UB suggests that it has a multiplier of 5. If they did, this would be like the goose that laid the golden egg. My gosh, all they'd have to do is appropriate $140B to UB, and they could pay for the whole $700 Federal bailout ... A more telling multiplier is the economic impact divided by the whole UB budget of $832M, to get a multiplier of 1.8. I think that seems a lot more reasonable than 5 to 1.
The size of this multiplier depends in turn on three things in particular, the marginal propensity to consume (c), the marginal tax rate (t), and the marginal propensity to import (m). If c=0.8, t=0.2, and m=0.2, the Keynesian multiplier is 1.8 (=1/(1-c(1-t)+m)). A $1 trillion fiscal stimulus would increase GDP by $1.8 trillion. Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion--quite a difference. Nice deal if you can get it. In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do--but should we really care if the alternative is significantly lower growth and higher unemployment? More to the point, will Obama and his advisers care?
Ricardian equivalence states that a deficit-financed increase in government spending will not lead to an increase in aggregate demand. If consumers are 'Ricardian' they will save more now to compensate for the higher taxes they expect to face in the future, as the government has to pay back its debts. The increased government spending is exactly offset by decreased consumption on the part of the public, so aggregate demand does not change.
Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. November's drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November ... In November, the labor force participation rate declined by 0.3 percentage point to 65.8 percent. Total employment continued to decline, and the employment-population ratio fell to 61.4 percent.
Over the month, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) continued to increase, reaching 7.3 million. The number of such workers rose by 2.8 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.
Over the past three decades, they have lost ground to more agile foreign rivals that favored smaller cars built by non-unionized labor at lower wages.
Actually, many of these cars were built in unionized factories in Japan, South Korea, and Germany. Unions didn't keep foreign manufacturers from producing high-quality popular cars in these countries. Even when these companies set up shop in the U.S. they have been able to work well with unions. Toyota operated a plant in California where the workers were represented by the UAW for decades (it may still be open). There may have been problems with the way the Big Three management dealt with unions, but other car companies have been able to operate very effectively with a unionized workforce.
economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost. Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size. “They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.
South Carolina's Gov. Sanford is resisting the urge to propose or accept raising taxes. Faced with a shortfall, Gov. Sanford reconvened the state Legislature in October, and it made $488 million in targeted budget cuts. Gov. Sanford, unlike most of his colleagues, speaks out against any federal bailouts, including a fiscal stimulus bill that is likely to include state aid. "When times go south you cut spending," Gov. Sanford said. "That's what families do, that's what businesses do, and I don't think the government should be exempt from that process."
This is of course dead wrong -- and confuses microeconomics with macro, as any student of Econ 101 could tell you. The micro-considerations of an individual family or business has nothing much to do with what governments need to do to get the larger economy moving again. (Or just go read someone who actually knows what he's talking about - Krugman). Even worse, it's often affirmatively harmful to adopt microeconomic solutions to macroeconomic problems. Hoover: Ain't that the truth ... One larger point here is that, while "rising stars" like Sanford and Jindal may be individually compelling, they must operate within a Republican Party that has enthusiastically embraced ignorance on a whole host of subjects, economics included. The issue is whether they can escape these constraints.
But rather than blow money on a lavish reenactment of the New Deal, or continue bailing out undeserving corporations, why not really think outside the box? Rep. Louie Gohmert (R., Texas) suggests an across-the-board reprieve on paying 2008 income taxes. This would leave an extra $1.2 trillion in the hands of Americans, who are the best stewards of their own money.
Heaven forbid Americans save their money, which usually amounts to putting it in the market, 401ks
Greg Mankiw must know better than he indicates in his analysis of debt in today's NYT. He complains that efforts to use large-scale stimulus to boost the economy may put excessive burdens on our children.
Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations. But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects. The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates
Federal Reserve Chairman Ben Bernanke said Monday that further interest-rate cuts are "certainly feasible," but he warned there are limits to how much such action would revive an economy likely to stay weak well into next year. The Fed's key interest rate now stands at 1 percent, a level seen only once before in the last half-century … "Although further reductions ... are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited," Bernanke said in the speech. The Fed can lower its key rate only so far — to zero — and it's getting ever closer to that threshold. Bernanke said there are other ways that the Fed might bolster economic activity. The Fed, for instance, could buy longer-term Treasury or agency securities on the open market in substantial quantities, he said. This might lower rates on these securities, "thus helping to spur aggregate demand," Bernanke said. Given the limits to how low the Fed can go in reducing interest rates, the central bank over the past year has resorted to a flurry of other radical — and often unprecedented actions — with the hope of busting through credit jams and getting financial markets operating more normally.
The U.S. economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said Monday. The economy reached a peak in December and has been declining since, according to the business cycle dating committee of the NBER.
