[mikemike]

Are you saying is that since the Obama economic team underestimated the severity of the problem it is their fault that the stimulus was inadequate more so than the fault of the Republicans who opposed even that much stimulus?

I am saying that it is their fault that he is going to be slammed so hard on this issue for the next year. He got on a TV interview and made a "buck stops here" type of statement that he would be held accountable. Republicans aren't going to let him slide and if the situation was reversed neither would the democrats, no one would even entertain that thought for a second. The historians can revise their models, but any attempt to do it now is going to face severe skepticism no matter how legitimate it is.

[skyredoubt]

I am saying that it is their fault that he is going to be slammed so hard on this issue for the next year.

That's a totally separate issue from whether the stimulus worked or not.

[shooz]

See what I mean?
Still no word about the simple fact that the republicans caused the problem and refuse to make any improvement, as long as Obama is the President.

[Jeff_H]

Causing the devaluation of a given currency by inflating the supply of said currency isn't a way to stimulate economic growth, it's a way to suck more wealth out of the hands of the many and aggregate it into the hands of those in control of the supply of currency.

Keynesian economics is mathematically destined to end in one place and one place only. But, if you'd like to attempt to defend the position that inflating the money supply somehow creates wealth for people by devaluing what they do and have earned, invested, and have managed to save, feel free to try.

[skyredoubt]

Causing the devaluation of a given currency by inflating the supply of said currency isn't a way to stimulate economic growth, it's a way to suck more wealth out of the hands of the many and aggregate it into the hands of those in control of the supply of currency.

Keynesian economics is mathematically destined to end in one place and one place only. But, if you'd like to attempt to defend the position that inflating the money supply somehow creates wealth for people by devaluing what they do and have earned, invested, and have managed to save, feel free to try.

Jeff, actually inflating supply of currency is the only way to accommodate economic growth, because otherwise you'll end up with either deflation or unsustainable credit expansion. You see, suppose today we have full employment. Now let's say that another X people are being born and try to enter the workforce. Where can the money to pay those people come from? It could come from the banks - this is the credit expansion I am talking about. Banks create money but you have to pay it back. Private sector as a whole cannot create any net money in this way. On the contrary, the fact that you have to pay interest on loans creates the need for ever continuing growth or credit which is usually unsustainable on its own.
The other possibility is creation of money by the govt sector via deficit spending. This is the only way the non-govt sector can actually accumulate net money, or, more precisely, net financial assets, since most of the high powered money created by deficit spending gets replaced with govt bonds.

Now regarding that devaluation of currency, here is something to ponder the supposedly ironclad fact:
THE DOLLAR DEBASEMENT MYTH & THE FED’S BALANCE SHEET | PRAGMATIC CAPITALISM

[Nesster]

I thought the hard money men hated Bush for allowing the dollar's debasement?
vs. CHF
USD/CHF Currency Conversion Chart - Yahoo! Finance

Sky, what you are saying is that with fiat money there is no production of value in any activity: a farmer's crops, a manufacturer's widget, an author's best seller, none of these in any way increases the wealth of the nation, unless the government creates the additional money. Without the monetary expansion, more value-things divided into the same amount of money means the money must go further, which is another way of saying deflation.

[skyredoubt]

Sky, what you are saying is that with fiat money there is no production of value in any activity: a farmer's crops, a manufacturer's widget, an author's best seller, none of these in any way increases the wealth of the nation, unless the government creates the additional money. Without the monetary expansion, more value-things divided into the same amount of money means the money must go further, which is another way of saying deflation.

Hm, I would not say "none of these in any way increases the wealth of the nation" because the latter in my head is usually real and not nominal. But in purely nominal terms, if the economy grows, this has to be accommodated by monetary expansion or deflation will occur, yes. And deflation is usually so much nastier than inflation, which, I think, is the reason the Central Banks usually try to keep a buffer of benign inflation as a protection against deflation.
Also keep in mind the there is a human tendency to expect to be paid more even though when there is no increase in productivity. Each year we want to see a raise. Partly this is because we expect some inflation, but also because it is just human nature.

[skyredoubt]

Causing the devaluation of a given currency by inflating the supply of said currency isn't a way to stimulate economic growth, it's a way to suck more wealth out of the hands of the many and aggregate it into the hands of those in control of the supply of currency.

Jeff, some further points. Reading your comment again I guess what you mean by "devaluation" is actually "inflation" - or "too much money chasing too few goods". Devaluation is a different, although somewhat connected, thing, and on its own is not really good or bad. Chinese try to prevent dollar devaluation to keep their exports competitive just as the Swiss now are actually intervening in the markets to cause Swiss Franc devaluation against the Euro, again to keep their exports. Very few currencies want to become stronger! Devaluation has a limited effect on well-being of the nation. Yes, as a tourist you might hate to pay more in dollars abroad, big deal.
Inflation is a different thing and affects domestic sector in a much more immediate way - you're actually paying higher prices for things! When accompanied with comparable wage increases it is again not a big deal when moderate, as has been the case with dollar for most time. Inflation can be caused by monetary expansion, but it is actually very hard in our current monetary system and with idle economic capacity. See here for explanation:
Money Growth Does Not Cause Inflation! - Forbes
What Actually Causes Inflation (and who gains from it) - Forbes
Most inflation in recent times was caused by supply shocks. The proposition that monetary growth will inevitably lead to inflation is also a fallacy because it assumes that the quantity of things produced stays the same so that "too much money is chasing too few goods". But this is of course wrong for economies with large output gaps (idle economic capacity) such as ours! the whole idea of stimulus is to bring this idle capacity to live and produce things!

[mikemike]

That's a totally separate issue from whether the stimulus worked or not.

The current event of an upcoming presidential election is going to impede any attempt to retroactively model the past three years with and without the stimulus. Even if you manage to keep your own bias in check there is no escaping scrutiny based on the political implications, it would be like jury selection in NYC if they had captured Osama Bin Laden and tried him for 9/11 instead of killing him.

[skyredoubt]

The current event of an upcoming presidential election is going to impede any attempt to retroactively model the past three years with and without the stimulus. Even if you manage to keep your own bias in check there is no escaping scrutiny based on the political implications, it would be like jury selection in NYC if they had captured Osama Bin Laden and tried him for 9/11 instead of killing him.

I have no idea what you are trying to say here. The upcoming elections are going to change the past events!?
Forget about the elections and ask yourself what would have like to have happen without the stimulus. This is the exercise, not whether the Republicans will use bad old projections of severity of the recession to slam Obama or anything else.

[jeffkrol]

Causing the devaluation of a given currency by inflating the supply of said currency isn't a way to stimulate economic growth, it's a way to suck more wealth out of the hands of the many and aggregate it into the hands of those in control of the supply of currency.

Keynesian economics is mathematically destined to end in one place and one place only. But, if you'd like to attempt to defend the position that inflating the money supply somehow creates wealth for people by devaluing what they do and have earned, invested, and have managed to save, feel free to try.

If it's mathematics care to show proof......

Care to tell me how Japan's dollar's "strength" is helping their exports.

Care to even tell me HOW it is strong w/ a debt /GDP approacing 200%?

Japan’s Debt Ratio to Rise to 197% of GDP Next Year
The Bank of Japan needs to keep interest rates close to zero and continue its asset-purchase program until there is a “definitive” end to deflation, today’s report said. Since it lowered the key overnight lending rate to 0.1 percent in December, the central bank has been buying corporate bonds and shares from lenders.

CARE to get off FLAT earth????

Many economists and market experts predict high US inflation as a result of the massive government intervention in the recent financial crisis. However, in the wake of the Financial Crisis, the US economy slipped into an eight-month period of deflation unparalleled in nearly 60 years.. The charts and commentary here merely constitute an observation that severe inflation is not the inevitable outcome of government efforts to manage the US economy.

Read more: Japan, The US, Bubbles, And Deflation

mismanagement of "Keyensian" economics may be a problem (as with any "system") but not it's core principal.

So Keynes would say to Obama: be bold. Take the fight deep into the heart of your opponents’ camp and propose massive tax cuts, both personal and corporate. Americans will use the windfall to start spending again. Small businesses will expand at a faster rate and will start hiring again. Big businesses will take heart at the prospect of more customers and will also take on labor.

Federal revenues will slump and the deficit will soar, but what is there to lose? If, as in Britain, you slash spending and raise taxes, you will only invite a double dip recession. If you cure the economy and put everyone back to work, there will be plenty of time to raise taxes later, when the going is good. Above all, you will radically change the terms of the political debate. And it will put the Republicans and the Tea Party in disarray, divided between those who want big tax cuts and those who want to pay off debt. If the president wants a second term, Keynes would argue, he has to be daring. Now is not the time, as Margaret Thatcher said to one-term president George H. W. Bush, “to go wobbly.”

Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics is published by W. W. Norton next month. To read an extract, click here.

https://sites.google.com/site/wapshottkeyneshayek/home/nicholas-wapshott-key...k-book-extract
Keynes was smarter than your average guy.....

[mikemike]

I have no idea what you are trying to say here. The upcoming elections are going to change the past events!?
Forget about the elections and ask yourself what would have like to have happen without the stimulus. This is the exercise, not whether the Republicans will use bad old projections of severity of the recession to slam Obama or anything else.

I'm saying that the elections will bring extreme scrutiny and reflexive push back for any attempt to revise forecasting models. Nothing is going to change the past. If there is any acceptance that the models used by the president's economic advisors in 2009 were flawed and we have better models now that we have learned, those revised models might be used in the future but they will not be retroactively applied and accepted as validation of the ARRA's success now.

[jeffkrol]

Ismael Hossein-zadeh: Holes in the Keynesian Arguments Against Neoliberal Austerity Policy -- Not "Bad" Policy, But Class Policy

Another major weakness in the liberal/Keynesian criticism of the Neoliberal austerity strategy as "bad policy' is that, aside from the contractionary/recessionary argument, they have not thoroughly explained why this strategy is a "bad policy"; in other words, they have not vigorously challenged or exposed the flaws and myths of the Neoliberals' fiscal "responsibility" claim. This claim, self-righteously touted by deficit hawks, rests upon these theoretical presumptions: lower social spending would lead to lower deficits; lower deficits would lead to lower interest rates; lower interest rates would lead to higher borrowing for investment/spending purposes; which would then lead to economic growth. In this way, austerity hawks can (and indeed do) claim that it is their fiscal "responsibility" strategy, not the Keynesian deficit spending strategy, that is pro-growth.

Despite its prima facie reasonableness, this theoretical postulate is not as foolproof as it sounds. Investment decisions depend on more factors than just interest rate. Business or market environment in terms of certainty, or lack thereof, and the prospects of sales or effective demand is one such factor. This explains why despite the extremely low interest rates of recent years lending/borrowing/spending for productive purposes remains stagnant, if not frozen. Burdened by too much debt, neither traditional borrowers dare or can afford to take on more debt, nor lenders dare to part with their cash -- a classic situation of the so-called "liquidity preference," or "liquidity trap," as Keynes put it.

The claim of the champions of austerity policies that cuts in social spending would necessarily lead to lower deficits has also been disproved by the experience of recent decades. Since the late 1970s and early 1980s, social spending has been systematically cut while, at the same time, debt and deficit have been rising -- except, of course, for the second half of the 1990s, when deficits shrank, not due to cuts in social spending but because of economic expansion of that period.

As long as the liberal/Keynesian proponents of deficit spending do not or cannot expose these flaws and fallacies of the claims of the neoliberal champions of fiscal "soundness" they are bound to be entangled in an ineffectual, circular debate with the deficit hawks without much success. These proponents may argue elegantly and passionately in favor of "bold, additional deficit spending in order to grow ourselves out of this crisis," but without compelling grassroots pressure on policy makers they would not get very far with those arguments. Furthermore, as was just pointed out, champions of fiscal "responsibility" can just as forcefully claim to be "the real champions of economic growth" as do the liberal proponents of additional deficit spending." Indeed, due to its prima facie reasonableness, the fiscal "responsibility" argument often wins over stimulus spending argument--again, as long as the Neoliberal-Keynesian debate remains within the narrow circles of the elite policy makers and their intellectual talking heads on both sides, that is, as long as the broad masses of people are not actively involved in the fight against the obfuscationist arguments of fiscal "responsibility."

Perhaps the most important weakness in the liberal/Keynesian arguments against the Neoliberal austerity measures is the presupposition (or the acceptance of the premise) that deficit spending is the only alternative to cuts in social spending. This weakness, in turn, stems from another flaw in their arguments: neglect of the issues of accountability and/or culpability. The three major factors that are largely responsible for the colossal debt and deficit are: the multi-trillion dollar Wall Street bailout, the out-of-control military/security expenditures, and the huge supply-side tax giveaways to the wealthy since the early 1980s. Doggedly focused on additional deficit spending, Keynesian partisans (like Neoliberal deficit hawks) let these culprits of the global debt crisis go scot-free, so to speak. They either do not mention these real sources of debt and deficit, or mention them only in passing -- just for the record! Unwilling to challenge these sacred cows (their election/reelection benefactors), they tout deficit spending as the only viable alternative to cuts in social spending.

The Neoliberal fiscal responsibility vs. the Keynesian deficit spending debate thus seems more like a trap, or diversion, than an effective strategy to replete the public purse and bring about an economic recovery, as it sidetracks the root causes of debt and deficit, and accepts the Neoliberal argument that blames social spending as the culprit -- in effect, blaming the victims (the people) for the crimes of the perpetrators: the Wall Street gamblers, the military/security spending, and the supply-side tax cuts. This insidious argument and the fake debate between the Democrats and the Republicans pursue two objectives: first, to absolve the real perpetrators of their responsibility for the colossal debt and deficit; and second, to restructure the debt and the economy in ways that would dismantle the welfare state, and throw back the working conditions, living standards, inequality and class divisions more than a century earlier -- the late 19th and early 20th centuries.

Ahh the "good ole flat earth" days...............

[skyredoubt]

I'm saying that the elections will bring extreme scrutiny and reflexive push back for any attempt to revise forecasting models. Nothing is going to change the past. If there is any acceptance that the models used by the president's economic advisors in 2009 were flawed and we have better models now that we have learned, those revised models might be used in the future but they will not be retroactively applied and accepted as validation of the ARRA's success now.

Mike, it is very simple. From the graph that you yourself supplied, it is clear that actual unemployment numbers were much higher than those predicted by the economic team, correct? Now, unless you believe that stimulus made unemployment worse, you'd have to concede that we were in a deeper hole than was thought at the time, correct? Which means any evaluation of stimulus efficacy could not be based on this graph, because the graph was hopelessly wrong to begin with.
Regarding what could be used, well, as I said, read the link provided with 9 studies - you know, people actually trying to answer the question with data and models in hand - out of which majority (6) says the stimulus worked, while out of the minority that says that it did not it is obvious that 2 are junk, and the last one is basically saying that it would've worked if it were bigger. In addition, all of these studies were based on the initial measurement of the depth of recession, which we now know were too optimistic . Plug in the revised numbers and it becomes even more apparent that stimulus saved us from a severe depression.
Read this whole link, it does a better job than I in explaining the stuff:
Holtz-Eakin Joins the Recovery Act Champions

“Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.

And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.”