Obama’s Stimulus Plan Made Crisis Worse, Taleb Says

http://noir.bloomberg.com/apps/news?pid=20601010&sid=atQQooOUty4c

14 23 16 years ago

noir.bloomberg.com

lzw4• 16 years ago

It is easy to understand. Government spending comes out of the economy via taxes and inflation. Taxes reduce company and personal profits reducing budgets for the next year, and thus reducing spending on purchases or expansion that would create jobs. Inflation raises costs, having the same effect.

Meanwhile, the government spending is often in non-productive sectors of the economy, such as increasing government jobs at all levels of government, which going forward add an additional spending burden on the economy.

Very little of the investment is even in areas targeted at building jobs. Hiring a bunch of people to build a bridge or highway does not create permanent jobs, and the positive impact of that highway or bridge is spread over many years, while the job hit from the spending starts immediately. Most government "innovation" efforts are misguided, poorly allocated or poorly managed, and rarely produce any substantive industry creation or economic growth. This is to be expected since politicians do not understand business very well, and have an incentive to feather their own nests or build their own political empires & burocratic fiefdoms. Thus the incentive is towards having more cushy government jobs to hand out as favors, and more employees under them... not to produce anything beneficial to society or the economy.

Further, it is not in government interest, really, to have a robust economy, because it is the damage done to the economy-- by government-- that lets government rationalize the power grab to have more control over the economy. Thus government "profits" by doing damage to the economy. The 2008 collapse is the result of government policies- clintons "you must loan to people who can't repay the loans" housing problem, the moral hazard of fannie mae and freddie mac, and bushs "we're gonna set interest rates below inflation"... stoked by constant economic pronouncements from everyone from the president to the fed chairman to Paul Krugman that there was no housing bubble and that if there was it would be good for the economy (the latter a position krugman took in one of his articles.)

zafka3• 16 years ago

Would you please post a link to that article.

frognibble7• 16 years ago

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...

Locke1689• 16 years ago

It is easy to understand.

This is the setup statement for why everything that follows in your post is wrong. If everything were simple and easy to understand we would have a straightforward, generally agreed upon solution. Instead, we have a complex multivariate macroeconomic system which we cannot control or isolate, meaning that reactions like these, as a whole, have about as much scientific backing as voodoo.

I'm really getting tired of these pop-economic articles on Hacker News. They never really inspire great debate, nothing gets settled, and everyone hits their own straw man.

lzw4• 16 years ago

Actually, economics is not that complicated, and not that hard to figure out, or to influence. The reason there's so much effort to pretend like it is complicated is because it is profitable for those in government to do so, to cover up the effects of their actions.

The idea that the crises in 2008 was unexpected, or that the bailouts were necessary is absurd, and had been refuted decades before. But it is part of the act government goes thru to keep people controlled. I knew there would be a housing bubble in late 2000, before it really got started. I knew this because I was told this by economists and hit made perfect sense. And all these bubbles, being creations of government, result in the same kind of government response. The effect of that response, having seen it so many times before, is quite predictable. We've not seen the effect of the bailouts of 2008, and the bailout that just happened for credit unions... but I expect we'll see it by 2012. And when it happens, they will all be on TV saying "this could never have been predicted!" Just like they were in 2008.

I suggest you read "Economics in One Lesson" by Henry Hazlitt, or if you're unwilling even though it is a short book, simply familiarize yourself with Bastiat's Parable of the Broken Window

frognibble7• 16 years ago

It might be that there is a simple and straightforward model, but there are incentives for politicians, academics and other actors in the system to reject this model. For example, politicians will prefer models that defer pain to the future over models that take the pain now. If the simple and straightforward model says that we should take the pain now, then politicians will prefer a different model.

sunjain• 16 years ago

WOW! As per this guys logic, US should be focused on reducing the deficit right now rather than growth and jobs. With one of the deepest recession we ever faced hardly over and unemployment still so high, not sure how more jobs could have been created without help from govt stimulus(since consumer spending is down and so is pvt sector profits as well as hiring). With the kind of hole we were in and still are in, the biggest worry should be jobs and growth which are not going to come back just simply by waiting on consumer spending to pick up by itself(consumers are not going to spend, if there are no jobs).

frognibble7• 16 years ago

Your analysis of the situation is incomplete because it does not consider the source of the resources used in the government stimulus. The resources need to come from someplace in economy. For the stimulus to be a net positive, the government's allocation of resources must be more efficient than where the resources were taken from.

cma3• 16 years ago

http://www.cepr.net/index.php/blogs/beat-the-press/how-large...

jeffreymcmanus• 16 years ago

Yep. One of the causes of the global depression of the late 1920s is that governments did not intervene sufficiently forcefully when money supply seized up, and by the time they figured out what was going on it was too late.

The Bush/Obama stimulus prevented a collapse of the global banking system although reasonable people are arguing that the stimulus didn't go far enough (since we still have 12% unemployment in many parts of the country).

If your opinion is that the deficit is the root of all evil, you probably feel that way because you have a bunch of cash in the bank. Regardless, the time to fight deficits is when you have money to fight it with (as happened under the Clinton administration).

Obama’s Stimulus Plan Made Crisis Worse, Taleb Says

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