Right Thinking From The Left Coast
I find that the harder I work, the more luck I seem to have. - Thomas Jefferson

Thursday, March 03, 2011

All the Bullshit That’s Fit To spread

We’re hearing a lot of guff lately about how the Republicans’ “draconian” budget cuts are going to cost 700,000 jobs, plunge us back into a recession, and produce plagues of locusts.  These numbers appear to be pulled out of the same ass that told us the stimulus was going to keep unemployment below 8%.  (Update:: Actually, they are out of the same ass—no foolin’.  Said ass belongs to Mark Zandi, one of the principle architects of the stimulus plan.) Megan McArdle points something else out:

It’s important to remember what $60 billion dollars represents.  It is barely 0.4% of GDP.  It is 1% of all government spending in the US, and 1.6% of total federal spending.  It is 4% of the budget deficit projected for 2011 by the CBO. 


If you think that the cuts will cause a direct loss of 650,000 government jobs, as many bloggers seem to, you’re saying that cutting Federal spending by 1.6% is somehow going to cause the federal government to shed more than 20% of its workforce.  Alternatively, if we’re talking about all government jobs, we’re saying that a 1% drop in all government spending will cause government at all levels to lay off 3% of their workforce--even though government employment is, as we’ve seen, pretty hard to cut.  Using these “standard multipliers”, if we cut government spending by 1/3, then government at all levels would employ no one at all.

Some of the GDP estimates being bandied about don’t seem much more plausible.  We’re going to cut government spending by 0.4% of GDP, and see a 2% drop?  That’s a hell of a multiplier.  A double-dip recession is an even more heroic stretch, given that the CBO is projecting GDP growth of 2.7% this year.

Considering the most recent research indicates that he economic multiplier on government spending may range from just above 1.0 to just below 1.0, applying a GDP multiplier of five sounds absurd.  And it is.

I think this also shows he lie the underpins the so-called Keynesians.  The theory of Keynesianism is that we spend during a recession and pull back during recovery.  The economy is growing at 2-3% right now and has been for some time.  Employment is lagging, but we are technically in recovery.  But we’re being old we can not possibly trim spending even by 1%?  When will we cut spending then?  The answer is never.  These people don’t care about Keynsian economics; they care about big government.  When the economy is bad, they’ll cite Keynes.  And when the economy is good, they’ll cite ... Mark Zandi.

(A similar piece of bullshit that is very popular is Keynesians circles is what I call The 1937 Canard.  The bullshit is that FDR reigned in spending in 1937 and the economy went back into recession, therefore proving Keynesian theory.  Left unexplained is why eight uninterrupted years of the most massive “stimulus” in America history failed to end the Great Depression.  If 1937 proves anything, it proves the danger of building an economy completely wired to the whims of government.)

Everything these guys have predicted for the last century has been wrong.  Harding’s post-WW1 cutbacks were supposed to hurt the economy; they didn’t.  Hoover’s and FDR’s stimuli were supposed to end the Depression; they didn’t.  Truman’s post-WW2 spending cuts were supposed to crash the economy; they didn’t.  The Great Inflation of the 1960’s and 70’s was supposed to prevent unemployment; it didn’t.  Voelker’s fed tightening and Reagan’s tax cuts were supposed to ruin the economy; they didn’t.  The Republican blocking of Clinton’s “stimulus” bill was supposed to wreck the economy; it’s didn’t.  Bush’s and Obama’s combination of spending and demand-side tax cuts were supposed to rescue the economy and keep unemployment under control; they didn’t.  Germany’s austerity were supposed to wreck their economy; it didn’t.  The jury is still out on what effects Britain’s austerity—only recently enacted—will have.

At what point do we stop listening to these people?  I’m not saying “conservative” economist necessarily know what they’re talking about either.  And Republican politicians certainly don’t.  They just twitch and mumble “tax cuts”. But they haven’t been nearly so completely wrong as the Big Government School of Economics has always been.

Posted by Hal_10000 on 03/03/11 at 09:22 AM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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