Monday, September 21, 2009

Economists for Firing Larry Summers Learns Wash U.'s David K. Levine a lesson...

First, my apologies for not posting recently -- I got hit hard by the summer conference season, and journal submissions. I'm happy to report everything is going great research-wise!

In response to Paul Krugman, David K. Levin writes that "Here we are, the recession is over and we've spent 10% of the [stimulus] money..."

I then posted, in the comments:

Dear David Levine,

I'm just curious where you got the 10% figure from. The initial CBO estimate is that $185 billion will have been spent by the end of September, 2009, that's 24% of the total outlays. Even if it had only spent $100 billion (which is counterfactual), that is still more than 10%. In addition, the states' used knowledge that more stimulus was on the way next year when they set their budgets earlier this year -- so without the stimulus, states would have cut back more than they did.

Also, when people judge whether "the stimulus" worked, they need to look at the net stimulus. Since states and local governments have made roughly $100 billion in cuts for fiscal year 2009, the "net" government stimulus was probably less than $100 billion.

This means, of course, that what you and your comrades argued and are arguing for is for governments to suddenly cut way back on spending at the first sign of a recession. The way your write suggests you are not privy to what's going on at the state and local level.

Very respectfully submitted, Thorstein Veblen

Of course, I should also have mentioned that we're not 100% out of the woods yet. That unemployment is still increasing each month, and that unemployment 12 months from now, when the net stimulus will be done, is still expected to be above 9%, so that none of the stimulus will have been spent in anything approximating full employment.

In any case, David K. Levin responds:

I think 10% is a month out of date. reports $98 billion spent out of $792 billion which is 12.4%. It is certainly possible that there is some additional spending in anticipation of stimulus money coming in. It's also true that a lot of stimulus money is being spent on things that would have been done anyway, which in turn might create other spending that wouldn't have taken place without the stimulus. The key point is that even $200 billion in a roughly $14 trillion economy isn't such a big deal. It makes sense for government to do things it would have done anyway earlier to take advantage of the fact that many resources are unemployed and cheap right now. But if things have turned around - and all indications are that they have - why do we want to incur another $600 billion of debt unless we are willing to pay for it? That is, why do it outside the usual budgetary process? If we want to pay for a green power grid, and it would be more cost-effective to start sooner rather than later - then say so, don't call it a "stimulus."

Some of the stimulus spending makes sense; much does not. We are saving a small number of jobs at vast public expense - $100,000s of dollars per job - and we will have to pay it back later. There are better ways to help people in need.

Trouble is, you go to the link and it shows $98 billion spent plus $63 billion in tax cuts, which Professor Levine apparently did not see. That's more than 20% of the stimulus, and it's likely not updated to-the-minute. It's also from an anti-stimulus source, so I doubt it's going to go out of its way to make the stimulus look better than it is. I responded, but it hasn't gone thru the Huffpo's filter yet. I'll post it when it (if it?) does. I might have been too condescending, which was unnecessary, and in which case I apologize to professor Levine. At the same time, these are basic, fundamental mistakes he's making. And he's a well-paid, tenured economist in a fairly prestigious department. He should be competent enough to look up basic economic statistics, especially after being alerted to his initial mistake.

In any case, I see that Professor Levin is an MIT grad. Remember what I've said about Harvard and MIT economists . Should be no surprise that they cannot even do simple math.

Update: OK, my post went through, here it is:
Not so fast, shooter.

Your link (written by folks obviously hostile to the stimulus) says they've spent $98 billion (out of about $500 billion), plus they've issued $63 billion in tax cuts. (And, btw, I spent my $400 stimulus check... I kind of doubt I'm the only one.) That's more than 20%, and that's probably not updated to the minute. You didn't see that, not because your stupid (I think you're a bright guy!), but because you've made up your mind (and announced it!) that you are against the stimulus, and so you can only see things which confirm your biases.

By the way, in the 2nd quarter, GDP was down 1%. Federal spending was up 11%. Even w/ no multiplier, why shouldn't we think this would have an effect? With interest rates pinned at zero?

California is paying people with IOUs. Pennsylvania didn't pay its workers in July. Florida raised taxes on retirement homes. New York City raised fares for disabled people. Sacramento laid off teachers. Public employees everywhere are taking a haircut. State shortfalls alone (not counting local, which are also substantial), are $170 billion for FY2010. Yes, this means that the net fiscal stimulus is quite small. But it also means you are pushing for far more drastic spending cuts and tax increases in a recession.

That's nuts.