(Thanks to Mary Hokanson for sending me this.)
Recently in fiscal policy Category
Because we don't do well with big numbers, this analogy puts some perspective on things:
(Pardon the long post, but this is a topic that I love.) Adding another post to a topic that Jason and I have discussed often both on and off this blog (post 1, post 2), I wanted to post a link to a podcast interview with Ed Leamer on EconTalk. Leamer is a renowned economist in international trade and econometrics. Russ Roberts' interview with Leamer is interesting and insightful, and I recommend it as a good listen. But I finished the podcast feeling very confused. Leamer argues both that current macroeconomics does a terrible job at explaining the data and at having a story to explain the data. This is not an inditement, but rather a good indirect description of the two current ways of approaching macroeconomics.
Continue reading Leamer and the state of macro.
The May edition of the International Economic Update from the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas was released on Monday. Two points stand out to me: (1) The global growth forecasts are less optimistic than most U.S. forecasters (e.g., Ben Bernanke), and (2) the ranking of countries by relative size of fiscal stimulus in 2009 puts the U.S. a little further from the top than I expected.
Continue reading International Economic Update: Dallas Fed.
A while back, I wrote about the relative size of the government spending and tax multipliers. After spending way too long on IS-LM models in my macro class and thinking some more about fiscal multipliers, I'm now convinced that government spending multipliers can not be as large as the multiplier on tax cuts and think I can more clearly explain why.
Continue reading More on fiscal multipliers.
Greg Mankiw posted this link yesterday (3/17/09, St. Patrick's Day) to another funny Flash video from the folks at JibJab--Leprechaun Bailout.
Arthur Brooks, President of the American Enterprise Institute, gave a fascinating talk today at Brigham Young University about the effects of charitable giving. He started out with a quote from John D. Rockefeller who seemed to think that charitable giving was the source of his financial success, rather than a function of it. In trying to disprove Rockefeller's hypothesis with data, Brooks explained that he found more and more evidence in support of it.
Continue reading Charity multiplier dwarfs all.
Here are some of my favorite cartoons about President Obama's nominees and their tax problems. (Thanks to Mary Hokanson for sending these to me.)
Continue reading Obama nominees and taxes cartoons.
The only significant policy difference between the current period of global recession and the Great Depression is monetary policy and financial market intervention. The government spending part is looking like it will be the same. The annual deficit is projected to rise from its current 2008 level of just under 3% of GDP to potentially 10% of GDP in 2009. However, this rise in the deficit is also similar to the early 1980s and 2000. (The big blip is World War II.)
Continue reading Only difference from Great Depression is monetary policy and TARP.
Back in October 2008, I was a member of a panel discussion hosted by the BYU Economics Department that was tasked with explaining different aspects of the financial crisis up to that point and answering questions from the audience. Each member of the panel, myself included, supported the government's role in bailing out U.S. banks and financial companies citing the systemic role they play in the world economy (see my post 1 and post 2). However, since the crisis began in October 2008, two of my colleagues have consistently made what I see as the only good argument against the TARP financial bailout program--the slippery slope costs will outweigh the systemic risk reduction benefits.
Continue reading Slippery slope argument against the TARP.
Following up on Jason's post today, I am a bit bewildered with the Obama administration's choice of, not one, but two tax evaders as cabinet members. Bad enough is that the Treasury Secretary, Timothy Geithner, allegedly didn't pay taxes. The I.R.S. is a department within the Department of the Treasury. How can you appoint someone to oversee the Treasury and the I.R.S. who didn't pay taxes? In Geithner's defense, the amount of unpaid taxes was only about $17,000, so maybe this was an oversight.
However, adding an exclamation point to the Geithner appointment is now the Daschle appointment to head the Department of Health and Human Services.
However, adding an exclamation point to the Geithner appointment is now the Daschle appointment to head the Department of Health and Human Services.
Continue reading America to Obama: Do we need to pay our taxes?.
John Cochrane had the following great quote in his insightful article, "Fiscal Stimulus, Fiscal Inflation or Fiscal Fallacies?"
"Others say that we should have a fiscal stimulus to 'give people confidence,' even if we have neither theory nor evidence that it will work. This astonishingly paternalistic argument was tried once with the TARP. Nobody could say how it would work in any way that made sense, but it was supposed to be important do to something grand to give people 'confidence.' You see how that worked out. Public prayer would work better and cost a lot less."
We have commented before on John Cochrane's uncanny ability to deliver biting rebuttals when challenged.
(Thanks to Mark Showalter for sending me this.)
"Others say that we should have a fiscal stimulus to 'give people confidence,' even if we have neither theory nor evidence that it will work. This astonishingly paternalistic argument was tried once with the TARP. Nobody could say how it would work in any way that made sense, but it was supposed to be important do to something grand to give people 'confidence.' You see how that worked out. Public prayer would work better and cost a lot less."
We have commented before on John Cochrane's uncanny ability to deliver biting rebuttals when challenged.
(Thanks to Mark Showalter for sending me this.)
Greg Mankiw posted a link to The Bailout Game this morning, and I couldn't resist putting it up here and on our economic jokes page. Here are a couple of tips for the game. When you get to AIG, don't bail them out and watch what happens. Also, you might enjoy the comments on the little ticker at the bottom of the page.
Jason had a great post a week-and-a-half ago about the stimulus debate. The debate as it stands right now in the newspapers, media, and blogs centers on the questions about the effect of government intervention (spending increases and tax cuts) on the economy in the short-run and in the long-run. Jason's comments were similar to those of Robert Barro (Harvard) in today's Wall Street Journal in making the case for multipliers on government spending and taxation being much lower than is being estimated by members of the Obama economic team. Barro focused on the government spending multiplier being close to zero, and Jason argued that the tax multiplier is bigger than the government spending multiplier. However, I think that the correct answer to the optimal amount of government intervention must incorporate more dynamic effects that balance any short-run benefits of intervention with long-run costs. It is, therefore, a question about how society discounts the future.
Continue reading Stimulus debate: multipliers, crowding out, and discounting.
The second post ever posted on this blog in October 2008 is entitled, "International bailout arms race." I characterized the flush of bailout commitments that we saw across almost every major developed country as a strategic optimal response in the face of the bailout plans of the United States. With this model in mind, I predicted that the bailouts would develop into a situation similar to the nuclear arms race of the 1980s in which the U.S. defeated Russia by outspending them on weapons. The same thing is happening now as predicted among developed countries with respect to bailouts. The list of countries hitting their spending capacity and "folding their hand" started with Iceland and Hungary, and now looks to include Spain, Greece, Ireland, Germany, the U.K., Belgium, and the E.U. as a whole (see Iceland/Ireland joke).
Continue reading More countries hitting limit in bailout arms race.
Before I switched from MSNBC to CNN for coverage of yesterday's historic inauguration of Barack Obama as President of the United States, one of the MSNBC commentators said something that piqued my interest. He said that the only good examples of a President entering office in a recession before Barack Obama are Ronald Reagan (1981) and Franklin Delano Roosevelt (1933). Further the commentator contrasted Reagan's promise to decrease the size of government with FDR's commitment to increase the size of government. However, the following picture shows that Reagan is not the correct counterfactual.
Continue reading Inaugural business cycles: no counterfactual.
With the inauguration just over a week away, the talk of Obama's "stimulus" plan is reaching a fever pitch. Some of the coverage is funny, some mean, some thoughtful, some just plain stupid (ever heard of the broken window fallacy?).
What ever it is, I can't get enough of the debate.
What ever it is, I can't get enough of the debate.
Continue reading Stimulus.
Is AIG a fundamentally sound company that was adversely affected by the current liquidity crisis in a way that is not representative of its long run prospects? The plot above provides one answer to this question.
Continue reading The long and short of the AIG bailout.
The Federal Reserve's decision today to lower the fed funds rate to a target range of 0.00-0.25% represents the Fed's last shot they can take at the recession with the fed funds gun. They are literally out of ammo with that instrument. You can't lower the rate below zero. The effective fed funds rate for Wednesday, December 10, was 0.13%. We are now really in uncharted territory. How can I say this any more forcefully? This is like Japan in the 1990s, except every other country in the world is entering a recession as well. The only difference is that the Fed is trying to signal more willingness to do anything and everything than Japan did in the 1990s. We'll see if it will be enough.
Continue reading The last fed funds bullet has been fired.
Rearranging the letters of 'Auto Industry Bailout' gives:
"It a lousy, burnt-out aid."
"Ruinously aid to a butt."
"At unodious brutality."
"Suitably unadroit out."
"Dubiously taunt a riot."
"Batty or unusual idiot."
"I outlast unadroit buy."
"To a nutty, dubious liar."
"Ya! Bad, nutritious lout."
"Is loud obituary taunt."
"It a burly, odious taunt."
"It dirty unusual taboo."
"Ruinously but it a toad."
"Nuts! It a loud obituary."
(Thanks to Kerk Phillips for sending this in.)
"It a lousy, burnt-out aid."
"Ruinously aid to a butt."
"At unodious brutality."
"Suitably unadroit out."
"Dubiously taunt a riot."
"Batty or unusual idiot."
"I outlast unadroit buy."
"To a nutty, dubious liar."
"Ya! Bad, nutritious lout."
"Is loud obituary taunt."
"It a burly, odious taunt."
"It dirty unusual taboo."
"Ruinously but it a toad."
"Nuts! It a loud obituary."
(Thanks to Kerk Phillips for sending this in.)
Here is the Mike Luckovich cartoon from Friday, November 28, 2008. We do seem to be sliding toward the lower levels of the slippery slope.
I commented earlier in the week on the financial problems facing the Federal Government. Well the states have problems too. Its particularly interesting to think about the states that have hamstrung themselves by not having a state personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee (the last two do tax dividends and capital gains income).
These states without personal income taxes rely more heavily on sales taxes and property taxes. Well guess what's happened to property values in some of these states:
These states without personal income taxes rely more heavily on sales taxes and property taxes. Well guess what's happened to property values in some of these states:
Continue reading Public Financing Problems.
I've been swamped lately with job market stuff, but was able to attend the Atlanta Fed's Quarterly Public Affairs Symposium last week. The featured speaker was Larry Kotlikoff. The focus was fiscal policy.
Here are some highlights:
Here are some highlights:
Continue reading Thoughts on fiscal policy.
Since 1929, government expenditures as a fraction of GDP (excluding the wartime spending of 1942-1945) have averaged 22.9% under both Democrat and Republican presidents. A worry is that if the president also has the support of both chambers, he will more easily pass legislation that increases the size and role of the federal government.
When Democrats have had control of both Houses and the Presidency (1932-1946, 1949-1950, 1961-1968, 1977-1980, 1993-1994), government expenditures as a fraction of GDP have averaged 23.5%. On the other hand, when Republicans have had control (1929-1931, 1953-1954, 2003-2006), spending as a fraction of GDP has averaged 21.1% (not statistically different). Divided government spending averages 23.9% of GDP. The graph below shows the size of government over time by party in control. The most prominent trend is the fall in the size of government since the late 1960s, which is evident under Democratic or Republican controlled government and divided government over this time period.
But the "power of the purse" resides in Congress, so does party matter in Congress?
When Democrats have had control of both Houses and the Presidency (1932-1946, 1949-1950, 1961-1968, 1977-1980, 1993-1994), government expenditures as a fraction of GDP have averaged 23.5%. On the other hand, when Republicans have had control (1929-1931, 1953-1954, 2003-2006), spending as a fraction of GDP has averaged 21.1% (not statistically different). Divided government spending averages 23.9% of GDP. The graph below shows the size of government over time by party in control. The most prominent trend is the fall in the size of government since the late 1960s, which is evident under Democratic or Republican controlled government and divided government over this time period.
But the "power of the purse" resides in Congress, so does party matter in Congress?
Continue reading Does gridlock matter for government spending?.
I'm talking to the Economics Society here at UGA tonight. It's a panel
on the economic policies of the Presidential candidates. Oddly, I'm
the only faculty member from the Economics Department (the other two
panelists are Professor Grafstein from the Political Science Department and Professor Fertig from the College
of Public Health). The topics I'll
cover include the tax and trade policies of the two candidates.
I'm tempted to start off the discussion by reading Don Boudreaux's letter to an Obama supporter. As with most of Boudreaux's writing this one has some great lines: "Very few of them [politicians] have any knowledge of the subject [economics], and even fewer of them are courageous enough to speak about it honestly."
If not that, I'd like to make a case for not voting at all, but maybe George Carlin has already done this better than I ever could.
But I think I'll be more PC. Below are my summaries of the candidates stances on taxes and trade as well as some opinions about fiscal policy in general and the chances the candidates will push us into the next Great Depression.
I'm tempted to start off the discussion by reading Don Boudreaux's letter to an Obama supporter. As with most of Boudreaux's writing this one has some great lines: "Very few of them [politicians] have any knowledge of the subject [economics], and even fewer of them are courageous enough to speak about it honestly."
If not that, I'd like to make a case for not voting at all, but maybe George Carlin has already done this better than I ever could.
But I think I'll be more PC. Below are my summaries of the candidates stances on taxes and trade as well as some opinions about fiscal policy in general and the chances the candidates will push us into the next Great Depression.
Continue reading The Economics of McCain and Obama.
"'Need' now means wanting someone else's money. 'Greed' means wanting to keep your own. 'Compassion' is when a politician arranges the transfer."
(Joseph Sobran, syndicated political columnist and former National Review writer. Quote is from his chapter in the book The Economics of Liberty (Mises Institute) entitled "Back to First Principles.")
(Joseph Sobran, syndicated political columnist and former National Review writer. Quote is from his chapter in the book The Economics of Liberty (Mises Institute) entitled "Back to First Principles.")
The famous U.S. Senator Everett Dirksen (R-IL, 1950-1969) is attributed with the following statement about U.S. government spending that applies equally well today.
"A billion here, a billion there...and pretty soon you're talking about real money."
"A billion here, a billion there...and pretty soon you're talking about real money."
"There is nothing wrong with supply-side economics that division by ten wouldn't fix."
(Herbert Stein, as quoted by Greg Mankiw comparing the true-but-overstated attention that Al Gore has drawn to climate problems to the true-but-overstated problems of high tax rates highlighted by supply-side economists during the 80s.)
(Herbert Stein, as quoted by Greg Mankiw comparing the true-but-overstated attention that Al Gore has drawn to climate problems to the true-but-overstated problems of high tax rates highlighted by supply-side economists during the 80s.)
If it moves, tax it. If it keeps moving, regulate it. And if it stops, subsidize it.
In an opinion piece in Tuesday's Wall Street Journal,
Federal Reserve Chairman Ben Bernanke found it "heartening that we are
seeing not just a national response but a global response to the
crisis, commensurate with its global nature." In contrast, I see the
current flash of national bailout news conferences as evidence of an
international bailout arms race.
Continue reading International Bailout Arms Race.
Authors
- Richard W. Evans is an Assistant Professor of Economics at Brigham Young University
- Jason DeBacker is a Washington, D.C. economist.