inaccurate

Submitted by RisingTide on Tue, 02/10/2009 - 11:14.

at no point does marginal taxation rise to 100%.

the differential here is found in the psychological evaluation of freetime versus more money nothing more.

also, if you work too much, you may get fired, and that would be a bad thing.

if we are going into a global depression.

Submitted by RisingTide on Tue, 02/10/2009 - 11:20.

taxcuts are the absolutely wrongest thing. I believe this is what differentiates Roubini and Krugman from Basso.

I've not seen Basso suggesting anything about one of the other key problems -- not unemployment or decreasing production, but decreasing lending:

At a conference in Dubai on January 20, 2009, Roubini said, "I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers. If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis. . . The problems of Citi, Bank of America and others suggest the system is bankrupt. In Europe, it’s the same thing."

Who can't borrow now?

Submitted by TomGrey on Tue, 02/10/2009 - 22:20.

Seriously, I've heard of the 'Credit Crunch', but I haven't heard of good companies having big problems borrowing.  I've heard that IBM had to pay a reasonable rate of interest when they issued 10 year bonds -- and heard that they are laying off thousands.  Does a company laying off thousands need more borrowings for investment?

The incentive issue is a long term one, not a stimulus.  While I agree with that aspect, I'd also say he's wrong to be against shovelling money out at the consumers.  In this deflationary time, printing money would be OK, until inflation turns positive again (and then raise interest to stop major inflation).

The other reason critics are against Tax Cuts is ... too much savings.  Which is mid-term / long-term very silly, especially when the gov't is actively shovelling money at banks.  Giving people money, who then reduce their debt by giving the money (or repaying it) back to the banks, still gets money to the banks.  But with less overall indebtedness, and the US is too full of debt.

 

I have. Warren buffet just loaned

Submitted by RisingTide on Wed, 02/11/2009 - 09:06.

usurious junk bonds to Harley Davidson.

tax cuts are dumb, because they reward EXACTLY the people who caused this mess in the first place. Are these the people who invested in our economy? Nah, they're the astrologers (no joke!) who caught the falling knife.

Printing money would be fine -- in an ideal world. Infrastructure gives better bang for the buck than tax cuts, however, so why shouldn't we do more of that and less of stupid "lets keep the bubble inflated" tax cuts on real estate??

In the real world, we are dangerously close to defaulting on our debt. And we have too much debt, which is why tax cuts and rebates aren't going to happen as much as King Henry would have liked.

I suggest reading Cionfrocca

Submitted by Ironman on Tue, 02/10/2009 - 22:31.

http://newledger.com/2009/02/the-crisis-explained/

Consumers are overextended and unlike the brainaics on Wall Street and Washington, do not want to borrow more money right now since they now do not think they have the ability to repay what they have already taken out. (The wisdom of crowds is nonexistent within the Beltway)

The world economy seems to me to be have been based on the idea that the American consumer could sprint across a tightrope and not a) fall off or b) notice how precarious his position was and stop.    Now the ones who have not fallen have stopped.  We need to restructure the system to be sustainable; not just trot back up on the wire and hope for better results.

 

Cionfrocca said the

Submitted by In between on Wed, 02/11/2009 - 10:32.

Cionfrocca said the following:

"Americans won’t be comfortable spending more money (and pumping up the economy) until they feel like their savings are back up where they should be. This process takes time, which no amount of stimulus can shorten. If we’re really going to borrow trillions of dollars from the rest of the world, let’s put it into a payroll tax cut."

I would say that Americans will not be comfortable spending until they get good long term middle class jobs that are presently going overseas. If you fear losing your job, then you cannot buy into the economy. And the next question is, what kind of widget can you make in this country that cannot be made in China. And another question is, what product can you buy that is not made in China. A tax cut is not going to do much good if you lose your job.

There are lots of widgets this country can produce...

Submitted by davidfarrar on Wed, 02/11/2009 - 10:58.

...that China cannot. We are a market driven economy, or at least we were. China is a planned economy. When our economy picks up, as it will, it will produce the kind of widgets the Chinese can never possibly dream that their economy even needs.

Sure, they can adopt, and start producing new widgets, but as long as we have a better system for determining what the market needs, we will be out front of the curve of their central planners...

Let's be clear here, honest, fiscal conservatives do not support a tax cut as long as the government has to borrow to afford one. We do demand a tax cut  by government cutting spending. This is the only real way to stimulate the economy. Someday, Chairman Steele, the U.S Chambers of Commerce and our Republican Senators will get this message. I hope it's not too late.

 

ex animo

davidfarrar

china is not a planned economy.

Submitted by RisingTide on Wed, 02/11/2009 - 14:23.

they're just as capitalistic as you or me. there is little to no state ownership of the means of production (that's socialism), and china trades on its own stock exchanges in Shanghai and Hong Kong (among others, there are a LOT).

China has a centralized, bureaucratic government. this has little to do with the economy and much to do with family planning.

China...

Submitted by davidfarrar on Wed, 02/11/2009 - 14:55.

Photobucket

...as far as I know is ruled by the Communist party.

 

 

ex animo

 

 

 

 

 

 

davidfarrar

 They may be ruled by the

Submitted by In between on Wed, 02/11/2009 - 15:55.

 They may be ruled by the communist party, but they have a capitalist system. They have taken our middle class jobs and we have nothing to replace them. They have high speed rail, some of the tallest of buildings, building whole cities, have the longest bridges, and building the largest nanotechnology facility. 

We are borrowing and printing money. In two wars with a military stretched thin. Cities and states going broke. An infrastructure in neglect in which the American Society of Engineers say it will cost 2.2 trillion dollars. China will still have economic growth as we wallow in debt and little growth. I have seen nothing from the republican party to counter the losses we have incurred. And we are running out of time to fix the mess we are in. It takes time to fix the infrastructure, to become energy independent, to have the proper innovation, research and development, and the education needed to survive a globalized economy. We have sat around all these years and watched the deficit and debt pile up. We have watched and heard all these years that "free trade was good" as our middle class jobs left the country. And yet we have the republicans in denial. The republicans are still caught up with their laissez-faire, as the world moves around you. 

Fuck a bunch of widgets

Submitted by Paleo-Skeptic on Wed, 02/11/2009 - 19:57.

We don't need no stinking widgets. 

So you don't see an inconsistency with your statement?

Submitted by davidfarrar on Wed, 02/11/2009 - 16:24.

"They may be ruled by the communist party, but they have a capitalist system."

 

 ex animo

davidfarrar

I don't think it is stable.

Submitted by RisingTide on Wed, 02/11/2009 - 16:29.

and after this worldwide depression, it may not be in existence, but it is not inconsistent.

http://www.wsws.org/articles/2003/jan2003/chin-j31.shtml

http://www.commondreams.org/views06/0110-42.htm

The communist party will

Submitted by In between on Wed, 02/11/2009 - 16:30.

The communist party will break down in time. The fact is that they have had huge growth. We have not invested in the future as other countries have.