Michael Stephens — “Stimulus” Isn’t the Best Reason to Support (or Oppose) Infrastructure Spending

Pavlina Tcherneva on Bloomberg with Joe Weisenthal.

Multiplier Effect
“Stimulus” Isn’t the Best Reason to Support (or Oppose) Infrastructure Spending

Michael Stephens

Brian Romanchuk — The Case Against Growth And Stimulus

I was tempted to comment on Larry Summers recent post, but Brian has saved me the trouble and has done a better job of it.

Note to progressives: 

Growth is the outcome of optimization of available real resources including human resources. The aim should be optimizing available real resources rather than growth per se. Optimizing available real resources involves limiting the idling of resources including human resources, which are the most valuable resource a society and its economy have. 

Aim for full employment as a job offer for all willing and able to work and the output gap will be minimal and growth maximal. 

This means replacing the conventional monetary policy that uses unemployment as a tool to control inflation with a buffer stock of unemployed with fiscal policy based on functional finance and a buffer stock of employed using a job guarantee with the currency issuer acting as the employer of last resort with respect to funding. A currency sovereign always has the fiscal ability to employ all available real resources by creating the funding.

Bond Economics
The Case Against Growth And Stimulus
Brian Romanchuk

Norm Mogil — Fiscal Policy to the Rescue?

It's the multipliers, stupid.

Not all fiscal stimuli act with the same degree of potency. Chart 2 separates the type of stimulus between " investment" and "tax" measures. The governments obtain the greatest bang for the buck when undertaking infrastructure projects, both for their immediate impact on jobs and income as well as for their longer term benefits in adding to productive capacity (e.g. urban transportation systems). Next in importance are stimulus programs generated by increasing government consumption of goods and services (i.e. day-to-day expenses associated with government operations).

Tax measures, on the other hand, have not proven to be anywhere nearly as effective in promoting growth. The impact of reductions in personal or corporate tax cuts are de minimis. Since some portion of a tax cut is usually saved rather than entering the spending stream, tax multipliers are lower than government spending multipliers.

Thus, economists have long urged governments to look to stepping up their capital investment activities as the primary driver of fiscal stimulus policy.

Sober Look
Fiscal Policy to the Rescue?
Norm Mogil

USDJPY flying now. I called it April 7 when Japan announced its fiscal stimulus.

In my MMT Trader report of April 7, I recommended going long USDJPY. That trade now has a 200 pip profit.

That week, Japanese Prime Minister, Shinzo Abe, announced that the government would "front load" the nation's public works' spending to the first half of FY 2016, which has just begun.

Fiscal stimulus. Bearish for yen.

The yen had a huge rally leading up to that announcement. It started around Jan 28 when the BOJ went, stupidly, to negative interest rates. That move was intended to push the yen down, but it did the opposite.

The yen's rally attracted a lot of speculative long positions in the futures market. Spec longs hit the highest level in four years. Clearly, the yen was due for a selloff and the fiscal stimulus was the signal I was looking for.

Last week Japan suffered another terrible earthquake and now there is discussion of a supplemental budget for cleanup and reconstruction. This was also covered in the MMT Trader report.

By the way, it also recommended buying Japanese indices or stocks--some ADR's traded on U.S. exchanges.

Get a 30-day free trial to the MMT Trader.

Mark Thoma — '1776: The Revolt Against Austerity'

Were the founding fathers the forerunners of Keynes? Maybe conservatives proclaiming a need to return to the intentions of the founding fathers should refresh their assumptions about those intentions.

Economist’s View
'1776: The Revolt Against Austerity'
Mark Thoma | Professor of Economics, University of Oregon

Bill Mitchell — Demand and supply interdependence – stimulus wins, austerity fails

My Phd research, was in part, exposing the myths in conventional or mainstream economics arguments that claim that structural imbalances in the labour market arise independently of the economic cycle and hence, aggregate spending. The mainstream used this assertion to draw the conclusion that government policy could little to bring unemployment down when mass unemployment was largely ‘structural’ in nature. Instead, they proposed that supply-side remedies were necesary, which included labour market deregulation (abandoning employment protection etc), minimum wage and income support cuts, and eroding the influence of trade unions. At the time, the econometric work I undertook showed that so-called structural imbalances were highly sensitive to the economic cycle – that is, the supply-side of the economy was not independent of the demand-side (the independence being an article of faith of mainstream analysis) and that supply imbalances (for example, skill mismatches) rather quickly disappeared when the economy operated at higher pressure. In other words, government fiscal policy was an effective way of not only reducing unemployment to some irreducible minimum but, in doing so, it increased the effectiveness of the labour force (via skill upgrading, higher participation rates etc) – that is, cleared away the so-called structural imbalances. A relatively recent paper from researchers at the Federal Reserve Board in Washington – Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy – finds new US evidence to support the supply-dependence on demand conditions. It is a case of stimulus wins whereas austerity fails....

Bill Mitchell – billy blog
Demand and supply interdependence – stimulus wins, austerity fails
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

February ends with a massive, $460 Federal spending spree

No wonder why the stock market is flying. The data is in and February ended with a humongous, $460 billion spending spree by the Federal gov't. This surpasses last February's $459 billion injection. This may be the biggest February ever. It's certainly the biggest since I have been keeping records.

Last Friday ended with a burst of almost $56 billion in a single day. Total tax refunds for the month (individual and business) came in at $137 billion! That crushes last Feb's refunds of $133 billion. And we can expect another $60 billion in March and $50 billion in April. What a stimulus.

If the idiots in Congress don't f**k it up with the debt ceiling and budget the economy and stocks will be off to the races. Dow 20,000 like butter.

Sadly, though, the Fed will  raise rates. That's my forecast.

You  can't sell into this (stocks). Let's keep our eyes open for Congressional screw-ups mid-month, but for now this is blistering.

Dollar strong now, as it will follow bullish U.S. economic sentiment, but it adds to dollar top probabilities at some point. Bonds will be under pressure from fears of a Fed rate hike due to strong U.S. economy.

Oh yeah, one more thing...

Total employment taxes collected by the Federal gov't in Feb was $186.8b. That is down slightly from the $189.5b collected in January, however, February was a shorter month with less work days so I am hesitant to call any "weaker than expected" result for Friday's jobs number.

Consider this: Last Feb the total employment tax collection  was $177.1b and in Jan of last year it was $185b. That was an $8b differential between Feb and Jan. This year that difference was less than $3 billion, so I am calling Friday's number to be in line with expectations or stronger.

P.S. I teach all of this forecasting off the Treasury Statement  in my course. Watch out for the next one.

$133 billion in tax refunds have been sent out so far!

So far $133 billion in tax refunds have been sent out according to the Treasury. (Individual and business.) That's more than last year's $130 billion at this time.

In addition, we'll probably get another $55 billion to  $60 billion in March and another $50 billion in April. That'll equate to a $240 billion stimulus over these three months alone. You don't want to sell into that, but you DO want to keep  an eye on what these idiots in Congress (read: Republicans) do with the debt ceiling, which will have to be raised sometime around mid-month.

We've got plenty of financial (money) firepower coming into the economy over the next two months and we've already gotten a huge injection in February, however, failure to raise the debt ceiling or, keep it suspended (as it is now) will be a HUGE red flag for stocks and the economy.

Stay tuned.

(BTW...this was all taught in my Daily Treasury Statement course...plus a lot more!)

Jared Bernstein — There Was More to the Stimulus than the Stimulus

The figures are out.

Jared Bernstein | On the Economy

There Was More to the Stimulus than the Stimulus

Taper is not the removal of stimulus, it's the opposite

Fed announced it will buy another $10 billion per month in securities. That means monthly purchases down to $65 billion from $85 billion. That means $240 billion of securities remain in the economy, earning interest each year.

At an average of 3% coupon, that means the economy GAINS about $7.5 billion in income. Gaining income is NOT tightening or removal of stimulus.

If the Fed does a $10 billion reduction every month now, that will start to add up quick. For every $10 billion of reduced purchases that equates to about $3.6 billion of new income to the economy. Do the math.

It's stimulus, not removal of stimulus.

The market's got it all wrong.

Sven Böll and Christian Reiermann — Austerity About-Face: German Government to Gamble on Stimulus

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed....

The government's change of heart isn't just a sign of selflessness and compassion. More than ever, the chancellor and the finance minister are worried that Berlin's tightfisted, heartless, austerity-obsessed image could solidify throughout Europe and do irreparable political damage. An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign....

The fact that the finance minister and the chancellor are suddenly willing to do things that have been off-limits until now also has something to do with an internal Chancellery dossier from mid-May. The government headquarters had asked the ministries to take stock of the EU growth pact that was approved in June 2012 to support the austerity programs. The results were, in fact, supposed to demonstrate how well the German bailout strategy was working. But the officials' conclusions shocked even calculated optimists. In their report, they painstakingly documented that debt-ridden countries, especially those that have not taken advantage of EU bailout programs, have hardly made any progress in terms of needed reforms.... 

With her administration facing pressure from the anti-euro party Alternative for Germany, and despite her offers to help Southern European countries, Merkel doesn't want to be accused of throwing even more good German money after bad. To avoid this, the goal in Berlin is to achieve the greatest possible results while spending as little as possible....

But the economic stimulus program threatens to fall flat. So far, the EIB has shown little inclination to distribute the billions exclusively where they are more urgently needed: in Southern Europe. And, as EIB President Werner Hoyer has implied at every opportunity, the bank is determined to keep its top rating so that it can continue to finance itself at low rates.

Ironically, the Finance Ministry in Berlin backs Hoyer's stance. An internal Finance Ministry memo reads: "To preserve the portfolio quality and the AAA rating, the federal government is in favor of having the EIB continue to promote projects in AAA countries while implementing the anti-crisis program."

Likewise, even if there are well-meaning decisions and sufficient funds for programs, implementation remains a problem. Government administrations in Southern Europe are still too slow, the EU bureaucracy in Brussels is still slowing things down, and governments are still dragging their feet on promised reforms.

Spiegel Online International
Austerity About-Face: German Government to Gamble on Stimulus
Sven Böll and Christian Reiermann
Translated from the German by Christopher Sultan

This is all completely crazy. The cause of the crisis is basically the saving of the export nations internally in the EZ that is resulting in the indebtedness of the debtor nations. One solution is for the net exporters is to reduce saving and spend in the debtor nations on consumption and investment. Lacking this, there must be fiscal transfers. Otherwise, the euro is unsustainable.

Michael Stevens — How Much Fiscal Stimulus Do We Need?

How much fiscal stimulus would the government need to inject into the economy over the next two years in order to get the unemployment rate into the 5.5–5.9 percent range? In their newest strategic analysis, Dimitri Papadimitriou, Greg Hannsgen, and Michalis Nikiforos provide us with some harrowing answers.

Multiplier Effect
How Much Fiscal Stimulus Do We Need?
Michael Stevens

Chris Dillow — Supply-Side Socialism

I rashly promised yesterday to suggest what some supply-side socialist policies might comprise. Here goes.

Stumbling and Mumbling
Supply-Side Socialism
Chris Dillow | Investors Chronicle (UK)

Japan PM "stimulus" plan: "Hey, BoJ, do more QE"

So Shinzo Abe is back in power, carried to victory on the promise of massive stimulus designed to bring the Japanese economy roarding back to life and end years of deflation.

Speculators jump all over the yen, selling it down to levels not seen in nearly two years.

And what's the big stimulus plan?

More Quantitative Easing. (Can somebody tell Abe and the specs that that hasn't worked for the past 10 years?)

The Bank of Japan should buy more long-dated government bonds and a wider variety of risk asset types, including foreign bonds, to achieve 2 to 3 percent inflation, Koichi Hamada, a special economic adviser to Prime Minister Shinzo Abe, said on Thursday. Read full story here.

If this is their plan, it's crazy. Just more of the same. I am long the yen. Wait 'til they restart the nukes and the country's trade deficit goes back into surplus.

Stimulus bashing based on ignorance. The facts are the facts.

Stimulus bashing is big sport among Conservatives and anti-Obama, anti-government ideologues. The media, mostly led by Fox News, have distilled the main talking points down to empty sound bites that basically purport to say the stimulus didn’t work. You’ll hear things like “Obama spent a trillion dollars and it did nothing. All he did was put us more in debt.”

Well, I’ve already debunked that whole, “stimulus did nothing” fallacy with my chartbook, which showed exactly what happened to the economy. I examined a bunch of different metrics and they all showed the same thing: once the stimulus was enacted the severe downturn was immediately arrested and everything turned up. Everything. So those who say that the stimulus did nothing are just spouting pure ideological nonsense. Comments like those are totally hollow.

Some of the people on the right who are intellectually honest or not comfortable looking stupid, will refrain from saying the stimulus did nothing. Instead, they’ll take a different tack. They’ll simply say the results were weak. They’ll say something like, big deal, we got the weakest recovery on record and it “cost” us a trillion. How great is that?

Fair enough. In some respects the recovery was weak. The rebound in real GDP from the trough in 2009 was about 5% where on average, rebounds have been about 9% since the 1930s. If you strip out the powerful, New Deal and WWII spending booms, rebounds have been more like 7% from their troughs. So, yes, it was less, but not hugely less. And I guess you can argue that we still have a slow recovery in housing and unemployment rate remains stubbornly high, so that’s not something to brag about either.

Yet in many other respects the recovery has been impressive. Stock indices have doubled, household net worth jumped by $11 trillion and corporate profits have hit new record highs to name just a few things. The problem, however, is that is a lot of people haven’t participated in the good things because policies have favored profits, capital and the corporate sector, over workers and wage earners.

It’s not hard for people to discount the stimulus because they don’t know where all the spending went. I’m sure even a lot of economists don’t know. What was the breakdown of that spending? To begin with, let’s start with the total funds allocated, which, according to the government’s own numbers, was $840 bln. That equates to about 5% of GDP. It’s really not a very big number. Consider that we have run up a tab of around $2 trillion fighting wars in Iraq and Afghanistan. That’s more than twice what we spent on the stimulus yet we were facing the most severe economic collapse since the Great Depression.

Next, a lot of money that was spent was spent in the first year. After that the spending started to trail off. So we got a big boost initially and then things flattened out. Insofar as the breakdown of the numbers it’s all available at the Recovery.gov website. I will provide a summary here, but feel free to check these figures out in detail when you have time.

Out of the $840 bln, about 35% or, $290.7 bln was pure tax credits. It was not direct spending, per se. These tax credits included the first time homebuyer tax credit, Making Work Pay tax credit, earned income tax credit, as well as some tax incentives for businesses like accelerated depreciation. In other words, more than a third of the entire $840 bln stimulus went to tax credits, meaning that you had to have income or be eligible for those credits in order to get the benefit. Lots of people got nothing out of it at all. That wasn’t very smart.

The next portion of the stimulus, which amounted to $246 bln, went to contracts, grants and loans. This included spending on education, training, special education, rehabilitation services, as well as transportation (highways, rail) and infrastructure. A lot of other things were included, but the bulk of the money went for education, about $90 bln. In contrast, highway and infrastructure projects, which in many cases led to immediate job creation, had only $36.5 bln and $30.4 bln allocated, respectively. This is a pittance when you think about it. Our roads are crumbling, our bridges and tunnels are crumbling yet all we can muster is a pitiful 0.5% of GDP for repair.

The third and smallest tranche of the stimulus went to entitlements. That amounted to $238 bln for Medicaid, Medicare, unemployment insurance, family services, housing grants and agriculture. Out of this amount the largest chunk went to Medicaid grants to the states and the tab there was $95.2 bln.

That was it. That’s where all the stimulus money went. More than a third of it was for tax credits that most people didn’t get and the rest was divided up into a smattering of programs and projects that had only a limited effect on aggregate demand. Even so, it was enough to halt the economy’s slide and cause growth to return. And the growth remains still, thanks to the stimulus, which was, inarguably, the catalyst. Clearly lots more could have been spent. We could have been much more aggressive when it came to making the investments we needed like repairing the nation’s infrastructure, building schools and hiring teachers, financial aid to states, basic R&D, alternative energy and so on. That would have resulted in a much more powerful recovery and a significant drop in the jobless rate, but timidity and dogma kept us from doing that. Misinformed cries about the deficit from people who have turned out to be wrong on everything.

And now what are we doing? Instead of looking at these facts and saying, it worked and we ought to do it again, only bigger and bolder, we’re saying, “No! We must impose austerity on ourselves.” It’s sheer lunacy. The result will be a weak economy that lingers for years and years, creating more and more unemployment, poverty and social unrest. This is the true legacy we will pass along to our kids; not the debt.

Mark Cuban tweets my stimulus charts!

It looks like Henry Blodget over at BusinessInsider.com ran my Stimulus Chartbook again in a post and Mark Cuban tweeted it today!

Did Obama's stimulus programs work ? You decide ... read.bi/Rr4nhf

— Mark Cuban (@mcuban) October 14, 2012

GOP & WashPost Dredge Up Warren Harding - It's So Simple

commentary by Roger Erickson

As in simple minded thinking. Yet this kind of simpleton's discussion gets disseminated far and wide by newspaper editorial staff. It's very unhelpful to our nation - which desperately needs to elevate, not depress the level of public discussion of currency operations and fiscal policy.

Letter to the Editor

Taking Exception

Mr. Obama could do worse than follow Warren Harding’s lead

In this letter, the writer suggests that:

If Mr. Obama is looking to propel economic recovery, he could do far worse than to embrace the legacy of Harding.

Harding was elected during the “panic” (depression) of 1920, when unemployment grew from 4 percent to 11.7 percent, the gross domestic product fell by 24 percent, and the production of goods and services dropped by 21 percent. These conditions were worse than those in the first year of what became known as the “Great Depression” a decade later.

Under Harding’s leadership, federal spending was cut in half by 1922 and, unlike Herbert Hoover and Barack Obama, he did not seek nor implement a stimulus policy. With these policies in place, the post-World War I depression ended by the summer of 1921. The unemployment rate fell to 6.7 percent in 1922 and then to an astonishing 2.4 percent in 1923, the last year of Harding’s administration.

Richard E. Sincere Jr., Charlottesville
The writer is a member of the Charlottesville City Republican Committee.

ps: There's only one comment to his article, at the Post, but at least it raises some of the many context-dependent flags comparing different contexts.

If this passes as editorial approach to public policy, are we doomed?

Amid Partisan Bickering, Everyone Agrees: ARPA-E Is a Fascinating Experiment — Ross Andersen interviews Michael Grunwald

Last week, the New York Times reported on an exciting new energy project that is scheduled to begin testing off the coast of Oregon in early October. A company called Ocean Power Technologies is going to lower a 260-ton generator into the Pacific ocean, just 2.5 miles from the shore, in order to capture renewable energy from waves. The buoy generator will link up to the grid and, if it works, could generate enough electricity to power 1,000 homes.

Like many new experiments in renewable energy, the Oregon project was partially funded by a grant from the Department of Energy. In previous decades, the Department of Energy drove basic research by operating giant government-funded labs, but under the leadership of Energy Secretary and Nobel Laureate Steven Chu, the agency has transformed itself into something different: the biggest, greenest venture capital firm in the world.

After receiving an unprecedented surge in funding for renewable energy courtesy of the American Recovery and Reinvestment Act, Chu set to work hiring big names from the nation's top research laboratories, in order to staff a new agency called ARPA-E, modeled after DARPA, the R&D wing of the Pentagon. In just three years, ARPA-E has made more than 180 investments in basic research projects in renewable energy, and that's in addition to grants issued by the Department of Energy proper, like the one that funded the Ocean Power Technologies project in Oregon.

The Atlantic
Amid Partisan Bickering, Everyone Agrees: ARPA-E Is a Fascinating Experiment
Ross Andersen interviews Michael Grunwald
(h/t Kevin Fathi via email)

This is a big deal that most people don't known anything about. Lots going on in government funded R&D being done by private industry, funded through the stimulus.

BusinessInsider just made my pre/post stimulus graphs their lead post!

Check it out.

Business Insider.

Cool!

Did the stimulus work? Here's unequivocal proof

I put together a chartbook with all the major metrics on the economy, such as GDP, employment, household wealth, personal income/savings, inflation, industrial production, capacity utilization, housing starts, etc, comparing the "pre-stimulus" period with the "post-stimulus" period. This should put to bed any questions about whether or not the stimulus worked. Feel free to use this as a resource when arguing with your friends, relatives and colleagues at work.

Here are two sample charts. Get the full chart book here: Mike Norman pre/post stimulus chartbook.