Now It's Obama Versus Krugman On Stimulation

Obama thumps the Republicans for not extending unemployment benefits:

In his weekly radio address, Obama said keeping those benefits in place would put money in people’s pockets, leading to more consumer spending that could boost local economies. 

Yet earlier this week Krugman explained that putting money in people's pockets won't get us out of the current liquidity trap:

But when you have bought so much debt and created so much money that rates are near zero, the public is saturated with liquidity; from that point on, they’re holding money simply as a store of value, which makes it no different from bonds — and hence a perfect substitute for bonds. And at that point further open-market operations do nothing — they just swap one zero-interest asset for another, with no effect on anything.

So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut — all of it, if you believe in full Ricardian equivalence.

Now, let's have a to-be-fair moment - Krugman has consistently called for a more stimulative spending, including an extension of unemployment benefits.  So when I say it is Obama versus Krugman, I am really imputing more intellectual consistency to Krugman than may be merited.

But as of a few days ago, Krugman's official position was that putting more money in people's pockets would not be stimulative. 

If asked, I assume he would say that if the Fed just pushes money out of its helicopter, it is not stimulative, as noted above.  However, if the Treasury pushes it out of its helicopter over carefully targeted homes and yells "Look out below!  Here comes your unemployment check!", the process becomes stimulative.  Gee, that is incredibly hard luck for the Fed that even in this economy they can't drop their cash on anyone who will actually spend it.

So per Krugman, a temporary tax cut, even if targeted towards lower earners (e.g., a payroll tax holiday), won't be stimulative or induce permanent changes in investment or spending.  However, temporary increases in transfer payments will.

It makes no sense to me, but I am not an Earnest Lib.

Comments

[PD]

This is Paul Krugman, former Enron advisor, correct?

[narciso the harpoon]

Who was fooled by the fake trading desks, he's
an embarassingly easy mark

[Clarice]

Way too intellectual.
Rick is right. Obama is aiming for "feeling voters"--those in the 18-40y.o. female persuasion, no brains tranche with this It doesn't matter if it agrees with Krugman or logic or anything else. Reuters is already beating the drum about the hard hearted Reps and the destitute unemployed.

Here's what you all can do for your country:Make your daughters manage their own finances from as early an age as possible.

[Old Lurker]

Not mention the futility of taking $X from me...with three women spending my money quite effectively...and processing it through the government meatgrinder such that $X/2 gets to that guy on his couch means that each dollar thus taken will result in less stimulous than if left alone.

[MayBee]

According to Ezra Klein, "$241.7 billion is yet to be spent, though only $95.2 billion has yet to be assigned to be spent. "

So President Obama could have at least $95 billion worth of stimulus paid in unemployment checks tomorrow, if he would only agree to follow his own Pay Go rules.

[MayBee]

Oh, that's what's still unspent/unpromised from the Stimulus package.

[Old Lurker]

"Here's what you all can do for your country: Make your daughters manage their own finances from as early an age as possible."

Ditto that, Clarice.

I am proud of the training device I used last year on Daughter #1's wedding. JOM Moms might think this cruel...

This being Saturday, allow me to explain...

From vast experience watching my friends marry off their daughters, I knew four things would happen like clockwork: 1. Daughter and her Mother would in the early days happily accept the notion of a budget for the event. 2. Shortly thereafter, they would discover that the day would be even more perfect if just we could have X instead of Y, but X blows the budget. 3. Mother and Daughter would take turns appealing to Dad for a budget revision, most of which they would achieve. 4. If either of them knew the value of a dollar before the event, by the time that sausage was made they would be certain all money is monopoly money and grows on trees.

Wanting to avoid all that, and not wanting to be the punching bag throughout the engagement period, and under cover of the motivation that girls and their husbands both need to respect money from their first days together, I did this:

After Daughter and Mother had time to let it all settle in, but way before caterers etc were engaged, I innocently raised the question of a budget. It was a trick question. Based on what they had heard from friends, they gave me a range of the cost of the sort of event envisioned. Having more level headed guy friends than they had girlfriends, I already knew the real cost would be 25% higher than their top number but did not tell them what I knew.

After they pitched their dream range to me, and striking while I could be the good guy and not the scrooge, I said the following to my dear daughter and her fiance (and my wife):

Kids, it sounds like you think the world's nicest wedding will cost about $X and you won't criticize me for ignoring the lower number, right? Oh yes, Daddy.

OK, I said, that $X really IS a lot of money for this special day, but here's what I'm going to do. Tomorrow I am opening a Savings Account in my daughter's name, and in it I am depositing $2X. From that account, you will have to pay for your entire wedding. Any money unspent will become a wedding present to the two of you. The only condition was that the quality of the affair would have to be at family standards and that a small number of my guests would have to be included, but beyond that I would support their spending ALL of the money on the event or 10% of it.

I WAS a hero.

I was NEVER asked for a new budget.

Daughter and the guy made every decision (via email to him in Iraq, and once even Sat Phone to his tank) knowing every dollar not spent would become their nest egg, and all of a sudden they did not need the Rolling Stones to play for the reception afterall, or many many of the other Bride's magazine things.

And we still had a National Cathedral wedding and a reception in a musuem downtown, and with my mandatory friends...

And they were left with $X in their newly wed bank account.

All good.

[Old Lurker]

Footnote.

Proving Daughter #2 is no dummy, she asked me if when her turn arrived, would $X be adjusted for inflation and for the fact that she lives in NYC and not DC.

[mefolkes]

OL, you are brilliant! My daughter is already married, and she was uncommonly practical, so I lucked out.

[Janet]

Okay, I'm passing that on to my husband right now OL. Thanks!

[MayBee]

That is good, OL.

In a way, it reminds me of when my Mother In Law got mad at her insurance company and told them she'd prepared to hire a lawyer (she had) with the instructions that all she wanted out of any settlement he negotiated was the $500 dollars she had been asking from the insurance company. The rest was the lawyer's.

ha ha ha. She got her $500 from them very quickly.

[PD]

The trick to not going over budget on the wedding expenses is to make sure that your contribution to the wedding is the son, not the daughter.

[Old Lurker]

True That PD.

[Clarice]

Excellent, OL. In fact, I think that would be a great article. So many people get taken in by the Bride Magazine induced madness.

[matt]

As the father of three unmarried daughters, I shall take this under close advisement OL.

I do believe one of them will probably marry in a trailer park with her many tattooed, retrograde rat rod rockabilly loving friends. Then again, that one will probably just ask Dad to spring for the keg. Then again, I know the music will be good.

[I Won]

To be honest with you, I guess the most disappointing part of my job is not getting enough credit for taking responsibility for the previous administration's reckless deficit spending and the economic devastation caused by giving tax breaks to the rich and waging a war of choice.

But I never expected this job to be easy. Look at how long it took before the Republican corporation BP did what I had told them to do from day one, which was stop the leak. Some urged that we do nothing, just let the oil leak out forever, while others urged that the government step in and assume ownership of this irresponsible corporation. Sometimes a President has to make the hard choice and find another way. That's what I did.

[Ignatz]

OL,
I was just figuring on giving our daughter a bus ticket to a chapel in Reno.
After reading your scheme I may kick in for two tickets.
Haven't consulted the mrs on my plans, as yet; expect profuse praise for my ingenuity and frugality.

[Old Lurker]

I like your plan better, Iggy.

Will attempt it with D#2.

Might have to come live with you, however.

[Pops]

The Republicans should trump Obama and agree to pay people as long as Obama agrees to pay them to protect our southern border.

The Republicans should insist they want an up or down vote on using federal welfare money currently going to illegal aliens to instead go to Americans whom are out of work.

Doing this would put American taxpayers hard earned mony into American workers hands and no have it tranfserred to other countries.

THUMP BACK you weaklings.

[Ignatz]

--Might have to come live with you, however.--

Suspect I will be living in an old cabin in the woods if I put my plan into action.
Hope you like squirrel.

[Pops]

If illegal aliens are supposedly taking Americans jobs, or doing the jobs Americans won't do, then why do we pay them welfare?

It should be federal law that it is illegal

[Ignatz]

I vote for Pops to write the Republican 2012 platform.

[Captain Hate]

Hope you like squirrel.

Speaking of which, Mrs H and I beat the heat (Appalled knows of what he says re: A/C use in Northeast Ahia) by going to see "Winter's Bone" today. Pretty bleak portayal of meth-cooking hilljacks in Clinton country with family trees resembling telephone poles. Mercifully the heroine was made of stronger ethical stuff than, say, Virginia Blythe and ended up saving the home and didn't turn her younger brother into Roger Clinton. Squirrel was an integral part of their diet.

[Captain Hate]

I second the Pops nomination.

[Gmax]

Suspect I will be living in an old cabin in the woods if I put my plan into action.

So ignatz = unabomber?

Ted K is that you? LOL

[Pops]

Thanks guys, I want to make it perfectly clear that I am a uniter, not a divider. And in that spirit I announce my plans to erect a statue to represent all illegal aliens in this country. And I call on President Obama to join me in erecting this statue in Arizona.

I think the only fitting figure would be the most famous illegal alien of all time.

MOHAMMED ATTA!

He entered the country illegally on an expired VISA that the Clinton adminstration just let go, because he couldn't possibly be doing anything in America except making a better life for himself.

The statue would have a fitting epitaph:

THIS STATUE SYMBOLIZES THE DEMOCRATS WISH THAT ALL ILLEGAL ALIENS GET TO MAKE THEIR DREAMS COME TRUE...NO MATTER WHO IT HURTS IN THE PROCESS.

[Captain Hate]

Pops you'd be the best thing to happen to the party since Atwater; maybe even better. When you're controlling the RNC, could you make me a bumper sticker: A country-clubber for every lamp-post?

[Pops]

Just to give you another heads up. This happened to a guy I work with this year. The IRS sent him a letter that he made addtl income that he didn't file in his return. He had to take a couple days off work to sit on the phone with the IRS to get it cleared up.

But the bottom line was, the IRS fixed his problem but they would not pursue the fraud..not their job...their job is collecting money, not enforcing immigration and Social secuirty fraud.

http://moneywatch.bnet.com/saving-money/blog/devil-details/irs-policies-protect-12-million-identity-thieves/1966/

Good quote from article:
"But an identity thief might be thwarted from filing a return with your Social Security number because of the matching program. He’s not going to know your wages or withholding (thank heavens, because then he’d probably nab your refund too). So the IRS gives the thief a way to file and claim just his income and withholding by allowing individuals to apply for an individual taxpayer identification number. This number doesn’t validate your citizenship status or give you any special protections in the work place. It just allows you to file a tax return without a valid Social Security number."

[Todd]

I dunno Tom. It seems if we can identify properly the folks who absolutely have no money but have things they need to buy like rent - like the long term unemployed - then this might be an exception to Krugman's "we are all too liquid now" rule.

But of course we must give them the money *secretly* so that when we spend it business owners are fooled into thinking real aggregate demand is increasing. Tough needle to thread.

[matt]

with the Krugman - Obama non-cagefight, the absolute craziness going on in DC, and the Republican "leadership" absolutely clueless, I finally figured out that Moses must have called down a plague of morons on us.....

My own encounter this week in San Francisco....LUN....

[Neo]

What to do when Hope & Change don't work for you any more

[Ignatz]

--So ignatz = unabomber?--

Gmax,
Didn't know him personally, but several foresters I know were good friends with a guy who worked for the California Forestry Association or some such outfit and he was one of, if not the first killed, by Algore's mentor. Or was Ted Al's protege? Can never keep that straight.

[Stephanie]

The bill to be voted upon on Tuesday does not include a new tier for the 99ers. They are cutoff and get no more unemployment.

The UC bill provides that for those who have exhausted their current tier and who have not been getting the next tier (since the funding expired in May/June) to go to the next tier and one additional tier in this funding bill. So someone with the original state UC claim of 26 weeks can move to tier one, those who got the original plus tier one can begin to receive tier two, etc. That maxes out at roughly 79 weeks for some, 60 for some, 53 for some and 26 weeks for some... I'm including 26 weeks as the baseline for the state UC before the fed ext kicks in.

I would like to see a breakout of how many people were at which tier when the funding went splat but have been unable to find such info anywhere. It would be enlightening to see what the percentage breakouts look like. My suspicion is that the 99ers are not a substantial percentage and that most folks fall in the first or second extension range since the average time to find another job currently stands at something like 37 weeks... so original tier plus one should be the top of the bell curve. It would be interesting to see the breakdown by age of those at each tier. I also suspicion that the older the claimant, the longer it is taking to find a new job...

[Stephanie]

as an addendum I am posting the tiers as they were last funded (Feb '10):

"State/regular benefits (paid from the Unemployment Compensation Trust Fund) -- for up to 26 weeks.

These extensions are paid from federal funds:

Emergency Unemployment Compensation (EUC) Tier I is for up to 20 additional weeks;

Emergency Unemployment Compensation Tier II is for up to 14 additional weeks;

Emergency Unemployment Compensation Tier III is for up to 13 additional weeks;

Emergency Unemployment Compensation Tier IV is for up to six additional weeks.

[Clarice]

As usual, very good, matt.

[Rick Ballard]

"I would like to see a breakout of how many people were at which tier when the funding went splat but have been unable to find such info anywhere."
Table A-35 provides some information but not at the detail level you seek.

[tommy mc donnell]

you would be amazed at how many of those hard working illegal colonizers are collecting government benefits. go to a social security office and watch how many people come to sign up for benefits and have an interpreter with them. i always thought that you had to work at least ten years to collect social security. you would think they might have learned to speak a little english in that time.

[Stephanie]

Thanks Rick... so

For 2010
< 5 weeks 20.0%
5-14 weeks 18.5%
15-26 weeks 15.5%
27-51 weeks 15% Tier I/Tier II
52+ weeks 31% Tier II/Tier III and above

That means that 46% of the unemployed are on Fed Extended Benefits (unemployed greater than 26 weeks)...

26 weeks state
20 weeks tier one
14 weeks tier two
13 weeks tier three
6 weeks tier four
equals 79 weeks

so it is
20 weeks again for tier five???

Still no breakdown above 52 weeks to see how many people are in the 99er (tier five, SOL) category, but yowza that is an awful lot of people in the out of work longer than one year category...

[MaryW]

OL and Ignatz

2 of our sons have married and in both cases we were asked to provide champagne for the toast, the wine for dinner and cover the bill for the open bar. (Tip: Set up a closing time for the bar that is reasonable.)

Bus tickets or even airline tickets look like a great deal. We used miles to pay for the tickets.

[A Conservative Teacher]

Obama's plan is to kill every business in America with Obamacare, regulations, taxes, and antagonism, and once everyone is on permenant unemployment benefits, he'll talk about how much he is stimulating the economy with my grandchildren's wealth. It's a joke, he's a joke, anyone who votes for him or any of his Democrat allies is a joke.

[AZ Cojones]

Krugman and President Obama are currently paid members of the Self-Aggrandisement Mendacity Group of the East Coast establishment. They both know what is best for this country. We should be shameful that we should even question their frivilous intelligence.

[Pops]

I see Obamas Justice Department is now admitting that the 700.00 healthcare fine under Obamacare is actually a TAX, after Obama went on National television and argued repeatedly that it was not a tax.

So much for this President having even a sliver of credibility or conscience about his lies and manipulations of the media and the public.

[Cecil Turner]

Lots of economists argue Unemployment Insurance is a significant stimulator, bolstered by the recent CBO paper that claimed it was one of the best. But the one thing they neglect is the effect on unemployment. Per the CBO

Both policy options could dampen people’s efforts to look for work, although that concern is less of a factor when employment opportunities are expected to be limited for some time. [emphasis added]

Similarly, Zandi rates UI as one of the most stimulative proposals (with about $1.70 of stimulus effect per dollar spent), but assumes it won't discourage job seeking. But if one actually quantifies the effect on unemployment, the numbers get a lot less rosy:

After taking the labor-market effects into account, extended UI benefits provide little economic stimulus. The 13-week extension already passed by Congress is estimated to have increased annual GDP by an average of $0.25 for each $1 spent while extended benefits are in effect. Increasing the duration by an additional 7 weeks to 20 weeks would depress the economy, causing GDP to decrease by $1.7 billion. Unemployment insurance provides virtually no "bang for the buck" as economic stimulus.

Moreover, the alternative here was not yes or no to UI . . . it was taking some of the slush out of the ARRA to pay for it. And that junker is hard to defend:

That the Administration and Congress chose the particular stimulus adopted suggests that stimulating the economy was not their only objective. Instead, the Administration used the recession and the financial crisis to redistribute resources to favored interest groups (unions, the green lobby, and public education) and to increase the size and scope of government.4 This redistribution does not make every element of the package indefensible, but even the components with a plausible justification were designed in the least productive and most redistributionist way possible.

But the bigger problem for the Administration is their consistently anti-business approach that discourages job creation. And that's probably the best explanation for why all that "stimulus" spending isn't making things any better. (And why their charts showing unemployment drops are junk before the ink is dry.)

[Rick Ballard]

Cecil,

Thanks for the links. It's rather entertaining to imagine a CFO trying to develop an IRR model for a potential investment based upon the range of potential outcomes outlined in the CBO giggler coupled with the areas of increased uncertainty detailed in your final link.

Paring costs in order to try and maintain margin as revenue shrinks would seem to offer a relatively higher certainty of return in a deflationary environment than investment in anything that the DC thieves might grab on a whim. It appears that even the Princeton simpleton is beginning to understand that concept.

[Rick Ballard]

Cecil,

Thanks for the links. It's rather entertaining to imagine a CFO trying to develop an IRR model for a potential investment based upon the range of potential outcomes outlined in the CBO giggler coupled with the areas of increased uncertainty detailed in your final link.

Paring costs in order to try and maintain margin as revenue shrinks would seem to offer a relatively higher certainty of return in a deflationary environment than investment in anything that the DC thieves might grab on a whim. It appears that even the Princeton simpleton is beginning to understand that concept.

[[email protected] Insurance]

Well I am hating Obama more and more each day!

[Old Lurker]

Thanks Cecil.

[orlantha]

In my perspective barack obama in one the best prime minister of America ever .
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