tag:blogger.com,1999:blog-582368152716771238.post2548690177192343280..comments2024-03-18T07:59:05.430-05:00Comments on The Grumpy Economist: Sanders multiplier magicJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger33125tag:blogger.com,1999:blog-582368152716771238.post-40095997508916202432016-07-12T04:47:33.693-05:002016-07-12T04:47:33.693-05:00This topic would be less controversial if economis...This topic would be less controversial if economists shared a framework to think about fiscal multipliers and income flows.<br /><br />I have developed such a method that separates the government and the private sector. It is vizualized by a matrix.<br /><br />My analysis makes the assumptions about how the private sector reacts to stimulus explicit, as well as what happens in case the government runs a balanced budget. <br />It points out the importance of choosing the baseline scenario (=without fiscal stimulus) to calculate the multiplier:<br /><br />http://blog.janmusschoot.be/2016/07/07/helicopter-money-part-iii-economic-stimulus/<br /><br />To relate it to your blog post, these are the assumptions of the people you cite:<br /><br />-DeLong & Summers assume that in the absence of stimulus, private sector spending will be low for a very long time<br />-Friedman assumes that private sector spending is constant, unless government applies stimulus, in which case private spending increases (and remains at that level permanently, also when stimulus is stopped) <br /><br />Jan Musschoothttps://twitter.com/JanMusschootnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-15586991836620126912016-03-24T17:05:20.807-05:002016-03-24T17:05:20.807-05:00#1 (Anonymous argument)
Saving = Investment
Invest...#1 (Anonymous argument)<br />Saving = Investment<br />Investment is counted in GDP.<br />Therefore Saving is counted in GDP.<br /><br />#2 (No one's argument)<br />The number of human shadows = the number of people standing in the light.<br />People standing in the light are counted in the population.<br />Therefore human shadows are counted in the population.<br /><br />I do not accept either argument.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-85921376596736431562016-03-24T13:30:38.404-05:002016-03-24T13:30:38.404-05:00Except that savings = investment, and investment i...Except that savings = investment, and investment is in GDP, so GDP rises no matter what!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-82029235656839584612016-03-24T13:29:37.564-05:002016-03-24T13:29:37.564-05:00"We" don't (if by we you mean the ec..."We" don't (if by we you mean the economics profession net of a lunatic fringe). The public, and the legions of politicians whose job is not to be right but to be convincing, take seriously anything that confirms their previously-determined "truths".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5582367220864374052016-03-13T14:38:26.914-05:002016-03-13T14:38:26.914-05:00"Consumption is good, savings is bad, so GDP ..."Consumption is good, savings is bad, so GDP rises."<br /><br />No. Consumption is counted in GDP, saving is not, so GDP rises.<br /><br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-58830222285930322412016-03-07T16:59:45.013-06:002016-03-07T16:59:45.013-06:00http://www.nytimes.com/2016/02/27/upshot/uncoverin...http://www.nytimes.com/2016/02/27/upshot/uncovering-the-bad-math-or-logic-behind-bernie-sanderss-economic-plan.html<br /><br />I think he accepted it's "not standard" but how he sees the world and "may be a mistake". Not sure how those two are consistent ... Parth Venkathttps://www.blogger.com/profile/09830285782100016152noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-82088181987666120692016-03-07T05:29:04.181-06:002016-03-07T05:29:04.181-06:00Keynesian argument is as follows (as understood by...Keynesian argument is as follows (as understood by non-economist):<br />In normal, growing economy all resources are utilized and any additional project (like government works) has to compete for resources with others on the market, making them more expensive and rising inflation; it is standard assumption of every capitalist economic school that private investors will utilize resources better (more efficiently) than government, so extensive entrance of government in the markets rises inflation and lowers GDP.<br /><br />In demand crisis, lots of resources are under-utilized (easiest thing to imagine hundreds of construction companies without anything to do). When government starts projects, it competes with noone, but utilizes free resources. This has several advantages: first, in demand crises money is cheap, government can increase deficit at very low cost - US 10y bond is below 2%, 30y is below 3%, UK 50y bond is around 2% - if inflation returns to 2%, and GDP rises some 3% nominal annually, these are extremely favorable numbers. Second, it mitigates the worst of the crisis - less people are unemployed, more resources are consumed... More companies can stay in business and crisis ends earlier. Therefore multiplier: every $ that government spends keeps one company and its workers in business, they order resources, consume goods... they otherwise wouldn't have, keeping other people and companies in business and so on.<br /><br />As crisis ends, private capital employs more resources, and further government projects start again to compete with private capital, so government should start getting out of the markets, to "standard" level.<br /><br />Problem that Keynesians have with Friedman's analysis is that they believe that US would recover long before it hits Friedman's targets and in normal economy there is no multiplier (it's same if funding comes from government or private sources). Actually, it's always the same whether funding comes from government or private sources, but during crisis there are not enough private sources.<br /><br />There is no question of ROI in standard sense - Keynesian multiplier and "helicopter money" theory (that is, any type of stimulus) comes into play only in crises where there is insufficient private funding, so government must make up the rest, nobody says that government can invest better than private companies.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46389378398383503832016-03-03T15:25:35.821-06:002016-03-03T15:25:35.821-06:00Do you think conservative claims about the output ...Do you think conservative claims about the output and employment effects of tax reductions and regulatory easing are any more plausible than Keynesian multipliers?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-15793939546282452572016-03-03T12:10:02.916-06:002016-03-03T12:10:02.916-06:00Jamie Galbraith's original defense noted how r...Jamie Galbraith's original defense noted how real GDP grew at 5.4% per year from 1983 to 1985. Of course he forgot to mention that the GDP gap was over 8% and potential output was growing at 3% per year. <br /><br />I was impressed with your take down of Friedman's multiplier mistakes. Of course the real problem is that Friedman completely fails to model the supply-side as do his defenders. ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49733905818895573142016-03-03T01:50:41.531-06:002016-03-03T01:50:41.531-06:00Do you support the Trump Campaign? Does their arit...Do you support the Trump Campaign? Does their arithmetic add up?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80821282367392652402016-03-02T23:24:06.385-06:002016-03-02T23:24:06.385-06:00As I said, nothing in the link even addresses let ...As I said, nothing in the link even addresses let alone refutes the central charge, that Friedman just made an arithmetic mistake. He cited sources that say if the government spends a dollar this year, GDP goes up 80 cents this year, to project that GDP goes up 80 cents forever, and possibly keeps growing. That's the core of the Romer's charge, and nothing I know of in the Galbraith quotes had anything to do with it. Nor could it, as the quote predates Friedman's analysis, let alone Romers. <br /><br />If there is another Galbraith refutation, send it along. <br /><br />I wish somebody here would get out a spreadsheet, reproduce Friedman's numbers and for once and for all tell us how he got there.John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-439526167648966512016-03-02T21:34:13.291-06:002016-03-02T21:34:13.291-06:00Do you think that Mr. Galbraith's refutation i...Do you think that Mr. Galbraith's refutation is correct?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63297741169308340692016-03-02T16:25:01.792-06:002016-03-02T16:25:01.792-06:00I remember Friedman, he said something really smar...I remember Friedman, he said something really smart: There is no such thing as a free lunch. ... oh, wait, maybe that was another Friedman ... never mind, it's still really smart. But apparently it doesn't apply to Bernie-economics when viewed through a New Keynesian looking glass. Score MIT 1, Old School UChicago 0. Pity, that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-77321637665838580142016-03-01T19:08:53.309-06:002016-03-01T19:08:53.309-06:00Three points. 1, Friedman uses CBO projections as ...Three points. 1, Friedman uses CBO projections as a baseline. But when was even a single CBO projection not way above later outcomes? I think never. So, baseline already biased. 2, what are we fussing about here? If we are talking about alternative realities, using CBO methods, let CBO do the computations. Bernie is still in the Senate, he can get them to do it. 3, why is that Bernie's beloved social democratic countries in northern Europe always do better, wealth- and employment-speaking, when they move back from unaffordable socialist pie-in-the-sky policies? Why does reality and actual experience not cloud any Keynesian projection, ever?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63926421015983144412016-03-01T09:16:35.700-06:002016-03-01T09:16:35.700-06:00There wasn't one from the consumers perspectiv...There wasn't one from the consumers perspectiveBaconbaconhttps://www.blogger.com/profile/13511082564082971086noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91354853626982372342016-02-29T20:28:27.622-06:002016-02-29T20:28:27.622-06:00Didn't Bob Lucas describe this analysis via mu...Didn't Bob Lucas describe this analysis via multipliers best, as "shlock economics"? Why are we still taking any of this seriously?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10164482709079933062016-02-29T16:30:10.857-06:002016-02-29T16:30:10.857-06:00Dear John, more than a month ago, I sent an email ...Dear John, more than a month ago, I sent an email to my colleagues criticizing Friedman's analysis of the costs and benefits of Sanders' single-payer plan (used by the Sanders campaign) and accusing Friedman of bad economics. Specifically, his analysis on how the proposed increase in the payroll tax will impact household finances ignores the role of the elasticity of labor supply relative to that of demand in determining tax incidence, and fails to discuss how the inelasticity of the supply of health care will affect the price/quality of care (and yes, I did forward a link to your paper on what to do after the ACA). I am sure many of my colleagues dismissed my comments as coming from a market fundamentalist (which I am not, but I am the most skeptical in my department when it comes to Keynesian ideas). So thank you for this post, as I feel somewhat vindicated. I see a pattern by Friedman, and it is not a good one.Constantine Alexandrakishttps://www.blogger.com/profile/03148709241309623293noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29511447432110760222016-02-29T01:06:26.108-06:002016-02-29T01:06:26.108-06:00It is at least odd that Christina Romer claimed ab...It is at least odd that Christina Romer claimed about the same strength of multiplier as Friedman when she was part of the government, as Chair or prospective Chair of the CEA. Maybe the math and model changed according to who was paying her.<br /><br />The proponents of the stimulus predicted an effect which didn’t happen, namely 3.7 MM new jobs.<br /><br />http://bastiat.mises.org/2012/11/fiscal-stimulus-or-fiscal-depressant/<br />=== ===<br />[edited] In sharp contrast, Christina Romer, Chair of President Obama’s Council of Economic Advisers in 2009, argued that a multiplier of 1.6 should be used in estimating the new jobs that would be created by the stimulus program. This sharp difference between Barro’s [ multiplier = 1] and Romer’s multiplier estimates translated into an enormous disparity of 3.7 million new jobs, the number which Romer notoriously claimed would be generated by the stimulus package by the end of 2010.<br />=== ===<br /><br />http://gregmankiw.blogspot.com/2009/01/obamas-multipliers.html<br />=== ===<br />[edited] Team Obama has released its analysis of fiscal stimulus, coauthored by CEA Chair-designate Christina Romer and Vice President-elect adviser Jared Bernstein. If you go to the penultimate page, you can find the fiscal policy mutlipliers they assume. For government purchases, their multiplier is 1.57; for taxes, 0.99.<br />=== ===<br /><br />Obama and our government is Keynesian to the core, even under Republicans. Keynes is the high priest of “tax and spend”, which is why politicians love him so.<br />Andrew_M_Garlandhttps://www.blogger.com/profile/02855052302054611917noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36176215119557533662016-02-28T14:26:58.480-06:002016-02-28T14:26:58.480-06:00It kind of makes me wonder where and why you disag...It kind of makes me wonder where and why you disagree with me?Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-19358810334402315872016-02-28T12:14:45.099-06:002016-02-28T12:14:45.099-06:00I certainly won't argue that there isn't w...I certainly won't argue that there isn't wasteful spending in the defense budget or that it couldn't be decreased. I just having a hard time seeing how it can be blamed for our increased deficits compared to the past.<br /><br />"There was also a 20% spurt in GDP in the 1980s after a recession.<br /><br />I suspect the US economy is similarly underutilized today, and much more globalized, and with the right policies we could enjoy another 20% spurt in real GDP."<br /><br />No disagreement from me here. I believe growth averaged somewhere in the 4% range during those long 80's and 90's expansions. That wasn't so long ago. At the very least, I'm sure we can do better than the weak growth we've been getting for the last decade or so.Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87065433130943913122016-02-28T09:33:25.007-06:002016-02-28T09:33:25.007-06:00Not at the link you sent. The Romers charge a mist...Not at the link you sent. The Romers charge a mistake of arithmetic, not a debate bout models: That Friedman took one dollar of spending and multiplied that to one dollar more GDP forever, not one dollar more GDP for one year. Nothing I could find in the link you sent has anything to do with that central charge. If it's there and I missed it, please send the appropriate quote. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-68874330545570916432016-02-28T02:08:50.414-06:002016-02-28T02:08:50.414-06:00I disagree with you, but it is true that during th...I disagree with you, but it is true that during the postwar era 1945-1975 the US economy expanded rapidly, per capita income soared, labor unions were huge, transportation and communications and finance were heavily regulated and the top tax rate was 90%. And there was little international trade.<br /><br />And the economy was boom boom boom boom boom boom boom.<br /><br />Now we hear from macroeconomists how important it is to keep inflation below 2 percent or even below 1 percent or exactly at zero percent (as measured) or maybe even below zero.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27159780956459895862016-02-28T00:05:04.490-06:002016-02-28T00:05:04.490-06:00Jamie Galbraith's refutation of the Romer Anal...Jamie Galbraith's refutation of the Romer Analysis here. http://www.nakedcapitalism.com/2016/02/james-galbraith-describes-major-forecast-failure-in-model-used-by-romers-to-attack-friedman-on-sanders-plan.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55471619602092813812016-02-27T19:00:02.670-06:002016-02-27T19:00:02.670-06:00Zack-- it may be defense spending was a larger a f...Zack-- it may be defense spending was a larger a fraction of GDP, and it certainly was during World War II, when US GDP doubled in five years.<br /><br />However, if you look at national security spending today, and include DoD, DHS, VA, black budget, and prorated interest on debt, you come to about $1 trillion dollars.<br /><br />That $1 trillion is financed by income and capital gains taxes, which of course are disincentives on productive behavior. <br /><br />There was also a 20% spurt in GDP in the 1980s after a recession.<br /><br />I suspect the US economy is similarly underutilized today, and much more globalized, and with the right policies we could enjoy another 20% spurt in real GDP.<br /><br />Anyway, John Cochrane recently suggested we could enjoy 4% real growth GDP permanently. <br /><br />I say go for it, with both barrels.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36707361164844595912016-02-27T18:05:48.755-06:002016-02-27T18:05:48.755-06:00I can't figure out how these comments are supp...I can't figure out how these comments are supposed to work. I meant this as a comment rather than a reply. Oh well...<br /><br />When economists contemplate the end of the Great Depression they think of charts and graphs that are mostly irrelevant. What actually happened was the New Deal and the government took over the system during WWII: wage and price controls, 8.5 million drafted into the Army, government expenditures 40% of GDP, a top tax rate of 94%, and rationing as private debt fell from 141% to 67% of GDP. The income share of the bottom 90% increased over 20% during the war and didn’t fall until the 1980s. Social insurance came to be; government’s share of GDP more than doubled, and the financial system was strictly regulated after the war. http://www.rweconomics.com/htm/WDCh3e.htm <br /><br />The economic system that emerged from the New Deal and WWII was not the system that led us into the 1930s. It was a system of higher taxes, more government, strict regulation, and less inequality. This was what pulled us out of the Great Depression and into the economic prosperity that followed WWII, not the magical workings of free markets or the monetary and fiscal policies of Keynesian economics. And neither free markets nor monetary or fiscal policies are going to get us out of the Great Recession we face today or allow us to avoid another worldwide catastrophe comparable to WWII. <br /><br />Policies that do not reduce the trade deficit and concentration of income will simply prop up a failed system that makes the rich richer and poor poorer as the federal debt grows. http://www.rweconomics.com/LTLGAD.htm <br /><br /><br />It is essential that we use the legislative, tax, and spending powers of the government to reduce the trade deficit, expand government services, and increase the economic and political power of those at the bottom to achieve full employment through a more equitable, efficient, and productive distribution of income if we are to deal effectively with the fundamental problems we face today. http://www.rweconomics.com/Something_T0_Think_About.htm <br />Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.com