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[antonz]

Deficit reduction likely shouldn't be an issue at the moment but lets not pretend we haven't been throwing money at the problem trying to fix it. We have thrown lots of money at the problem for mediocre results.

We need to be throwing our money at the problem more intelligently. Just throwing it out there doesn't solve the economy. DOE is spending nearly 12 million dollars per job it creates.

 

[ClassyPenguin]

It's a social science...calling the field bullshit because we can't predict human behavior to a t just reeks of ignorance.

 

[awm8604]

We could have been on our way to an actual recovery by now if we had paid the price in 2008. Instead the Fed turned on the presses and has been monetizing debt ever since. This bubble is worse than the last.

The currency supply has gone from 800 billion to 3+ trillion in less than 15 years. It's only a matter of time before hyperinflation kicks in.

 

[Fenderputty]

We could have been on our way to an actual recovery by now if we had paid the price in 2008. Instead the Fed turned on the presses and has been monetizing debt ever since. This bubble is worse than the last.

The currency supply has gone from 800 billion to 3+ trillion in less than 15 years. It's only a matter of time before hyperinflation kicks in.

Would you like to bust our your magic 8 ball and tell us all when then? Hyperinfaltion has been talked about for years and yet we're still far from it.

 

[gcubed]

Ah hyper inflation. We've arrived

 

[SnakeswithLasers]

We could have been on our way to an actual recovery by now if we had paid the price in 2008. Instead the Fed turned on the presses and has been monetizing debt ever since. This bubble is worse than the last.

The currency supply has gone from 800 billion to 3+ trillion in less than 15 years. It's only a matter of time before hyperinflation kicks in.

What's this 'we' you're talking about. The Dow is over 15,000.

Look, the people who caused this crisis are still suffering (those nasty peasants!), as they should, but corporations and banks are doing great, as they should.

The order is preserved.

 

[genjiZERO]

From a social perspective, an economy that is optimized to maximize production is ideal. From an individual perspective, nobody has a self-interest in maximizing economic production. What the individual wants to maximize is his or her relative power. Maximizing relative power might require--and I would argue does require--opposition to optimizing an economy for maximum production. When an economy is optimized, it will create circumstances that will force owners and executives to share more of the society's wealth with those who actually produce it (i.e., people who work for a living). And this is what is opposed by an economic elite that is always trying to put the brakes on economic optimization.

Well said. This is something I wish was discussed more on the national level.

 

[Jooney]

In other breaking news: a bear shits in the woods.

 

[Fenderputty]

Ah hyper inflation. We've arrived

The circle is complete. The loop closed.

 

[Opiate]

I am not sure what you mean by without considering the money supply. It's true that the equation presumes price stability. Inflation is extremely low (and almost always is in a developed economy like the US, and when it hasn't been, it's been because of supply shocks to things like oil).

Can you articulate your understanding of the crowding out effect for me?

Increased government spending (both through minting new currency or by incurring debt) can cause demand pull inflation, which increases interests rates, which causes a crowding out effect as private companies are less willing to invest.

Many economists are expecting significant inflation as a direct cause of QE and economic stimulus, including well known conservative icon Warren Buffet.

 

[Matugi]

Deficits keep people concerned with the welfare of the economy which (usually) encourages people to spend money in order to keep that debt to a minimum. That's the paradoxical thing about a permanent national debt.

Regardless, while the deficit may be an issue, the debt really isn't. Globalization has allowed the brunt of the debt to be spread across all the nations. In effect, the national debt is more of a global debt because for all of the debt owned by foreign countries here, America owns a ton of foreign debt as well. It's...interesting.

 

[pigeon]

Increased government spending (both through minting new currency or by incurring debt) can cause demand pull inflation, which increases interests rates, which causes a crowding out effect as private companies are less willing to invest.

Many economists are expecting significant inflation as a direct cause of QE and economic stimulus, including well known conservative icon Warren Buffet.

This is really unworthy of your normally thoughtful evidence-based analysis, though. We've had some combination of QE and economic stimulus for the last four years and inflation is 1%. A theory that suggests we should have inflation and yet doesn't functionally explain why we clearly don't isn't a theory, it's a fantasy. And not a particularly nice one.

 

[tborsje]

Increased government spending (both through minting new currency or by incurring debt) can cause demand pull inflation, which increases interests rates, which causes a crowding out effect as private companies are less willing to invest.

Many economists are expecting significant inflation as a direct cause of QE and economic stimulus, including well known conservative icon Warren Buffet.

Countries like Japan have been printing money for ages, yet they seem to have enough trouble keeping out of deflation. When you're in a liquidity trap, all predictions about monetary policy are up in the air. And according to Krugman, the US is in a liquidity trap.

To bring it back to the topic: if you think you're in a liquidity trap, fiscal policy has a larger effect on the economy - another reason to be critical of cutting government spending.

 

[Lonely1]

It's a social science...calling the field bullshit because we can't predict human behavior to a t just reeks of ignorance.

The field isn't BS, but its often ascribed to it a certainty that it doesn't have, not in small part thanks to the science moniker. Same with other social sciences.

 

[Sanky Panky]

All this talk about inflation and why it's not happening (it's happening to financial assets, pockets around the world, but not in the real economy), there is one simple reason, which is translating into a stagnant real economy despite deficit spending and record money creation...

Money velocity has collapsed...

There is nowhere to put the money, other than junk debt, and over-priced equities.

 

[tborsje]

The field isn't BS, but its often ascribed a certainty that it doesn't have. Same with other social sciences.

Who are these people claiming that it's a natural science anyway? I have about 20 economics textbooks in my closet and they all open with descriptions of how economics is a 'social science', warnings about making sweeping predictions based on models, etc.

 

[ClassyPenguin]

Sanky could you stop using an alarmist blog.

St Louis Fed has all the data and tools available to the public.
http://research.stlouisfed.org/fred2/

 

[arglebargle]

This is really unworthy of your normally thoughtful evidence-based analysis, though. We've had some combination of QE and economic stimulus for the last four years and inflation is 1%. A theory that suggests we should have inflation and yet doesn't functionally explain why we clearly don't isn't a theory, it's a fantasy. And not a particularly nice one.

i agree with this. opiate's posts are generally great, but this line of argument just sounds just like how the media has to tell both sides of a story even when one side of the story is clearly being told by crackpots or cranks.

economists and pundits can make any claim they want on cnbc, but the truth of the matter is that it is very hard to effectively model the current situation and get any result other than a need for an increase in aggregate demand. something the government has the ability to stimulate through deficit spending. seriously, i would like to see anyone draw an ISLM that gets us back to full employment without relying on either government spending or some enormous leap in logic.

 

[mavs]

Countries like Japan have been printing money for ages, yet they seem to have enough trouble keeping out of deflation. When you're in a liquidity trap, all predictions about monetary policy are up in the air. And according to Krugman, the US is in a liquidity trap.

To bring it back to the topic: if you think you're in a liquidity trap, fiscal policy has a larger effect on the economy - another reason to be critical of cutting government spending.

Good thing Krugman is wrong.

Incomplete, since we will only equal the fiscal adjustment of that period if we include this year, but this year isn't turning out any worse than last year.

 

[GaimeGuy]

Then I wouldn't call them economists. Maybe frauds? There is a very simple equation at work here. It looks like this, where G is government spending:

GDP = C + I + G + (X – M)

This isn't a controversial equation. If G goes up, GDP goes up. If G goes down, GDP goes down. That is because when the government spends money domestically, it immediately becomes somebody's income. Any economist who claims that reducing government spending does not slow economic growth is a crank.



Such an article is not as irrelevant as one that says "Physicists say sky is blue" only because there is so much FUD surrounding the issue. Government's role in the economy has implications for very powerful individuals within it (also known as the ruling class). They have a strong interest in creating and dispersing FUD. But, as far as basic facts go, such an article ought to be as irrelevant as one that says "Physicists say sky is blue."

there's nothing "scientifiic" about the GDP equation though. It's an arbitrary equation just like the GaimeGuy Tasty Index (amount of $ spent on ice cream + amount of $ spent on chocolate - amount of money spent on foods I end up not liking over the course of a year).

It's not something like F = ma that you observe in nature, or a mathematical theorem you can logically derive from fundamental axioms.

 

[Gotchaye]

Good thing Krugman is wrong.

My impression is that Krugman thinks it would be ridiculously stupid to raise interest rates now. His talk about monetary policy not being very effective has to do with how difficult it is to further lower interest rates - he mentions the zero lower bound in pretty much every post in which he mentions liquidity traps. It's entirely consistent with that that one could very effectively crash the economy again via the wrong sort of monetary policy.

there's nothing "scientifiic" about the GDP equation though. It's an arbitrary equation just like the GaimeGuy Tasty Index (amount of $ spent on ice cream + amount of $ spent on chocolate - amount of money spent on foods I end up not liking over the course of a year).

It's not something like F = ma that you observe in nature, or a mathematical theorem you can logically derive from fundamental axioms.

I think this is misguided. One could argue that GDP is arbitrary, but if what we care about is GDP growth then the equation is solid. It's not possible for GDP to be different than the sum of those things, because GDP is just total income. The reason the equation isn't all that useful in many cases is that it's not in general possible to change one variable without changing the others.

 

[mavs]

My impression is that Krugman thinks it would be ridiculously stupid to raise interest rates now. His talk about monetary policy not being very effective has to do with how difficult it is to further lower interest rates - he mentions the zero lower bound in pretty much every post in which he mentions liquidity traps. It's entirely consistent with that that one could very effectively crash the economy again via the wrong sort of monetary policy.

Krugman uses the liquidity trap to explain how monetary easing doesn't have any effect on the economy at the ZLB. So it's good that he's wrong, or we'd be really fucked. There's no such thing as a liquidity trap.

 

[arglebargle]

Krugman uses the liquidity trap to explain how monetary easing doesn't have any effect on the economy at the ZLB. So it's good that he's wrong, or we'd be really fucked. There's no such thing as a liquidity trap.

i dont think this is true. i havent kept up with what he has been saying recently, but what i remember from when i was reading him more regularly was that he thought monetary easing would be helpful, just not as helpful as fiscal policy would be.

 

[tborsje]

Krugman uses the liquidity trap to explain how monetary easing doesn't have any effect on the economy at the ZLB. So it's good that he's wrong, or we'd be really fucked. There's no such thing as a liquidity trap.

I don't think he's proposing that it's a 'complete' liquidity trap, as in a hypothetical horizontal LM curve. He's making a real observation that many western central banks are releasing vast amounts of money, and it doesn't appear to be creating the short-run economic growth that would, in any other case, be associated with it. It's not a complete liquidity trap, but has 'elements' of one - in the same way that no market is perfectly competitive, but you can still make worthwhile observations by using perfect competition as a model to make inferences .

 

[Sanky Panky]

Sanky could you stop using an alarmist blog.

St Louis Fed has all the data and tools available to the public.
http://research.stlouisfed.org/fred2/

My alarmist blog is usually google image search. Should I also rely on cnbc for my dose of economic commentary?

edit: as an interesting side note, the Japanese experiment of more QE has lead to the 3rd or 4th halting in trading of government bonds because there is a huge sell-off. Yields are up to February levels. Moreover, all the periphery countries are fighting the yen devaluation by lowering their rates. Nothing like a good ol worldwide currency war.

 

[alstein]

The empirical evidence we have is not controlled and could readily be interpreted differently by rational individuals.

That is to say, lots and lots and lots of other variables were at play during (for example) the Great Depression, so drawing confident, "it's obvious" conclusions from that mess of data is not prudent.

I personally think it's probable that fiscal tightening is a bad idea. I'm just saying it's not obvious. Economics suffers from many problems, but a lack of complexity is not one of those problems. It is so complex, in fact, that we should be cautious of drawing any "obvious" conclusions. There is no "blue sky" in economics.

I think fiscal tightening should be saved for the good times, or when there's no alternative (the Dems like to forget about that part). The US has much more wiggle room than a European state due to a sovereign currency, but Republicans keep wanting to compare/scare us into thinking we're like France or Italy. Sad thing is that it works.

The biggest issue is the increasing weakness of governments in economic policy due to globalization and the ability of the wealthiest to circumevent economic policy for their own interests. Nothing short of draconian measures, societal change or complete global agreement can stop that. None of that is on the horizon.

That said (I have my own economics background, and should austerity hit my job, see my post on the FAA killing weather on here I'll be going to grad school for it), I am a big believer in money velocity, and trickle-down economics destroys money velocity, and we're paying the price for it right now. I'm also not buying the inflationary argument, as inflation has remained fairly low, and inflation isn't as bad of a thing if employment is increased and your average citizen has low savings. (inflation is effectively a form of flat tax)

 

[pigeon]

My alarmist blog is usually google image search. Should I also rely on cnbc for my dose of economic commentary?

The funny thing about this is that it reveals that you spend so much time reading alarmist blogs that Google knows you want insane charts from crazy people without you even having to ask for them directly.

 

[Sanky Panky]

The funny thing about this is that it reveals that you spend so much time reading alarmist blogs that Google knows you want insane charts from crazy people without you even having to ask for them directly.

The funnier thing is that I only have to read something by someone other than Krugman to read alarmist news about the global economy.

 

[Cyan]

The funnier thing is that I only have to read something by someone other than Krugman to read alarmist news about the global economy.

Krugman sucks, but let's be real here. The people flipping out about hyperinflation are the same people who've always flipped out about hyperinflation: fringe nuts with an axe to grind.

Edit: wait, actually I don't think it was you posting the hyperinflation stuff. Excuse me.

 

[Earthstrike]

Krugman sucks, but let's be real here. The people flipping out about hyperinflation are the same people who've always flipped out about hyperinflation: fringe nuts with an axe to grind.

Edit: wait, actually I don't think it was you posting the hyperinflation stuff. Excuse me.

Hold on, Krugman sucks? Or are you being sarcastic?

 

[alstein]

Hold on, Krugman sucks? Or are you being sarcastic?

Yeah he's more political hack than economist these days, though economist can mean a whole mess of things depending on who is paying you for what.

Just because I agree with him doesn't mean that I don't see what he is.

 

[Earthstrike]

Yeah he's more political hack than economist these days, though economist can mean a whole mess of things depending on who is paying you for what.

Just because I agree with him doesn't mean that I don't see what he is.

Ok, I genuinely did not know. I was under the impression that he was a well-respected economist. Is this something that was true before, but is no longer the case? Some quick reading on his wikipedia page would seem to indicate to me that he certainly commanded some level of academic respect.

 

[Chichikov]

Deficit reduction likely shouldn't be an issue at the moment but lets not pretend we haven't been throwing money at the problem trying to fix it. We have thrown lots of money at the problem for mediocre results.

We need to be throwing our money at the problem more intelligently. Just throwing it out there doesn't solve the economy. DOE is spending nearly 12 million dollars per job it creates.

And what is the problem exactly?
Do you think our deficit is too high?
If so, what do you think it should be?

 

[defel]

Hes a well respected economist who has done a wealth of valuable research and made an important contribution to the field.

His blog is a blog, not an academic journal so its not unreasonable to expect it to be more opinionated and or "wonkish".

Like all economists though, dont trust everything he says, think for yourself and dont make bold claims one way or another. Most economists know not to do this but many people still take the proclamation of an economist as solid fact and thats the root of all this animosity and sceptisism towards economics.

 

[antonz]

And what is the problem exactly?
Do you think our deficit is too high?
If so, what do you think it should be?

I dont really view the deficit as an issue. The problem is we aren't spending the money smartly and as such we are getting shit results in return. DOE spending nearly 12 million dollars per job to create little under 3000 jobs in this economy is an epic failure. Which by the way a lot of this money spent was given to companies that no longer even operate.

We need to be spending not based on cronyism. Who thought investing in a car company losing 500,000 dollars on very car sold was a great idea? That money could have went to infrastructure upgrades etc that would have really benefitted everyone

 

[dinazimmerman]

There is a very simple equation at work here. It looks like this, where G is government spending:

GDP = C + I + G + (X – M)

This isn't a controversial equation. If G goes up, GDP goes up. If G goes down, GDP goes down.

That's not a controversial equation because it's a simple accounting identity. There's little if any scientific content in it.

If G goes up, GDP goes up. If G goes down, GDP goes down.

This does not follow from the equation. Let GDP = Y. The change in GDP in response to a change in G is equal to

dY/dG = dC/dG + dI/dG + 1 + d(X-M)/dG.

Note that if dC/dG + dI/dG + d(X-M)/dG < -1, then dY/dG<0. In other words, if increasing G causes C + I + (X-M) to decrease enough, then it will cause GDP to go down. Obviously, this is in all likelihood not going to happen in the US, but this does not follow from Y = C + I + G + (X-M). You need to know what dC/dG, dI/dG, and d(X-M)/dG are in order to determine the sign and magnitude of dY/dG.

Anyway, most economists do not doubt that dY/dG, the "fiscal multiplier," is positive, but there's considerable debate about the size of the multiplier (is it close to 0 or 1 or is it larger than 1?), how it changes over time, esp. how it changes during recessions, etc. Moreover, some economists believe that although fiscal stimulus might increase GDP (Y) in the short-run, it might hamper economic growth (dY/dt) in the long-run if taken too far. These are issues that can be studied empirically and with theoretical models, not simple accounting identities like Y = C + I + G + (X - M). I agree with Opiate that the NYT article misleads when it implies that there is a strong, concrete consensus among macroeconomists about what should be done right now about the US government's deficit.

 

[Chichikov]

I dont really view the deficit as an issue. The problem is we aren't spending the money smartly and as such we are getting shit results in return. DOE spending nearly 12 million dollars per job to create little under 3000 jobs in this economy is an epic failure. Which by the way a lot of this money spent was given to companies that no longer even operate.

We need to be spending not based on cronyism. Who thought investing in a car company losing 500,000 dollars on very car sold was a great idea? That money could have went to infrastructure upgrades etc that would have really benefitted everyone

Sorry, I misunderstood your point and I agree completely (not so much on the specifics, but on the fact that we need to be smarter about how we spend our money, regardless of the amount of money we spend).

That's not a controversial equation because it's a simple accounting identity. There's little if any scientific content in it.



This does not follow from the equation. Let GDP = Y. The change in GDP in response to a change in G is equal to

dY/dG = dC/dG + dI/dG + 1 + d(X-M)/dG.

Note that if dC/dG + dI/dG + d(X-M)/dG < -1, then dY/dG<0. In other words, if increasing G causes C + I + (X-M) to decrease, then increasing G might cause GDP to go down. Obviously, this is in all likelihood not going to happen, BUT this conclusion does NOT follow from the accounting identity. You need to know what dC/dG, dI/dG, and d(X-M)/dG are equal to in order to determine what dY/dG is positive or negative or determine the magnitude of dY/dG.

Anyway, most economists do not doubt that dY/dG, the "fiscal multiplier," is positive, but there's a lot of debate about the size of the multiplier, how it changes over time, whether or not it's counter-cyclical, etc. Moreover, some economists believe that although it increases GDP (Y) in the short-run, it might hamper economic growth (dY/dt) in the long-run. These are issues that can be studied empirically or through theoretical models, not simple accounting identities like Y = C + I + G + (X - M). I agree with Opiate that the NYT article misleads when it implies that there is a strong, concrete consensus among macroeconomists about what should be done right now about the US government's deficit.

This is a bit off topic, and should not be seen aimed directly at you, but one day, zombies Newton and Leibniz will rise from their grave and exact revenge on economists for the crimes they did against calculus.

 

[dinazimmerman]

This is a bit off topic, and should not be seen aimed directly at you, but one day, zombies Newton and Leibniz will rise from their grave and exact revenge on economists for the crimes they did against calculus.

Huh? I fail to see how economists have done a disservice to calculus.

 

[Cyan]

Ok, I genuinely did not know. I was under the impression that he was a well-respected economist. Is this something that was true before, but is no longer the case? Some quick reading on his wikipedia page would seem to indicate to me that he certainly commanded some level of academic respect.

He's generally well-respected, just not by me.

 

[iamblades]

All the controversy about austerity vs. stimulus is ignoring the crucial truth at the core.

It is possible for both things to be true depending on the timescale and the direction of the stimulus. Obviously lower government deficit spending will result in an immediate reduction in GDP, and obviously continued high deficits will become unmanageable and cause issues in the long term. Eventually you reach a point where you are spending more on debt servicing than is actually reaching the economy. You can't keep inflating the bubble without it popping eventually.

You don't want to borrow money just to have money and pay interest on it. You want to borrow money to build something that is worth more than the money you borrowed so it pays for itself. Our government is doing far too little of that IMO. The Hoover Dam had a positive economic impact not because the government paid a bunch of people to build the thing, it had a positive economic impact because it enabled the existence of Las Vegas.

How many stimulus dollars actually go to something that adds value, as opposed to political favors and cronyism?

Not having deficit spending at all seems to be the most stable state, with less potential for boom and bust cycles. In my ideal world, the government would aim for no deficit as far as nondiscretionary spending goes, but any project that seems like it would add economic value(as opposed to 'creating jobs') would be allowable. Having giant deficits financing wars and welfare programs doesn't add any value to the economy, while a nationwide high speed rail system or fiber internet to every home would have the potential to actually provide a return on the investment

 

[Gotchaye]

All the controversy about austerity vs. stimulus is ignoring the crucial truth at the core.

It is possible for both things to be true depending on the timescale and the direction of the stimulus. Obviously lower government deficit spending will result in an immediate reduction in GDP, and obviously continued high deficits will become unmanageable and cause issues in the long term. Eventually you reach a point where you are spending more on debt servicing than is actually reaching the economy. You can't keep inflating the bubble without it popping eventually.

You don't want to borrow money just to have money and pay interest on it. You want to borrow money to build something that is worth more than the money you borrowed so it pays for itself. Our government is doing far too little of that IMO. The Hoover Dam had a positive economic impact not because the government paid a bunch of people to build the thing, it had a positive economic impact because it enabled the existence of Las Vegas.

How many stimulus dollars actually go to something that adds value, as opposed to political favors and cronyism?

Not having deficit spending at all seems to be the most stable state, with less potential for boom and bust cycles. In my ideal world, the government would aim for no deficit as far as nondiscretionary spending goes, but any project that seems like it would add economic value(as opposed to 'creating jobs') would be allowable. Having giant deficits financing wars and welfare programs doesn't add any value to the economy, while a nationwide high speed rail system or fiber internet to every home would have the potential to actually provide a return on the investment

You've missed the point of stimulus. I'm also not sure which stimulus advocates you've been listening to, since (almost?) nobody is advocating totally unlimited spending on completely useless projects.

But anyway, look, it's just obviously true to everyone except libertarians that if there's something which the government can invest in which will provide future returns that more than make up for the borrowing costs (including opportunity costs), it should do that. The argument being made by advocates of stimulus spending is that, in conditions like the ones that obtain now, even projects that look useless actually have high returns. Borrowing money in order to pay people to dig holes and fill them in again is actually a money-making investment for the government when the economy is suffering from a lack of demand. Of course stimulus advocates would prefer spending which is useful in its own right - remember all the talk about "shovel-ready projects"? - but what distinguishes advocates of stimulus spending from almost everyone else is that they think spending is useful right now regardless of what it pays for. This is why they think that it's a particularly good time for useful spending - we get something useful and the benefits of spending itself.

It's totally missing the point to identify "stimulus" with "continued high deficits". The idea is to hasten economic recovery, which saves money in the long run because tax revenues (and a lot of spending, like unemployment benefits) are tied to the state of the economy. Failing to be proactive in this sort of situation is actually a great way to end up with a massive amount of debt - look at Japan.

 

[TheLaughingStock]

and obviously continued high deficits will become unmanageable and cause issues in the long term. Eventually you reach a point where you are spending more on debt servicing than is actually reaching the economy. You can't keep inflating the bubble without it popping eventually.

The primary drivers of deficits around most of the world today are economic performance and automatic stabilizers. This story that eventually something bad could happen doesn't seem plausible. When tax revenue recovers, the economy is operating at full employment, and other automatic stabilizers fall, then I don't see how or why an exponential rise in spending would be maintained. From a purely cyclical standpoint how could that be reasonable assumption?

Not having deficit spending at all seems to be the most stable state, with less potential for boom and bust cycles. In my ideal world, the government would aim for no deficit as far as nondiscretionary spending goes, but any project that seems like it would add economic value(as opposed to 'creating jobs') would be allowable. Having giant deficits financing wars and welfare programs doesn't add any value to the economy, while a nationwide high speed rail system or fiber internet to every home would have the potential to actually provide a return on the investment

The most stable states (economically) are operating with no deficit spending at all? Additionally, if most countries manage to spend more than they tax for extremely long periods, then how does that affect the notion of an ideal state? We know countries can exist for say 100 years and run deficits 70 of those years. Maybe they've ran 40 deficits in a row at some point. And of course 100 years isn't long at all. You change 100 years of existence to 400. Countries like China, Spain, US, Japan and the like have had deficits and debt for a very long time. And they're much more stable and desirable I would think than an Estonia, Libya, North Korea, etc.

 

[pigeon]

You've missed the point of stimulus. I'm also not sure which stimulus advocates you've been listening to, since (almost?) nobody is advocating totally unlimited spending on completely useless projects.

Part of the reason this discussion is sometimes frustrating is that a lot of people seem to take as a given, as you see in this very thread, that government spending is almost always wasted -- and not merely wasted in terms of corruption or inefficiency, but wasted in some magical way that completely removes it from the economy. Obviously if that were true we would all agree that cutting government spending to zero would be a good idea, but there's really no reason to think it is -- and if it were, there'd be a lot more anarchist collectives and a lot fewer social democracies, rather than the other way around.

 

[empty vessel]

This does not follow from the equation. Let GDP = Y. The change in GDP in response to a change in G is equal to

dY/dG = dC/dG + dI/dG + 1 + d(X-M)/dG.

Note that if dC/dG + dI/dG + d(X-M)/dG < -1, then dY/dG<0. In other words, if increasing G causes C + I + (X-M) to decrease enough

Indeed. Now you've got to explain how or why that would happen.

Moreover, some economists believe that although fiscal stimulus might increase GDP (Y) in the short-run, it might hamper economic growth (dY/dt) in the long-run if taken too far.

Those economists don't know what they're talking about. You noticeably do not bother explaining the reasoning involved.

These are issues that can be studied empirically and with theoretical models, not simple accounting identities like Y = C + I + G + (X - M). I agree with Opiate that the NYT article misleads when it implies that there is a strong, concrete consensus among macroeconomists about what should be done right now about the US government's deficit.

If there is not a strong, concrete consensus among macroeconomists about what should be done right now about the US government's deficit--i.e., increase it--that only speaks to the sorry state of professional economists. To whatever extent that economists worry about government debt, they surely understand that this is a legal problem, not an economic one, because it is only a legal constraint that requires governments with modern fiat monetary systems to issue debt in the amount that they deficit spend in the first place. Any economist who frets about government debt without advocating the easiest and most obvious solution to it--stop issuing debt--is either a miseducated moron or a crank pushing an agenda.

 

[speculawyer]

As a reasonable example, consider that there are hundreds of professional biologists who would argue that Evolution isn't real.

Really? I could see people with a Biology degree but actual professional biologists that don't believe in evolution?

 

[Ether_Snake]

Increased government spending (both through minting new currency or by incurring debt) can cause demand pull inflation, which increases interests rates, which causes a crowding out effect as private companies are less willing to invest.

Many economists are expecting significant inflation as a direct cause of QE and economic stimulus, including well known conservative icon Warren Buffet.

Inflation is coming any minute! It's coming this time, for real! Buy gold!

When the economy is depressed, spending doesn't lead to higher interest rates or inflation. The economy improving does. To improve the economy the government must spend (and spend on the right stuff). Just like the government would have to spend to fix a city after it was hit by a meteor, rather than wait for austerity-fed "confidence" to fuel the private sector to do it itself.

 

[empty vessel]

Increased government spending (both through minting new currency or by incurring debt) can cause demand pull inflation...

Only in an economy that is at maximum productive capacity such that businesses can only respond to additional demand by raising prices rather than meeting it by increasing production. I don't know that I could take any economist seriously who asserted that demand pull inflation is a risk from government spending in the current economy.

Many economists are expecting significant inflation as a direct cause of QE and economic stimulus, including well known conservative icon Warren Buffet.

Warren Buffet doesn't know what he's talking about if he is expecting inflation as a result of economic stimulus and QE. Here's what I found in searching about it: "Buffett said those policies could one day lead to inflation, and that he’s predicted as much for a long time, but that he’s been wrong. Rather than pushing inflation higher, the Fed’s policies have recently led to lower inflation, also a concern."

http://www.foxbusiness.com/business...ets-will-move-higher-over-time/#ixzz2SxoJUSxl

(Incidentally, while you were being sarcastic, Buffett ought to be a conservative icon.)