This isn't really a surprise.
Empirical evidence from a sample of OECD countries in the 1960-2000 period suggests that, on average, creation of 100 public jobs may have eliminated about 150 private sector jobs, slightly decreased labour market participation, and increased by about 33 the number of unemployed workers. Theoretical considerations and empirical evidence, however, suggest that the crowding out effect of public jobs on private jobs is only significant in countries where public production is highly substitutable to private activities and the public sector offers more attractive wages and/or other benefits than the private labour market.
Waukesha County is about to vote on giving its workers another increase.
That would be foolish, eh?
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The crowding out agrument breaks down during a liquidity trap. Financing costs to keep these public jobs occupied are cheap (or zero) while, at the same time, the private sector is experiencing mass unemployment.
The time period between 1960-2000 was never in a liquidity trap.
We are now.
IOW, this evidence has little to no relavance in today's world.
No - this is completely relavent in today's world.
The only hiring occurring is for government workers. As the now-infamous Shirley Sherrod stated "When is the last time you heard of a government worker being fired."
We have reached the tipping point where government at all levels has become the obese behemoth in every room that will continue to "eat" every economic gain in sight.
The private sector realizes this.
You are the one with the model that no longer applies to today stuck in your head.
Well, Struppster, I'd be willing to hold of firing all the Gummint employees for another 12 months.
I disagree Dad. Firing them now would save a ton of money. UI is cheaper than they are. Especially when you can also cut off all their awesome bennies and get rid of the pension requirements by doing it.
"We have reached the tipping point where government at all levels has become the obese behemoth in every room that will continue to "eat" every economic gain in sight.
The private sector realizes this."
But this just isn't true at all. I know you'd like to think it is but the facts state otherwise.
As I've said time and time again, if your theory were true, the yield on U.S. debt would be blown out to a risk premium that would reflect fears of government payrolls "crowding out" private investment. To date, we've pumping hundreds of billions of dollars into the system and yet the yield on U.S. treasuries continues to hover below 3% on the 10-year.
All this talk of "tipping points" is simply not true. There's no evidence to support it. In fact, the evidence leans towards further expansion of Uncle Sam's balance sheet (in the short term).
Again, we don't live in a world where austerity is responsible economic policy. Not now. Hopefully in a couple of years you can make this case. Judging by what I see out there, probably not for the forseeable future.
Did you ever stop to think that the yield on US Treasuries is hovering below 3% because of the monetary policies of the Fed manipulating it? We have had artificially/irrationally low interest rates for well over a decade now.
The government is kicking the can so to speak and preventing the natural corrections.
Now, because of those decisions (not just Obama's, though he hit the accelerator), we are in for a much longer period of pain. The more they spend now, will extend it. See the Lost Decade in Japan for reference.
The Keynesian theories no longer apply. Especially when the money is spent on non-productive programs like keeping state paper-pushers and welfare. If UI were the stimulus that Nancy and Co say it is, the economy would be humming. Which it isn't. There has been no multiplier. The private sector is now shedding overall employment again.
Bottom line. The "folks" have figured out that you can't keep printing and spending money to get yourself out of debt. No more than opening another credit card and max-ing it out helps at home.
There is no free lunch.
Ritholtz is NOT a Republican theorist, but his answer is exactly the same as the one I first thought of, Struppster.
T-Bonds are the least ugly girl at the dance. That's the only reason they sell well.
The WSJ caught the White House Friday news dump... Obamanomics ain't working and it ain't gonna work.
The WSJ isn't saying anything new.
"Did you ever stop to think that the yield on US Treasuries is hovering below 3% because of the monetary policies of the Fed manipulating it?"
Again, this is wrong. The Fed. has slowed it's QE policy over the past 6 months while rates continue to fall. If the markets believed as you do, inflation expectations would have risen and the yield curve would steepen. This didn't occur and won't in the near future. In fact, there's been a flight to the U.S. treasury by the private sector (see PIMCO) in recent months which has driven down interest rates even more.
As dadster says, it's good to be the lendor of last resort. We should start using this is our advantage instead of believing in fairtales.
"See the Lost Decade in Japan for reference."
Japan's failure to reform it's banking system and it's half assed approach to stimulus is to blame for it's demise. BTW, what's Japan paying to finance it's debt right now?
"The Keynesian theories no longer apply."
Sure they do. But you have to spend enough money to offset the fall in AD (see 1932-37 & 1940-45).
"There has been no multiplier.
Every private sector economic forcaster in the world conceeds the existance of a multiplier, especially when government spending exists in an environment of low interest rates and massive undercapacity. There is debate as to the size of the multiplier, given the method in which government dollars are distributed, but the existance of a multiplier is really unchallenged. Again this is just false.
"The private sector is now shedding overall employment again."
No it's not. Non-farm, private sector employment is growing, just not growing strong. Once stimulus winds down later this year, it might begin to fall again. Stimulus wasn't big enough to make a major impact in the unemployment rate.
"The "folks" have figured out that you can't keep printing and spending money to get yourself out of debt. "
No but you can buy yourself time to deleverage. The private sector IS deleveraging, it's just going to take time. Deflation (which you're passively advocating) increases debt, unemployment, undercapacity and growth. Debt is a function of GDP. When you deflate, you collapse GDP faster than debt.
That second to last sentence should read that deflation collapse growth, not increases it.
The Fed may have slowed QE, but they didn't end it. And inflation is not a risk until there is real economic growth. The fact that the interest in bonds has increased and interest rates haven't risen is evidence that nobody out there truly believes that there will be significant growth for some time to come and bonds are safer than the market for regular/non-risk-taking investors.
I also didn't say that there was no theory of a multiplier. I said there has not been a multiplier.
Because of the way that the stimulus was implemented, there was no real growth injected into the system, all of it was a temporary pasting over of programs that were already bloated and inefficient (i.e. bailing out the states). It was an expensive band-aid at best. At worst it was an intentional misuse of tax money to implement the Democrat dream of a much larger welfare state. Had most of that money been spent on rebuilding infrastructure or building things that were actually productive at the end, it may have been different. But if a frog had wings... Regardless. In this case, there has been no mulitplier. We just have a really big tab to pay for the binge drinking.
Regarding shedding employment - see the in the post.... data from the Bureau of Labor Statistics. Granted it is only 2 months of downturn after very anemic growth. But note the "star" which is where the Stimulus started pumping in the money. There was no multiplier. Period. I'll believe my eyes over the government saved-or-created propaganda, thanks.
"And inflation is not a risk until there is real economic growth. The fact that the interest in bonds has increased and interest rates haven't risen is evidence that nobody out there truly believes that there will be significant growth for some time to come and bonds are safer than the market for regular/non-risk-taking investors."
Exactly. Thank you. You got it. Treasury yields will not rise until the economy approaches some resemblence of full employment OR inflation expectations rise. Neither of these are on the short term horizon. We, as the world's reserve currency, should be using this to our advantage. Fire up the printing presses. Throw money out the window. Put people back to work as we did in the 30's and 40's. Do it immediately.
The administration knows this data full well, yet they're not doing what they know damn well should be done. Instead, they've decided to ignore the facts and pretend that it's morning in America because they've lost the will to fight for further stimulative measures.
Bottom line: People don't vote on the deficit, they vote on JOBS, yet the administration has turned it's back on creating these jobs. They're looking to get lucky by rolling the dice on the fantasy that AD (minus G) is strong enough to lift us out of the abyss in the next year. It ain't gonna happen. And we'll see how this plays out in the coming months. 2% GDP growth or less for multiple quarters which translate to zero or falling employment over the same time period. IOW, the mother of all jobless recoveries.
The multiplier effect is not apparent in the data because the administration screwed up the starting point. They assumed that economic conditions were bottoming out prior to stimulus kicking in which is why the charts indicate that stimulus isn't working. The growth in GDP has been almost all government spending related. But the freefall following financial crisis was seriously underestimated by the administration from the start. That and the size of stimulus wasn't even close to filling the gap left by the collapse in AD in 2009.
Why can't you admit that there is no multiplier because Obey/Pelosi/Reid (and by tacit agreement Obama) spent money just to spend money.
They didn't put anything into anything remotely stimulative. Just bloated and inefficient burocracies and entitlements. They pulled every Progressive Democrat wet dream of an idea that had been sitting there for 40 years and spent $862B on it.
Color me surprised (NOT) that there wasn't any spurring of the private sector - you know where jobs and wealth are really created.
It wasn't the size of the stimulus. It was that there wasn't any - you know - stimulus - in the stimulus. Our prize at the end (along with ObamaCare and the new financial "regulation") is a permanantly enlarged government that will crowd even more private investment.
My apologies for my spelling errors....
In addition to the questionable effect (if any) of Porky spending, you WILL have the problem of paying back the national debt at some point in time.
Your solution--spend even more, now--DOES add to the load.
So what are you going to tell your grandchildren before they hang your ass from the nearest tree?
Dadster...you assume that stimulus has a major impact on our long term deficit outlook. It's doesn't. It's not even a blip on the radar. Bending the cost curve to health care and social security are all that matters. Douglas Elmendorf, Director of the CBO sums up our problems perfectly:
“The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services,”
The grandchildren of my generation will judge us based upon our solution to the problem above.
"They pulled every Progressive Democrat wet dream of an idea that had been sitting there for 40 years and spent $862B on it."
Have you actually read the how stimulus funds were distributed?
Most of the funds took the form of UI extensions and state government backstops. It doesn't make any sense to increase federal spending if the collapse in state spending offsets the Feds. spending. This does make sense right? We're talking aggregate demand here.
The stimulative measure with the highest multiplier is UI extensions. I would think that this is fairly obvious too. People receiving UI use the money almost exclusively as disposable income. If we did not extend UI, consumer spending from the 10 million + unemployed would be nearly zero. This doesn't include the damage done to society by throwing millions of Americans out on the streets. Did the package have pork? Well sure it did. But that portion of the package wasn't as big as you think it was.
Direct government spending on infrastructure has a strong multiplier as well. As we both agree, Uncle Sam didn't spend hardly anything on infrastructure so we wasted an opportunity. An opportunity that we'll never get back it appears.
"Color me surprised (NOT) that there wasn't any spurring of the private sector"
Why should it? Private sector growth is a function of AD now and in the future. Why the hell would the private sector be stimuluated over a financial crisis, massive wealth destruction, collapse in AD and a tiny stimulus package? Not exactly a recipe for health and prosperity.
If UI were stimulative and a job creator, the economy would be positively humming at a fabulous growth rate right now.
It is not. Why? Because UI isn't spent as disposable income. It is spent on basic needs. Humanitarian? Yes. Stimulative multiplier? No.
Most of the money in the stimulus went to backstop the states so that they wouldn't have to make the tough decisions or take on AFSCME. A band-aid at best. Because now, we've spent the money and the states still have billions in structural deficits. Nothing got fixed. It was just a spending spree. Like someone who just lost their job max-ing out a credit card for some "retail therapy". It doesn't work. There is no multiplier for this type of spending.
And I agree, we won't get a chance for any sort of stimulative spending - ala infrastructure - because the triumvirate squandered all of their opportunity on sucking up to their favored constituency and then on healthcare. You can also look at the distribution of the monies and find that it had more to do with what district voted Obama than their unemployment rates. Sucks to be the rest of us.
It doesn't matter what UI dollars are spent on. What matters is that it's spent.
I think the problem here might be your understanding of the term "multiplier" popularized by Keynes.
"Most of the money in the stimulus went to backstop the states so that they wouldn't have to make the tough decisions."
Yes that's correct. Austerity can be dealt with later. Americans can take up their beef with AFSCME or whoever at a later date.
"The services expected..."
Elmendorf carefully stepped around the steaming piles of UN-expected "service" such as Energy, Education, EPA.
"I think the problem here might be your understanding of the term "multiplier" popularized by Keynes. "
Me, you, and the Obama Administration evidently...
Seems the Germans were a bit more accurate than Christina Romer and Jared Bernstein "will create about 3.6M jobs" which then turned into "saved or created 3.6M jobs". Even though the graph in my link above clearly shows the opposite.
Not every economist out there agreed with the models used. History seems to have proven the stimulus doubters correct. Unfortunately, Strupp and Paul Krugman want to double-down on the failure and spend even more.
By the way, Struppster, even Orszag & Co. state that current deficits will lead to "unsustainable" national debt.
So. Will your grandchildren merely hang you, or will they torture you first?
"Elmendorf carefully stepped around the steaming piles of UN-expected "service" such as Energy, Education, EPA.
Because these agency/depts. aren't not that big of a deal in terms of our long term budget crisis.
Current deficits WILL lead to unsustainable debt. In the long run. Which is why real health care and social security reform are so important. The $800 billion stimulus package wasn't that big of a deal in terms of our long budget trajectory either.
Ironically, Krugman has a piece just today that deals exactly with the issue we're discussing:
So Krugman agrees with you. Probably reads these debates....
I'm still waiting for your discussion of the National Debt Bomb.
AND as to agencies which should be nuked: yes, they are not the Pentagon, nor SocSec/Medicare.
But the Pentagon has the advantage of being virtually named in the Constitution.
And eliminating the excess baggage is only a start. Ryan also suggests freezing pay/bennies/hiring of Fed folk--another useful item.
And, by the way, you could ALSO explain how adding 39 million people to healthcare will "reduce costs."
SO you have two assignments. You are not allowed to quote (D) pols b/c, of course, they lie all the time.
Strupp is a Krugman fan... color me surprised.
By the way, Strupp: Krugman thought that a $660Bn porkulus would be plenty back in 2008.
Too bad he put that into print, eh?
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