Stimulating The Employment Of Labor: Wrong

by Mario Rizzo  

Greg Mankiw juxtaposes opinion pieces by Paul Krugman and Gary Becker on dealing with the cyclical unemployment problem (aka “how to create jobs”). Becker’s blog post is especially worth reading.  

Whatever the political benefits of appearing to stimulate the employment of labor, the economic problem really shouldn’t be stated that way. We do not want to bias the system toward utilization of labor instead of other factors of production. I don’t think the distortions created by cheap credit should be remedied by trying to create further distortions.

Inflation Alert

 by Jerry O’Driscoll  

Yesterday was Cato’s annual monetary conference and Allan Meltzer gave the keynote address.  Today at cato.org you can listen to a 7-minute Podcast of an interview with Meltzer summarizing his presentation.  He has just completed the last 2 volumes of his history of the Fed.  

Meltzer delivers a tough message: no nation that is spending as we are, running deficits as large as we are, along with a loose monetary policy, has escaped inflation.  We must cut the deficits by cutting spending.  He talks of a $500 billion spending cut.  And he offers an innovative approach as to how, using applied Public Choice theory. 

Mankiw And Meltzer Are Right! More Or Less

by Mario Rizzo  

As we have been saying here, the claims that the fiscal stimulus has saved or created X number of jobs is not a simple empirical question. It must be an inference from a model that tells us what would have happened in the absence of that stimulus. Collecting reports from various firms or local governments about their job situations will not do. At best these individual reports are based on pop-theories on the part of the reporters about what would have happened.

Behold: The Recovery Is At Hand

by Mario Rizzo  

The Gross Domestic Product (GDP) is growing again at an annual 3.5% rate for the third quarter of 2009. Some people say this means that the recession is over. Apart from the much-touted stubborn unemployment problem, does this make sense? 

Will Obamacare Be Deficit-Neutral? Part 2

by Mario Rizzo

To much fanfare the House Democrats just revealed their healthcare plan. Three items from the CNN report caught my eye:

“The nearly 2,000 page bill — a combination of three different versions passed by House committees…”

A priori, I say this will be a nightmare to read and a mess to interpret.

“Pelosi’s office said the bill would cut the federal deficit by roughly $30 billion over the next decade. The measure is financed through a combination of a tax surcharge on wealthy Americans and spending constraints in Medicare and Medicaid.”

That is $30 billion over TEN years.  When have Congressional estimates of savings not been seriously wrong in the direction of greater spending?

“Medicare expenditures would be cut by 1.3 percent annually.”

Politically impossible under the current mindset.

I am astonished by the patently obvious nonsense that is being peddled by this Congress.  Let them admit that what they propose will cost a ton and add to the deficits. Then, at least, we could see if there are any counter-balancing benefits.

UPDATE: A few hours ago the House Democrats said the bill would cost $871 billion over ten years.  However they “misspoke.”  Oops. It has now been revealed that it will cost $1.05 trillion over ten years. (But now it will save about $100 billion over ten years.)  Stay tuned.

The (Counter)Productiveness Of Stimulus?

by Mario Rizzo

Continuing the Stimulus Watch (HT Greg Mankiw)

Greg Mankiw continues to trace the unemployment rate as predicted by the original calculations of the effect of  the fiscal stimulus as against no-stimulus. My advanced “eye-ball” extrapolations suggest that we are following the same path as the no-stimulus projection BUT at a higher level of unemployment throughout.

Dare I suggest (ever so tentatively and with all scientific humility given the nature of the data) that the stimulus has done harm?

Paul Krugman’s Certainty

By Mario Rizzo    

Paul Krugman’s latest opinion piece in The New York Times is one big non-sequitur.

Robert Barro on the Impotence of Stimulus

by Mario Rizzo

In an interesting opinion piece for the Wall Street Journal, Robert Barro and Charles Redlick give empirical evidence supporting the claim that stimulus spending doesn’t work. By “doesn’t work” they mean that the government spending multiplier is less than 1. This means that stimulus spending increases national income by less than the amount of new spending. Why? Barro and Redlick are vague on the reasons.

What Kind of Doctor Is This?

by Gene Callahan

Let’s say you are suffering from a moderately severe cold; you’re operating at, say, 90% of your peak energy level, and so you go the doctor to see if he can help get you back to 100%. After examining you, the doctor says:

“The point of our therapy is to approach the current malady in the spirit that we’ll do whatever it takes to turn things around; if what has been done so far isn’t enough, do more and do something different, until health starts to flow and the patient starts to recover.”

Wouldn’t you be inclined to sprint out the door?

The Effects Of Fiscal Stimulus: A Magical Analysis

by Mario Rizzo  

At the outset of the Obama Administration, as Greg Mankiw reminds us, their economists laid out a series of predictions about where the unemployment rate would be with the stimulus package and without it. Currently, the economy is doing worse than their predictions of unemployment without the stimulus and, of course, much worse than the predictions with stimulus.