Friday, May 08, 2009

Wherefore Art Thou, Stimulus?

The unemployment rate is at 8.9%.

The graph over there on the right is what the Obama folks predicted would happen if we did or didn't pass the stimulus.

Well, it sure looks like they screwed up. Maybe they underestimated how big the recession was going to be. Maybe they underestimated how long it would take $800,000,000,000 to work its way into the economy. Maybe they're spending the money on the wrong things. Maybe printing lots of money and spending it isn't actually a good way to create a healthy economy.

I'm a stimulus skeptic-- I don't think that even the smartest, wisest, best-est politicians and economists in the world can micro-manage the economy to keep inflation low, growth high, ensure that everybody stays employed in a well-paying secure job, and keep America's vital industries (steel, automaking, corn-growing, defense-contracting...) robust forever. You can't micro-manage complex systems; instead, you have to create feedback loops so that the system is self-regulating and so that it evolves in a positive direction.

Maybe our tribal origins make us want to believe that a Wise Leader can help us take a Great Leap Forward, even though that hasn't worked out very well in the past:
The official toll of excess deaths recorded in China for the years of the Great Leap Forward is 14 million, but scholars have estimated the number of famine victims to be between 20 and 43 million.
The stimulus and bailouts and spending won't kill millions of people, at least not as directly as China's experiment with central control of the economy. But those policies are, I think, making millions of Americans a little poorer.


Anonymous said...

Could we junk the inherently hysterical journalistic time horizon for these kinds of problems? Gavin, you're usually fairly down to earth about these things.

Is this really the moment to render a verdict on the stimulus?

At the risk of being accused of being part of a personality cult, things are happening basically the way that Paul Krugman told us that they would happen. He told us that the stimulus ain't big enough. He told us that ALL of 2009 would suck (that's a term of art that economists use), and that we might see some improvement in 2010.

But I think that patience and fortitude has an independent value here, Gavin. Just hunker down for awhile. Or would you prefer to have a war? Or have our leaders invent a reason to have one (we know how capable they are of doing that!)?

This isn't a TV mini-series, but something a little more protracted than that, and I expect this to get worse before it gets better. And I think that our President has tried to dampen expectations. He may not have done enough, but I certainly don't think that he's done too much.I

It's strange to be in the position of telling this blogmaster, as opposed to some others in town, to just calm down.

Rich Morse

Gavin Andresen said...

Ok, I promise to tone down next quarter's post when the unemployment numbers come out again. I won't compare Obama to Mao.

If Krugman is right, then what should the 'actual' graph look like? He's frustratingly vague:

"As for unemployment, Krugman is predicting it will peak around 9% sometime later this year. There is a chance unemployment could reach the double digits, however, if the crisis continues to spread rapidly across the globe."

I'm completely open to another method for judging whether or not the stimulus is actually working or not...

Anonymous said...

I think that my post above does not acknowledge adequately the human cost of what is going on, which is what Gavin seems to be reacting to.

I still don't see laissez-faire economics as a viable alternative.

Rich Morse

Anonymous said...

I'm not trying to be protective of my man Obama, but I don't think that you can render a just verdict on the stimulus until next year at this time.

Now I know that this is not the way that American life works these days. We don't exercise patience and restraint before engaging in the inevitable recriminations, second-guessing, and finger-pointing.

But you're not a typical American, Gavin.

Gavin Andresen said...

I agree that we can't REALLY render a verdict until we see more of the graph.

I'll be more convinced of the Krugman position (that we shoulda had MORE stimulus) if the SHAPE of the graph turns out to look like the "with stimulus" graph-- if there's some correlation between stimulus spending and the unemployment rate, with unemployment dropping sharply when the stimulus spending really ramps up.

But if the shape of the graph ends up looking like "without stimulus" (a big-old speed bump), seems to me that's evidence that the stimulus didn't work.

I'm betting on stagflation (I just did a cash-out refinance of our mortgage, and will park the cash in TIPS: treasury-inflation-protected-securities), but I'm hoping I'm wrong.

Sabio Lantz said...

Gavin, I have started a new Libertarian Skeptics web site where I need contributors (even if only occassionally) like you !. Please come and consider being a contributor.