tag:blogger.com,1999:blog-2499715909956774229.post6047067391115656125..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Hal Cole's Take on the Krugman/DeLong DebateStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2499715909956774229.post-75791580351820340672011-03-24T13:09:03.126-07:002011-03-24T13:09:03.126-07:00That's obviously a strong statement. Care to e...That's obviously a strong statement. Care to elaborate?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27054414769586008302011-03-23T15:29:52.212-07:002011-03-23T15:29:52.212-07:00Not a single thing that the previous post contains...Not a single thing that the previous post contains is remotely correct.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75079943024756604672011-03-23T10:25:11.605-07:002011-03-23T10:25:11.605-07:00Not only does G matter but so does C and I.
But...Not only does G matter but so does C and I. <br /><br />But C and I are private sector. So they must be efficient. HAHA<br /><br />You economists are hilarious. I hope efficient G crowds out inefficient C and I. <br /><br />In fact it is inefficient banking sector I created the mess we are in now. <br /><br />A lot of C is good and needed like food but some C is crap, see "5-Hour Energy". <br /><br />Are these things in your models?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-13506053309031312992011-03-23T05:43:02.800-07:002011-03-23T05:43:02.800-07:00Bill: (Where have you been? Busy Mayoring? We have...Bill: (Where have you been? Busy Mayoring? We have missed you!)<br /><br />Normally, government spending crowds *out* current consumption. But if government spending is on productive investment, and so raises future disposable income, it may crowd *in* current consumption (i.e. negative crowding out). We are not disagreeing, it's just terminology.<br /><br />Anonymous. Agreed. The value of the government spending must be greater than the value of the unemployed's "leisure" (or whatever).<br /><br />"...and why isn't the government already doing it" Well, because it is waiting for our advice on whether or not to do it ;-)<br /><br />But underlying your question is perhaps this one: would the microeconomic CBA perspective of doing government spending if and only if NPV>0 give different answers to a macro perspective? Once we take into account the low real interest rates and low opportunity costs in a recession, I'm not sure it would give different answers.<br /><br />I'm still getting my head clear on this. Maybe (in a demand-deficient recession) macro NPV = k times micro NPV, where k is a positive number. Same cutoff, in other words, but different values. This could easily be wrong. Still thinking about this.<br /><br />Purely anecdotally, from my own casual observations in Canada, the stuff the government was building seemed like stuff we would eventually have built anyway. They just brought it forward a bit. If I'm right on that, future consumption will be higher (because it won't be crowded out by future bridge building), so current consumption will be higher via the Euler equation.<br /><br />Generally though, all this in just expanding on the point that we can't just talk about "G". We need to look at what is in that G. It matters, both on micro grounds and on macro grounds.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-88833313150482821622011-03-23T04:34:59.793-07:002011-03-23T04:34:59.793-07:00Think of it this way: giving the unemployed a tran...<i>Think of it this way: giving the unemployed a transfer payment would be dominated by requiring them to produce something useful in exchange for that transfer payment.</i><br /><br />Not if the value of the "useful" thing was less than the welfare loss from making it. Or, to put it another way: how do you define what's useful, and why isn't the government already doing it? <br /><br />You could say that the construction workers building houses were producing something useful, but it's not clear that was the best use of their time. Maybe a transfer payment would have allowed them to learn a new trade.<br /><br />In practice, most stimulus spending seems to be of the "bridge to nowhere" variety, i.e. of negligible value. In such cases it seems to me people would be better off with a transfer payment.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-74508452689368938692011-03-23T04:11:16.305-07:002011-03-23T04:11:16.305-07:00Nick:
Isn't that crowd out "less" i...Nick:<br /><br />Isn't that crowd out "less" in current consumption?Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-91640863737742147102011-03-23T03:19:52.819-07:002011-03-23T03:19:52.819-07:00OK. I think I got it basically right then!
1. Yes...OK. I think I got it basically right then!<br /><br />1. Yes.<br /><br />2. No, if the government spending is useless. Yes, if the government spending is useful.<br /><br />But I would add:<br />3. If government investment has an NPV>0, it might more than pay for the future taxes needed to finance the bond issue, so that the Ricardian effects are actually negative. Government investment causes people to expect lower future taxes (or, more generally, higher future disposable income), so the multiplier could be greater than one.<br /><br />Now, you might say the government should be doing NPV>0 investments anyway, whether or not it wants to increase AD. Fair enough, but the Keynesian argument that the opportunity cost of unemployed resources may be very low in a recession is part of what makes NPV likely to be >0.<br /><br />Think of it this way: giving the unemployed a transfer payment would be dominated by requiring them to produce something useful in exchange for that transfer payment. Not only would we get something useful, but it might crowd in current consumption, since expected future consumption would be higher.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com