Why The Stimulus Story Isn't Resonating: No Transparency, No Participation
from the politics-as-usual dept
There's a pretty widespread belief that President Obama hasn't done a particularly good job convincing people of the need for the "stimulus" plan he's pushing. This is definitely seen in the incredibly lukewarm reaction to Obama's calls for nationwide house-parties to try to drum up support for the stimulus plan. Such meetups and house-parties worked during the election, because people believed in Obama the candidate -- but the evidence so far is that they don't believe in the stimulus plan. At all.There are some interesting theories as to why that might be. My favorite economics reporter, David Warsh, has proposed an interesting (and somewhat compelling) theory: which is that most of the economists in Obama's inner circle believe in an economic theory of boom/bust cycles that the rest of the country doesn't believe in. Specifically, the new Keynsians don't put much weight in the "hangover theory," which is what Paul Krugman nicknamed the Austrian theory of business cycles, greatly simplified into:
In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity -- of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.Now, Krugman then goes on to suggest why this theory is wrong, but Warsh and I both have trouble with his explanation. It's not very convincing (though, I'll be the first to admit that I'm pretty sympathetic to the arguments from the "Austrian school" of economics). I could go through why I think our most recent Nobel Prize winning economist is wrong, but this post is already getting pretty long (short answer: he ignores how certain parts of the economy are interconnected, and incorrectly brushes off the time that it takes to understand where new investment opportunities lie). In fact, as Warsh points out, the "hangover theory" makes an awful lot of intuitive sense to most people. But the problem is that the stimulus plan doesn't seem to be responding to the hangover effect. Instead, it's very much focused on what Krugman and the "new Keynesian" economists believe the real problem to be (everyone wants cash). Thus, the stimulus idea is get cash into the economy, pronto. But for everyone who believes in the "hangover theory" this sounds just awful. It just prolongs the problem by dumping cash into a system that's still adjusting, and simply fuels the next boom (and, eventual bust).
I think Warsh is definitely correct on the gut reactions many people are having to the stimulus package -- which is that it doesn't seem to be addressing the real problem at all, and seems ripe for abuse. I don't deny that getting more money into the system will stimulate something -- I'm just afraid of what.
However, I think there's also a second reason why the country remains incredibly apprehensive towards the stimulus package. That's because for all the talk about how this was a new era of transparency and how Obama was going to use the same participatory tools that help got him elected to govern, this stimulus package didn't do that at all. Instead, it was done in the same old way. The details were all worked out in the backrooms by the same beltway insiders, and then presented to the public as something to take or leave -- or maybe argue about at the margins. We were never invited to participate in the process at all. We weren't really given a chance to weigh in with our thoughts.
And, thus, we feel that this is politics as usual -- something many people were hoping would go away for a while -- on one of the biggest, most important efforts to deal with a huge economic mess. The best the administration could do was ask everyone to help support the plan he handed down -- rather than having everyone help him build the plan. That was a huge mistake, and it's reflected in how the plan has been presented and how it's been debated.
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Filed Under: austrian, business cycles, economics, hangover effect, keynesianism, krugman, obama, participation, stimulus, transparency
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I don't think so!!
Angry Dude is a eunuch and he obviously has a one-sided view point on many things.
Also, most of us eunuchs are against people who have balls, which makes us partisan...
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I'm curious what's partisan about this at all? I disagree with both the Dems and the Repubs concerning their views on the stimulus package.
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That's what strikes me as partisan, and also false. Judging by the latest gallup poll (one of many with similar results):
PRINCETON, NJ -- The American public gives President Barack Obama a strong 67% approval rating for the way in which he is handling the government's efforts to pass an economic stimulus bill,
The only ones with a "widespread belief" that Obama isn't doing a great job proposing the stimulus are those that oppose him for political, rather than economic, reasons.
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Approval rating is different than convincing people that the stimulus plan is needed.
And, I should point out, that my link on explaining why he wasn't doing a good job was to the liberal-slanted Salon.com, explaining why he had failed to win over many.
Furthermore, the lack of success with his "house-party" idea is pretty striking.
I am not a partisan in any manner. I would like to see Obama succeed because I would like the country to do well. But he hasn't been very convincing on the stimulus plan. There's an awful lot of pushback on it.
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Re: 17
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And that tells us all we need to know about about your credibility, too.
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Everyone...look down there, just another dumb fish in the barrel.
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Build Plans
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Re: Build Plans
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Re: Re: Re: Build Plans
Are you at all aware of how completely Un-American you appear to be when the first words from your fingers are "Shut up, jackhole.", when participating in a public forum?
Could you not summon up a more cogent argument to the posters remarks than "Shut up"? Does your mother know you go around calling people "JackHole"?
Please...Next time take a few more minutes and allow your mind to --THINK- of a reasoned and eloquent response before typing.
It's the American thing to do.
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Re: Build Plans
Upgrades to communication infrastructure will likely just end up being a handout to telecoms.
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Naw...
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Re: Naw...
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Nearly everybody dislikes the bailout, for reasons that Mike said. They don't think it addresses the problem; they think it's politicians making noise about a problem in order to justify massive spending on whatever pet project they have. Keynesian economics is silly, but has always appealed to politicians who would like to think they could easily control the economy.
People would be happier, I think, with a few more executives going to jail, some legal reform (deregulation in some areas, more regulation in other areas), and tax cuts. Things that reform the system, rather than something that is clearly a one-shot boost.
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Re: Reform
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Equilibrium
A toilet works because when you flush, the tank refills itself over a period of time. if you were to pour water into the bowl while you flushed the system would fail to function properly. Have faith in the design and all works as expected.
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This would get money back in companies that employ people, and keep the ball spinning. Even if it was temporary, it sure would be nice.
my 2 cents.
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A context I understand
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A context I understand
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Eco-guy
Both instances are examples of tampering in systems that have complex and chaotic interdependencies which we will never completely and totally grasp. Tampering may be necessary, but it should be as a last resort.
Pharmaceuticals are another similar case; we can never predict _completely_ the effect they will have on a body, but sometimes they are better than the alternative. I would like to propose that all economic plans should require as many years of double-blind testing as pharmaceuticals undergo.
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The only thing that is a worse disaster
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Re: The only thing that is a worse disaster
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Consensus
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Re: Consensus
A giant wiki where 300 million or so add their 2 cents?
Great idea. Maybe the folks over at http://www.stimuluswatch.org/ could come up with something...
Oh wait. They already did.
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Yeah, only 54% approve of the stimulus, and 64% believe it will help the economy "a lot or somewhat."
While pundits and blogs and cable news see dark clouds, most of the rest of America thinks something needs to be done and is tired of the runaround.
You need to fix your headline. The real story that isn't resonating is the blood in the water of the Obama administration due to the stimulus debates.
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Being against the stimulus package does not automatically make you a believer in Austrian economics. Although I guess being for the stimulus makes you a Keynesian (old or new ) or maybe just a stupid Keynesian.
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Spendulous
What will work are business tax incentives--tax credits for capital spending; tax credits for job creation. No waiting for shovels.
And none of the hopelessly stupid pile of projects that are put into this bill as payoffs
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I'm no economist, but...
And to that I just might add:
1. I have been doing a bit of research on this subject. See my blog entry for today, where I try to explain the concept of economic stimulus and how it worked in the Great Depression. http://nightman1.wordpress.com/
2. Read some history. Those cyclical crashes of the past were the bane of the 19th Century, as they often led to devastatingly deep recessions--such as the superstar down-cycle of them all, the Great Depression. They caused millions of people great suffering and fear and want. Are you SURE you personally want to go through one of them just because it fits with your quasi-religious belief in the all-repairing goodness of laissez faire capitalism?
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Re: I'm no economist, but...
Are you suggesting that von Hayek isn't an economist?
1. I have been doing a bit of research on this subject. See my blog entry for today, where I try to explain the concept of economic stimulus and how it worked in the Great Depression. http://nightman1.wordpress.com/
Um. That doesn't say anything. All it says is that Republican plans don't work. I agree. I think they're just as screwed up on this as the Dems. But there are a long list of economists (Nobel prize winning ones, in fact) who disagree with Krugman on this issue. The fact that you just link to him and say that's all the evidence you need is not at all convincing.
2. Read some history. Those cyclical crashes of the past were the bane of the 19th Century, as they often led to devastatingly deep recessions--such as the superstar down-cycle of them all, the Great Depression. They caused millions of people great suffering and fear and want. Are you SURE you personally want to go through one of them just because it fits with your quasi-religious belief in the all-repairing goodness of laissez faire capitalism?
Hmm. First, what's with the personal attack claiming "quasi-relgious belief..." That doesn't make you credible either. It makes you sound intolerant of ideas that challenges yours. I'm a student of economic history -- and spend plenty of free time actually reading economic papers. So to suggest that I don't know my history is simply incorrect.
Reasonable people can and do disagree about this, but your comment isn't about disagreeing critically, it's about bashing those who disagree with you.
Come back with some evidence and we can talk.
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Re: Re: I'm no economist, but...
My guess is few of the rest do. They just know that ever since Reagan (a period that encompasses most of the lives of many, perhaps), they have been hearing from every side that the Free Market can solve all problems and is therefore close to holy. That has become the Shibboleth of the Age.
Now we see its results. The regulators who didn't regulate the banks didn't regulate them because, as former Saint Alan Greenspan said, "I believed they would watch out for their own best interest."
Well, they didn't. And most of us know as a matter of common sense that when greed or fear is engaged, we can't be trusted to rationally make decisions in our own best interest either.
But the Free Market lovers go on postulating rational economic man. To keep going down that route and stick with your socially-sanctioned ideas of the power of said Free Market to fix everything and anything, in the face of contrary evidence, is to take an essentially religious stance toward that complex of ideas.
So, given the awfulness of the last Depression, a bunch of you are sitting here betting on the all-powerfulness of your Free Market at the possible cost, if you're wrong, of a very great deal of misery for you and/or a lot of people you know.
I don't for sure know that government economic stimulation will work. I don't have the time or means of surveying several thousand economists to see what their consensus on the subject is either. But stimulation worked in the Depression. See my blog, "Does Economic Stimulation Work?"
I would rather see something done than nothing, since one thing we know from the past is just how very horrible things can get if nothing is done at all.
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Paul Krugman isn't the boss of me
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Spending Bill not as bad as FED...
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Is This Like the Others?
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Re: Is This Like the Others?
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Re: Is This Like the Others?
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Re: Is This Like the Others?
So when inflation happens and prices rise and products become more expensive, it's a good thing. But when the consumer says that saving for a rainy day is worth more than going out and buying the latest 72" plasma TV or a $300K house (which results in lower prices around the board) it's a bad thing?
Get off your Keynesian high-horse.
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Funny how small you look from high on this Keynesian horse I'm riding...way down there.
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Re: Re: Re: Is This Like the Others?
In a deflationary period, prices are reduced to levels where they should've been all this time. The companies that reaped the profits from high prices due to government interference are now thrown into disarray when they grew entirely way too much during inflationary periods. Inflation is the indirect cause of the layoffs you speak of because businesses think that prices will stay high all the time.
In reality, those companies shouldn't be as large as they are, nor employ as many people as they do because prices shouldn't be as high as the government is making them. The Fed is the reason why prices of an average home are above $250K and why many other industries are suffering from deflated prices. It's been proven that the Fed messing with interest rates in the 1920's was a direct cause of the depression that hit in the 1930's. Inflation doesn't fix anything except to consolidate power and wealth in a few hands.
The Fed needs to stop manipulating the money supply and interest rates. The market is like an ocean. It ebbs and flows, but it's still predictable and relatively calm. The Fed is a freaking hurricane in the ocean of economics. It causes disaster and tidal waves.
As I said. Get off your Keynesian high-horse...
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It's because the US (through the Fed) keeps the rates low, which encourages people to spend and borrow more. The Fed will NEVER raise interest rates as high as, say, China because they're duped by this myth called Keynesian economics that says that people need to spend to make the economy go round. It's simply untrue.
All these "problems" we're seeing with the economy aren't due to people not spending enough money (on the contrary!) or because of corrupt businesses. It's due to the fact that the government, aided by the Federal Reserve, encourages poor financial practices like spending yourself into debt. Then when people (or the government) runs out of tangible money to spend, they simply print more and insert it into the money supply. This further goes to lower the value of our currency because there are simply too many dollars in existence, which means it's worth less. Surely you can understand elementary supply and demand? All this comes together to create an INSANELY high price index on goods and services that people are duped into paying because the government and the media continues to spill propaganda on why it's good to spend money that you don't have: because it's unAmerican to let the economy "crash" when you don't spend.
This is preposterous. And your short reply shows more of that corruption when you say "As deflation continues people dont spend/consume and companies lay people off due to reduced demand which leads more people not to spend and banks dont lend because collateral will be of less value". This is circular logic. And your solution to the whole thing (spend more) perpetuates the circular logic. You're asking people to give up something (money) that you say they have less of. In that sense, their money actually becomes worth MORE because consumers are unwilling to part with their money because times are tight. If their money is becoming more desireable, then prices will decrease because products are LESS desireable.
But, with your policy, we should just let the government decide how much prices should be and force consumers to pay them blindly because it's "for the good of the economy".
Do you NOT see how your thinking is flawed? How the entire Keynesian system is flawed? It's all based on circular logic which leads to confuse and dupe consumers into doing what the government tells them to do.
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Obama and stimulus
BUT, when you have a hangover you do those things to help you through it. A correctly done "stimulus" (misnomer, IMO) could be used to somewhat soften the transition, if done properly.
AND, on transparency - no argument, Obama blew it big time!
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Solutions
* Require dollars in banks to be backed by open-market values of commodities. This could be interpreted by banks to be literal and they could hold precious metals and jewels. It could be stocks in other companies, it could be futures (which I believe are defined as contracts for delivery of a given quantity of commodity at a pre-determined price on a given date (from a given option of transfer points)).
* When a company 'too big to fail' fails break it up in to classes of assets that make sense on the market (really grade whatever mortgages grouped together as an example) then auction it off over a period of say... 2 weeks. The current second highest bid should be posted every N hours, while the highest bid from the the same time the day before should be posted, or some other way of having an auction which is designed to maximize the final value and thus minimize the reflection of loss to the stockholders of the original company. Their stocks would be converted in to whatever the assets were worth.
* ELIMINATE PATENTS, I have yet to hear of a patent within my lifetime that did more good than harm to the economy.
* LIMIT COPYRIGHT, 10-20 years should be more than sufficient, any longer than that and it should be part of the culture's shared libraries.
* TRADEMARKS - As far as I know this one isn't really broken as written, just as idiotic corporations like Monster Cable seem to believe they work... Maybe make all legal fees for cases where trademark litigation fails owed by the one who lost? That'd be a good way to apply damages to them as well...
* Infrastructure regulation: Require that all natural monopoly infrastructure be provided by utility companies or directly by the local city/county/state planning as it makes sense AND EXCLUDE THEM FROM PRODUCING WITHIN THE SAME COMPANY. Thus, roads, power-lines, data-cables, and various pipes (Unfortunately the pipes are virtually impossible to segregate, so the sources and end treatment options will largely have to be as they are now) are infrastructure, while the things that they allow to move are quantities to buy from various competing producers. If the local community wants to also build a separate competing power plant, data-service or something else on the platform that's fine, it's separate and on different accounting books.
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