Friday, July 13, 2012

Exposing the Food Stamp Stimulus Fallacy

Here's some Keynesian-style, voodoo economics from the U.S. Department of Agriculture claiming that every additional $1 of food stamp spending magically creates almost $2 in new economic activity:
Why does increasing participation in SNAP (the federal food stamp program, now known at the Supplemental Nutritional Assistance Program) make sense for your community?

SNAP Generates Economic Activity SNAP brings Federal dollars into communities in the form of benefits which are redeemed by SNAP participants at local stores. These benefits ripple throughout the economies of the community, State, and Nation. For example: Every $5 in new SNAP benefits generates a total of $9.20 in community spending Every additional dollar's worth of SNAP benefits generates 17 to 47 cents of new spending on food.

On average, $1 billion of retail food demand by SNAP recipients generates 3,300 farm jobs. In fiscal year 2009, the average monthly SNAP benefit per household was approximately $272. These benefits, funded by Federal dollars, create business when they are redeemed at your local food retailers. Eighty-six percent of benefits, totaling $25 billion, were redeemed at the nation's 35,000 supermarkets. The remaining benefits, totaling $3.6 billion, contribute to the viability of 121,000 other firms which include grocery stores, convenience stores, combination stores, farmer's markets, and other retail food stores; plus wholesalers and meal services.

Outreach and education are powerful tools in overcoming barriers to SNAP participation. Even a small increase in SNAP participation can have a substantial impact. If the national participation rate rose 5 percentage points, 1.9 million more low-income people would have an additional $1.3 billion in benefits per year to use to purchase healthy food and $2.5 billion total in new economic activity would be generated nationwide
MP: Wow, it seems like all we have to do to create a huge economic stimulus is to get more Americans using food stamps.  If raising the national food stamp participation rate by 5 percentage points generates $2.5 billion in new economic activity, imagine the economic stimulus that could be created if the food stamp participation rate increased to 100 percent!

To understand the economic fallacy of the "food stamps creates economic prosperity" myth, let me paraphrase Art Laffer, who exposed a similar fallacy a few years ago relating to the claim that unemployment benefits increase demand and stimulate the economy:

In an economy, the economic effects from a transfer program always sum to zero. Simply put, there can be no economic stimulus from increased food stamp usage. To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to people with food stamps, then people who otherwise would have had those 10 apples are now worse off.  The stimulus of 10 apples through food stamps is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken. More realistically, we could say that to provide food stamps that will allow some Americans to purchase more apples, taxes have to be raised on other Americans to finance the food stamps to pay for the apples.  In that case, raising food stamp participation increases the tax burden on other Americans.

Those Americans forced to pay higher taxes to finance increased food stamp usage have less income to spend on goods and services, which depresses economic activity. In the end, there is simply a coerced transfer of resources from food stamp-providing taxpayers to food stamp users, with a net effect of zero on economic activity and national wealth. Given the massive inefficiencies the government creates in transferring resources from one group to another, along with the disincentive effects for those Americans who are de-stimulated through higher taxes, there might actually be an overall negative net effect on economic activity.

Bottom Line: Raising food stamp usage certainly won't generate positive net benefits; it's more likely that the net economic effect will be negative.

HT: Daniel Halper via Morgan Frank

142 Comments:

At 7/13/2012 12:39 AM, Blogger Benjamin said...

In a nation of fatties, we have a $100-billion-a-year food stamp program.

And in a world without another hostile military, we have a $1 trillion-a-year defense-VA-homeland security complex.

Federal agencies never die.

 
At 7/13/2012 2:40 AM, Blogger PeakTrader said...

"...imagine an economy that produces 100 apples. If 10 of those apples are given to people with food stamps, then people who otherwise would have had those 10 apples are now worse off. The stimulus of 10 apples through food stamps is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken."

Imagine an economy where demand for apples falls from 100 to 90. So, supply of apples falls to 90 and jobs are lost.

It can become a vicious cycle. Demand falls, supply falls, jobs are lost. So, demand falls further, supply falls further, more jobs are lost, etc., and we declare a "Great Depression."

 
At 7/13/2012 2:42 AM, Blogger Yiorgos said...

The "zero sum" fallacy: An economy does NOT produce 100 apples. It might have the capacity to produce 100 but is currently only producing 50 due to low demand expectations. Food stamps and other stimulus programs help to reach full capacity.

The zero sum fallacy only becomes true at full capacity, but societies with 10% unemployment are most certainly NOT there.

 
At 7/13/2012 3:40 AM, Blogger Gavin McP said...

An alternative scenario: you take money from the rich, who would have saved it or used it to buy expensive foreign cheese, and give it to the poor, who spend it today on wholesome, US grown apples.

 
At 7/13/2012 4:43 AM, Blogger Unknown said...

You are ignoring at least two big points

1) economies don't always work at potential.
2) people without food tend to be unproductive. I taught for a few years - kids who were hungry didn't learn much.

 
At 7/13/2012 4:50 AM, Blogger Ed R said...

I will join the above chorus:

"If 10 of those apples are given to people with food stamps, then people who otherwise would have had those 10 apples are now worse off. The stimulus of 10 apples through food stamps is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken."

Not necessarily at all. Apple farmers may have the potential to produce 110 apples to meet the higher demand for apples.

 
At 7/13/2012 4:58 AM, Blogger Jon Murphy said...

Guys -

You can't change the scenario to fit your viewpoint.

 
At 7/13/2012 5:25 AM, Blogger marmico said...

More realistically, we could say that to provide military contracts that will allow some Americans to purchase more munitions, taxes have to be raised on other Americans to finance the military contractors to pay for the munitions. In that case, raising military contract participation increases the tax burden on other Americans. Those Americans forced to pay higher taxes to finance increased military contract usage have less income to spend on goods and services, which depresses economic activity. In the end, there is simply a coerced transfer of resources from military contract-providing taxpayers to military contractors users, with a net effect of zero on economic activity and national wealth.

 
At 7/13/2012 5:58 AM, Blogger Jon Murphy said...

Marmico-

That is exactly correct. That is why the commonly accept fallacy that World War II saved us from the Great Depression is wrong.

 
At 7/13/2012 6:04 AM, Blogger Jon Murphy said...

When the government transfers wealth from one person to another, whether it be from civilian to military, rich to poor, poor to rich, whatever, no wealth is created, therefore resulting in a zero-sum game.

However, when two people exchange wealth voluntarily, then wealth is created.

To use a bit of a cliche (the more creative members of our ranks need to come up with a more modern metaphor): wealth redistribution is taking one person's piece of pie and giving it to another. Wealth creation is increasing the size of the pie.

 
At 7/13/2012 6:29 AM, Blogger Larry G said...

the idea of any stimulus is that a higher level of aggregate demand would be created such that 10 more apples would be produced that were not being produced because there was no demand for them.

Is it govt spending?

yes. just like paying a soldier to stand guard over a jeep is.

does it take taxes from others?

yes - but the question is WHEN?

if the money is borrowed, it is a loan from the future - to be paid back with interest - in the future.

is it sustainable? No but the idea behind the stimulus is that once economic activity recovers, the loan can be paid back by buying the deficit and debt back down ( with the additional tax revenues coming from from people who are employed and no longer receiving SNAP.

increased production happens in response to increased demand.

You don't grow 10 more apples if there is no demand for 10 more apples.

 
At 7/13/2012 6:51 AM, Blogger Jon Murphy said...

the idea of any stimulus is that a higher level of aggregate demand would be created such that 10 more apples would be produced that were not being produced because there was no demand for them.

That's true, Larry. But if there is no demand for 10 more apples until the stimulus comes along, then those additional 10 apples are wasted and the resources used in producing those 10 apples are wasted. The land, labor, and effort that went to producing those apples is now wasted. They could have gone to produce oranges.

Whenever resources are diverted to serve something other than a demand, then economically they are wasted (of course, you can make an argument based on non-economic grounds. War is economically wasteful, but can be necessary).

So, while the stimulus is creating "demand", it is not useful demand. Therefore, resources are being wasted. This is the main argument against stimulus: you are diverting resources away from useful activities and towards artificial ones, which prolongs the economic doldrums.

 
At 7/13/2012 6:54 AM, OpenID b63b029a-6786-11e1-a2f8-000bcdcb2996 said...

The brilliance of these giveaways is that no one pays...now. The expense is larded onto the federal deficit / debt which may or may not be paid off at some point.

 
At 7/13/2012 7:03 AM, Blogger Larry G said...

@Jon

"That's true, Larry. But if there is no demand for 10 more apples until the stimulus comes along, then those additional 10 apples are wasted and the resources used in producing those 10 apples are wasted."

not wasted - never expended to start with.

you don't grow more apples than there is demand for them much less hire people to plant additional trees and pick them if demand is static.

agree?

"The land, labor, and effort that went to producing those apples is now wasted. They could have gone to produce oranges."

if there is no demand - the production is idled. Land is not used for additional apples or oranges. Why would anyone plant more than they knew would sell?

"Whenever resources are diverted to serve something other than a demand, then economically they are wasted (of course, you can make an argument based on non-economic grounds. War is economically wasteful, but can be necessary)."

if there is no demand - then those resources are not expended - they sit idle.

"So, while the stimulus is creating "demand", it is not useful demand."

It's as real as paying a soldier to do an unproductive activity though.

"Therefore, resources are being wasted. This is the main argument against stimulus: you are diverting resources away from useful activities and towards artificial ones, which prolongs the economic doldrums. "

but the point is that the guy that grows apples is not going to plant more trees and hire more people if he knows he cannot sell the additional product (or worse, it costs him more to produce it than it fetches on the market.

In a recession/depression, demand for product drops and in turn production is idled.

the less demand, the more people are laid off and excess productive shut down (not diverted).

the stimulus is temporary and not sustainable .... and increases the deficit and debt...in exchange for attempting to increase aggregate demand.

 
At 7/13/2012 7:11 AM, Blogger Jon Murphy said...

Hang on, Larry.

Let's take a step back and make sure we are on the same page:

Are we assuming that apples is the only source of demand in our fictional economy?

 
At 7/13/2012 7:11 AM, Blogger Jon Murphy said...

That should say "apples are the only product in our economy."

 
At 7/13/2012 7:20 AM, Blogger Larry G said...

re: " Are we assuming that apples is the only source of demand in our fictional economy? "

no. but I'm using the analogy - as provided.

but even if you expand the argument out to other things - if overall aggregate demand for MANY products is DOWN - it idles production.

this is why plants close, people are laid off and fields left fallow.

companies do not hire workers to produce something that there is no demand for and the inventory sits in a warehouse.

right?

isn't that what essentially defines a recession?

you have MANY different items for which demand has fallen and production reduces in response to the lowered demand.

 
At 7/13/2012 7:38 AM, Blogger Jon Murphy said...

You are correct, Larry. but economic productivity only comes from producing things people demand. This is where the tricky part of stimulus comes in.

If we are to have a stimulus, it must go towards useful projects. The famous argument is the whole digging ditches and filling them in. I don't think anyone who is serious believes in that. Same with the broken window argument. However, if stimulus money went towards providing a much-needed service (the Tennessee Valley Authority is a great example of stimulus done well), then it can be a boon to the economy.

As an economist, I think a well targeted stimulus can be a boon to an economy. As a cynical libertarian, I think our government would not be able to deliver such a thing. In theory, I support stimulus. In reality, I don't.

 
At 7/13/2012 7:41 AM, Blogger marmico said...

That is exactly correct

Yet Laffer and his cronies at the WSJ (like his economics firm partner Steven Moore at the editorial desk) never op-ed a piece on the multiplier unity of military spending.

The ratio of military spending to SNAP spending is an order of magnitude, 12:1.

Praetell.

 
At 7/13/2012 7:55 AM, Blogger bart said...

No worries - just continue widening what can be bought with EBT and throw another couple hundred billion or trillion into the program

Presto!, the economy is fixed...

 
At 7/13/2012 7:56 AM, Blogger Jon Murphy said...

Marmico-

If you look back, I think you'll find Laffer has argued quite fervently for military spending cuts. He did so often when he had President Reagan's ear. He still calls for military spending cuts.

 
At 7/13/2012 7:57 AM, Blogger Jon Murphy said...

Presto!, the economy is fixed...

While we're at it, let's increase minimum wage to $350,000/year. We'll all be the 1%!

 
At 7/13/2012 8:02 AM, Blogger Larry G said...

re: spending on something "useful".

that's the second part of the argument.

the first part is that more money to spend results in more aggregate demand and the spender decides what industries benefit by choosing where to spend the money.

the second part of the argument is - is the recipient of the money doing something "useful" for it?

While I DO AGREE that I'd rather have a road built ( any infrastructure that is needed) the reality is that that you COULD spend it on something of little value (like paying soldiers to build a Quonset hut in Afghanistan that we'll never use) and that money will end up increasing aggregate demand when his family uses it to pay rent and buy apples.

the reason WWII "worked" when soldiers mustered out at the end is that we had two HUGE stimulus efforts via the GI BILL that would pay veterans benefits to buy homes and go back to school.

where did the money come from to pay for this?

well.. it was the same money we used to pay them when they were soldiers.

we just continued to pay them after they mustered out but we paid them with the GI BIll....

 
At 7/13/2012 8:05 AM, Blogger Zachriel said...

Jon Murphy: You can't change the scenario to fit your viewpoint.

It's the same scenario. While the original post claimed that the example explained the entire situation, in fact, it depends on the economic situation.

If the economy is working below capacity, then spending, either from the savings or by borrowing, can act as a stimulus, with the multiplier determined by the type of spending. If the economy is working at capacity, then spending will compete against existing demand, resulting in inflation.

Jon Murphy: If we are to have a stimulus, it must go towards useful projects.

The immediate stimulatory effect is the same. However, the long term effect is different, and useful projects can be considered investments.

 
At 7/13/2012 8:19 AM, Blogger marmico said...

If you look back, I think you'll find Laffer has argued quite fervently for military spending cuts.

The google search of Laffer + military spending cuts yields no peer-reviewed results.

Where's the evidence other than that Reagan was a military keynesian?

I understand Robert Barro, the third most quoted economist in the literature, who subscribes to the multiplier unity theory, although, I disagree. But Laffer, gimme a break.

 
At 7/13/2012 8:24 AM, Blogger morganovich said...

"the idea of any stimulus is that a higher level of aggregate demand would be created such that 10 more apples would be produced that were not being produced because there was no demand for them."

this is completely wrong. it never actually works that way.

stimulus crowds out other spending and retards investment. it also takes money from those best at making it work (those making big profits) and shifts it to those who are least good at it.

the demand notions are incorrect as well. it's nothing like that simple.

first off, demand is always a function of price. demand for apples may be 90 at $1, and 110 at 80c.

you cannot speak of demand that simply.

politicians love to focus on demand because it lets them give away free stuff. they love to focus on GDP because borrowing money and spending it even to pay people to dig holes and fill them back in can be made to look like economic growth.

this is cargo cult thinking. our politicians are like amazonian tribesmen building replicas of europeans ships because they imagine it will make trade goods appear.

the fact is that they are economically illiterate. this SNAP idea is like believing in perpetual motion.

how does taking money from someone who chose not to spend it on consumption, but rather invest it, and forcing them to spend it increase economic efficiency and activity. implicit in all this is that the government knows better what you need to do with your money than you do.

worse, they do not even have the guts to really mug you in real time. instead they mug you 20 years from now or mug your kids to pay for it. i have seen several commentators make reference to borrowing money to be paid back in good times. when was the last time you saw that happen? us debt is a one way ratchet at this point.

(and please, no nonsense about clinton/gingrich, they came close on a cash basis, but never actually balanced the budget and were never withing $1 trillion of balanced using GAAP)

using GAAP, the us has not balanced its budget since eisenhower.

government spending nearly always has a negative multiplier.

http://www.people.hbs.edu/cmalloy/pdffiles/envaloy.pdf

this is a really great piece that works through the effects of having a powerful politician in your district. the pork they generate is not enough to offset he crowding out of investment that such pork inflicts.

they wind up causing losses at home by showing the goodies.

SNAP is much the same.

and such tyrannical notions of "it's ok to make you spend money you do not want to because it improves the economy" are antithetical to a rights and liberty based society.

keep in mind: stimulus is coercion. you are taking money from someone and either forcing them to spend it when they do not want to or just flat out giving it to someone else because some politician decided that was for the greater good.

how does that square with the property rights of a citizen? those sound like the obligations of a subject to me.

 
At 7/13/2012 8:26 AM, Blogger Jon Murphy said...

spend it on something of little value (like paying soldiers to build a Quonset hut in Afghanistan that we'll never use) and that money will end up increasing aggregate demand when his family uses it to pay rent and buy apples.

But that's where you run into problems. When it is something of little value, then the multiplier effect (which is the whole point of a stimulus) falls below 1 (in other words, for every dollar spent, less than a dollar is created in the economy). That is why the standard of living in America plummeted during World War II: valuable resources were being consumed for the war effort. When resources are being used wastefully, then they are harming, not helping the economy.

Let me ask it like this. What is Steve Jobs was a soldier? We wouldn't have Macs, iPhones, iPods, iPads, etc. Because his resources (ie, his brain), are being used to guard a jeep, it is wasted economic opportunity.

 
At 7/13/2012 8:31 AM, Blogger Jon Murphy said...

Marmico-

All you said is he never argued for defense cuts. That is incorrect. There is nothing to be "peer-reviewed." Read his damn book, if you don't believe me. But your witch-hunt is tiresome. You start off making a great point about military spending, then immediately try to contradict yourself. You should have quit while you were ahead.

 
At 7/13/2012 8:34 AM, Blogger Larry G said...

re: " What is Steve Jobs was a soldier? We wouldn't have Macs, iPhones, iPods, iPads, etc. Because his resources (ie, his brain), are being used to guard a jeep, it is wasted economic opportunity."

I see aggregate demand as separate from whether or no what you get paid for is "productive".

I realize that's it "better" if what you get paid for ADDs something of value beyond the money you spend and add to demand but not every job is "productive" in that sense - however the salary spent has the same effect as any other money spent.

Soldiers in the US do create anything of particular value (other than be at the "ready") but they still get paid and still constitute aggregate demand.

re: " first off, demand is always a function of price. demand for apples may be 90 at $1, and 110 at 80c"

yes that's true and when the price falls below the cost of production, what happens?

does he continue to produce or does production cease?

this is what happens in a depression when demand drops to such low levels that lowering the price does not accomplish anything other than to have the cost of production higher than what the market will pay.

the opposite is when there is more money to spend and the demand goes up and allows a profit.

It's true you're borrowing against the future but the alternative if to spiral further and further down until production costs exceeds the price it can sell for.

You cannot increase production to stimulate demand. You just go broke.

 
At 7/13/2012 8:37 AM, Blogger David Every said...

To give people an idea of the efficiency side of that redistribution I use the following real-world example:

For each dollar that New Jersey gets back from the fed, it had to give the Fed $1.62 in the first place. Then they have to pay $.12-.18 in compliance costs to get that dollar back. And the fed borrows between $.64-.81 in New Jersey's name, to give them their dollar back (and leaves their taxpayers with that debt).

To progressives, they look at the dollar gained. To the realists, we look at a $.90 lost and additional $.75 borrowed to get that dollar.

NJ is one of the lower return states, but no state is net positive in these kind of transactions.

 
At 7/13/2012 8:39 AM, Blogger Unknown said...

Add the Dept. of Agriculture to Ron Paul's plan to close 5 other wasteful cabinet level departments. Energy, Interior, Commerce, Education, HUD and now Agriculture. Coupled with a balanced budget in 3 years and we'll be on the road to recovery.

 
At 7/13/2012 8:40 AM, Blogger Larry G said...

" For each dollar that New Jersey gets back from the fed, it had to give the Fed $1.62 in the first place"

Is that also true for civilian DOD and military DOD?

 
At 7/13/2012 8:41 AM, Blogger Larry G said...

re: Ron Paul

Just about the ONLY GOP who has actually proposed a real balanced budget.

And last I heard, about 7 GOP supported it.

If the GOP won't be serious about balancing the budget, what next?

 
At 7/13/2012 8:44 AM, Blogger Duncan said...

to generalize and from Hazlitt it is lazy economics to measure only on what is easily seen, food stamp spending, and ignore more difficult measures, less spending by those taxed and most important less investment by those taxed.

 
At 7/13/2012 8:49 AM, Blogger morganovich said...

"yes that's true and when the price falls below the cost of production, what happens?

does he continue to produce or does production cease?"

supply contracts. price of production is a curve, not a figure. you can always produce more at higher marginal prices. so the highest cost producer shuts down, price drops, demand increases, and equilibrium is found.

but why are you proposing that price drops below cost to produce? that actually does not happen much (at least not for very long). supply adjusts, resources are reallocated, the economy gets more efficient and finds new things to produce etc.

the depression had many causes, some monetary, and many related to the negative multipliers of FDR's programs and the fear that they injected into the private sector.

the great depression was CAUSED by government. economies left alone are very capable of adjusting and healing themselves.

it is not a coincidence that the greatest depression in history coincided with the rise of fascist politics as a vogue. (and yes, fdr was a fascist. he was an open admirer of mussolini)

you actually make my point for me.

it was all that intervention and stimulus that made the depression last so long and rendered the economy unable to recover because of huge amount of sub 1 multiplier projects.

it's like putting on the e-brake and driving to work and wondering why you are getting such bad mileage.

 
At 7/13/2012 8:51 AM, Blogger morganovich said...

"
If the GOP won't be serious about balancing the budget, what next?"

well, i have citizenship in st kitts.

i have no idea what you guys are going to do.

 
At 7/13/2012 9:05 AM, Blogger David Every said...

Larry G, yes, that includes military and defense spending. Which as you know about is ≈20% of all spending. The other $.80 of that overhead is going into things with higher waste, fraud and lower returns.

But the point is you if I pitched an investment to you where for each $1.90 you put in, you'd get a dollar back, have to waste 6% of your time filling out forms to get that dollar back, and I'd borrow $.81 in your name to give you that dollar back, would you call it a net win? Even if I offered you "protection", and to give $.25 of it in charity to your neighbors?

 
At 7/13/2012 9:25 AM, Blogger Vince said...

The main problem with the apple example, is that we can't print apples....but Bernanke can print dollars used for food stamps...which ultimately makes EVERYONE worse off...even the people getting the food stamps.

 
At 7/13/2012 9:34 AM, Blogger morganovich said...

defense spending is a little tricky in terms of multiplier.

i suspect the effects of having NO defense spending would be dire.

it would seem that the return to having enough to defend your borders and not get conquered etc would be pretty high.

i suspect the returns on the first few defense dollars are actually really substantial.

it's after that that it starts to get wasteful.

precisely what the optimum ROIC is (or the inflection point where it goes negative) is a matter of some debate, but i suspect that it is quite a bit lower than were we are now.

that said, anyone claiming it is milspend that is driving the us budget holes is being disingenuous.

as a % of gdp, milspend is down 30% from the 80's and around 50% from the 70's.

it's up in nominal dollars to be sure but it's right near all time lows as a % of gdp.

milspend could go to zero and the entitlement programs would still BK us in 20 or 30 years.

until we rein them in, nothing else matters. the rest is just rearranging deck chairs on the titanic.

 
At 7/13/2012 9:51 AM, Blogger Buddy R Pacifico said...

Food stamps being hyped as stimulus by the USDA is gov't agency hubris.

SNAP should be promoted as a way to provide basic nourishment to those in need. Going beyond this humnanatrian mission, with stimulus propaganda, is delusional aggrandizement and larding.

 
At 7/13/2012 10:44 AM, Blogger MikeK said...

Wow, based on some of these posts, I'm beginning to wonder whether anyone besides Morgan or Jon ever took, passed and understood Econ 101. I wasn't aware the laws of supply and demand were countermanded. Price solves every query raised by those who disagree with Laffer. Yiorgos, "Food stamps and other stimulus programs help to reach full capacity." What school of economics teaches such nonsense? If government programs were truly stimulative, based on the percentage of population that currently receive government largesse, or the percentage of GDP that is currently government spending our economy should be absolutely rocking. What happened?

 
At 7/13/2012 10:46 AM, Blogger bix1951 said...

obviously all government spending is less efficient than private, unfortunately there are things that only government seems to be able to do, like collect taxes! what a drag on the econony is tax compliance employing an army of accountants and attorneys and prison guards

 
At 7/13/2012 11:42 AM, Blogger fabian hug said...

It's not really a transfer program since food stamps growth is not financed by an increase in taxes. For the moment it's only a Keynesian stimulus. The bill will come later.

 
At 7/13/2012 11:55 AM, Blogger Larry G said...

see... people who are unemployed don't buy apples or if they do far fewer...

people with SNAP would buy MORE apples.

so if aggregate demand increases, it will result in more apples.

if aggregate demand decreases, there will be less demand for apples and as all producers try to keep their share and let others lose share, the price drops - and yes the price can drop below the costs of production not only for the inefficient producers but all producers.

this is what happened in the depression when prices kept dropping until they got so low they got below what it cost to produce.

Now the second issue of the govt policy of "giving money away"...

I could not agree more but if aggregate demand keeps dropping and more and more businesses cease production - how do you turn that around?

rightly or wrongly, agree or disagree... most countries and most economists think the govt should print more money and give it away so people will spend it and demand will increase..and companies will hire to meet the increased demand.

How does govt pay off the debt?

if more people are working and making money and paying taxes and not using entitlements - the debt gets paid down.

increasing production... hiring more people to increase production is not something that employers do.

Very few employers are going to spend money, their own accumulated wealth or worse....borrow money...to pay more workers to increase production so that aggregate demand will increase.

 
At 7/13/2012 11:58 AM, Blogger Its GSATT said...

SNAP stimulates the ability to sit on the couch of their section 8 apartment. They would rather sit 3 hours in the waiting room to apply for foodstamps than spend that time looking for a job.

The Gov. is successfully ruining our culture. People will not bust their ass to feed themselves anymore. Pathetic.

 
At 7/13/2012 11:59 AM, Blogger bart said...

... most countries and most economists think the govt should print more money and give it away ...


And some, even non economists, want to have us play the "Wonderful World of War". Just think of the stimulus of having to rebuild so many buildings, do infrastructure repaid and not have to worry so much about too much population etc.
/sarc

 
At 7/13/2012 12:03 PM, Blogger Larry G said...

you cannot increase aggregate demand by increasing production.

People who are unemployed are not goig to buy no matter how much production is increased or prices go down.

Without a job - there is no demand.

the idea of "stimulus' is to give money to that guy to spend.

It would be even better if he actually had to produce something of value to get the money but the effect of the money alone will benefit the economy.

re: what happened?

the amount of stimulus has to be sufficient to overcome the level of economic loss and if it is insufficient, it works less well and could even fail.

the stimulus is a loan from the future.

it has to be paid back.

it's like getting a loan for infrastructure.

you build the infrastructure then you pay back the loan.

a guy with a job - pays taxes.

a guy without a job not only does not pay taxes, he uses entitlements.

the less people working, the less people paying taxes - even though we're increasing the amount paid out for entitlements.

 
At 7/13/2012 12:06 PM, Blogger geoih said...

Quote from PeakTrader: "It can become a vicious cycle. Demand falls, supply falls, jobs are lost. So, demand falls further, supply falls further, more jobs are lost, etc., and we declare a "Great Depression." "

Only the demand for apples has fallen based on the current price. The money that was chasing apples is now chasing something more valuable to the holders of money. If the price of apples then falls, the demand will go back up.

Giving money to those who used to buy apples, so they might buy them again, is just paying for the apples with somebody else's money (somebody who doesn't want apples). You might as well require the apple growers to buy their own apples.

 
At 7/13/2012 12:08 PM, Blogger morganovich said...

larry-

that's magical thinking.

just where do the SNAP apples come from?

you reasoning is circular.

so we need taxes to pay to create jobs so people pay taxes?

wealth does not just appear.

 
At 7/13/2012 12:08 PM, Blogger Larry G said...

" Only the demand for apples has fallen based on the current price. The money that was chasing apples is now chasing something more valuable to the holders of money. If the price of apples then falls, the demand will go back up. "

but people without jobs don't buy apples no matter what the price.

 
At 7/13/2012 12:09 PM, Blogger geoih said...

Quote from Yiorgios: "Food stamps and other stimulus programs help to reach full capacity."

How can you possible know what full capacity of anything is? All the money in the world could be focused exclusively on growing apples and nothing else. Would that be full capacity?

 
At 7/13/2012 12:11 PM, Blogger Larry G said...

"just where do the SNAP apples come from?"

they're just apples. The SNAP is money to someone who did not have money he then turns around with that money and buys apples.

you reasoning is circular.

no.. it's straight forward.

people without money don't buy.
people with money do buy.

"so we need taxes to pay to create jobs so people pay taxes?"

future taxes to pay off the loan that we gave to people today to buy apples - yes.

 
At 7/13/2012 12:27 PM, Blogger bart said...

let's increase minimum wage to $350,000/year.

Damned pessimists... that's low, and probably racist too...

 
At 7/13/2012 12:44 PM, Blogger morganovich said...

larry-

"
they're just apples. The SNAP is money to someone who did not have money he then turns around with that money and buys apples."

but where did they come from? did they appear by magic? no. they were taken from someone else.

it's not even zero sum, it's negative sum. printing money just devalues the rest of the money and grants crowd out other investment.

"
people without money don't buy.
people with money do buy."

you're leaving out the important bit: where did the money come from.

i tax you and take money to give it to me so i pay tax and drive the economy?

that's negative sum and circular.

future taxes pay off the loan?

when have you seen that happen?

even if they do, they do it at interest.

that's a cost.

 
At 7/13/2012 12:51 PM, Blogger Larry G said...

but where did they come from? did they appear by magic? no. they were taken from someone else.

borrowed money

it's not even zero sum, it's negative sum. printing money just devalues the rest of the money and grants crowd out other investment.

does it do that in a recession?

people without money don't buy.
people with money do buy."

you're leaving out the important bit: where did the money come from.

no.. to a certain extend where it comes from does not change the mechanics of spending (or not).

"i tax you and take money to give it to me so i pay tax and drive the economy?"

but I'm not taxing you right now. I'm printing money or selling treasury notes.

that's negative sum and circular.

no.. the bill is deferred to the future

future taxes pay off the loan?

when have you seen that happen?

yes. during Clintons term there ws some pay down of the debt.

even if they do, they do it at interest.

agree

that's a cost.

agree

it's not "free" money.

it has to be paid back.

taxes right now are the lowest they have been in 50+ years.

if the economy recovers, even if we do not touch tax rates, we'll get more revenues from more people working.

if we don't do a stimulus....

we'll sell less apples and the higher marginal end producers will be forced out - and those workers will add to the unemployment roles and in turn the will no longer be buying stuff and paying taxes.

this is the fear of a downward spiral that cannot be reversed unless you do a stimulus.

 
At 7/13/2012 1:08 PM, Blogger morganovich said...

"does it do that in a recession?"

yes. recessions are not magic.

"
no.. to a certain extend where it comes from does not change the mechanics of spending (or not)."

yes, they do. if you take money i would invest (or devalue my investments and savings in real terms) then it matters greatly where it comes from.

you are not seeing the whole picture here.

"
yes. during Clintons term there ws some pay down of the debt."

no, there wasn't. that never happened. aggregate federal debt went up every signle year of clinton's administration. and that's just on a cash basis, on a gaap basis, he was never within a trillion a year of balanced.

http://activerain.com/blogsview/855368/the-clinton-budget-surplus-fact-or-fiction-

it is stimulus that is stopping people from working because it has a negative multiplier.

taking money from good uses and diverting it to worse ones can NEVER create prosperity.

there is no evidence that stiumulus has created net growth and piles that it destroys it.

read the HBS piece i linked on local stimulus driven by powerful politicians. such largess destroys more than it creates.

taking from the efficient to give to the inefficient drives stagnation, not growth.

there is zero sound economic basis for "stimulus". it's disproven keynsian nonsense that is, unfortunately, irresistible to politicians because it lets them look like they are doing somehting and to buy votes because too many americans are economically illiterate to see that what the politicians are describing as the gas is really the brake.

 
At 7/13/2012 1:25 PM, Blogger juandos said...

"taxes right now are the lowest they have been in 50+ years"...

On what planet?

How is this pandering to parasites crapola going to be paid for?

Obama administration ‘guts’ welfare reform with new HHS rule...

It’s Not Just Free Cell Phones… The Government Is Handing Out Free Air Conditioners Too

 
At 7/13/2012 2:42 PM, Blogger bart said...

Total US tax percentage

 
At 7/13/2012 2:48 PM, Blogger morganovich said...

bart-

a question-

what taxes does that include?

is that income tax an fica?

doe it include corp tax, property tax, car taxes, sales taxes , state income tax etc.

is it federal or all state and local taxes?

 
At 7/13/2012 3:00 PM, Blogger PeakTrader said...

It seems, some people feel there's nothing that can be done about periods of feast and famine.

They know as much about economics as people did in the Dark Ages.

They make Larry look like Paul Samuelson.

 
At 7/13/2012 3:05 PM, Blogger Larry G said...

"
no.. to a certain extend where it comes from does not change the mechanics of spending (or not)."

yes, they do. if you take money i would invest (or devalue my investments and savings in real terms) then it matters greatly where it comes from.

where the money comes from - does not change it's stimulative effect but I agree it matters to those affected.

you are not seeing the whole picture here.


"
yes. during Clintons term there ws some pay down of the debt."

no, there wasn't. that never happened. aggregate federal debt went up every signle year of clinton's administration. and that's just on a cash basis, on a gaap basis, he was never within a trillion a year of balanced.

he ended up 5 trillion in debt if I recall and there was some reduction in the debt as there were some modest surpluses.


http://activerain.com/blogsview/855368/the-clinton-budget-surplus-fact-or-fiction-

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12039/historicaltables[1].pdf

it is stimulus that is stopping people from working because it has a negative multiplier.

if there were no stimulus, you'd still have recession and unemployment.

taking money from good uses and diverting it to worse ones can NEVER create prosperity.

it's not intended to create prosperity, it's trying to arrest a downward spiral.

there is no evidence that stiumulus has created net growth and piles that it destroys it.

if the depth of the recession goes deeper than anticipated, the stimulus works less well.

read the HBS piece i linked on local stimulus driven by powerful politicians. such largess destroys more than it creates.

there are two views. Many mainstream economists around the world subscribe to the concept of stimulus during recessions.

taking from the efficient to give to the inefficient drives stagnation, not growth.

you're not taking from anyone any more or less than you would if you sold treasury notes to finances an increase in DOD or Homeland Security.. it's the same effect.

there is zero sound economic basis for "stimulus". it's disproven keynsian nonsense that is, unfortunately, irresistible to politicians because it lets them look like they are doing somehting and to buy votes because too many americans are economically illiterate to see that what the politicians are describing as the gas is really the brake.

it's disputed but it's also heavily supported by man economists around the world.

It's still practiced in virtually all countries with central banks.

 
At 7/13/2012 3:10 PM, Blogger morganovich said...

peak-

at least your desire for top down rule is consistent. it's all dead wrong, but no on can accuse you of not wanting the government running the show.

you want to be nannied (and harmed) by the fed as well as the dea.

all this "business cycle management nonsense is what has led to the period of sub par growth since 2000. they tried to print out from under the recession and so, we never really recovered and had the worst decade of us growth since ww2 followed by the superset recession we just faced as a result of the bigger and more difficult bubble that got inflated.

the war on the business cycle has not worked either.

it's been a disaster and led to low growth, massive wealth destruction, and enormous debt accumulation and moral hazard.

 
At 7/13/2012 3:14 PM, Blogger PeakTrader said...

Morganovich, just because you make things up doesn't prove anything.

 
At 7/13/2012 3:21 PM, Blogger morganovich said...

larry-

"where the money comes from - does not change it's stimulative effect but I agree it matters to those affected.

you are not seeing the whole picture here."

no, it is you that are missing the picture because you cannot seem to grasp that their is more than one set of spending affected.

the money you take from me NO LONGER GETS SPENT OR INVESTED BY ME. thus, it provides an economic drag. if you go on and spend it, it is, as best, a push, but in reality, a net loss due to friction in collection and transfer and likely exacerbated by your not using it as well.

you are looking at one guy and saying "free stuff is stimulus". i am looking at the whole economy and saying "it we not free stuff".

"
he ended up 5 trillion in debt if I recall and there was some reduction in the debt as there were some modest surpluses."

no. there was NEVER a surplus. not even once.

look at the link i gave you.

external debt may have dropped, but intergovernmental debt rose more.

claiming that was a surplus is like transferring money from one credit card to another and calling your debt paid.

"
it's not intended to create prosperity, it's trying to arrest a downward spiral."

there is no downward spiral. that's a figment of your imagination. it's also counterproductive. it makes it harder to reallocate malinvestment etc.

stimulus has the opposite of the effect you think it does, it clogs the pump, it does not prime it.

"you're not taking from anyone any more or less than you would if you sold treasury notes to finances an increase in DOD or Homeland Security.. it's the same effect."

this makes no sense at all. it may be no more effective, but it does mean you need to take more.

"
it's disputed but it's also heavily supported by man economists around the world."

no, it's supported by keynsians who seek political cotrol and have never provided ANY evidence that their doctrine is true and blown all the big calls they made.

remember the big keynsian fear that when the "stimulus" of ww2 ended, we would be in deep recession? remember how that worked out? remember how all their "stimulus" helped in the 30's? yeah, me either. it's a destructive and unfounded idea. try seeking out any actual empirical evidence that it works. you're going to have a very hard time finding even a shred.

keynsianism is pure cargo cult thinking.

"It's still practiced in virtually all countries with central banks."

by economically illiterate politicians looking to buy votes.

it has never worked.

 
At 7/13/2012 3:23 PM, Blogger morganovich said...

peak-

the fact that you cannot ever respond substantively in these discussions proves a great deal.

accusing others of making things up when you cannot even answer simple questions is a pure rhetorical dodge.

 
At 7/13/2012 3:41 PM, Blogger bart said...

what taxes does that include?

Federal state & local, basically everything except employers share of FICA, unemployment and corporate


no. there was NEVER a surplus. not even once.

look at the link i gave you.



Yet another one who apparently only sees what he wants to. The facts unquestionably show that *total* federal debt went up during every Clinton year, and they key is *total*. So many only look at budget data, which doesn't include *any* off budget spending.


The full and complete record of Federal debt growth for the last 5 Presidential term(s)

ANY other measure than total debt growth is just spin.

Clinton does "win" though on smallest relative growth.

 
At 7/13/2012 3:41 PM, Blogger Seth said...

Looks like they discovered a perpetual motion machine.

 
At 7/13/2012 3:42 PM, Blogger Seth said...

Looks like they discovered a perpetual motion machine.

 
At 7/13/2012 3:43 PM, Blogger bart said...

peak-

the fact that you cannot ever respond substantively in these discussions proves a great deal.

accusing others of making things up when you cannot even answer simple questions is a pure rhetorical dodge.


He has been busted so many times for just plain wrong or partial or spun data that he dare not go anywhere but the lands of logical fallacies and cognitive dissonance.

 
At 7/13/2012 4:56 PM, Blogger juandos said...

bart says: "Clinton does "win" though on smallest relative growth"...

Note the following written by James Glassman in a Forbes OP/ED dated 7/11/2012: "As for spending itself, during the George W. Bush years (2001-08), federal outlays averaged 19.6 percent of GDP, a little less than during the Clinton years (1993-2000), at 19.8% and far below Reagan, whose outlays never dropped below 21 percent of GDP in any year and averaged 22.4%. Even factoring in the TARP year (2009), Bush’s average outlays as a proportion of the economy was 20.3 percent – far below Reagan and only a half-point below Clinton. As for Obama, even excluding 2009, his spending has averaged 24.1 percent of GDP – the highest level for any three years since World War II"...

Economic Report of the President

So is Glassman spinning numbers or actually offering something credible?

 
At 7/13/2012 5:07 PM, Blogger bart said...

So is Glassman spinning numbers or actually offering something credible?

Well, he's talking about outlays to GDP, not how much total Federal debt grew during Presidential terms so I guess he's adding something.

His numbers roughly parallel my chart though so whether he's adding something significant is open to opinion or debate.

Obama is the "winner" followed very closely by both Reagan and Bush 1, with Bush 2 close to Clinton.

Bush 2 comes in lower than expected, mostly due to the unusually high capital gains tax income due to the dot com profits. Perhaps they should be attributed to Clinton, but then you get into *so* many but what about (President) and (item about economy or defense or entitlements or... etc.) that it removed the clean comparison as in nobody gets "special credit".

 
At 7/13/2012 5:12 PM, Blogger PeakTrader said...

Bart says: "He has been busted so many times..."

Of course, you can't prove it, like everything else you tried to prove.

Everytime you stood-up for your simple and biased positions, the bottom of your pants tore off.

You should've learn by now your 19th century economics aren't even that good.

 
At 7/13/2012 5:34 PM, Blogger bart said...

Here's something else to spew and lie and spin and go apoplectic about, since it's too much truth for you to handle - as usual and again

The Consumer Purchasing Power Index (CPPI), the most real and accurate US inflation measure

Complete with chart and logic proof that anyone with eyes and a mind can see... which leaves you out.

 
At 7/13/2012 5:49 PM, Blogger Larry G said...

no, it is you that are missing the picture because you cannot seem to grasp that their is more than one set of spending affected.

Morg - it's not just me. There are economist and governments around the world that operate on this basis.

the money you take from me NO LONGER GETS SPENT OR INVESTED BY ME.

it's debt - any/all debt has that same effect right?

thus, it provides an economic drag. if you go on and spend it, it is, as best, a push, but in reality, a net loss due to friction in collection and transfer and likely exacerbated by your not using it as well.

if you're in a recession and headed for a depression what happens to you if nothing is done?

Millions of people lost their businesses, savings, and wealth during the derpession.

you are looking at one guy and saying "free stuff is stimulus". i am looking at the whole economy and saying "it we not free stuff".

it's not free stuff. it's taking money from the future (borrowing) to keep the economy from spiraling lower


"
he ended up 5 trillion in debt if I recall and there was some reduction in the debt as there were some modest surpluses."

no. there was NEVER a surplus. not even once.

look at the link i gave you.

look at the CBO link I gave you.

external debt may have dropped, but intergovernmental debt rose more.

claiming that was a surplus is like transferring money from one credit card to another and calling your debt paid.

I'm looking at the CBO numbers guy. if the budget was not balanced it was not in major deficit and it was not adding substantially if at all to the debt.
"
it's not intended to create prosperity, it's trying to arrest a downward spiral."

there is no downward spiral. that's a figment of your imagination. it's also counterproductive. it makes it harder to reallocate malinvestment etc.

8.2% and less than 2% gdp and getting worse is not a figment and is, in fact a large concern.

 
At 7/13/2012 5:49 PM, Blogger Larry G said...

stimulus has the opposite of the effect you think it does, it clogs the pump, it does not prime it.

it's not me Morg. It's governments around the world being advised by many economists that believe in stimulus.


"you're not taking from anyone any more or less than you would if you sold treasury notes to finances an increase in DOD or Homeland Security.. it's the same effect."

this makes no sense at all. it may be no more effective, but it does mean you need to take more.

it's the same idea. We have a DOD 3 times larger than in 2000. Are you saying that taxing 3 times as much for DOD is not the same as taxing for stimulus?



"
it's disputed but it's also heavily supported by man economists around the world."

no, it's supported by keynsians who seek political cotrol and have never provided ANY evidence that their doctrine is true and blown all the big calls they made.

countries around the world?

remember the big keynsian fear that when the "stimulus" of ww2 ended, we would be in deep recession? remember how that worked out? remember how all their "stimulus" helped in the 30's? yeah, me either. it's a destructive and unfounded idea. try seeking out any actual empirical evidence that it works. you're going to have a very hard time finding even a shred.

the reason you did not have a recession is because the money spent on soldiers was just re-directed to FHA housing loans and GI college loans which sparked a home building and college boom.

keynsianism is pure cargo cult thinking.

it's an accepted economic view that is basically at the heart at even those who say that DOD spending helps the economy.

"It's still practiced in virtually all countries with central banks."

by economically illiterate politicians looking to buy votes.

it has never worked.

that's a view but it's also disputed by many economists.

Govt spending on infrastructure and DOD is considered 'good' but govt spending on stimulus is "bad".

they both work the same way using taxes to pay people who will then spend it.

If the SNAP money was the same money but given as pay to a soldier - it would be spent the same way.

If we hired more soldiers (or police or fire or road builders would that be any better than SNAP?

 
At 7/13/2012 5:51 PM, Blogger Larry G said...

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12039/historicaltables[1].pdf

 
At 7/13/2012 5:58 PM, Blogger Larry G said...

let's drop back to the apples.

if someone is unemployed, they're not going to buy apples no matter the price because they have no money to buy apples.

if apple producers have less demand for apples because more people are unemployed then apple producers will have to cut production and lay off workers - adding to the unemployment.

the people that used to work for the apple producer now themselves are not buying items they used do so production ramps down because less stuff is being sold.

Apple producers are NOT going to ADD MORE EMPLOYEES to produce MORE apples when demand for apples is decreasing.

If you are invested in apple production, your money is not going to grow, it's going to go the other way.

where have I gone wrong on this?

 
At 7/13/2012 7:40 PM, Blogger bart said...

Federal Government Debt: Total Public Debt (GFDEBTN)


Total 1/1/1992 - $3.803 trillion
Total 1/1/2000 - $5.776 trillion

 
At 7/13/2012 7:58 PM, Blogger Larry G said...

well your link is a chart.

where is the reference for the data ?

this link is data:

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12039/historicaltables[1].pdf

here's another:

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist.pdf

so those are two sources, one is CBO and the other is OMB and they show relatively consistent numbers.

where are you getting your actual numbers?

 
At 7/13/2012 8:51 PM, Blogger bart said...

That's a link behind the "Federal Government Debt: Total Public Debt (GFDEBTN)"

It's
http://research.stlouisfed.org/fred2/series/GFDEBTN

It's likely that both your CBO and White House links don't include "off budget" expenditures.

 
At 7/13/2012 8:54 PM, Blogger bart said...

oops, I think I may have misunderstood the question.

Use that same link, and click "View Data" in the left hand column (or "Download data just above it if you want the data in an Excel worksheet).

 
At 7/13/2012 9:06 PM, Blogger Larry G said...

yes.. found it and is consistent with CBO/OMB when intergovernmental debt is included.

but the bigger question is where we closer to having a balanced budget with less deficit than at other periods ?

if there had been no future tax cuts and no future increased spending for DOD - what would have happened?

before the tax cuts and increased DOD spending, we were on a trendline to reduce the deficit and likely have surplus to pay down debt.

in 2000 - National Defense was 294,394 billion

in 2010, it was 712,853

http://www.gpo.gov/fdsys/pkg/BUDGET-2010-TAB/pdf/BUDGET-2010-TAB.pdf

and at the same time we cut taxes.

in 2010, the deficit was 13.5 trillion.

so we cut taxes and doubled DOD spending.. and the deficit went from 5 trillion to 13.5 trillion.

agree?

 
At 7/14/2012 11:38 AM, Blogger morganovich said...

larry-

you have assumed a positive feedback loop in a one factor world.

by your logic, any time anyone was unemployed it would set of a cascade that destroys the economy.

when unemployment rises, the price of wages drops. this makes new hires in other places desirable.

so the guys who grew apples get hired to make steel or some such.

you are trying to think in terms of a very simple one factor world.

economies are characterized by negative, not positive feedback.

if unemployment rises, new jobs become economic because of the lower wages. then, unemployment drops, wages rise, so does demand, and some some industries lose competitiveness as a result.

these tendencies toward equilibrium are a fundamental aspect of economic activity.

they are not instant, but they also work just fine without any help from government stimulus. they also make economies more efficient and keep resources allocated efficiently.

stimulus breaks that and leaves you with an economy that is not efficient and in which more investment is crowded out than is provided by the stimulus.

you seem to forget that labor is a good like any other: drop the price, demand goes up and vice versa.

notions that economies need stimulus to recover from recession are based upon a similar omission.

economies are self correcting.

the depression in the 30's lasted so long precisely because such self correcting tendencies were blocked by government policy.

we are seeing the same thing now.

it's not that these were such deep recessions that they needed stimulus. they recovered so baldly BECAUSE of the stimulus.

they keynsians and their governmental adherents are engaging in self fulfilling prophesy. they wreck recoveries through stimulus and then use it as proof of how badly stimulus was needed.

this is like your doctor prescribing purging with calomel when you are sick and then, when you get really sick because he poisoned you, saying "see, you really needed treatment."

 
At 7/14/2012 11:51 AM, Blogger morganovich said...

larry-

the federal budget in 2000 was 1.8tn.

in 2010, it was 3.6tn.

milspend increase was about 400bn of that.

that's about 22% of the increase.

while it is likely too high, it is not the key driver in our deficit woes.

defense was 700bn of the 3.6tn in fed expenditures in 2011.

we could cut it to 0 and still have a gaping budget deficit and that's on a cash basis.

to see what is really going on, you need to look at the GAAP figures which account for the unfunded liabilities created by entitlement programs.

"“Continuing $5 Trillion GAAP-Based Federal Deficit Remains Unsustainable, Uncontainable and Unstable. Against a headline, official quasi-cash-basis and gimmicked reporting of a $1.3 trillion federal budget deficit in 2011, GAAP-based accounting (using generally accepted accounting principles) indicates that the actual 2011 deficit ran somewhat in excess of $5 trillion for the year. The largest difference between these estimates is that the GAAP-based number includes the widening shortfall of unfunded liabilities for social insurance programs, such as Social Security and Medicare.”

we are running a gaap deficit of roughly 33% of gdp.

milspend can be cut to be sure, but pretending that it is the key issue misses the actual source of the problems, particularly those that will surface in the next 15 years.

focusing on anyhting other than entitlements to bring about a balanced budget is just rearranging deck chairs on the titanic.

 
At 7/14/2012 12:04 PM, Blogger bart said...

but the bigger question is where we closer to having a balanced budget with less deficit than at other periods ?

Of course, that's what the data shows. But it can't be judged in a vacuum either, given that the period included both the computer revolution and substantial money printing.


if there had been no future tax cuts and no future increased spending for DOD - what would have happened?

As my grandpa used to say "If if was a skiff, we'd all take a ride".

In other words, who knows? That could be discussed or debated for hours, without any actionable conclusions.


before the tax cuts and increased DOD spending, we were on a trendline to reduce the deficit and likely have surplus to pay down debt.


Sort of, but look at what actually happened. So many thought that "permanent prosperity" was here that Bush and Congress went on a gigantic spending spree. Politicians will *always* spend more than comes in if they can.

I remain very skeptical that a true reduction in the deficit and huge deficit spending will happen until a lot more SHTF.

 
At 7/14/2012 12:17 PM, Blogger bart said...

GAAP is WAY higher than 33% of GDP.

Total gov't expenditures to GDP, since 1900

 
At 7/14/2012 4:23 PM, Blogger Larry G said...

Morg - I appreciate your views, seriously.

I just agree with a lot of economists who say that when unemployment stays high for a while that it could spiral down worse rather than get better.

The fact that stimulus is still considered a valid strategy by most economists (not without disagreement from others), and both political parties buy into also (but with different implementations).

I pointed out that the DOD budget doubled from 2000 to 2010 and during that same time the deficit doubled from 5 trillion to more than 13 trillion.

It's amazing to me that of the 8 trillion additional that only 3 trillion was the DOD increase.

I'm not advocating zero-funding DOD.

I'm pointing out that when you double DOD spending and cut taxes at the same time that there seems to be a connection to the doubling of the deficit.

I'm also not convinced if you leave a deep recession with high unemployment alone that it will recover and not do what happened during the depression when it went in the opposite direction.

I will admit that when you "stimulus" you are adding to the deficit and debt and we're digging a deep, deep hole that we'll not recover from easily and not without stealing from a recovering economy.

How much should we be spending on DOD?

Should we be looking at how much we've traditionally spent ourselves or should we be looking at what other countries spend or something in between because money spent on DOD is not doing anything much different than stimulus money spent on things not considered particularly "productive", if you could even characterize ANY govt spending as adding to the GNP.

 
At 7/14/2012 4:52 PM, Blogger morganovich said...

larry-

"I just agree with a lot of economists who say that when unemployment stays high for a while that it could spiral down worse rather than get better"

then i would urge you to take a close look st the underpinnings of the keynsian dogma you are uncritically swallowing. take a hard look. look at their predictions. look at their evidence and see if there is actully any data supporting it.

i think you'll be shocked at how badly their predictions and remedies have fared and at gaping lack of actually supporting evidence for the theory.

keynsianism is dogma, not evidence supported theory.

"
I pointed out that the DOD budget doubled from 2000 to 2010 and during that same time the deficit doubled from 5 trillion to more than 13 trillion.

It's amazing to me that of the 8 trillion additional that only 3 trillion was the DOD increase."

you are using the wrong terms here.

deficit is the shortfall in a year between income and expenditure. what you are referring to is debt.

have you even looked at the us budget?

milspend is not what is driving the hole open.

look at the gaap numbers. they will show you the huge hole that unfunded entitlement spending is driving.

as i said, we could cut milspend to zero tomorrow and would still have a gaping budget deficit.

"
I'm also not convinced if you leave a deep recession with high unemployment alone that it will recover and not do what happened during the depression when it went in the opposite direction."

what happened in the depression was BECAUSE of stimulus.

read the HBS piece i linked. it lays out very clearly and with copious evidence how showering goodies on a constituency winds up being a net negative. every dollar of stimulus crowds out $1.20 of private investment.

this is true in any part of the economy and the economy as a whole.

you do not seem to be grasping that critical point. you act as though stimulus is a ceteris paribis situation, but it's not. economic actors respond to it and invest less as they face competition that does not care about profit.

if you send aid to an african village, some might eat, but it totally crowds out local food growers and store owners etc. why grow wheat and run a store when trucks full of free stuff arrive? who would want to compete with that.

stimulus is the exact same poverty trap.

you act as though stimulus just adds X dollars. it doesn't.

it adds X but it also crowds out 1.2X.

again, really read the HBS piece and try to understand it.

i think it will change your mind.

how much should we spend on DOD? that's hard to say.

keep in mind that those are not inflation adjusted dollars. 300 bn in 2000 would take $500bn now just to be flat in real terms.

is that a good figure? i don't really know. it depends on what your goals are. i'd like to see us provide for national defense and let the rest of the world deal with itself.

it's outright foolish to pretend that their is not dramatically high return on some defense spending. the benefits of having safe borders, not getting conquered, and deterring enemies are enormous.

does it get really wasteful after a point? of course.

just where that point is is highly subjective and controversial.

i don't know that it's even possible to arrive at AN answer. but are we spending more than we need to? almost certainly. how much more is not that easy to pin down though.

looking at what the rest of the world spends is not necessarily that instructive. most of europe etc free rides on us. their levels are likely artificially low relative to the safety they enjoy. absent the us, they would spend more.

i'm all for asking them to do it and dropping this cold war posture, but that does mean that the levels they maintain would likely be to low, even for us, in the event that we did.

 
At 7/14/2012 5:06 PM, Blogger morganovich said...

http://political-economy.com/john-maynard-keynes/

give this a quick read lar.

i'll see if i can dig up the detailed piece where milton friedman demolishes keynes.

according to keynes, the end of ww2 should have sparked deep, enduring recession. according to keynes, stagflation should be impossible. according to keynes, the new deal should have worked and so should this stimulus package.

how many failed predictions do you need to stop believing in his fuzzy logic and unsupported dogma.

keynsians exist only in government and academia, places where such beleive gets them power.

those who need to be right for a living have long since abandoned it.

we also get into a serious issue around justice here.

let's pretend for a minute that stimulus does work.

is it just? is it compatible with the rights of the individual having primacy?

here we must emphatically say no.

even if it did work, stimulus is still a taking from me (whether present or future) to spend my money to attemot to affect a business cycle i may or may not care about.

even if you do get a job as a result, you are being paid with my money. the word my their is important. it is not the government's money. i am a citizen, not a subject.

what right do they have to do such a thing? what legal authority do they have to do such a thing?

the 10th amendment clearly restricts the federal government to enumerated powers.

so where do they get this authority?

this is just statism rearing it's ugly head.

you refuse to spend money, so we will make you.

 
At 7/14/2012 5:07 PM, Blogger Larry G said...

then i would urge you to take a close look st the underpinnings of the keynsian dogma you are uncritically swallowing. take a hard look. look at their predictions. look at their evidence and see if there is actully any data supporting it.

I don't see it as "dogma" just different views and as long as a large number of economists subscribe to it - then I do not discount it out of hand.

i think you'll be shocked at how badly their predictions and remedies have fared and at gaping lack of actually supporting evidence for the theory.

but "predictions" about the economy are notoriously risky no matter the "dogma".

keynsianism is dogma, not evidence supported theory.

no more or less than others.. IMHO.


"
I pointed out that the DOD budget doubled from 2000 to 2010 and during that same time the deficit doubled from 5 trillion to more than 13 trillion.

It's amazing to me that of the 8 trillion additional that only 3 trillion was the DOD increase."

you are using the wrong terms here.

deficit is the shortfall in a year between income and expenditure. what you are referring to is debt.

no I knew it was debt. I multiplied the 300 billion addition for DOD by 10 to get the 3billion.

have you even looked at the us budget?

often

milspend is not what is driving the hole open.

it's part of it.

look at the gaap numbers. they will show you the huge hole that unfunded entitlement spending is driving.

CURRENT SPENDING, CURRENT Deficit and CURRENT DEBT - FIRST before we go to "unfunded", please.

as i said, we could cut milspend to zero tomorrow and would still have a gaping budget deficit.

agree.

"
I'm also not convinced if you leave a deep recession with high unemployment alone that it will recover and not do what happened during the depression when it went in the opposite direction."

what happened in the depression was BECAUSE of stimulus.

everyone agrees on that?

read the HBS piece i linked. it lays out very clearly and with copious evidence how showering goodies on a constituency winds up being a net negative. every dollar of stimulus crowds out $1.20 of private investment.

it sounded a bit one-sided to me...

this is true in any part of the economy and the economy as a whole.

Will "investment" occur when the economy is in deep recession? In the 2009 meltdown the credit markets shut down before there ever was a stimulus.

you do not seem to be grasping that critical point. you act as though stimulus is a ceteris paribis situation, but it's not. economic actors respond to it and invest less as they face competition that does not care about profit.

I'm not convinced - either way but when I see most of the world economists still believe it's a valid strategy....

 
At 7/14/2012 5:08 PM, Blogger Larry G said...

if you send aid to an african village, some might eat, but it totally crowds out local food growers and store owners etc. why grow wheat and run a store when trucks full of free stuff arrive? who would want to compete with that.

geeze Morg... why do they have famines?

stimulus is the exact same poverty trap.

how about a liquidity trap?

you act as though stimulus just adds X dollars. it doesn't.

no I agree, it does not.

it adds X but it also crowds out 1.2X.

in a deep recession, is there really 1.2X?

again, really read the HBS piece and try to understand it.

I'll give it another shot but I read both sides ... so I'll go look for a complementary piece that argues the opposite also

i think it will change your mind.

I'm not dogmatic about either view.

how much should we spend on DOD? that's hard to say.

keep in mind that those are not inflation adjusted dollars. 300 bn in 2000 would take $500bn now just to be flat in real terms.

could you also make that same argument about other govt expenditures?

is that a good figure? i don't really know. it depends on what your goals are. i'd like to see us provide for national defense and let the rest of the world deal with itself.

do you think DOD spending "crowds out"?

it's outright foolish to pretend that their is not dramatically high return on some defense spending. the benefits of having safe borders, not getting conquered, and deterring enemies are enormous.

at how many times "x"?

does it get really wasteful after a point? of course.

and the point is.....????


just where that point is is highly subjective and controversial.

yup.

i don't know that it's even possible to arrive at AN answer. but are we spending more than we need to? almost certainly. how much more is not that easy to pin down though.

spend more than we take in in revenues?

looking at what the rest of the world spends is not necessarily that instructive. most of europe etc free rides on us. their levels are likely artificially low relative to the safety they enjoy. absent the us, they would spend more.

what percent of AVAILABLE revenues so that we do not deficit-spend....

i'm all for asking them to do it and dropping this cold war posture, but that does mean that the levels they maintain would likely be to low, even for us, in the event that we did.

I think we have to cut DOD AND entitlements AND increase revenue.

I see no way to balance the budget with cuts only.

 
At 7/14/2012 5:27 PM, Blogger Paul said...

Morganovich,

Good luck casting your pearls before swine like Larry. You're talking about a guy who routinely dismisses the very concept of supply and demand.

 
At 7/14/2012 5:29 PM, Blogger Larry G said...

Morg - would you admit that the CURRENT Central Bank operations are to take actions that will "stimulate" and affect unemployment (being careful not to cause inflation)?

I'm just asking if our current operation is not essentially keynsian and that most countries with central banks have similar operations?

re: stimulus - whether it works or not vs property rights.

Morg - are you not essentially arguing that a central bank operation hurts property rights?

I'm just trying to separate out what the theory is from the practice.

I'm not saying the practice is right - only that a bunch of trained economists think so.

When you say it "does not work" - many economists who decide monetary policy - think it does - would you admit that?

 
At 7/14/2012 5:30 PM, Blogger Paul said...

Larry,

"I'm not dogmatic about either view."

Yeah, you're just a guy asking questions. Like Obama, you just want to take a pragmatic view and solve problems.

And then you both come down on the side of the freeloaders every. single. time.

 
At 7/14/2012 5:32 PM, Blogger Larry G said...

" who routinely dismisses the very concept of supply and demand. "

nice try but simply not true.

What I point out is that we do not have a unfettered supply/demand economy that functions precisely per the theory.

there are some markets that are more natural supply/demand than others but many are primarily found in 3rd world countries with far less govt involvement in the economy.

What I advocate is pragmatism rather than dogmatic ideology.

accept the realities... don't dispute them.

 
At 7/14/2012 5:38 PM, Blogger morganovich said...

larry-

"I don't see it as "dogma" just different views and as long as a large number of economists subscribe to it - then I do not discount it out of hand."

that's because you have never actually looked at the track record of predictions and theory. keynes brought you the great depression, the 70's, and this mess.

i cannot argue with an appeal to authority (which is not a valid argument, it's a logical fallacy) lar, just try and point you at data. i did not dismiss keynes "out of hand", i looked at his track record, realized he was batting 0.00, tried to find any actual empiricism that underpinned his ideas, and realized there was none.

hey, don't take my word for it. try it yourself. i think you'll rapidly see my point.

milspend may be a part, but it's not the big part.
and this:

"
CURRENT SPENDING, CURRENT Deficit and CURRENT DEBT - FIRST before we go to "unfunded", please."

is precisely the kind of thinking that has made this mess.

you say "worry about what we spent today and took in todaty, not all the expensive promises we are making for the future. just get a new credit card"

if you fail to look at how liabilities are growing in the future because of your actions today, how are you supposed to get spending under control?

"
it sounded a bit one-sided to me..."

then you did not read it well.

it's full of data. try reading it. it's not "one sided" it's empirical observation.

that's like calling thermodynamics one sided. empiricism is not about accommodating all views, it's about discovering what happened.

most economists do not believe that. and if they do, so what? most doctor used to believe that mercury could cure flux. that did not make it true.

try actually looking at the theory and supporting it. i'm not going to waste time arguing against appeal to authority.

 
At 7/14/2012 5:40 PM, Blogger Larry G said...

" And then you both come down on the side of the freeloaders every. single. time"

actually I'm OPPOSED to freeloaders using the ER and making the rest of us pay for it.

how about you?

 
At 7/14/2012 5:41 PM, Blogger Paul said...

Larry,

"I'm also not convinced if you leave a deep recession with high unemployment alone that it will recover and not do what happened during the depression when it went in the opposite direction."

Ah, again with disputing of supply and demand. As for the Depression, the reason we read so much about it in the history books in the first place is because FDR, like Obama, attacked private enterprise with an unprecedented zeal. He turned a fiscal downturn into a massive calamity that only ended with his death and the end of the New Deal assault on the productive class.

 
At 7/14/2012 5:43 PM, Blogger morganovich said...

"
geeze Morg... why do they have famines?"

bad government. pretty much all famine today is caused by government.

and what the hell does that have to do with anyhting?

"
in a deep recession, is there really 1.2X?"

yes. that's what makes it so deep and durable.

we had a recession like this in 1958. we recovered MUCH faster and had full prior employment again in 10 months from trough. there was no stimulus.

stimulus impedes recovery.

"
what percent of AVAILABLE revenues so that we do not deficit-spend..."

and now you are just being disingenuous.

to only spend what we have left on military would be -800bn a year.

we'd need to either send them out plundering or have other countries pay us not to have an army.

how do you propose to do that?

 
At 7/14/2012 5:51 PM, Blogger Paul said...

"What I advocate is pragmatism rather than dogmatic ideology."

What utter nonsense.( And again, you sound exactly like Obama and most liberals, actually.) This entire thread, and every thread you comment on, you've advocated the liberal line every step of the way.

"actually I'm OPPOSED to freeloaders using the ER and making the rest of us pay for it.

how about you?"

Yeah, you'd rather spend trillions on yet another unaffordable entitlement that taxes the shit out of investors and productive companies, creates thousands of new IRS bloodsuckers, centralizes medical decisions in Washington, and ensures the rest of us will get shittier health care.

Oh, and more on topic, you also want to feed those same freeloaders with food stamps.

 
At 7/14/2012 5:51 PM, Blogger Larry G said...

"I don't see it as "dogma" just different views and as long as a large number of economists subscribe to it - then I do not discount it out of hand."

that's because you have never actually looked at the track record of predictions and theory. keynes brought you the great depression, the 70's, and this mess.

I'm looking at economists who advise govts who act according to their advice. I assume they when a majority of countries listen to a majority of economists that they probably know the theories as well as others do but come down a different way.


i cannot argue with an appeal to authority (which is not a valid argument, it's a logical fallacy) lar, just try and point you at data. i did not dismiss keynes "out of hand", i looked at his track record, realized he was batting 0.00, tried to find any actual empiricism that underpinned his ideas, and realized there was none.

it's not "authority". It's others who are trained who have opinions also.

Aren't you essentially arguing that all countries with central bank operations are wrong?


hey, don't take my word for it. try it yourself. i think you'll rapidly see my point.

milspend may be a part, but it's not the big part.
and this:

I believe you are sincere in your beliefs but I also believe that other economists are also.

"
CURRENT SPENDING, CURRENT Deficit and CURRENT DEBT - FIRST before we go to "unfunded", please."

is precisely the kind of thinking that has made this mess.

well.. the REALITY is what we have currently and what to do - rather than ignoring it and trying to fix the future first.


you say "worry about what we spent today and took in todaty, not all the expensive promises we are making for the future. just get a new credit card"

I worry about both but if we cannot figure out how to fix what we have right now then why believe we could fix the future?

if you fail to look at how liabilities are growing in the future because of your actions today, how are you supposed to get spending under control?

I'm totally on board with you on that but you fix the future by fixing things now also.

future liabilities tell you - you have a problem right now.


"
it sounded a bit one-sided to me..."

then you did not read it well.

it's full of data. try reading it. it's not "one sided" it's empirical observation.

universally accepted by both kenysians and non-kenysians?


that's like calling thermodynamics one sided. empiricism is not about accommodating all views, it's about discovering what happened.

if the whole field of experts subscribes to it - then it's probably empirical but if you have a split and there is controversy then not.


most economists do not believe that. and if they do, so what? most doctor used to believe that mercury could cure flux. that did not make it true.

If there is not wide agreement. on it.., controversy, it's opinions...

try actually looking at the theory and supporting it. i'm not going to waste time arguing against appeal to authority.

I go on how govts actually operate.

I'm not saying it is necessarily "right" but when a majority of country's seem to NOT reject Keynsian.. then for me.. I'm looking at a bunch of people with PHDs in economics, years of experience, and an opinion that I cannot discount out of hand.

 
At 7/14/2012 5:54 PM, Blogger morganovich said...

"nice try but simply not true."

actually larry, it is true.

you do it all the time.

you have done it right on this thread by ignoring that increased supply of labor drives down price and thus increases demand in a self correcting manner.

denial of this basic supply and demand relationship is the entire underpinning of your arguments for the need for stimulus to escape downturns.

downturns provide their own stimulus.

"
accept the realities... don't dispute them."

and this is ironic given that you adhere to keyniansism, a dogma utterly divorced from reality, contradicted by reams of evidence and with a terrible track record of predicting booms and ameliorating busts. i urge you to take you own advice. go look for actual evidence that underpins keynes. then accept reality.

 
At 7/14/2012 5:55 PM, Blogger Larry G said...

" bad government. pretty much all famine today is caused by government.

and what the hell does that have to do with anyhting?"

because most famines occur in the absence of govt ....

what percent of AVAILABLE revenues so that we do not deficit-spend..."

and now you are just being disingenuous.

no - it's a serious question.

should we spend more than we have in revenues - for ANY purpose?

to only spend what we have left on military would be -800bn a year.

we'd need to either send them out plundering or have other countries pay us not to have an army.

or..not spend more than you're willing to tax to pay for it.

how do you propose to do that?

not spend more than we're willing to tax....

decide what percent of our available tax revenues should go to DOD and then decide how the rest gets spent on entitlements and gen govt.

 
At 7/14/2012 5:56 PM, Blogger Hydra said...

Bottom Line: Raising food stamp usage certainly won't generate positive net benefits; it's more likely that the net economic effect will be negative.

===================================

Right. Going hungry has so many positive economic effects.

Not that I disagree: it is the net economic effect that counts (at least on this forum). but I do not see that this particular net value is very well documented other than as dogma.

How would we go about developing a data collections scheme that would (eventually) lead us to the lowest net economic cost?

O sure, the free market will take care of everything, don't worry. Swell, now how do you measure the results?


And thne there is a slight problem, the human costs will be or may be or will be considered to be far different from the economic costs. Until we get people on board to believing that a statistical human life is worth $7 milllion (close to what EPA assumes, although other government agencies use different figures) or whatever figure we can agree on, there is really no way to resolve the argument of economic cost vs human cost.

It is going to be hard to sell the idea that there is an economic benefit to letting children go hungry. Even if it turns out to be true because of other, even more costly problems.

 
At 7/14/2012 5:59 PM, Blogger Hydra said...

I'm looking at economists who advise govts who act according to their advice.

================================

That pretty much solves that doesn't it? Stop allowing economists to give advice, and allow governments to be purely political creatures.

It is economists that ar the problem, not governments.

 
At 7/14/2012 6:00 PM, Blogger Larry G said...

you have done it right on this thread by ignoring that increased supply of labor drives down price and thus increases demand in a self correcting manner.

when price gets driven down - what happens to the producers? don't they have to consolidate and downsize?

If someone is unemployed - how do they find work if there is no need for more labor because demand for products is down?

denial of this basic supply and demand relationship is the entire underpinning of your arguments for the need for stimulus to escape downturns.

no it's not...

downturns provide their own stimulus.

I'm still trying to understand how, in the middle of a recession - it "turns" from downward to reverse and go up.


"
accept the realities... don't dispute them."

and this is ironic given that you adhere to keyniansism, a dogma utterly divorced from reality, contradicted by reams of evidence and with a terrible track record of predicting booms and ameliorating busts. i urge you to take you own advice. go look for actual evidence that underpins keynes. then accept reality.

the realities of how govts are currently run ? I cannot figure out if you disagree that govts have central banks and stimulus operations or if you pretend they don't.

I accept that they do... It might be wrong - but the reality is what it is....

 
At 7/14/2012 6:01 PM, Blogger Larry G said...

" It is economists that ar the problem, not governments"

only if they're Keynsians...

:-)

 
At 7/14/2012 6:04 PM, Blogger morganovich said...

"
I'm looking at economists who advise govts who act according to their advice. I assume they when a majority of countries listen to a majority of economists that they probably know the theories as well as others do but come down a different way"

and this is where you are going wrong.

politicians chose economists that allow them to do the things they thing will get them votes, not the ones who they think are right. most politicians are economic illiterates. (reagan was an exception)

they do not chose this because it works, they choose this because it allows them to shower voters with goodies.

i give up lar.

you are not participating in this discussion. you are just making repeated appeals to authority and failing to address any of the substantive points.

"
it's not "authority". It's others who are trained who have opinions also."

precisely and utterly wrong. you are appealing to their authority. you are not making an argument. you are not providing data or even the structure of a debate. you are just saying "these guys who i think are smart think X". that is a logical fallacy called appeal to authority.

http://en.wikipedia.org/wiki/Argument_from_authority

it's a form of logical fallacy.

"
universally accepted by both kenysians and non-kenysians?"

and this is just stupid. it's data. if you can find a hole in it, do so. if not, then you should accept it. it's as simple as that.

if i were trying to provide a classic example of the appeal to authority fallacy this:

"
I'm not saying it is necessarily "right" but when a majority of country's seem to NOT reject Keynsian.. then for me.. I'm looking at a bunch of people with PHDs in economics, years of experience, and an opinion that I cannot discount out of hand."

would be difficult to improve upon.

either join in this discussion with some form of actual contribution, or i really do not see the point in talking with you.

repeated logical fallacy is not discussion, it's just time wasting.

 
At 7/14/2012 6:06 PM, Blogger Paul said...

"Right. Going hungry has so many positive economic effects."

So be the ant and not the grasshopper.

 
At 7/14/2012 6:08 PM, Blogger Hydra said...

it's outright foolish to pretend that their is not dramatically high return on some defense spending. the benefits of having safe borders, not getting conquered, and deterring enemies are enormous.

at how many times "x"?

does it get really wasteful after a point? of course.

and the point is.....????


just where that point is is highly subjective and controversial.

=================================

But there is a subjective truth: we just do not have any way to find it, yet.

That is the only reason it is subjective and controversial: we do not know trhe answer, and we do not have a method for agreeing on the best way to find the answer or the best estimate in the mean time.


What does seem certain with regard to defense spending is this: during WWII we had years to spin up the defense industry. the next big war may be over in a matter of minutes, so we no longer have that luxury.

 
At 7/14/2012 6:08 PM, Blogger Paul said...

"I'm still trying to understand how, in the middle of a recession - it "turns" from downward to reverse and go up."

No wonder you can't figure it out, there's that pesky supply and demand again.

 
At 7/14/2012 6:12 PM, Blogger Paul said...

Morganovich,

"you are not participating in this discussion. you are just making repeated appeals to authority and failing to address any of the substantive points."

Sorry, you wrongly assumed Larry was ever going to actually learn something rather than just try to sharpen his debate skills on behalf of liberalism and bottom-feeders.

However, I always get something out of your comments so thanks for that at least.

 
At 7/14/2012 6:14 PM, Blogger Larry G said...

I'm looking at economists who advise govts who act according to their advice. I assume they when a majority of countries listen to a majority of economists that they probably know the theories as well as others do but come down a different way"

and this is where you are going wrong.

politicians chose economists that allow them to do the things they thing will get them votes, not the ones who they think are right. most politicians are economic illiterates. (reagan was an exception)

around the world ?


they do not chose this because it works, they choose this because it allows them to shower voters with goodies.

so all govts are wrong?

i give up lar.

geeze Morg. I'm just trying to understand if you think ANY govt does economic policy "correct".

you are not participating in this discussion. you are just making repeated appeals to authority and failing to address any of the substantive points.

you make good and compelling points guy but when you say most govts are wrong.. it's makes me hesitate.

"
it's not "authority". It's others who are trained who have opinions also."

precisely and utterly wrong. you are appealing to their authority. you are not making an argument. you are not providing data or even the structure of a debate. you are just saying "these guys who i think are smart think X". that is a logical fallacy called appeal to authority.

http://en.wikipedia.org/wiki/Argument_from_authority

oh geeze.

it's a form of logical fallacy.

well.. I say it's reality when you got a bunch of govts operating a certain way.
"
universally accepted by both kenysians and non-kenysians?"

and this is just stupid. it's data. if you can find a hole in it, do so. if not, then you should accept it. it's as simple as that.

if it is disputed - there are two sides to it and you take one side of it . I'm not totally buying either side yet.

if i were trying to provide a classic example of the appeal to authority fallacy this:


"
I'm not saying it is necessarily "right" but when a majority of country's seem to NOT reject Keynsian.. then for me.. I'm looking at a bunch of people with PHDs in economics, years of experience, and an opinion that I cannot discount out of hand."

would be difficult to improve upon.

either join in this discussion with some form of actual contribution, or i really do not see the point in talking with you.

I won't argue theory with you. You're so committed to one view that no matter what I say it will not be thought of as a "contribution".

agree?

repeated logical fallacy is not discussion, it's just time wasting.

if I understand your view better and it changes some of mine..it's not for me.

 
At 7/14/2012 6:14 PM, Blogger Hydra said...

"Right. Going hungry has so many positive economic effects."

So be the ant and not the grasshopper.

================================

Economic theory is now reduced from science to parable.

What was that about dogma? Parables are just dogma presented as truisms.

I prefer evidence.


Economic success depends on knowledge. it is hard for a hungry kid to learn very much. So what is the time value series for food stamps preventing a hungry kid today? It might be decades, or even generations before the truth comes out.

How do you measure such a thing, and not simply declare it to be true?

 
At 7/14/2012 6:15 PM, Blogger Larry G said...

" No wonder you can't figure it out, there's that pesky supply and demand again. "

well it seems to confound many economists and govts also, eh?

:-)

 
At 7/14/2012 6:16 PM, Blogger morganovich said...

that's a straw man hydra.

that is not the argument they made.

they claimed that food stamps drive more immediate economic benefit than they cost and provide near term stimulus.

you are talking about somehting entirely different.

 
At 7/14/2012 6:17 PM, Blogger bart said...

O sure, the free market will take care of everything, don't worry.

It frequently does, and I'm a good example.

The Fed discontinued M3, I reconstructed it and have been publishing it every week since April 2006 - months before anyone else too.


now how do you measure the results?

I've been looking on and off for years for reliable and non spun data on how many *really* need food stamps for example, or how many *real* welfare mothers there are -- and have failed.

WAY too much bogus ideology and "religion".

 
At 7/14/2012 6:18 PM, Blogger Larry G said...

they claimed that food stamps drive more immediate economic benefit than they cost and provide near term stimulus.

you are talking about somehting entirely different.

and instead of food stamps, you could hire them for the military and achieve the same goals, right?

or you could hire them to build roads ...

but in all 3 cases, you'd be spending money you don't have by selling treasury notes to finance.

is doing that for food stamps any different than doing that for a soldier you hire to "stand by"?

 
At 7/14/2012 6:55 PM, Blogger Paul said...

"I prefer evidence."

The evidence says if you live below your means and save up for the lean times, and there are always lean times, you will have a decent chance of putting food on the table at all times.

Shorter but same: ant and grasshopper.

 
At 7/14/2012 10:19 PM, Blogger jdt said...

Taking money from the taxes of the whole nation and transfering it to one community may be a zero gain for the whole nation, but to that one community isn't it a gain?

I think this sales pitch is saying screw the rest of the country for benefit of your area, because a bunch of other areas are doing it and its working for them!

Am I misunderstanding this?

 
At 7/15/2012 3:13 PM, Blogger juandos said...

"Right. Going hungry has so many positive economic effects"...

Well I'll be damned! hydra finally (statistically it was inevitable) got one right!

From every leftie's favorite propaganda rag: Food Stamps and Obesity

 
At 7/15/2012 3:35 PM, Blogger Larry G said...

" Forty-two percent of low-income women in the United States are obese, and the rate of obesity is even higher among women who participate in the Supplemental Nutrition Assistance Program -- formerly the food stamp program."

wow! Good ONE Juandos!

 
At 7/15/2012 7:20 PM, Blogger Paul said...

"well it seems to confound many economists and govts also, eh?"

Probably not. It's easy for politicians to pretend they believe in things like magic multipliers because it allows them to hand out somebody else's money.

 
At 7/16/2012 2:22 AM, OpenID roycobden said...

Darn good thing that all those extra dumberment jobs administering the program are stimulating the economy too. /sarc

 
At 7/16/2012 4:30 AM, Blogger OBloodyHell said...

"to provide food stamps that will allow some Americans to purchase more apples, taxes have to be raised on other Americans"

"Yeah, but they're all rich bastards, so who cares?"
-- Typical OWS response

 
At 7/16/2012 4:34 AM, Blogger OBloodyHell said...

>>> The expense is larded onto the federal deficit / debt which may or may not be paid off at some point.

Oh, it'll GET paid off at some point. Possibly in someone's BLOOD... but trust me:
It'll GET PAID.

Such debts always do. ALWAYS.

 
At 7/16/2012 7:45 AM, Blogger Unknown said...

No exchange of anything CREATES wealth... The creation of wealth requires the CREATION of value be that goods or services.

No government has ever CREATED anything. They are regulators and controllers, takers and givers, wealth distributors maybe but creators... I think not!

It is the businesses and industries of a country that CREATE value and therefore wealth (sometimes at the direction or support of a government perhaps).

Government intervention has a poor history of success...

 
At 7/16/2012 8:15 AM, Blogger bart said...

No government has ever CREATED anything.

Down with government!

All hail and worship anarchy!


-ng-

aka, sarc

 
At 7/16/2012 11:31 AM, Blogger morganovich said...

larry-

"
is doing that for food stamps any different than doing that for a soldier you hire to "stand by"?"

what does that have to do with anyhting?

this is just another of your seemingly endless supply of logical fallacies.

it completely begs the question.

mark stole my car so i can steal larry's is no basis for policy, and that is exactly the argument that you are making.

 
At 7/16/2012 11:35 AM, Blogger morganovich said...

"No exchange of anything CREATES wealth"

nonsense.

i raise beef, you raise corn.

i trade you beef that i value at $100 for corn that i value at $120.

you value the beef at $120 and the corn you give me at $100.

we are each better off (wealthier) as a result.

you seem to be presuming that we all have the same utility functions and ignoring the fact that the fact that we do not is the basis for trade.

every voluntary transaction creates
value. why would you trade if it was not going to make you better off?

 
At 7/16/2012 11:38 AM, Blogger Larry G said...

" mark stole my car so i can steal larry's is no basis for policy, and that is exactly the argument that you are making."

actually - if we find agreement as to what different kinds of govt spending are (and are not) then we could make decisions.

If we can cut SNAP but we can also cut DOD - we got a deal.

If we cut SNAP because it's "bad" but we cannot cut DOD because it's "good".. we get gridlock.

the most amazing thing about the across the board cuts for sequestration is that we're talking about 500 billion in cuts over 10 years in 50 billion per year dollops and that 50 billion is spread over all expenditures from DOD to entitlements - but we are told that we cannot cut DOD (even though it's budget has doubled in 10 years)... so we can't cut DOD and the entire 50 billion has to come out of non-DOD spending.

How can you accomplish cuts with that kind of approach?

Medicare is about 210 billion in total

MedicAid is about 250 billion a year in total.

DOD is about 900 billion.

 
At 7/16/2012 12:36 PM, Blogger Illinois Tom said...

Forget the economics for a moment and consider the riots that will take place when we have to cut benefits. The Great Society will look a lot more like Watts 1965 than the Swedish Utopia the progressives envisioned.

 
At 7/16/2012 12:45 PM, Blogger Larry G said...

I do not think there will be riots from seniors.

Most folks by the time they get to 65 years of age - do understand more of the realities of life.

As I said - many seniors are fiscally conservative but they are not going to turn down a super cheap Medicare on principle alone if in doing that it does not help the country and hurts them.

They want the govt to become more fiscally responsible.

they believe that their sons and daughters will need some kind of universally accessible insurance also because at age 65 the free market is not going to take you as a subscriber.

so they want to preserve Medicare but they know it's going to become more expensive and cover less.

The REAL PROBLEM is MedicAID.

That's the program that is going to bankrupt the country because the people who get it - can't pay for it.

and the costs just keep going up because health care costs in general keep going up.

 
At 7/16/2012 1:10 PM, Blogger morganovich said...

larry-

you are making up numbers again.

medicare and medicaid were 835bn in 2011.

worse, their unfunded liabilities (combined with ss) were $107 trillion.

that is clearly unpayable.

that's 66 years of the entire us federal tax base.

we can cut lots of stuff, including military. but until we get the entitlements under control, nothing else matters. we could cut ever other governmental expense to zero and they would still bankrupt us.

entitlements and debt service are already 80% of federal revenues.

within a decade, they will exceed it.

 
At 7/16/2012 1:17 PM, Blogger Illinois Tom said...

Larry, I will stipulate that the defense budget is at least double what it ought to be, but seniors voted for MediCare, but did not fund it. They won't riot, but they vote and have a powerful lobby. Cuts are required across the board, and that takes leadership, the kind Wisconsin Governor Scott Walker has shown.

 
At 7/16/2012 1:23 PM, Blogger Larry G said...

you are making up numbers again.

medicare and medicaid were 835bn in 2011.

Nope. You have to subtract out the part that was funded by FICA because that is not what is general fund spending that is causing the deficit.

you can cut SS and it won't affect the deficit.

worse, their unfunded liabilities (combined with ss) were $107 trillion.

that is clearly unpayable.

unfunded liabilities are about what happens in the future if you don't do anything right now.

and it's totally wrong-headed for SS because by law SS benefits automatically reduce to stay balanced with what FICA brings in.

It's dishonest to say that FICA/SS has unfunded liabilities when by law it cannot pay out more than it takes in.

that's 66 years of the entire us federal tax base.

it's bogus blather and trumped up propaganda that misrepresents the truth.

we can cut lots of stuff, including military. but until we get the entitlements under control, nothing else matters. we could cut ever other governmental expense to zero and they would still bankrupt us.

cutting "lots of stuff" does not balance the budget.

we need a list of specific cuts that total up to a balanced budget but the "we make cuts" crowd refuse to be honest about cuts.

entitlements and debt service are already 80% of federal revenues.

DOD is up 100%.

you cannot balance the budget with cuts only to entitlements. the numbers don't work.

it's totally bogus to advocate cuts to entitlements if at the end - you still have a deficit and continuing debt.

where is the real plan to actually balance the budget?

how can you convince people to buy into something that is not going to actually accomplish what it purports to do?

within a decade, they will exceed it.

yes.. and so will all health care costs - public and private. In a decade, health care will be close to 30% of our GDP by some estimates.

you could cut all entitlements and health care costs are still going up.

it does not solve the fundamental problem.

and cutting only entitlements and not getting a balanced budget is just plain bogus.

 
At 7/16/2012 1:27 PM, Blogger Larry G said...

Larry, I will stipulate that the defense budget is at least double what it ought to be, but seniors voted for MediCare, but did not fund it. They won't riot, but they vote and have a powerful lobby. Cuts are required across the board, and that takes leadership, the kind Wisconsin Governor Scott Walker has shown.

to be more precise...

Medicare Part A is paid for with FICA taxes.

Medicare Part B is 3/4 subsidized with general revenue dollars.

Part D (drugs) and C (gap insurance) are heavily subsidized.

Seniors did vote for Medicare way back in 1960-something when they were a much smaller part of the population so it took a whole lot of non-seniors to support it also.

Seniors won't riot. They vote.

They know the program is not sustainable and they want reform.

They're not going to vote for someone who says "trust me" and gives no substantiative details about how.

We need honest people who will tell the truth and work with seniors to arrive at something that is acceptable and accomplishes what needs to be done.

We need some leaders to do this.

 
At 7/16/2012 8:29 PM, Blogger BlogAdmin said...

Meanwhile, the National Park Service asks us "Please Do Not Feed the Animals."

The stated reason for this policy is because the animals will grow dependent on handouts and will not learn to take care of themselves.

Draw your own conclusions.

 
At 7/17/2012 10:59 AM, Blogger Unknown said...

I think we need to have a manditory 401K plan, then end SSI, unemployment Ins, Food stamps, over the next few generations, End the fed so money would hold it's value. If you screwed up in life there would be welfare. If you became unemployed you would draw your own money out of your own 401K account. That would be the right incentive to go find any job you could get.

 
At 7/17/2012 11:01 AM, Blogger Larry G said...

you've just described the Singapore system. Would you support that system here in this country?

I would.

 
At 7/18/2012 11:06 AM, Blogger kkflash said...

Hydra: "Right. Going hungry has so many positive economic effects."

I detect your sarcasm, but it's misplaced. Going hungry has more positive economic effect that any other circumstance imaginable. You see, the hungry are rapidly motivated to action, such as getting off of their dead asses and doing some productive work in order to feed themselves. In all of nature, hunger results in more productive activity than any other motivating factor. Having government relieve people of their hunger without expecting them to produce anything in return is the ultimate entitlement, and trains the recipients to be unproductive, unthinking, unwavering supporters of their benefactors, which is just what the power-seeking politicians want.

And don't give me any of that bleeding heart bull about conservatives wanting to let children starve. Children are the responsibility of their parents. Period. But we've become a nation filled with people who shirk the responsibility for caring for themselves and their children. Why? ...because our government has made it possible for them to do so.
Until this country changes to become one made up of citizens responsible for their own and their children's welfare, we'll not arise from our economic mess. This change must start by wresting from government the powers it has assumed that were not granted to it by our Constitution. Government must shrink dramatically, and the amount of our money we allow them to control (destroy) must be decreased tremendously.

 
At 7/18/2012 11:20 AM, Blogger kkflash said...

to Larry G:

I've read this entire blog and cannot resist the temptation to breach the rules of blogging etiquette with a comment that can only be described as a personal attack, for which I apologize in advance.
You are a moron, lacking the capacity for logic, discernment, and rational thought. You are the textbook example of the kind of gullible citizen who allowed, even encouraged our government to grow out of its proper place in society to become the leviathon that, unchecked, will ultimately destroy the very society that created it. Please stop believing all the horse**** the government is handing you and try to think for yourself.

 

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