Crowding Out

KJ I don't think I COULD ride my bike all over the city today. And I lost my kevlar vest:). I don't doubt that there are many factors that have contributed to the decline of urban America (assuming one accepts that urban America IS in decline)- not least of which one which I personally never considered, but is true- many people prefer suburban living- not me really ("What's a dazzling urbanite like you doing in a rustic setting like this?") but a lot of people do. And I have no doubt that huge piles of cash are dumped into rural America- don't much care for that either, particularly when it's Cargill and ADM that get most of it- not Ma and Pa Kettle (or I guess in MN it'd be Ma and Pa Gustavson). But I think the urban areas do too- particularly if you count things like Medicaid, SSI, etc etc. That sends this discussion down a different road, I know, and I don't underestimate how difficult it is to run a big city. And- to be clear I don't put St. Paul in the same category as Detroit. You're right though, good discussion. Watch out for those nasty Vulcans and good luck finding the treasure!

The explanation for this is simple, Will. Sure, economic consensus is that Galbraithianism is bad for the economy, even among economists that are Democrats. But Marxist authoritarianism, which is what they are really about at heart, has never been advanced for the purpose of improving the economy.

Yes. Exactly. They don't want things "better." They want things "equal." There is a big difference. So the recovery will be slow and dampened by their Socialism.

KJ- I'm still not sure what your agument is- if you are saying that farm states are oversubsidized by the feds I have no disagreement with that- the fact that some states send more to the feds than they get back is an argument for a smaller federal government. You don't want to live in Eagan or Maple Grove- great, don't -some people do. And I don't doubt that St. Paul is more affordable and livable than the places you mentioned, but again it ain't what it used to be. As for the representational issue- Senators don't represent people, they represent states- and are you arguing that only minorities can represent majority minority districts? Bales of money have been dumped into urban America in the postwar era; coinciding with its decline. I use St Paul as an example, not because I wish to trash it- far from it- I was once voted by the senior class where I teach "an entire class period without mentioning the state of Minnesota" I still consider St. Paul 'my' town- if I ever moved back to MN I'd probably settle in St. Paul- probably in your neighborhood- think of the fireworks at the 4th of July BBQ! But I think it's sad to see comments like "I even thought Oakland was pretty nice so long as you stayed out of a couple neighborhoods." There was no place in St. Paul I wouldn't ride my bike as a kid- is that true today?

It's also worth considering the other powerful forces have swept across the country since the sixties, transforming urban centers (particularly in the northeast and midwest). I'd guess that widespread Democratic party city governance rates very low on a list of influential factors. Off the top of my head, the rise of right-to-work laws in the south, the massive expansion of air travel, the growth of the Pacific Northwest and Southwest, and the success of the civil rights movement all likely played a bigger role in the decline of Detroit, Springfield MA, and to a far lesser extent the Twin Cities, etc..

I have yet to discover a place where you couldn't ride a bike but I'm sure one exists. Although, you know parents these days, you have to wear a kevlar vest and a football helmet just to go in the back yard.

But anyway, back to my point about underrepresentation. States with high urban concentrations get stiffed by the feds so it follows that the cities that are in these states are getting stiffed as well. So even though you think the Feds have poured money into the cities, I would wager a substantial amount that on a per capita basis you are very wrong. Cities have received less per person than rural areas. I know that the same thing happens in state government, with much more money per person flowing to out state Minnesota. I just think this should be factored in before people start talking about how much cities have been neglected by bad liberal government. It's simply much more challenging to govern a city that is underfunded and attracts a higher proportion of the poor and uneducated. You can blame the liberals. I blame the underfunding and the additional complexity. Maybe it's a little of both. I certainly don't want to defend Detroit's choice of politicians.

I enjoyed the back and forth. Sorry for starting out on the wrong note.

Federal tax cuts do build schools.

Local governments, not the Federal government, build schools. Federal tax cuts give taxpayers the means to pay their local governments to build schools, if that's what they want.

I'll go along with you lark. First, however, convince me that it's "our ideas" that have been driving the country.

http://online.wsj.com/article/SB123275512887811...

As a citizen, I think the free market economists should take an oath: First Do No Harm.

Listen, guys, cease and desist. Your ideas have driven the country off a cliff. You should be filled with shame and remorse. Your reaction to this crisis seems more like mental illness than reason.

And the weather in the Twin Cities doesn't suck- it's just cold!

If the public goods argument is the right one for the stimulus, then it is the right one when we don't need a stimulus. I am all for spending on public goods if they are worthwhile. But don't pretend that it will stimulate anything or get us out of the recession.

All this is going to bite the stimulus types 5-10 years from now, when the bills come due. Maybe sooner if we get a run on our currency.

The reason that hardly any macroeconomists are fiscal policy Keynesians is that it hasn't really worked before. Look at the fiscal stimulators arguments: `Japan did not spend enough fast enough.' or 'WW II doesn't count because there was rationing.' But rationing meant that the goods went to the government by fiat, hardly evidence that the spending actually improved people's lives. And WW II is suppose to be the best evidence that stimulus helps.

All this is hope. We have to do something. You betcha.

The evidence is the once the government 'Has to do something' then all private planning is useless. The government, like any large organization under threat, acts like chickens with their heads cut off. But they have huge power. Look at the TARP for some evidence.

I first learned macroeconomics from Keynesians. It seemed like magic in class. It seems like magic now. There is little fiscal policy in any modern "new-Keynsian" model that I know of--these are all models about monetary theory. As much as the stimulus Keynesians act like they know what is going on, they don't. (I am not sure anyone else really does either, though) That's why the stimulus types are onto public goods arguments, rather than macroeconomic arguments. And calling people who disagree with the 'liquidationists' or 'Treasury-view' people. Not arguments, but simply name calling.

But we are getting the stimulus. And my guess is that it is not going to be too terrible unless the government keep dragging things out before they set new rules. We will get some projects funded by the feds that would have been funded by local governments. I guess that will reduce local shortfalls. We will also get some new light bulbs in federal buildings, and less financial institutions making huge profits on outrageous bid-ask spreads in trading complicated securities. Hopefully, we will reduce the number of complicated funds that pretend they are providing services. But note that the current administration was wildly successful at raising money from hedge fund types. So we will get a new form of regulatory capture....

KJ-I like being called either an idiot or a liar (or both!)- after all I am a Cretin! Of course there are good neighborhoods in St Paul- yours is one of them- spent much time along East 4th St. lately, or along Payne Avenue- on Dale north of University or on Arkwright and Maryland, where my father grew up? These were solid middle class neighborhoods when I was a kid- they're not now! I'm sure home prices are stable there, too! And unless your local papers are lying about the crime rates in their reporting- crime is at levels unimaginable in my youth. The fact is that in 1960 nearly 800,000 people lived within the city limits of St. Paul and Minneapolis- now there are 200,000 fewer. And it's not like people were moving from 4th floor walk-ups to Long Island houses with basements and yards- last I checked St. Paul's still a city mostly of houses with both yards and basements. And yeah if your kid's in the IB program at Central he's probably OK- what about the rest? You are right- a lot of people prefer to live in the city- I'm one of them- circumstances brought me to a New England college town- but that doesn't mean that there aren't serious issues in urban America. Your last paragraph is incoherent- US cities HAVE been run by liberals for the last 60 years, and urban America HAS declined- perhaps it's just a post hoc argument, but it has to be addressed. And you are seriously going to make the argument that cities have declined because not enough federal money has been spent there?

Hell yes, I'm going to make that argument. You aren't seriously going to make the opposite are you? This is basic civics here. California has 2 Senators and as many people as the 18 or 19 least populous states which have nearly 40 Senators. Along with that we know that minority populations are higher in urban centers and that minority populations have been underrepresented for decades and it continues today despite an urban black guy in charge now. We also know that states like California and Mass. and New York with large urban populations get back about 75 cents on the dollar from the Feds while rural states like my great state of North Dakota get back $1.40.

Are you suggesting this doesn't matter? I hope not.

Sorry if I called you an idiot or liar. I tend to get carried away on discussion boards but you were trashing my town. I didn't see St. Paul many years ago when you lived there but I can tell you it's a hell of a lot more affordable and livable than my other places of residence including various towns in North Dakota and Berkeley and Walnut Creek, CA. And even if it is worse than it was, it sure beats living in some outer suburb. I ride bike to work and our family of 5 only needs one car. I'm not seeing the problem with St. Paul or most American Cities. Hell, I even thought Oakland was pretty nice so long as you stayed out of a couple neighborhoods.

And I'm going to a nice middle class party next Saturday off Dale north of University. Should be fun. I'll be sure to post if I get mugged.

Another example of very smart people failing to comprehend and accept that the Democrats really are seeking to completely transform America and abandon the precepts that led to our success. Who really won the Cold War?

Hold on here. Mark Thoma and other liberal economists are talking about using the stimulus package as an opportunity to stimulate spending on public goods, but many of the comments here sound as though Thoma and others are talking about private goods. Thoma was very clear...he was talking about public and near-public goods; he was not talking about the public financing of private goods. It is a fact that markets tend to undersupply public goods. If you care about public goods then this is the time to start repairing roads, water & sewer systems, schools, supplement local police budgets, repair/overhaul used up military equipment, upgrading the electrical grid, funding basic R&D, etc. These are all public or near-public goods. Arguments about public goods spending crowding out private investment are hard to take seriously in the current environment. There isn't much private sector investment even at zero interest, so it's hard to argue that there's any crowding out going on. Crowding out is the kind of problem we'd love to have right now. The opportunity cost of using soaking up savings with public goods spending is very low right now. Almost any public goods project will generate a positive return on investment when real interest rates are negative.

And you're really opposed to the govt using tax dollars to buy televisions in every room of your house, then you ought to oppose the tax cut portion of the stimulus package.

How could one dispute that markets undersupply public goods. That doesn't even make sense, since that isn't within their purview. Private companies aren't tasked with providing roads, bridges, armies, or what have you.

There is little difference between spending on public goods now, versus years ago, versus the future, other than the obvious replacement vs repair argument. The government must spend on those things over a period of time. Everyone understands that. What doesn't make sense is to expect that spending on these things is going to stimulate the economy out of a recession, especially when you are borrowing money from the future to pay for these things today. This makes it doubly worse because once you begin borrowing from the future, not only have you taken future money away, but you have to continue to build/repair in the future and you've already spent some of the money that would have been available then. Defiicit spending leaves you in a perpetual hole, without reducing spending at some point to compensate, or taking more private money via taxes.


Exactly how is opposing tax cuts allowing using tax dollars to buy televisions. Tax cuts means I keep my own money before the government spends it, so if I want to buy televeisions for every room in my house, then so be it. But that doesn't have any effect on other taxpayers. I'm not buying them with their tax dollars. I'm buying them with my own money, that I earned. Opposing tax cuts means the government takes more of my money to give away to someone else, to use it for their benefit, including purchasing televisions for their living rooms.

So you would rather delay repairing bridges and roads until the economy is at full employment and govt spending will crowd out private investment??? That seems to be what you're saying.

You're whole argument about borrowing from the future is confused. Currently there are unemployed resources. Borrowing funds does not mean that you borrow labor from the future; it means that you promise to pay the owners of bonds a certain fraction of future earnings. But the real economic resources used to build roads and bridges are current economic resources, not future resources. If those resources are left unemployed and public infrastructure is not available for future generations, then that represents a permanent loss. You don't avoid the loss by refusing to employ the resources. In other words, accepting high unemployment today does not mean you get to avoid the costs down the road. The problem today is that there's a lot of idle savings that is not being soaked up by private investment. I think you need to reexamine the economic meaning of intertemporal saving.

Giving tax cuts to stimulate your consumption means that you are asking future workers to give up some of their consumption. Basically you don't want to carry your share of the load. It's true that what you earn is yours; but it's also true that what you consume is also your bill. You consume public goods, so you have to pay for them.

I'm not saying that at all. I'm simply saying that the economy is best stimulated by increasing investment from the private sector, not by government spending. That doesn't mean that all government spending is unnecessary or unreasonable. Government spending should be done where appropriate and necessary. Everyone needs roads, bridges, etc. Private enterprises could not operate without public infrastructure. None of that is contested. What I am contesting is that you can buy your way out of a recession with deficit spending by the government.

You are completely misconstruing my position. I am not arguing for zero government spending, nor am I some kind of Libertarian anarchist. But my share of the load keeps increasing with continued bad decision making on top of previous bad decision making by the government. And so is the load on my kids, and all future generations, as we continue to mount mountains of debt.

Tax cuts allow me to keep more of my money, yes. Of course, what do you think I'm doing with that money. Hiding it in a mattress? No, I am spending some and investing some. Both of which end up financing new investment. Also, our corporate tax rate of 35% is the highest in the free world. If you want to free up capital, cut the corporate tax rate to something like 15%. Cut the capital gains tax rate. These things will spur investment faster, and in more meaningful ways, than government deficit spending, especially given the propensity of the government to mis-allocate funds to pet projects, unnecessary projects, etc.

Of the 275 billion in "tax breaks" in the current bill, 145 billion are refundable tax credits, available to people who don't even pay taxes. That of course, isn't a tax cut. It's a welfare check. A breakdown of the other 500+ billion in spending is available here http://economix.blogs.nytimes.com/2009/01/15/st....

Doesn't look like a lot of investment in infrastructure to me.

As to the rest of your statement, you are arguing against points I never made. I never claimed borrowing money from the future means borrowing labor. That may be an effect, but not one that I claimed. I simply claimed that all this borrowing has to be paid back, plus the interest. That means that at some point, tax revenues have to increase to cover the borrowed money plus the interest. That money has to come from future tax collections, which will reduce the available capital in the future to pay for today's spending. This has never been more true since most of our debt is foreign owned, which may or may not come back to us in the form of investment dollars.

As to the rest of your statement, as I mentioned in a previous post, infrastructure investment is not waiting for money to pay for labor. That is not the issue, and never has been. If every dollar that was needed to build/repair all infrastructure was suddenly available, it would change very little. The accountant, computer programmer, lawyer, etc., are not going to leave their existing employment to go build roads and bridges. The unemployed may or may not have the necessary skills to do the work, or they may not reside in an area where work is being done. Work can only be done after very lengthy approval processes at local, state, and sometimes federal levels. Construction companies lack the equipment necessary to work all these jobs simultaneously, and are unlikely to make big investments in assets because once the stimulus money is gone, they will be stuck with assets that will be underutilized and increased maintenance costs. New construction companies aren't going to just form out of thin air. Who would do business with an unknown construction company whose management and employee base has little or no experience doing that kind of work. All of these things are ignored by those who are pushing this stimulus. I love the "shovel ready" statements, as if all they need are a bunch of people with shovels to go build these roads and bridges. It's not the early 1900's anymore.

Are you suggesting that private enterprise wouldn't do this, either?

No, I'm suggesting that it doesn't matter when taxpayer money isn't involved.

If I want a television in every room of my home, then I am free to buy them -- but not with your tax dollars.

Can somebody name a few Economists who have started successful companies, ad this created wealth by creating jobs?

Can somebody name some Economists who have taken over troubled companies and corrected the problems, thus creating wealth by preserving jobs and adding new ones?

Can somebody name some Economist who's taken over any public agency and reduced, or eliminated, its rate of tax eating growth while improving service to the public?

From what I see, most economists seem to be salaried employees who suffer squat when their "brilliant" thoughts screw up everything. Many are tenured faculty who can't be canned no matter how stupid they are. Others work for government and have zero chance of losing their jobs when things go south.

Meanwhile, business news in the last week concerned earnings at 2 well known companies, Apple and Microsoft. Apple mentioned that they have 35 thousand employees. MS mentioned 96 thousand. There was a time when Apple consisted of TWO people and Microsoft consisted of TWO. Those 4 people created untold wealth by not only creating 131000 thousand jobs, but also tens of thousand of jobs at various vendors, sub contractors, etc. None of the founders of those companies were Economists. In fact, at least 3 of them never graduated college.

So please, somebody PLEASE name an Economist, or two, who's actually built ANYTHING that created wealth and improved lives of people by putting real, earned dollars in their pocket.

Barry Nalebuff?
http://www.honesttea.com/mission/about/story/

Huh?

The guy appears to be and MBA, not an economist. Also. if you look at the company timeline you see that, in 10 years the company has grown from 3 to a whopping 52 employees. Lord, my father, a contractor who never saw the inside of a college employed upwards of 60. That's a far cry from thousands.

Not sure how you define "economist."

http://heroesofcapitalism.blogspot.com/2009/01/...

There's a guy with an undergrad degree in economics. I'm sure if you comb the site you can find more. If you're looking for a high-profile tenured academic economist who's started up a business...well, I imagine they're not common. That's because time is scarce and academics gain prestige by writing, researching, teaching, etc., rather than starting up businesses.

As for changing a public agency for the better, try Alfred Kahn.
http://en.wikipedia.org/wiki/Alfred_E._Kahn

*the former, that is.

It disappoints me that there are still people that believe in collectivism as a form of government, Keynesianism as economics, and Global Warming as science. What steams me is that they are now in power. What saddens me is that people voted for them.

Your side had the balance of power, to one degree or another, for the better part of 20 years. You had the congress and the Presidency for 6. People lived through that. You utterly failed to provide them with what they believed was necessary to live lives of fulfillment and abundance. So you are now out of power. There is no great mystery to that.

Look, we have discovered that for the majority of Americans, free market theology and boot-strapping no longer holds any appeal. It doesn't because a great many of them lived through a time of enormous economic growth and yet didn't believe that their lives had seen material improvement. So they voted you out of power. Now there's two ways you can handle that. You can stick to your guns, and refuse to offer an alternative approach to liberalism that nevertheless provides more for the needs of our democratic polity, or you can try to craft some sort of new appeal to the American voter that helps them more than saying "ya gotta believe." The latter is arguably more fun, but it leaves you with even less salience in the public mind. That's not trash-talking, that's a simple and accurate analysis of what the American people have grown to reject. They might not be right, but that is a political reality, and not one likely to change in the immediate future.

I don't say this with disrespect, but there is a reason that quasi-religious fidelity to free markets and the economic libertarians who espouse it are more political curios than political forces. Just saying "free markets free markets free markets!" is not enough, it is not enough for the American people. So evolve or die.

The idea that Republicans under GW Bush were free marketers is laughable. Looking at the post-WWII era, the years from Reagan through Clinton are, relatively, the most libertarian that we've had, certainly more so than the 60s and 70s. The Bush 43 era was a significant step backwards. Unfortunately, Bush espouses free markets in his *rhetoric*, so lots and lots and lots of people are going to mistakenly equate his failures with that of "quasi-religious fidelity to free markets." There's no reason libertarians shouldn't try to convince them otherwise.

I'm not sure why there is difficulty understanding that every single dollar that the government spends precludes the possibility of the same dollar being spent by the private sector. It's almost as if some people believe that the government actually does have it's own money supply and that by spending it, private sector money won't be spent. Private sector money won't be spent, but that's not why. It's because the private sector's money was spent by the government. This is not really a difficult concept but one that seems to elude many people, both in the government and outside of it.

Government allocation of resources will never be as efficient as private enterprise. This does not mean that there are not proper uses of resources for the government, nor does it mean that every single private enterprise is effecient. Some government services are required to properly function. Fair enough. In the private sector, ineffecient enterprises usually die away (at least without getting their government bailouts), leaving capital to be used elsewhere for more efficient and newer enterprises. That's how markets work.

I have to laugh every time they talk about the stilmulus package in terms of "reinvesting" and infrastructure, as if roads and bridges, schools, etc, are ready to built tomorrow, if only the funds existed. This exhibits an enormous ignorance on the part of politicians, at some of which certainly have been officials at city/state levels, where road/bridge building certainly has been an issue. How long does it take to select a contractor? How long to purchase right of way? How long to get environmental impact studies done? How long to get challenges through the courts? Even if it's redoing an existing roadway, it's not as if the problem is a simple lack of manpower, that the funds will enable contractors to hire all these unemployed people and the work will just get done. As with any construction project, allocation of equipment is one of the bigger determning factors in construction schedules. There's only so many concrete trucks and other heavy equipment needed for road building available. Construction companies are not going to go buy a bunch of new equipment, knowing that when the stimulus spending is done, that they will be stuck with too much equipment with it's increased maintenance costs.

What about building/refurbing schools? Ever been through a government RFP process? From the start of the RFP to actual start of work is generally at least 9 months to a year for any large project.

All of this talk about reinvesting in our infrastructure as part of the stimulus is just talk. It's not reality. This recession will be over by the time any of that spending comes to fruition.

I have to laugh that your first sentence of your 2nd paragraph was pretty much invalidated by the rest of that paragraph. Government allocation will never be as efficient as private enterprise except when it is more efficient is much more accurate. I really wish people would let go of this fantasy that government is always less efficient. Common sense should tell you this isn't true and if that doesn't work just read your 2nd paragraph again where you point out that inefficient enterprises fail. I'm assuming those failed enterprises weren't funded by the magic pot of money you mention. And what is more inefficient than investment in an enterprise that fails? Nothing. And how many new businesses fail? Isn't it something like 70 to 80%. Explain to me how this is an efficient use of capital.

Obviously continued spending on things we don't need by the government is inefficient (cough, defense spending equal to the rest of the world), but quite clearly we are at a point where our public spending is woefully low in comparison to what is needed. We need to spend on infrastructure. I don't think anyone looks at our infrastructure and thinks we aren't renewing at the proper pace. Private industry won't do it so that leaves government. Only morons look at our Health System and think this private-public idiocy we have now is efficient. It's the most inefficient in the world and other countries have done much much better than us. Obviously we should model them just like businesses model other successful businesses. We also know that money given to the poor and middle class will be spent and passed on to private industry, thus rewarding private enterprises who are selling the proper products. None of this is very hard.

And one last thing. The CBO will release a report next week that will show that 75% of the spending in the stimulus bill will be spent within 18 months. And most of the rest will be needed infrastructure. We've underspent, except on Defense, for years now. It's time to catch up and bring the economy back. Quite simple. Only market fundamentalists seem not to get this. The American public seems to think its quite simple.

I'll pluck some low-hanging fruit.

"And what is more inefficient than investment in an enterprise that fails? Nothing."

How about an enterprise that should have failed but is perpetuated by government (See: Amtrak). How about an investment in something with a very low upper bound in terms of utility (See: Bridge to Nowhere).

Yes, businesses fail and bad investments are made. This is part of creative destruction. This is how society figures out where we should be allocating resources. It's a discovery process. The problem with government investment is that too often there is neither creation (at least of something that people actually want) nor destruction (government projects tend to stick around).

Then you misread the comment. Government allocation, as in central planning, is the key. It's not that there aren't government enterprises which succeed vs some private enterprises that fail. No one would argue that point. The point is that given X amount of capital, who is best to determine how and where that capital should be allocated. The answer is not the federal government. As to the rest of your comment in the first paragraph, that capital is not destroyed. It was redistributed in the form of wages, taxes, capital expenditures, etc. That money is free to be reused to create additional wealth somewhere else. Government spending can do no such thing, because government has to take money to spend it, whether taking it directly now, or taking it from future generations via deficit spending.

Demonizing defense spending is such a red herring. 22% of the federal budget goes towards defense spending. 51% goes towards social programs, including 21% to Social Security, 21% to Medicare/Medicaid/SChip, and 9% to other safety net programs. The percent of the US defense spending compared to the ROW is meaningless.

Private industry isn't in charge of infrastructure, so what's the point. You make another absurd claim regarding health insurance. No other country has the medical advances and access to health care that the US has, including the shortest waiting times. I agree that the public/private hyrdra we have now is inefficient in many regards. How about we do the right thing and get government out of it altogether. How about letting consumers pick the policy and coverages they want, based on their medical history, desires, needs, etc.

Regarding money given out to poor and middle class...Geez, where to begin. First off, the government has no money to "give out" to anyone, except what they confiscate from the public. Why should my money be taken from me to give to someone else so that they can spend it. Why am I not allowed to spend my own money, or invest it in my future? Why would a dollar of my money in the hands of a poor person be more likely to be spent on "proper" products, whatever that means.

Beyond that, assuming even it is true that the CBO report will show that, that doesn't change anything. Spending by government results in about 1 dollar GDP growth for every dollar spent, possibly as high as 1.4:1, whereas tax rate cuts show a multiplier of 3:1. Private sector utilization of capital is simply better, and the way to do that is through permanent tax cuts, not increasing deficity spending.

As to the American public, that is so meaningless that any response would nearly be as meaningless. There is no "american public". There are about 300 million individuals, who all have their own biases, ignorances, hopes, dreams, etc. To assume that there is some "American public" who "Gets" whatever you think they get is utterly inane. I think you are projecting a bit too much there.

2slugbaits does a better job at a rhetorical takedown then I am capable, nicely dismissing that silly 3:1 tax cut multiplier which is a market fundamentalist wetdream.

I wanted to highlight this gem however: "The percent of the US defense spending compared to the ROW is meaningless." Really? As a defender of the poor downtrodden taxpayer, I'd think the amount of spending would matter a great deal to you. We are a fairly isolated nation, with no hostile borders and we spend as much on Defense as the rest of the world combined! This is paranoia. If you care about the taxpayer then you must care about Defense spending even if it is a mere 22% of the budget. I implore you, please reconsider.

And you really need to update your information on our healthcare system. It seems as though you are stuck in the 1950s or something. Most other countries have the medical advances we have. They aren't secrets. We tend to share or at least sell any drug or treatment we come up with as do other countries. Our survival rates for major illnesses and diseases are basically the same as all other developed nations. We certainly do no better. We suck at access so I don't know where you are getting that from. And we don't have the shortest waiting times. Germany and France are better. If you include waiting for all types of medical care, not just elective surgeries, we come in quite poorly on the list. For the sake of updating your knowledge of our medical system performance, I suggest poking around The Commonwealth Fund's web site. They do nice studies comparing this stuff. I'm sure you'll be quite shocked considering what you seem to believe.

Someone dismissing a statement doesn't make it true. Rhetoric does not make fact. Nor does it make it true what you state about the ROW health care. Try getting an MRI in another country. Waiting time, 6 months or longer. How about advanced cancer treatments? Good luck with that. For every "study" you can point to that says ROW is better, I can point to one that shows US is better. This does not mean US doesn't have it's share of problems.

Canada is often cited as an example for US healthcare to follow:
According to the Fraser Institute, a Vancouver, B.C.-based think tank, in their annual Waiting List Survey, the average waiting time between a referral from a general practitioner to treatment went up 90% from 9.3 weeks in 1993 to 17.7 weeks in 2003 (Pipes) . This ranged from an average of 30 weeks in Saskatchewan to 14 weeks in Ontario. These long waits also exist for diagnostic procedures such as ultrasounds, computer tomography and magnetic resonance imaging. The average time waited for these practices were between two and 24 weeks (Williams). The usual time one can expect to wait for a medical oncology if they have cancer increased from 2.5 weeks to 6.1 and for a radiation oncology from 5.3 to 8.1 weeks over the 10 year period (Pipes) .

Houston says that hip-replacement patients often end up non-ambulatory while waiting an average of 20 weeks for the procedure, and that's after having waited 13 weeks just to see the specialist. The wait to get diagnostic scans followed by the wait for the radiologist to read them just might explain why Cleveland, Ohio, has become Canada's hip-replacement center. (Williams)

The reason for the waiting list is explained by the Pacific Research Institute. “To the government, health care costs are the checks it must write” and the government planners control the monetary cost by shifting the non-monetary cost to the patients (Pipes). The non-monetary costs are the waiting times people face.

According to a story in Canada News, 10,000 doctors left Canada in the 90s. This is even a bigger problem because there are not as many medical school graduates. Ontario has had to take the step of creating more positions for nurses that would take the place of a doctor (Williams). Being an employee of the government and not working for-profit, doctors may not want to be practicing in Canada. This problem may also tie in with the increased amount of time on waiting lists.

Pretty much anyone, at any time, with or without insurance, can walk into a hospital and get access to a doctor, or some kind of health professional. I'm not sure how else you would define access. That seems pretty accessible to me.

Studies comparing various factors often fail from poor statistics to different measurements across countries. For example, "But infant mortality tells us a lot less about a health care system than one might think. The main problem is inconsistent measurement across nations. The United Nations Statistics Division, which collects data on infant mortality, stipulates that an infant, once it is removed from its mother and then "breathes or shows any other evidence of life such as beating of the heart, pulsation of the umbilical cord, or definite movement of voluntary muscles... is considered live-born regardless of gestational age."16 While the U.S. follows that definition, many other nations do not. Demographer Nicholas Eberstadt notes that in Switzerland "an infant must be at least 30 centimeters long at birth to be counted as living."17 This excludes many of the most vulnerable infants from Switzerland's infant mortality measure.

Switzerland is far from the only nation to have peculiarities in its measure. Italy has at least three different definitions for infant deaths in different regions of the nation.18 The United Nations Statistics Division notes many other differences.19 Japan counts only births to Japanese nationals living in Japan, not abroad. Finland, France and Norway, by contrast, do count births to nationals living outside of the country. Belgium includes births to its armed forces living outside Belgium but not births to foreign armed forces living in Belgium. Finally, Canada counts births to Canadians living in the U.S., but not Americans living in Canada. In short, many nations count births that are in no way an indication of the efficacy of their own health care systems.

The United Nations Statistics Division explains another factor hampering consistent measurement across nations:

...some infant deaths are tabulated by date of registration and not by date of occurrence... Whenever the lag between the date of occurrence and date of registration is prolonged and therefore, a large proportion of the infant-death registrations are delayed, infant-death statistics for any given year may be seriously affected.20

The nations of Australia, Ireland and New Zealand fall into this category.

Registration problems hamper accurate collection of data on infant mortality in another way. Looking at data from 1984-1985, Eberstadt argued that, "Underregistration of infant deaths may also be indicated by the proportion of infant deaths reported for the first twenty-four hours after birth."21 Eberstadt found that in the U.S. and Canada more than a third of all infant death occurred during the first day, but in Sweden and France they accounted for less than one-fifth."

There are many factors that go into these "differences", often misconstrued by those who support single payer healthcare systems run by the government. I don't need some Washington bureaucrat deciding what treatments I can get. It's enough that I have to deal with my insurance company, although it's usually not a problem. And it would be even less so if the market were simply open for all individuals to buy cafeteria style health plans rather than employer sponsored health plans, allowing them to choose the options they want plus some sort of catastrophic coverage. It would also eliminate the problem of small businesses having extraordinarily high costs because of small risk pools.

Now, as to defense spending, the amount of spending compared to ROW is indeed meaningless. You can argue that we are spending money that others should be spending to defend themselves, and perhaps I might agree with you to some extent. But our costs are high because we need to protect our interests around the world and for better or worse, we've taken that burden on when so many others fail to defend even themselves. So be it. I'd rather pay to be the beacon on the hill than then one sending out the SOS.

Our "isolation" is a misdirection. We have lengthy open borders, our southern one which is openly violated by all manner of people, some friendly, some not. As one of the worlds largest trading partners, our ports are filled with foreign ships carrying God knows what. Our defense budget of course makes up more than just the military, as it includes NSA, CIA, etc. All these things are vital to ensuring our safety. The fact that many less prosperous/sizeable countries spend less than us combined is of no importance. Russia spends a very sizable portion of it's budget based upon the premise that it would destroy us if it could. China has increased it's spending dramatically. Smaller countries are funding terrorist operations against US interests around the world. These things must be countered. You simply can't retreat into an isolationist position because when they get here, there will be nowhere left to retreat to.

Oh and on the access point I must argue. If you count emergency room access then yes, we do as well as everyone else on access to same day doctor care. But that comes at an enormous cost of course. We rank near the bottom when it comes to urgent care access and time to see a primary care physician even when you don't factor in the uninsured. Factor in the uninsured and holy shit we look like assholes. That's the access I refer to. The kind of access that is affordable and coherent. Access through Emergency Room Care is economically indefensible.

On defense you sound paranoid. "When they get here, there will be nowhere left to retreat to". Perhaps you've been watching too much Red Dawn! Go Wolverines! The point being you can make a case for all gov't spending and I'm sure someone thinks we need missile defense just like someone thinks we need midnight basketball. Personally, I think a good way to help figure out whether we are spending too much or too little would be to look at what others are spending. On Defense we are clearly spending too much and, if we are serious about tackling our debt issues, we should think long and short term about decreasing the size of that budget. There is nothing more wasteful and returns less value than useless wars and expensive and idle technology which the DOD specializes in.

And of course you were able to compare us to Canada which happens in every discussion I have with a conservative online about healthcare. You guys always pick Canada as if that's the only choice. Why not compare us to Germany which has shorter wait times and spends about 60% of what we do on healthcare while insuring everyone? And Canada spends about 60% of what we spend as well so it shouldn't be surprising if they do some things less well.

I guess the larger point is that for a 40% markup on our healthcare costs, the burden is on those defending the status quo to explain why the hell we are spending so much more and if you are generous, getting similar results, while not even insuring everyone. You want to move further away from the European models that have proven to be much more efficient than our more market based model. That's ludicrous. That's anti-empirical. That's not reality based.

So you can spend all day telling me what's wrong with studies but until you find a study that actually shows that we are getting better value on our health care dollars, you lose the argument, at least on economic grounds.

And this is what drives me mad about conservatives arguing against wasteful spending. I don't really believe they care about waste and these are my two main data points to go along with the fact that the deficit increased quite considerably under Bush and his Republican Congress. They don't seem to care about out of control defense spending, in fact, they want more. And they don't seem to comprehend that our health care system, the most market driven in the world, spends spectacularly more than everyone else in the world. The waste in these two areas dwarfs the waste we'll see in any stimulus plan that will get passed.

On defense, it matters little what "you" think about how we should base our defense spending. What matters to me is what the people who are in charge of our defense think we need to spend. They know the threats, the requirements, the costs. And since we have 60 trillion dollars in unfunded liabilities for social programs including Social Security, Medicare, and Medicaid, which also happen to make more than twice as much as the defense budget, I see areas of cost cutting that offer bigger fish to fry. Wasteful spending in defense should be eliminated just as it should everywhere else. But reducing defense spending with increasing threats is a recipe for disaster.

Okay, let's talk Germany.

"The system is funded by contributions from employers and employees, who pay just under 14 percent of their salaries into it. Still, next year, there will be an expected shortfall of 7 billion euros($9 billion). " 14%. Wow. Someone earning 10k per month has to pay 1400/mo for health care. Depending on your income level, you pay half and your employer pays half. If you make enough, you can opt out and purchase private insurance.

Long term care costs you another 1.7% of your income.

Germany is also considering tacking on an additiona .5% increase in costs, plus adding another bureaucracy to deal with their new health fund, which will add additional costs and could cost up to 25,000 jobs in the country.

In a deeply unpopular reform, members of the statutory insurance plan have had to pay 10 euros per quarter to see a general practitioner since 1 January 2004.8 Members of the statutory health care plan must contribute towards the cost of prescription drugs, wound dressings and bandages; 15% of the cost of other items; 20% of the cost of supports, insoles, etc; a share in the cost of in-patient preventive treatment and rehabilitation, out-patient rehabilitation, and in-patient hospital care (9 euros a day); the cost of dentures (as well as up to 50% of the accompanying treatment); and 13 euros towards the cost of travel. Some people are exempt from these contributions, including children under 18 and people receiving social assistance, war victims’ benefits, unemployment or education assistance, or assistance for the disabled.9 General practitioners are paid on a fee-for-service basis, with the fees negotiated centrally.

47.7% of Germans reported being somewhat or mostly unhappy with their health care. The German health ministry concluded in May 2003 that their health care system suffered from a lack of competition; superfluous, insufficient or inappropriate care; shrinking revenue and an aging population.12 Long waits for care are a particular problem in Germany; in a 1990 poll, 19.4% of Germans reported waiting more than 12 weeks between being seen by a specialist and receiving surgery. To fix these issues, the ministry suggested, among other measures, that they provide incentives to promote cost-effective care; perform a therapeutic benefits/cost analysis of prescription drugs by the Centre for Quality in Medicine; and finance benefits not covered by health insurance by increasing the taxes on cigarettes.

So, what exactly are the reasons of the crisis our German SHI system suffers from? Basically it is about an imbalance between expenses and revenues. Let’s have a look at the revenues of the system:

Our biggest problem is the system’s high dependence on economic performance and unemployment in particular:

:: In times of recession and high unemployment, contributions decrease immediately.

:: Also, the wages reflect the low economic performance. As contributions directly depend on salaries, they are kept down as well.

Another important reason for decreasing revenues is the demographic change, which I have already mentioned. Due to a higher life expectancy and a trend towards childlessness, the share of aged people in society is growing. This is not without consequences for the SHI:

:: An ever growing share of pensioners within the system contribute less to the SHI than active employees. Additionally, pensions do not rise as quick as wages.

:: At the same time, there are less and less active earners who are the backbone of the system.

On the part of the expenses, it is the demographic change again which is a major cause of concern:

:: A higher life expectancy results in a growing share of elderly people in our society, who naturally have higher medical needs.

:: Furthermore, the medical progress offers an ever growing range of opportunities for treatment.

:: And finally, more and more people practice a very health-conscious and quality-demanding life style.

All these factors result in an increasing demand in healthcare services and consequently higher expenses, particularly of the SHI.But is it really fair to talk about a “cost explosion” which threatens the system?

According to the renowned German Institute of Economic Research (DIW), it is not the “explosion” of costs and expenses that really threatens the German SHI system. Over the last three decades, these experts say, health expenses have shown an increase not very much higher than the average economic growth. What is more bothering is the stagnation and possibly the future meltdown of the financial foundations of the system, namely its income in terms of contributions. Over the same period of time, contribution rates have risen by almost six percentage points.

So, what do the experts recommend? They say: “In order to avoid a further increase of the contribution rates (which would be poison for the economy), it is absolutely necessary to find additional financial resources for the SHI.”

Now, I'm not defending the status quo. There are a large number of issues with our current healthcare system. But putting the government in charge is not the answer. It's bad enough having to deal with the insurance company over denied treatments and payments. But I have options there. When the government denies treatments because of costs, and they absolutely will, I will have no recourse.

So while some things in Germany, at least in certain aspects appear to be better, other aspects in the US are better, while costs appear to be comparable, and in some cases, much lower here.

Now, if you want to talk about removing employers from the equation, and simply letting people buy their own personal health insurance with pre-tax dollars, and selecting the coverages they want, I'm all for that. I'd prefer to get the employer out of the way. If they want to provide a portion of money as a benefit towards my personal health care, that's fine too. After all, most people are more judicious about spending their own dollars than someone else's dollars. That's no less true when you have employer sponsored health care than government sponsored health care. But it would certainly drive down costs, and by increasing competition, larger risk pools, and eliminating mandatory government coverage and letting people choose the coverages they want, we can have an even better system.

In the end, you can claim all the "wins" you want if that makes you feel better. Doesn't make them true of course, except in your own mind.

As to your last point, you really don't understand conservatives then. Just because Bush increased the deficit doesn't mean conservatives were happy about it. Far from it. Don't confuse the GOP in congress with most conservatives. You'll find a lot of disagreement between those two camps. And whether waste in health careand other areas dwards any stimulus plan spending is a red herring. Just because one thing is bad doesn't mean you should accept another thing that is bad.

Jonathan,

Unless you are a closet Marxist and still believe in the Labor Theory of Value, your comment about the government not creating value and being entirely parasitic is complete nonsense. That's an idea that died 150 years ago.

You also might want to rethink your argument about tax cuts having a stronger fiscal multiplier than spending increases. The numbers you cite appear to be from Romer's paper, but I'm afraid you have completely misunderstood the larger context and qualifications in her paper. I don't know the extent of your math skills, but just about any undergraduate econ major with a little knowledge of basic calculus can easily prove to you that a $1 spending increase generates a larger fiscal multiplier than a $1 tax cut. In the literature it's called the balanced budget multiplier.

Considering I said no such thing about government creating any value, I'd ask that you not put words into my mouth.

As to the balanced budget multiplier, it is a flawed Keynesian idea. Here is one thought on it...

"If you subtract the first expression from the second, you find that increasing spending and taxes by G raises nominal GDP by G. Hence the famous result: The Balanced Budget Multiplier equals 1. This reasoning implies, in turn, that dollar-for-dollar, spending has a bigger stimulative effect than a tax cut of equal size.

Unfortunately, this argument is sleight of hand. How so? It assumes that government agencies automatically spend 100% of any new funds allocated to them. And strange as it seems, that assumption is often false. It takes time and effort to figure out how to spend new money, you often need the approval of multiple levels of supervision to get started, etc. The standard Keynesian analysis essentially compares a conditional effect of government spending to an unconditional effect of tax cuts. Even within the confines of the textbook Keynesian model, this is a clear case of stacking the deck in favor of spending."

For other thoughts, I'd refer you to Mankiw and Yoshiyasu Ono, amongst others on the fallacy of the balanced budget multiplier. I can also find any number of economists who could disprove your Keynesian based hypothesis.

Jonathan,

This is what you said: " That money is free to be reused to create additional wealth somewhere else. Government spending can do no such thing, because government has to take money to spend it, whether taking it directly now, or taking it from future generations via deficit spending."

That sounds an awful lot like you are saying that the government is parasitic and cannot create value.

I'm familiar with Mankiw's example that purports to disprove the fiscal multiplier. It's cute, but he cheats because his formulation increases deficits each year, but he only applies the multiplier once.

Government agencies do spend all of the money allocated to them. They have to. It's the law. Tax cuts may or may not be spent. And even if they are spent, a lot of it is likely to leak out as imports. That's much less likely to happen with govt spending. But the main thing is that tax cuts act to increase aggregate demand by increasing private consumption. That's the wrong prescription. What we need is public investment in public infrastructure. Investment spending of that sort will help productivity down the road.

"Therefore, every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistrib­uted from one group of people to another."

I can't make it any clearer than that statement. Again, this is not to say that there is no value in some of that spending. Indeed, the markets could not operate if there were no infrastructure in place.

As to government agencies spending all their money allocated, that is simply not true.

From Senator Tom Coburn's web site
Most programs carry over balances year to year.
• A cursory investigation revealed there are at least $420 billion of unspent dollars sitting in government carryover accounts, also known as “unobligated balances.”
• “Unobligated balances” refers to money that has been appropriated but not obligated during a fiscal year.
• According to the U.S. Treasury, at the very, least $54 billion in carryover funds sat in government accounts at the end of fiscal year 2005.
• Despite money going unspent, Congress and the administration continue to request budget increases for agencies and federal programs.
• Carryover funds due for return to the Treasury are often diverted by Appropriators to other spending, effectively busting budget caps.
• The food stamp program carried over $2 billion at the end of last year and will carry over $3 billion this year and next.
• OMB cannot provide a reasonable figure of these sums government wide because they do not track these balances and individual agencies are not required to report them.
• Every agency has different rules governing unspent funds.
• DoJ has special authority to transfer unobligated balances to their working capital fund for critical projects, using over $1.8 billion in "unobligated" money to develop IT throughout the department in the last 12 years.

beezer,

The answer to your question as to why private investment won't resurrect these failures, is that government has violated private property rights. Why would GE work on a transportation system if it doesn't own the property it sits on?

The answer to every single circumstance you mention is for government to sell the property and define and enforce these property rights. And yes, even the ocean needs to be relinguished by government. It's a phenomenon the "Tragedy of the Commons".

I know it's hard to understand that this is not only desirable, but also possible. You just have to give up your bias of desire for government to own certain property. And yes, that is far easier said then done. I know. I have done a 180 degree turn around because I studied economics and also was taught that some things government must own for the "public good". This is a fallacy though. This strain of thought goes back mere decades though and is based on simplistic, biased, and fallacious reasoning.

I'm a liberal, I guess. I've looked at the universal health plans in Europe and they work better, for less overall, than ours does. So I'm for having a universal health plan that's structured on what we already have in place--that's what they did in Europe--as opposed to some single payer, one size fits all system. And it's nice to end cruelty where possible.
I'm pretty certain that our transportation systems are antiquated and ill-prepared for the future. Detroit's a good example of what happens when things get out-of-balance. I don't think the head of Citi is going to rebuild America's train/track system. Or the head of GE. In fact, I'm about 110% certain only the federal government can make the transition happen.
Same with energy. Private money will join in, but private money isn't going to do anything until the federal government leads.
And what private investor's going to resurrect the ocean's fisheries? Last I looked they provide a real healthy source of protein, and they are in a stage of collapse. A large blue fin tuna goes for $100,000 so someone can get expensive sushi. Ninety four percent of the blue fin are gone, and the private market is busy trolling for the remaining six percent out there. Anybody looked up the private firm in charge of bringing that disaster back? If one exists, please provide me with the phone number. I want to buy some shares.
I'm not against capitalism or free markets. I just think there's legitimate areas where federal government has to take the lead.

Oh my, oh my!
Reasoning is conducted by means of language, and sloppy language always produces sloppy thinking. Here we have a piece and a bunch of comments written by various people, not one of whom "know" anything. It contains eight instances of "believe," two instances of "seems," five instances of words like "view" and "sense" that mean opine, and twelve instances of "think" that mean believe. No wonder economists have led us into perdition! Are all economists just people for whom English is a second language?
"I believe for every drop of rain that falls A flower grows, I believe that somewhere in the darkest night A candle glows, I believe for everyone who goes astray, Someone will come to show the way, I believe, I believe. I believe above the storm a smallest prayer Will still be heard, I believe that someone in the great somewhere Hears every word, Every time I hear a newborn baby cry, Or touch a leaf, or see the sky, Then I know why, I believe."
Yeah, sure! Some science this is.

Intersting comment about the ruin of American inner cities- here's something I've been wondering about for a while now- The Democratic Party (and the welfare state they promote) never gets credit for the decline of the American city. The Dems have been in charge of urban America- all across the country, basically since WWII, longer in many cases- and what do they have to show for it? Places like Detroit Holyoke, Newark ,Springfield MA (the list is endless, really). If W gets the blame for all our current problems, why do the Dems skate on the continuing decline of urban America? I grew up in St. Paul, in the city- the mayor at the time was George Latimer- he served from 1976-1990, and was widely considered one of America's great big-city mayors. Well I can tell you, very few of my high-school classmates still live in inner city St. Paul (or Minneapolis, for that matter) My high school, a Catholic one with the unfortunate name of Cretin, used to produce many of the business and political leaders in St. Paul- still does, I think. While the great George Latimer was mayor 100,000 people left the urban St Paul core. (At least that many left Minneapolis at the same time) The city that was left was an entirely different place. I might also add that the people who left are precisely the kind of people you want in your city- people with jobs and families. How is this a success? The city that I grew up in, that my mom and dad grew up in, is a shell of its former self. Sure there are still some nice neighborhoods; but no one of any means sends their kids to public school, and many of the most basic services go undone. And don't even mention how much property tax St. Paulites pay. Norm Coleman did what he could, but the Xcel Energy Center and the Minnesota Wild are not going to revive the neighborhoods. And yet the Republican Party doesn't even bring the issue of the dismal state of urban America to the table! Those voters in St. Paul don't know it, but when they pull the lever for the "Anointed One they are working against their own interests.

Well Gregg, I live in St. Paul, pretty near Cretin High and you clearly have no idea what you are talking about. We choose St. Paul because of the high quality of the public schools, clearly better than the highly touted suburban schools we researched when we moved here from the Bay Area. St. Paul has probably the most outstanding laboratory of public schools in the nation, including the choose to send your kids to public montessori (where my 3 kids are), open school programs, French and Spanish Immersion and other choices. Central High has innumerable opportunities for High schoolers. And we looked at many quality neighborhoods full of families. The crime is low, the public transportation is decent. Only the weather sucks. And by the way, my property value has barely budged in the housing crisis, because people still want to move to St. Paul. It is the suburbs that have seen the greatest fall in home values. People still want to live in the city.

So I'm just making the point that Gregg is either lying or has no idea what he is talking about. As for this silly blame the liberals for urban plight argument. Let's remember that this nation's government is balanced against urban areas both at the state and federal level. The Senate is unrepresentative to an extreme and for decades the inner city has been associated with minorities who still are greatly underrepresented. If you don't factor this in to your analysis, you are being mendacious.

I live in the City of Detroit. It has been run by Liberal Democrats, exclusively, for 50 years. How can anybody look at this disaster and think that more of their type of ideas will be a good thing?

It disappoints me that there are still people that believe in collectivism as a form of government, Keynesianism as economics, and Global Warming as science. What steams me is that they are now in power. What saddens me is that people voted for them.

The current stimulus debate has polarized economists. I like to think that they would be more moderate if the debate was free from its political context. The stimulus will be the first major act of Obama. This frames the debate as an echo of his election. For Democrats it would almost be a betrayal of "Hope and Change." Whereas Republicans are perhaps happy to disagree without supporting Bush. The high level uncertainty coupled with the political transition has magnified the emotional side of this debate.

In my view what we need to do is set up a betting market about the parameters of our macroeconomic model. What is the gov't spending multiplier, what is the tax multiplier, etc. Then in a year (after we inevitably pass some stimulus bill) we regroup and see who was right and who was wrong. And... we adjust our priors!

Wouldn't that be a swell world?

So how come the stimulus debate is shaping up as if mainstream Democratic economists do want the public sector to crowd out the private sector? What gives?

Will, if I understand your question right, then the answer would be that Democrat economists do believe that the public sector will crowd out the private sector, except in a recession. They believe that public sector spending will not crowd out private sector because their is high unemployment and unused machinery due to decreased spending. Democrats truly believe it's a special circumstance where crowding out does not occur.

Luckily, Bob Murphy has debunked this myth constructed by Democrat economists. See here: http://mises.org/story/3290

Ya know, the vast gulf between Left and Right is deeper than most people realize.

Most normal people strive and believe in the American Dream; Modern Liberals hate the American Dream. Instead of supporting ways to help people attain the dream, they work towards tearing it down for those who are close and those that feel they have it.

THINK about how Modern Liberals think about the poor. THEY rarely talk about helping the poor get wealthier; instead, it's almost always that they work to find ways to make the rich more poor and then say the poor are victims of the rich.

THINK about how the Modern Liberals have ruined the inner cities. DECADE after DECADE of liberalism has left the areas a mess. Blacks, especially, were much better off BEFORE the liberals came in with their "programs" and their attacks on the family.

What most people don't get is MODERN LIBERALS don't care about the damage caused by central control. Modern Liberalism is about central control and Modern Liberals hate the individual.

Basically, it's far worse than we think.

The best explanation I have seen for Modern Liberals is the video "HOW MODERN LIBERALS THINK" by Evan Sayet. Evan used to be a writer for Bill Maher. It's very, very good. You'll need some quiet time.

Everyone who has wondered about why things are so polarized, should watch it.
youtube.com/watch?v=eaE98w1KZ-c

I've got a fever, and the only cure is ALL CAPS!!! (or more cowbell, whichever is handier.)

That’s what’s confusing to me. My sense was that there was a pretty solid non-partisan professional consensus against neo-Galbraithianism.

I used to think the same thing too. I used to think liberal sociology/ethnic studies types were night and day different from liberal economic types. Sure, the sensibilities were similar but the economists were more grounded by the fundamentals of economics...especially micro so they just COULDN'T possibly be like the others. Right? RIGHT? More and more, I begin to doubt the gap was/is as large as I thought it was...sadly enough. These last few months have gone a long, long way to making me believe that.

Well, I think you're confused about why the debate is shaping up as if Democratic economists want the public sector to crowd out the private sector because that, according to my reading, isn't what Democratic economists (e.g. Krugman, DeLong, Thoma) want. In line with what mkamdar wrote above, the first point to recognize is that there seems to be a professional consensus that monetary policy is preferable to fiscal policy in general, so that the first line of debate is about whether or not we've run out of monetary policy options. A subsidiary line of debate seems to be about crowding out. Not about whether crowding out is good or bad, however, but whether it will happen: I think the Democratic economists would agree that a large fiscal stimulus when the economy is at full capacity would crowd out the private sector and that that would be a bad thing, but they don't think there will be crowding out when the economy is below capacity.

I would also object to your framing of the issue in the first paragraph: "If you think markets tend to work better than government in giving people what they want and need, then you’ll worry about government spending crowding out private spending. If you think government works better than markets in giving people what they want and need, then you’ll want government spending to crowd out private spending." I don't think its the case that Democratic economists, for example, think the government is better at giving people what they need, they think that whether the market or the government is better at giving people what they need depends on the thing in question, particularly whether it's a public good or not. Because Democratic-leaning economists see more public goods and, perhaps, give them greater importance, they emphasize that both markets and governments are important to giving people what they want.

Is it just the "crowding out" assumption that divides economists on the fiscal stimulus plan? Or is it the liquidity trap? Those who believe monetary policy has run its course and something more needs to be done, versus those who believe that monetary policy actions are still available.

What do you think of how Kevin Murphy recently described a more plausible aspect of the pro-stimulus thinking- the credit crunch is due to a failure of the intermediation sector which is preventing private sector spending; the government on the other hand can bypass intermediation and simply spend.

It is therefore also true that tax cuts won't build schools that are too big, or too close to an already existing school, or have an Olympic-sized pool "because it would be nice," or a top-of-the-line football field "because the other school has one," or...

Are you suggesting that private enterprise wouldn't do this, either? Look, go around and find some private schools and I'm sure you'll find some that are too big, too close to an already existing school, wasting money on an Olympic pool.... Don't fall into the trap of thinking that because private enterprise tends to be more efficient than government, private enterprise is usually efficient. No one who's ever worked at a poorly run company would say that-- even if it was a successful poorly-run company, and they certainly exist.

It is true that "tax cuts won't build schools."

It is therefore also true that tax cuts won't build schools that are too big, or too close to an already existing school, or have an Olympic-sized pool "because it would be nice," or a top-of-the-line football field "because the other school has one," or...

The pro-stimulus crowd keeps harping on the "at least we'll have infrastructure" talking point, while conveniently omitting that pesky (bone-headed?) economic phemonemon known as the law of diminishing marginal utility.

A second Hoover Dam right in front of the first one is hardly a worthwhile infrastructure project. Simply chanting "Infrastructure!" as if it were a get-out-of-debate-free card is hardly Nobel or Ivy League thinking.

Yes, it's true -- great care will be needed to ensure stimulus spending is not allocated to a second Hoover Dam right in front of the first.

I myself have told DeLong, Krugman, and the rest of the "Infrastructure!" enchanters several times, "No second Hoover Damn right in front of the first, please!"

Who knows, if we repeat it enough times, maybe the message will get through.

I'm organizing a "No second Hoover Damn right in front of the first, please!" protest in DC next week. Do you think you could help us out by bringing some hand lettered posters with your pithy slogan on them for us?

Seriously, it's this kind of thing that gives neo-Hooverism an entirely new meaning!

Dam straight.