Patterico's Pontifications

12/28/2014

What Drove the Giant Increase in the Phony and Meaningless GDP Number?

Filed under: General — Patterico @ 12:11 am

ObamaCare!

Yay economy!

The linked post doesn’t say, but I bet most of that is subsidies. I.e. federal government spending. Which, I have been at pains to explain before, factors into GDP, making that number meaningless as a statement about consumers’ standard of living.

Put that together with the Fed’s New Bubble (this one is in asset prices like stocks and real estate) and you have all the makings of a phony recovery. If you are falling for it, I’m afraid you’re the sucker.

84 Responses to “What Drove the Giant Increase in the Phony and Meaningless GDP Number?”

  1. Patterico.

    I read the article on the 27th. This is why I do not believe any of the statistics.

    The government hid the first quarter increase in personal health care costs and inc;luded the the figure in the 3rd quarter. That’s how the GDP improved.

    “In short, two-thirds of the “boost” to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the “polar vortex” crashed the number so badly, the BEA decided to pull it completely and leave this “growth dry powder” for another quarter. That quarter was Q3.”

    Now meaningless statistics like the GDP and the number of unemployed. Low approval ratings for the Congress and President. The government misusing the law to attack political opponents. Race baiting by the President, Holder, and Democrats like Mayor Di Blasio. Creating fear and suspicion of civilian law enforcement.

    Isn’t this part of the ratbags playbook – Create fear and distrust of the government will lead to acceptance of radical change.

    Who has the legal and moral authority to stop this?

    Davod (f3a711)

  2. Even if Keynesian stimulus worked exactly as advertised, even if all the assumptions nowadays swept under the rug are in force, the most it can do is reduce growth in the future in order to bring it about now, when we think we need it more.

    That is because every government dollar spent has to be taxed or inflated into existence. Borrowing is a deferred one-or-the other.

    While economists talk about the “government multiplier”, every dollar spent by anyone has a multiplier, by the same logic. When the spent-now government dollar gets collected later, that dollar AND ITS MULTIPLIER are pulled out of the economy.

    It’s a simple matter of setting up sums to see this. It gives you the same answer whether it’s fiat dollars or gold doubloons.

    Gabriel Hanna (dcffe4)

  3. At least it’s a plan, Davod. One that looks past the next quarterly report submitted by Lloyd Blankfein to his board of directors.

    nk (dbc370)

  4. Patterico;

    The linked post doesn’t say, but I bet most of that is subsidies. I.e. federal government spending.

    No, actually that is classified as a tax cut, even when it takes someone’s tax liability below zero.

    Now there will be a problem when peweople fill out their tax returns, and some of them discover some of that will have to be paid back, or at least deducted from the refund (if no refund, or not a big enough refund, the IRS adds interest, and is supposed to wait waits up to 10 years before writing it off.)

    Sammy Finkelman (1b38fa)

  5. Sammy, I don’t think so. It’s true what you say about it all shaking out on the individual’s income tax return on April 15 of the applicable year, but my understanding is that the health insurer will be getting a check from the government for the tax subsidy every month alongside the insured’s portion of the policy premium.

    nk (dbc370)

  6. If you are falling for it

    I started to wonder about the meaning and reliability of officially vetted figures when looking at the unemployment rate of Mexico compiled not by Mexico itself but by no less than the US’s good ol’ CIA. Something like over 35-years’ worth of data from that agency regarding our southern neighbor indicated an unemployment rate hovering around 3 to 4 percent, almost never much above that. The CIA now is placing an asterisk next to such statistics, perhaps because someone in DC finally woke up and said, “gee, Fred, this here don’t seem right! Either that or the US is more like the Third World, and Mexico is more like Switzerland!!”

    http://www.cia.gov:

    Mexico
    4.9% (2013 est.)
    5.3% (2012 est.)
    note: underemployment may be as high as 25%

    United States
    7.3% (2013 est.)
    8.1% (2012 est.)

    Mark (c160ec)

  7. This is an old story. Arthur Burns manipulated interest rates to get Nixon elected and the inflation followed as day follows night. You have to be as old as I am to remember when a new car was $3,000 and a new house was $25,000. Don’t even mention gold. The last honest federal government statistics were when Coolidge was in office.

    Mike K (90dfdc)

  8. “While economists talk about the “government multiplier”, every dollar spent by anyone has a multiplier, by the same logic.”

    Gabriel – A lot of people believe the multiplier on government spending to be less than one, rather than the 1.6 or higher touted by Administration economists at the time of the Porkulus. What is your point?

    daleyrocks (bf33e9)

  9. Heh. Soviet collectives did not use capitalist-intellectual bookkeeping tricks. They proved their increased productivity by increased tonnages of weight. They used gross vehicle weight. To increase productivity, they built heavier trucks.

    nk (dbc370)

  10. It appears that for every 1 job created by the government, about 3 private sector
    jobs are lost. That has been the history of Spain and some of the other tanking
    economies that have experienced the “green revolution”).

    Sort of makes sense, if you are working at a decent job, you have about 1/3rd of
    your income taken through payroll, sales, and other taxes/fees/etc.).

    This link:

    http://www.cbn.com/cbnnews/finance/2011/November/Spains-Green-Disaster-a-Lesson-for-America/

    Calzada, an economist, studied Spain’s green technology program and found that each green job created in Spain cost Spanish taxpayers $770,000. Each Wind Industry job cost $1.3 million to create.

    “President Zapatero, for example, when he came in to power, said he knew, ‘he knew’ that solar energy was the future,” Calzada said. “He ‘knew’ this, so he put all the public money and investment into this model.”

    But Calzada’s study found that for every four jobs created by Spain’s expensive green technology program, nine jobs were lost.

    Electricity generated was so expensive that each “green” megawatt installed in the power grid destroyed five jobs elsewhere in the economy by raising business costs.

    Certainly there are needed government functions out there–But those do come at great
    costs.

    The present “government numbers” are simply lying with statistics.

    BfC (8661e2)

  11. Back in the day, the GNP included government spending. Since that distorted the stats on the economy, we were told, the GDP was developed to be more accurate by not including government spending. If the Feds are shoving government spending back into the GDP, and still calling it the GDP, they’re lying. Also, the sun came up this morning. I anticipate it will go down in about five hours.

    Richard Aubrey (f6d8de)

  12. “You’re a congressman,” Burris said, “and the government is inefficient. You find evidence of it. What do you do?”

    Malone blinked and thought for a second. It didn’t take any longer than that to come up with the old, old answer. “I start an investigation,” he said. “I get a committee and I talk to a lot of newspaper editors and magazine editors and maybe I go on television and talk some more, and my committee has a lot of meetings—”

    “Exactly,” Burris said.

    “And we talk a lot at the meetings,” Malone went on, carried away, “and get a lot of publicity, and we subpoena famous people, just as famous as we can get, except governors or presidents, because you can’t—they tried that back in the ’50s, and it didn’t work very well—and that gives us some more publicity, and then when we have all the publicity we can possibly get—”

    “You stop,” Burris said hurriedly.

    “That’s right,” Malone said. “We stop. And that’s what I’d do.”

    “Of course, the problem of inefficiency is left exactly where it always was,” Burris said. “Nothing’s been done about it.”

    “Naturally,” Malone said. “But think of all the lovely publicity. And all the nice talk. And the subpoenas and committees and everything.”

    nk (dbc370)

  13. Unfortunately, half of America is falling for these lies.

    DRJ (a83b8b)

  14. And even if it isn’t all government subsidies, it’s still unnecessary spending to comply with ObamaCare mandates and the cost of redistributing healthcare.

    DRJ (a83b8b)

  15. lots of unnecessary tests i bet

    but what can you do

    america does its best it’s just kind of a loser anymore

    happyfeet (831175)

  16. On a related note, the media know that Obama only has 24 months or so left in office. They are starting their mourning over his departure by making him and his presidency out to be much more successful that it actually has been. Remember, he is their guy and they want to help as much as possible. They will carry him over the finish line. Here are some recent headlines: NYT’s Obama’s Bounce, Huff Po: Obama Has Tied Regan in Recent Polls, BoGlo: A Good Year for Obama & Nation’s Economy. These 3 news sources are all left-wing outlets but I think you can get the point. This effort will also help to clear the brush for Elizabeth Warren, or Hillary!!!! in 2016. You can also bet they will step up negative coverage of any R’s they view as potential rivals to Hillary, et. al.

    Ipso Fatso (10964d)

  17. nk (dbc370) — 12/28/2014 @ 7:19 am

    my understanding is that the health insurer will be getting a check from the government for the tax subsidy every month alongside the insured’s portion of the policy premium.

    Yes, they get a check. They are “advance tax credits.”

    Now the problem:

    http://www.nytimes.com/2014/12/26/your-money/affordable-care-acts-tax-effects-now-loom-for-filers.html?_r=0

    That’s not all. People who bought subsidized insurance through one of the marketplaces may have new tax forms to complete, while paying the penalty itself may demand some serious number-crunching….

    …For instance, most of the 6.7 million people who bought insurance through the exchanges received subsidies, which reduced their monthly premiums. But those subsidies were based on previous years’ income — so people whose incomes have changed will inevitably have to pay some of that money back, while others may receive fatter refunds.

    Paying the penalty may also deliver some surprises. People who were uninsured for more than three consecutive months may owe something…

    …Consumer advocates said they were concerned that some taxpayers might not realize that they needed to apply for certain exemptions, and, in some cases, substantiate their circumstances. (An estimated 23 million people will qualify for an exemption in 2016, while many others will be granted a pass because of a hardship, according to a federal analysis.)

    Some exemptions must be applied for through the exchanges, while others can be claimed only on income tax returns and some can be granted through either channel. (The I.R.S. and Healthcare.gov have lists of where to apply for each). For instance, people who cannot find affordable coverage — costing 8 percent of household income or less — must claim that exemption on their tax returns.

    But the most time-consuming exemptions require mailing a signed paper application to the exchanges: These are processed manually, which can take a couple of weeks. Those exemptions include several hardships, such as foreclosure, the death of a family member, unpaid medical bills and eviction, as well as religious reasons for not using insurance. “Do it now because it’s a cumbersome process,” advised Mark Steber, chief tax officer at Jackson Hewitt Tax Service.

    Once an exemption is approved (and if it’s not, the applicant can appeal), a taxpayer is sent an “exemption certificate number,” which should be entered on the tax return….

    …People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income, it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.

    Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.

    “This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.”

    Taxpayers may be comforted that there are caps on the amount that must be paid back, though a family of four with a household income exceeding $94,200 would have to pay back the full amount if it received too much in premium subsidies.

    But some taxpayers who are on the edge of losing premium subsidies may be able to reduce their incomes enough to qualify for the credits. For instance, people can contribute to a retirement account — like a 401(k), 403(b) or traditional I.R.A. (and I.R.A. contributions for 2014 can be made by April 15 for the 2014 tax year), tax experts said. ..

    But you can’t establish an IRA on April 13, 2015. It takes a while to do the paperwork.

    Sammy Finkelman (1b38fa)

  18. 15. happyfeet (831175) — 12/28/2014 @ 11:24 am

    lots of unnecessary tests i bet

    And there are other tests, like MRIs that they don;t do, and taht cost up to teh times more than they should.

    Opinion on problems with walking or motion or pain are all over the place, which probably means they are worth studying and paying attention.

    Running cold water over the painful spot is probably a very good idea.

    Sammy Finkelman (1b38fa)

  19. Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund.

    this is intentionally obfuscatory crap reporting on the part of propaganda slut Tara Siegel Bernard

    happyfeet (831175)

  20. we got cold water out the wing wang here Mr. F

    happyfeet (831175)

  21. It’s recommended you run the cold water before you go to sleep, and run it as long and as cold as you can.

    I think also it pays to take bromelain, or eat fresh pineapple or canned pineapple with sugar, and take folic acid pills, and some protein.

    Maybe pantothenic acid too.

    This needs experimentation.

    Meanwhile. according to The Week, they discovered a cure for paralysis caused by spinal injries (and it does not involve embryonic stem cells, but rather cells, taken from the nose) but nobody is paying any attention.

    This is actually a little bit old news, like the dialysis cure for ebola was.

    http://www.medicalnewstoday.com/articles/284152.php

    Darek Fidyka was left paralyzed from the chest down after suffering stab wounds to his back in 2010. After 19 months of treatment at a Polish hospital, his doctors say he has recovered some voluntary movement and some sensation in his legs.

    Mr. Fidyka is continuing to improve further than predicted – he is able to drive and live more independently.

    Web Md reported:

    http://www.webmd.com/brain/news/20141021/nerve-cells-paralysis

    But some experts warn that the medical evidence is far from conclusive, and it would be wrong to give false hope to people expecting a cure for paralysis.

    They have to throw cold water on this because they know government regulation would never allow this to be followed up quickly.

    Where are the politicians who understand what’s wrong?

    The only (somewhat remote) hope is Governor Moonbeam.

    Sammy Finkelman (1b38fa)

  22. Meanwhile I read the obituary of the man who discovered titanium bonds to bone, which is the basis for dental implants today. This was decades ago, so it actually went into dental practice.within two or three decades.

    As with most new things, they made a lot of mistakes in the beginning and really hurt some people.

    http://www.nytimes.com/2014/12/28/health/per-ingvar-branemark-dental-innovator-dies-at-85.html

    In 1952, he and his team put optical devices encased in titanium into the lower legs of rabbits in order to study the healing process. When the research period ended and they went to remove the devices, they discovered to their surprise that the titanium had fused into the bone and could not be removed….

    …Even after years of experimentation, though, it was difficult to convince the medical and dental establishment that titanium could be integrated into living issue. The conventional wisdom was that the introduction of any foreign material into the body would inevitably lead to inflammation and, ultimately, rejection.

    Moreover, previous efforts to install dental implants, relying on mechanical devices to keep them in place, had failed miserably and left many patients in great pain.

    For years, Dr. Branemark’s applications for grants to study implants anchored in bone tissue were rejected. The United States National Institutes of Health finally financed the project, and in the 1970s, Sweden’s National Board of Health and Welfare approved the Branemark implants.

    Dr. Branemark’s first titanium dental implant patient, in the mid-1960s, was Gosta Larsson, a man with a cleft palate, jaw deformities and no teeth in his lower jaw. The operation giving him four titanium implants allowed Mr. Larsson to use dentures until his death four decades later.
    Still, Dr. Branemark’s innovation was poorly received. After Dr. Branemark gave a lecture on his work in 1969, Dr. Albrektsson recalled, one of the senior academics of Swedish dentistry rose and referred to an article in Reader’s Digest describing Dr. Branemark’s research, adding, “This may prove to be a popular article, but I simply do not trust people who publish themselves in Reader’s Digest.”

    As it happened, that senior academic was well known to the Swedish public for recommending a particular brand of toothpick. So Dr. Branemark immediately rose and struck back, saying, “And I don’t trust people who advertise themselves on the back of boxes of toothpicks.”

    A turning point came in 1982 at a professional meeting in Toronto, where Dr. Branemark made the case for osseointegration and won widespread recognition for his materials and methods. Since then, millions of people worldwide have been spared dentures because of his work.

    Sammy Finkelman (1b38fa)

  23. 8. Indeed, in part due to the cost of debt maintenance but mostly the lost opportunity cost of malinvestment the Federal multiplier has fallen from LBJ’s 1.37 after the Gulf of Tonkin to Barry’s 0.42 today.

    Winning!

    DNF (a6032a)

  24. anyone who says the economy is improving is either a fool or a liar.

    redc1c4 (34e91b)

  25. or a “journalist”

    happyfeet (831175)

  26. Prolly all three!

    Gazzer (c44509)

  27. As to employment numbers, the Census Bureau continues to use flawed field surveys. As it happens I have been for the last year a subject of such surveys. I get called about every 2 months and get asked a series of questions about things we bought, work, recent big purchases, vacations, cars, etc. Typically takes about 20 minutes. But their main tool is the death/birth model.It amounts to a guessing game by design. These numbers aren’t really tied to anything beyond the surveys. As per extensive reporting by John Crudele in the NY Post, there is strong evidence these surveys are somewhere between fudged and completely fabricated. In some offices there is strong proof they don’t even bother with the survey work and simply invent numbers. Not clear yet anyway that such chicanery is being directed from on high. But anyone who works in or around government knows nobody at the top of the slag heap likes bad news, and playing with the numbers is a feature of all phases of government data reporting under both parties. This is especially so when and where good numbers means better pay, perks and assignments. Further if the Fed or Census really wanted to see employment numbers they could check the IRS database to see how many SS#s paid payroll taxes compared to previous periods, , how many did so after not doing so last period and how many stopped in a given period. They could also check literal state birth and death records, which are public recorded. Yet they do none of that and rely on their surveys. In other words, the data is there to be collated but they’d rather have the room to invent their own numbers.

    Bugg (f0dbc7)

  28. The template:

    http://www.zerohedge.com/news/2014-12-27/keynesian-end-game-crystalizes-japan’s-monetary-madness

    Of course, were there any truth to reports of the economy heating up commodity prices and treasury yields, at minimum, would be rising.

    DNF (a6032a)

  29. The local newspaper had an article about the booming local economy and i was shocked.
    Still lots of empty store fronts in downtown area, major local corporation had laid off 10,000 employees and housing market is still down – except for the high end of the market.

    It seems that there is a bubble of people who in fact are doing quite well. maybe due to the stock market maybe because they are in gov’t benefited programs. Good for them, but don’t make that into something that most people are enjoying a higher standard of living than 10 years ago , 4 years or even last year.

    seeRpea (303c15)

  30. 18
    It should take only an hour of filling out forms, and often less, with the money fully credited to the new account no later than the next business day. If it takes longer, you need to find a new bank.
    If you want a stock brokerage IRA…well, I think the stock market for the last several years is merely another form of gambling.

    kishnevi (3719b7)

  31. 30. Don’t remember the year, maybe 2011, Goldman Sachs had exactly zero trading days losing money.

    The very next year JP Morgan had three.

    DNF (a6032a)

  32. 31. Believable. But as I understand it, they often hedge their trades, so they can win one way or another. They control the market.
    And of course their stats probably make use of the same sort of tricks used by government.
    To be clear, my comment about stocks had in mind small investors like you and me.

    kishnevi (a5d1b9)

  33. GDP growth is being driven by the obscene increases for BarryCare and associated health-care policies over what was charged just two years ago, and probably not just a little bit of obfuscation in the concomitant scaling back of raw consumer spending as the discretionary pot has shrunk accordingly.
    It will be interesting to see how long the Feds can play Hide-the-Ball, and how inventive they get in the smoke-and-mirrors department.
    But, at least the smoke being blown up my arse isn’t generated by coal.

    askeptic (efcf22)

  34. …more….
    When we finally see the Christmas Shopping numbers, we might get an idea just how stunted the economy is going to be in 2015 as people have had to pay more for their health-care policies, and are looking forward to the increases that will be coming in the Fall (again).

    askeptic (efcf22)

  35. Mike K (90dfdc) — 12/28/2014 @ 8:46 am

    Mike, even you aren’t old enough to remember Silent Cal.

    askeptic (efcf22)

  36. happyfeet (831175) — 12/28/2014 @ 4:28 pm

    Being a journalist probably covers the other two.

    askeptic (efcf22)

  37. @daleyrocks: It doesn’t matter whether the government multiplier is less than one. If the assumptions behind stimulus apply, then the economy is temporarily boosted by some multiplier times the amount of government spending.

    The key point is temporarily, because when the government spending is paid for by taxation the economy drops by some multiplier times the amount of government spending.

    Whether the government spends $1 today to bring forward $2 of growth from tomorrow, or whether the government spends $1 today to bring forward $0.50 of growth from tomorrow, is beside the point. Keynesian stimulus on its own terms, giving it the benefit of every doubt, can only borrow growth, it cannot create it.

    Gabriel Hanna (dcffe4)

  38. re #34: do you have a lead on something that is giving you the feeling that Holiday2014 shopping is down significantly from Holiday2013? I am expecting Holiday2015 will be down and that Holiday2017 will be really bad. Policy costs weren’t that much higher this past year, costs are increasing in 2015. Then not much in 2016 but in 2017 will be huge cost increases and most (if not all) of the waivers will be expired.

    seeRpea (303c15)

  39. Does anyone else read the comments at the Daily Caller? I do, re: No. 1 here.

    Ag80 (eb6ffa)

  40. “@daleyrocks: It doesn’t matter whether the government multiplier is less than one. If the assumptions behind stimulus apply, then the economy is temporarily boosted by some multiplier times the amount of government spending.”

    Gabriel – You prove why it matters in the statement you make following the above. Just think it through. That “stimulus” you postulate actually shrinks the economy because it is so inefficient. It doesn’t borrow growth, it destroys it.

    daleyrocks (bf33e9)

  41. Negozi Hogan A Roma The only change that has been made in more 100 years is an improved quality of meatIt’s in their interest,” said Tim, who believes a combination of factors largely beyond the couple’s control led to the problem not being picked up”Yes, it will happenTo lower its burden of proof, the government is using a 1989 law that is supposed to protect taxpayers from frauds against federally insured financial institutions9), Morgan Stanley’s lawyers at?Marino, Tortorella & Boyle?as

    Woolrich Parka Usa (bc4f00)

  42. 40. Maths is hard.

    Why the ciphering part should be everyone gets, but that the concepts are also escapes moi.

    DNF (e0d382)

  43. Black lies matter.

    Like feral urban Homo subspecies never missing an opportunity to self-eradicate are going to change their future for the good.

    DNF (e0d382)

  44. @daleyrocks:That “stimulus” you postulate actually shrinks the economy because it is so inefficient.

    No, that’s not correct. The calculation cannot yield a negative number. It’s a positive number between 0 and infinity.

    What WOULD be correct is to say that the economy might not grow as fast as it would have if the government spending did not take place. But that’s not built in to the calculation, the model is much too simple to account for those things. Which you would expect, at that time math was new to economics and a lot of low-hanging fruit got picked between 1900 and 1940.

    To derive the Keynesian stimulus, you assume a constant taxation rate and a constant propensity to consume. The rest is adding up terms in an infinite series, which is trivial math, there’s a formula for it.

    It seems you think I’m some sort of advocate for Keynesian stimulus. I’m not. But I’ve been through the math and I know what it can do and can’t do, based on its own assumptions.

    In real life government spending might well shrink the economy, though demonstrating the causation would have all the usual problems that apply to real-world economics. I’m only talking about the original model, which makes very simple assumptions.

    Gabriel Hanna (dcffe4)

  45. it’s stimulus like michelle obama’s crappy lunches

    they just go in the trash

    happyfeet (a037ad)

  46. Bugg says “They could also check literal state birth and death records, which are public recorded.”

    The birth/death model has nothing to do with the birth or death of humans. It models the start of new businesses (birth) and the closure of previously operating businesses (death).

    See this: http://www.bls.gov/web/empsit/cesbd.htm

    Hangtown Bob (352813)

  47. “No, that’s not correct. The calculation cannot yield a negative number.”

    Gabriel – It is simple if you think through the assumptions and it does not involve your unexplained borrowing concept. Taxation rips money from private hands to be put in government hands to be redistributed (spent) in whatever way the government deems best. If the multiplier of that spending by the government is below one versus a multiplier above one in private hands, you wind up with a smaller economy. Think about it like a project with a negative NPV, why would you undertake it? In a sane world you wouldn’t.

    I don’t understand your point about the government borrowing growth in #37. With taxation, the money is permanently gone from taxpayers. If the government financed a stimulus with debt perhaps you can say the government is mortgaging future growth on the assumption they will have to repay the debt. The problem remains in the eyes of many, however, of the lousy multiplier on government spending.

    daleyrocks (bf33e9)

  48. @daleyrocks 49: If the multiplier of that spending by the government is below one versus a multiplier above one in private hands, you wind up with a smaller economy.

    That’s what I said already: the economy might not grow as fast as it would have if the government spending did not take place. But you do NOT wind up with an economy smaller than what you started with. The growth is not negative.

    Think about it like a project with a negative NPV. But it’s not negative. It’s not smaller than 0. Less than 1 is different from less than 0.

    I don’t understand your point about the government borrowing growth in #37.

    The assumption behind stimulus is that you have an economy that is already in equilibrium, but you want to be bigger, and it doesn’t get bigger on its own because demand is low. Everyone is already spending all they care to and they cannot be tempted or cajoled into spending more.

    If the government spends more money from taxation, then the economic growth will not happen–the government spending will be exactly offset by the private spending that did not happen with that money. (This is because the government multiplier, in this model, is the same as for private spending. I’m aware that you dispute this happens in real life, and I agree that this is in dispute.)

    So the government borrows from consumer savings–money that is not being spent–and spends it. For every dollar spent, depending on what the multiplier is, something between $0 and $infinity is added to the economy after it reaches its new equlibrium.

    But now the money has to be repaid to the consumers it was borrowed from. How can it be repaid? Ultimately from additional taxation, or cutting other spending and keeping taxation the same. But in this model these have exactly the same effect as the original spending did, but this time negative. So the net effect on the economy after the borrowing, spending, and repayment is zero.

    What everyone is hoping happens is that the propensity to consume goes up because the economy grew–in other words the government spending will make consumers more likely to spend. That of course could happen without the government doing anything, and that would produce economic growth which would be, hopefully, larger than the contraction produced by raising taxes or cutting spending.

    So stimulus borrows some of tomorrow’s prosperity to spend it today, in the hopes that tomorrow’s prosperity will come sooner because of it.

    Gabriel Hanna (64d4e1)

  49. Gabriel Hanna (64d4e1) — 12/29/2014 @ 10:33 am

    –the government spending will be exactly offset by the private spending that did not happen with that money.

    assuming that the money supply stays the same.

    But if you assume it does not, what you are really relying on is monetary policy.

    Actually everyone knows, or should know, that Keynesian theory is all wrong.

    The only thing that counts is monetary policy.

    Sammy Finkelman (d22d64)

  50. @Sammy Finkelman:assuming that the money supply stays the same.

    Yes, that is the assumption, but even generously giving Keynesian stimulus that assumption does not save it.

    The point is not why the model doesn’t agree with real life, the point is that the model doesn’t do what it’s claimed to do.

    Gabriel Hanna (64d4e1)

  51. “That’s what I said already: the economy might not grow as fast as it would have if the government spending did not take place. But you do NOT wind up with an economy smaller than what you started with. The growth is not negative.

    Think about it like a project with a negative NPV. But it’s not negative. It’s not smaller than 0. Less than 1 is different from less than 0.”

    Gabriel – No, let’s recap. After lecturing Patterico that government stimulus is just borrowing from future growth and that saying that every public or private dollar spent has a multiplier, you told me in #37 that:

    It doesn’t matter whether the government multiplier is less than one.

    Now you seem to agree that it does matter. I think you need to review those maths that you clam to have reviewed concerning the multiplier effect and what a multiplier below one actually means. I did, just to check the accuracy of what I was saying. It might be time well spent.

    Just saying.

    daleyrocks (bf33e9)

  52. …………………Under this logic, one possible remedy is for public spending to take the place of private spending. As government increases its spending, the money creates new employment. That, in turn, spurs those new workers to consume more and prompts businesses to buy more machines and equipment to meet the government-induced demand. Economists call this increase in aggregate income the “multiplier” effect. One dollar of government spending, the theory goes, ends up creating more than a dollar of new income. It’s a rare free lunch.

    As appealing as the Keynesian story sounds, many economists have long doubted it. In 1991, looking across 100 countries, Robert Barro of Harvard presented historical evidence that high government spending actually hurts economies in the long run by crowding out private spending and shifting resources to the uses preferred by politicians rather than consumers. For a dollar of government spending, we end up seeing less than a dollar of growth. Can long-term poison be short-term medicine?

    Even in the short run, if there’s a big decline in the demand for workers, why should that alone cause mass unemployment? If all those workers really want to work, why won’t wages just fall until all the workers have jobs? That’s how markets end a glut, whether it’s a glut of employees or a glut of blue jeans: with lower prices. If recessions really are caused by a fall in demand (and nothing else), why don’t wages fall enough to keep people from losing their jobs?

    It’s because wages are sticky, Keynesians argue. Wages and salaries don’t change on a daily basis the way stock prices and gas prices do, so if a company hits a sales slump, salespeople might earn fewer commissions, but the vast majority of workers don’t get a pay cut. There’s something about the market for workers that keeps businesses from cutting wages in a slump. As long as wages are sticky, in the wake of a nationwide collapse in sales, entrepreneurs will start firing people.

    If a decline in demand means mass firing, a rise in demand can mean mass hiring. Even if government spending is inefficient, pork-laden, and financed by future tax increases, the theory goes, it can still create some real jobs, some real output, in both the public and private sectors.

    So what do the data say? There aren’t many studies of the issue. But two stand out: Robert Barro’s work and research by Valerie Ramey, an economist at the University of California–San Diego, on how military spending influences GDP. Both studies found that government spending crowds out the private sector, at least a little. And both found multipliers close to one: Barro’s estimate is 0.8, while Ramey’s estimate is 1.2. This means that every dollar of government spending produces either less than a dollar of economic growth or just a little over a dollar. That’s quite different from the administration’s favored multiplier of four. What’s more, Ramey also found evidence that consumer and business spending actually decline after an increase in government purchases.

    Why this crowding out of private spending? Government spending comes from three sources: debt, new money, or taxes. In other words, the government can’t inject money into the economy without first taking money out of the economy……………..

    RTWT

    http://reason.com/archives/2009/10/19/the-myth-of-the-multiplier/

    daleyrocks (bf33e9)

  53. Interesting thing about medical notes:

    http://www.kevinmd.com/blog/2014/12/happens-medical-notes-todays-emrs.html

    He says it gets translated into incompehensible gobblegook..

    he gives an example of something that is clear A and then how he could mangle it by having it tgranslated back and forth into and out of several different languages. That was B.

    Actually I think A isn’t too clear either.

    A was:

    “Not enough data are available to evaluate differences in the incidence and clinical features of aphasia in men and women. Some studies suggest a lower incidence of aphasia in women because they may have more bilaterality of language function. Differences may also exist in aphasia type, with more women than men developing Wernicke aphasia.”

    This should read:

    There’s not enough information from studies to tell whether or not there are differences between the frequency and the character of cases of inability to speak in men and in women (caused by strokes)

    Some say it happens less often with women because their language function is more often more evenly divided between the left side and the right side of the brain and, if the person lives, strokes usually affect only a small part of the brain.

    There can also be statistical differences in the type of speaking disability that women get when they get it, with a higher ratio of women than men getting an inability to understand speech (Wernicke’s aphasia) as compared to Broca’s aphasia (also called expressive aphasia) which is an inability to come up with words. (A person who has one usually doesn’t have the other.)

    Sammy Finkelman (d22d64)

  54. Not only are wages sticky (going down) prices are sticky, too.

    Sammy Finkelman (d22d64)

  55. @daleyrocks: I think you need to review those maths that you clam to have reviewed concerning the multiplier effect and what a multiplier below one actually means.

    $X + $1 * (multiplier bigger than 1) > $X
    $X + $1 * (multiplier smaller than 1) > $X

    Math reviewed, it checks out.

    A multiplier smaller than 1 is not a negative number. I don’t know why you think “smaller than one” means “negative”.

    Gabriel Hanna (64d4e1)

  56. @daleyrocks: Incidentally, nothing that you quoted from that Reason article contradicts anything I said. I don’t know why you think it does.

    A dollar of spending may well produce less than a dollar of growth, but that growth is a positive, not a negative number–the economy does not get smaller when the multiplier is less than one. It just doesn’t grow very much.

    Gabriel Hanna (64d4e1)

  57. for a limited time only a dollar will buy you not one but TWO holiday pies at mcdonald’s

    that’s a multiplier of tasty * pie!

    happyfeet (a037ad)

  58. @daleyrocks: In addition I don’t know why you accuse me of “lecturing” Patterico, as though I’m disagreeing with him in some way. I’m criticizing the same school of thought he is criticizing.

    Gabriel Hanna (64d4e1)

  59. @happyfeet: What is this mysterious holiday commemorated by these pies? (I assume it’s Chanuramakwanzmas.)

    Gabriel Hanna (64d4e1)

  60. not sure exactly Mr. Hanna but when they start giving em away 2 for a dollar it means that holiday’s just about done and done

    to be honest though these pies are not particularly tasty mostly cause they have an odd finish to them

    i’ll not be partaking of these in future, but I’m glad to have checked the box

    happyfeet (a037ad)

  61. 57. You are conflating addition with multiplication.

    Take a dollar out of circulation, multiply by one, put it back.

    You have done nothing.

    That is the point in criticism of including government spending in GDP. Rarely is a good produced and often the service is counter productive.

    Transfer payments unquestionably subtract value from the economy beyond overhead.

    DNF (785273)

  62. Lost in the glee over a found domestic recovery are global prospects for growth gone missing.

    Expectations have just been downgraded 20%, to be deprecated further.

    The good news is our way of life should be jury-riggable into 2017.

    Mileage has little room to vary.

    DNF (785273)

  63. “A multiplier smaller than 1 is not a negative number.”

    Gabriel – Pay attention. I compared a multiplier less than one to a negative NPV. Would you spend a dollar to get less than a dollar of stimulus? I wouldn’t. I understand that Keynesians believe their theory works at any positive multiplier but I think that’s a stupid way of looking at their theory.

    I did not claim the Reason article contradicted anything you said. I thought it was a plain language explanation of the multiplier and the bleeding explanation creating by multipliers below one. I’m happy to provide others which more explicitly say multipliers below one potentially shrink the economy rather than relying merely on your authority.

    I described you as lecturing Patterico because that is what your tone sounded like to me.

    I can’t help it if you are thin skinned.

    daleyrocks (bf33e9)

  64. @daleyrocks:Would you spend a dollar to get less than a dollar of stimulus? I wouldn’t.

    Would you spend a dollar to get less than a dollar of profit? The vast majority of businesses do this routinely.

    “Profit”, like “stimulus”, is over and above spending. You cannot add tiny profits to get a loss, and you cannot add tiny multipliers to get a contraction.

    I’m happy to provide others which more explicitly say multipliers below one potentially shrink the economy rather than relying merely on your authority.

    Yes, do show me the “authority” that says adding a positive number to a positive number results in a smaller number–even “potentially”. Arithmetic trumps authority.

    Gabriel Hanna (dcffe4)

  65. 66. “Profit, like stimulus,…”

    Nice try Tyrone, neither pertain. Best to quit while we just believe you to be ignorant.

    DNF (d3065a)

  66. 67. Stimulus in daley’s usage is a verb corresponding to that action effected by a’multiplier.

    Your use is that of a sum, again misconstruing a concept owing to an ambiguity of English employed in service of economics.

    Good luck with that.

    DNF (d3065a)

  67. @DNF: A multiplier is the sum of an infinite number of transactions.

    You have an average fraction of each dollar of income spent; call that s

    Somebody spends a dollar. The person they give it to spends s out of it. The next person spends s*s. Repeating that an infinite number of times yields

    1 + s + s^2 + s^3 + s^4…

    which is equal to 1 / (1 – s), if |s| is less than 1. If it isn’t then the series does not converge.

    And that’s the multiplier: 1 / (1 – s), which can’t be negative without a contradiction, because you can’t even calculate the sum if |s| is greater than or equal to 1.

    If you look up different formulas for multipliers they all have the same form: 1 / (1 – something), because they are sums.

    The sum can come out to be smaller than one, but it can’t come out negative, and it’s not made less true by snark.

    Gabriel Hanna (dcffe4)

  68. 69. Unh huh, whatever.

    I have a math minor myself. Converge to what?

    DNF (d3065a)

  69. “The sum can come out to be smaller than one, but it can’t come out negative, and it’s not made less true by snark.”

    Gabriel – You seem too smart to continue to deliberately miss the point previously explained. Why do you persist?

    Multipliers below one matter. They shrink the potential size of the economy below what it otherwise could have been, which you mistakenly label a negative number. Twisting the words I said and repeating the twisted words does not help you make your point because you have thin skin and are butt hurt. There is plenty of literature rather than you appeal to authority supporting what I am saying. Start with the Reason article I linked, cupcake.

    daleyrocks (bf33e9)

  70. @daleyrocks”:Would you spend a dollar to get less than a dollar of stimulus? I wouldn’t.

    Would you spend a dollar to get less than a dollar of profit? The vast majority of businesses do this routinely.”

    Gabriel – Well that’s certainly not an apples to apples comparison, but thanks for playing. Why don’t you explain to the audience why?

    daleyrocks (bf33e9)

  71. Oh, and answer the question asked instead of dodging it.

    daleyrocks (bf33e9)

  72. Blind ’em wit B as in B, S as in S.

    Your series {s^0+s^1+s^2+…} is completely ‘effed up. You should have successive elements denoted by subscripts.

    The carat superscript denotes the exponential function. You are totally lost.

    DNF (d3065a)

  73. DNF – I was just hoping Gabriel would point out the place where he believes my words result in a negative number for the sums in the multiplier equation. He can’t, because he made it up.

    daleyrocks (bf33e9)

  74. 75. Concur.

    DNF (d3065a)

  75. on a long enough drive across alaska the survival rate for everyone drops to zero

    cause the roads are bad and it gets very cold

    plus there’s all these bears

    happyfeet (a037ad)

  76. ‘Yum’ sounds like a growl.

    DNF (d3065a)

  77. Gabriel Hanna (dcffe4) — 12/30/2014 @ 6:27 am

    Repeating that an infinite number of times yields

    You can’t repeat that an infinite number of times in a reasonable, let alone a finite, amount of time. Of course, I suppose the series converges quickly.

    The only reason the multiplier is less than infinity is, I suppose, because some of the money returns to the government in the form of taxes.

    I think this whole theory is unsound.

    Sammy Finkelman (d542b2)

  78. @DNF: The carat superscript denotes the exponential function.

    If you mean I’m raising s to powers, yes I am. (The exponential function is something else entirely.) That is why these series are called “power series”, and learning what they are and how to evaluate them is part of the second semester of calculus, which you surely must have taken because

    I have a math minor myself.

    The series I wrote converges to 1 / (1 – s). If you need a refresher on this you can find it here.

    Gabriel Hanna (64d4e1)

  79. @daleyrocks:I was just hoping Gabriel would point out the place where he believes my words result in a negative number for the sums in the multiplier equation.

    40.That “stimulus” you postulate actually shrinks the economy because it is so inefficient. It doesn’t borrow growth, it destroys it.

    49.If the multiplier of that spending by the government is below one versus a multiplier above one in private hands, you wind up with a smaller economy.

    65.I’m happy to provide others which more explicitly say multipliers below one potentially shrink the economy rather than relying merely on your authority.

    Only at 71. do you switch to They shrink the potential size of the economy below what it otherwise could have been, which I had acknowledged in 45. and 50.

    Gabriel Hanna (64d4e1)

  80. @Sammy Finkelman:You can’t repeat that an infinite number of times in a reasonable, let alone a finite, amount of time. Of course, I suppose the series converges quickly.

    It does, so one caveat to the multiplier is “given enough time for it to get indistinguishably close to covergence”, for whatever values of “enough time” and “indistinguishably close to covergence” you choose.

    Suppose s = 0.8, then the first ten terms of the series are

    1 + 0.8 + 0.8^2 + 0.8^3 + 0.8^4 + 0.8^5 + 0.8^6 + 0.8^7 +0.8^8 + 0.8^9 = 4.463

    The infinite sum is 1 / (1 – 0.8), which is 5.

    After ten transactions then, you are 90% of the way there.

    Gabriel Hanna (64d4e1)

  81. @daleyrocks:Well that’s certainly not an apples to apples comparison, but thanks for playing. Why don’t you explain to the audience why?

    Because the dollar, during its adventures through the economy, produces a positive amount of exchange of goods and services. This number may be smaller than a dollar, as the Bush tax cuts are estimated to be (0.29), or it may be larger than a dollar, but it is less than zero.

    And the dollar does not cease to exist, it is divided up among innumerable pockets, some of which belong to the government as Sammy Finkelstein points out. The dollar can be used again.

    This can be seen in the power series by examining how much of the dollar is NOT spent. The first person does not spend (1 – s). The second person does not spend (1-s)s, and so on. This series is (1-s) times the original, which after infinite terms works out to (1 – s)/(1 – s), which is 1.

    So the economy still has the orginal dollar, plus some positive amount which might be more or less than a dollar. The economy has grown.

    A business will spend a dollar to get a nickel in profit, and that’s rational, so why is it not rational to “spend” a dollar in tax cuts $0.29 cents of economic growth?

    Gabriel Hanna (64d4e1)

  82. 83. should say “not less than zero.

    Gabriel Hanna (64d4e1)


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