Patterico's Pontifications


“Son of Stimulus” and Regime Uncertainty

Filed under: General — Karl @ 4:00 am

[Posted by Karl]

When the New York Times published an article titled, “Employers Say Jobs Plan Won’t Lead to Hiring Spur” on a Friday night for Saturday’s print edition (likely remaining its least read edition), I almost dared hope that it was the equivalent of a Friday night document dump.  Perhaps the NYT was going to do some reality-based reporting, even if buried when few would read it.  But no — Motoko Rich’s piece was ultimately premised on the same simplistic, Keynesian assumptions underlying Pres. Obama’s “Son of Stimulus” bill:

Companies are focused on jittery consumer confidence, an unstable stock market, perceived obstacles to business expansion like government regulation and, above all, swings in demand for their products. (Emphasis added)

*** Administration officials and some economists, of course, say they believe the president’s plan, if adopted, could help increase demand more broadly. The proposed payroll tax cuts for individuals should spur consumer spending and in turn, prompt companies to hire more people.

The latest NFIB economic trends survey (.pdf) would tell you that the combo of taxes and regulation greatly exceeds poor sales as the biggest problem facing small businesses (taxes alone are cited almost as frequently as poor sales). Moreover, if you choose to disbelieve the running-dog capitalists surveyed by NFIB, official government statistics would tell you inflation-adjusted personal consumption is higher now than the third quarter of 2007.

Thus, even by Keynesian standards, the economic culprit would be business investment.  Coincidentally, Prof. Greg Mankiw, a Romney advisor and a bit of a Keynesian himself, addressed the business investment problem in the NYT the very next day, including not only Obama’s tax policies, but also trade policy and regulation.

The problem likely runs deeper, even by establishment standards.  Quoting Mankiw:

The great economist John Maynard Keynes suggested that investment spending is in part determined by the “animal spirits” of investors, which he described as “a spontaneous urge to action rather than inaction.” Recessions occur when optimism turns to pessimism, and businesses are reluctant to place bets on a prosperous future. Recovery occurs when investor confidence returns.

As Mike Whalen noted recently, the federal government is now seen as so fiscally irresponsible that ostensibly Keynesian stimulus schemes now crush consumer confidence and the “animal spirits” of job creators:

[I]f Uncle Sam were a rock-solid financial entity with low debt to value and he had judiciously used debt for capital improvements that were accretive in value, as the biggest dog on the porch, a stimulus might work.

But with a national debt of more than $14 trillion and unfunded, future “off the books” debt of Social Security and Medicare combined at $104 trillion in present value, according to the Dallas Federal Reserve, Uncle Sam ain’t the man he used to be. This in turn makes American businesses that are sitting on a pile of cash focus on deleveraging. The American consumer is doing the same. In fact, from where I sit, it appears as though everyone except Uncle Sam is working like mad to strengthen his balance sheets. The legitimate fear across the country is that Washington’s refusal to join our common-sense parade will result in higher taxes, more regulations, more inflation and Japanese-style stagflation. In other words, Washington’s attempts at stimulus through spending are having the opposite effect. Businesses and consumers stay hunkered down. (h/t Aaron Worthing)

Economist and economic historian Robert Higgs theorizes that regime uncertainty — the widespread inability to form confident expectations about future private property rights in all of their dimensions — is a more evolved iteration of the Keynesian “animal spirits.”  However, fear of current and future Obama administration policies does not fit neatly into Keynesian computer models (which haven’t worked well) or progressive ideology (ditto) and thus must be dismissed as a cause of economic malaise by Keynesian progressives. That’s science!


42 Responses to ““Son of Stimulus” and Regime Uncertainty”

  1. Greece is back from vacation and rioting, having missed all of her austerity targets, moots a national property tax,..

    Germans are saying orderly default preferable to sinking 56% of German GDP into Eurozone survival.

    Equity markets to open down, Dow 160.

    Swiss have tied franc to Euro hoping to avoid USD $100 baguettes. Yen jumped on news.

    Big three French banks face Moody’s downgrade, possibly to A, after Bennie loaned SocGen 1/2 Trillion in August.

    Bank of America cratering despite selling tens of billions in assets and corralling 5 of Buffet’s billions.

    We live in interesting times.

    gary gulrud (790d43)

  2. Unless he wants to step-up and cancel ObamaCare, there’s surely nothing worth hearing from this job-icidal maniac… Obama pledging to ‘create jobs’ is like me promising to whip-up a batch of Plutonium in my kitchen

    With no ability -nor in his case credibility- who cares what Obama says he wants to do, I can’t stand the sound of this arrogant putz another minute anyway

    Reaganite Republican (c90bca)

  3. all I know is when the silly social security tax cuts expire my paychecks are gonna go down down down – by the exact same amount as they went up I bet – which, how will that be a good feeling? So the best thing to do is raise your 401k contribution the same percent as the tax cut.

    happyfeet (3c92a1)

  4. Consumer demand vs business investment is a chicken or egg issue – argue all you want about which one comes first or is more important but in the end they’re both critical and neither can or will last without the other.

    Sure, consumer consumption might be higher now, but businesses aren’t going to hire if they don’t think the consumption is going to last. And consumers aren’t going to continue spending if they think the job market is going to take another hit.

    And while the government is indeed fiscally irresponsible, that alone isn’t the reason the Keynesian stimulus didn’t work. A stimulus works when it convinces people that the world isn’t ending, leading people to get back to spending and buying. Unfortunately, as I alluded to above, there is so much going on which wasn’t addressed (housing values, overseas markets, government regulation and Obama’s anti-business hostility, etc.) that the stimulus failed to re-establish our confidence…. notwithstanding (and perhaps because of) all that spending, people and businesses are still extremely nervous… and nervous people don’t increase their spending and they don’t increase their investments.

    steve (254463)

  5. I’d rather tear out my brainstem and walk to the nearest 4 way intersection and skip rope with it than vote for Romney but I will vote for ABO.

    DohBiden (d54602)

  6. Buffet wants to be a teabaggee.

    DohBiden (d54602)

  7. Ah, yes, “animal spirits.” Perhaps keynes forgot that sometimes animals run away.

    Jim (a20fb9)

  8. So . . . President Bumble’s great ‘plan’ is to give businesses a bunch of our money, and then ask them “Please hire more workers”? But the employers will be reluctant because the guvmint just went deeper in debt by spending more of our money that they don’t actually have, and the administration’s brilliant strategists think that the guvmint giving our money to businesses in exchange for NOTHING is a wiser course than letting us keep our money so that we can choose to give it to businesses in exchange for actual goods & services, and then the Dems turn around & complain that the businesses they gave money to are hoarding their money instead of investing in expansion which would require more workers, but of course it goes back to that expanding deficit thing that has the allegedly cash-flush businesses gunshy on said expansion — so the stimulus succeeds in stimulating absolutely nothing.

    I feel so ill-served by my lack of a Harvard education.

    Icy Texan (da7ccf)

  9. T-Paw endorses Romney. Why not? His career is over anyway.

    gary gulrud (790d43)

  10. Temporary tax relief is treated as found money, used to save or pay off debt. No stimulus effect.

    The Won’s advisers should read the Harvard report.

    LarryD (feb78b)

  11. Gary, I suspect Romney will get tons of endorsements from folks similar to Pawlenty.

    T Paw was a much better candidate than Romney (not as good a politician, though), but he’s still an establishment guy. I don’t have a huge problem with that, but I expect most such guys to rally behind Romney.

    Not to channel Hewitt, but if the establishment loudly endorses Romney, they only highlight what Perry really is all about.

    Dustin (b2fb78)

  12. Just noticed that Prof. Robert Barro made a similar point about uncertainty — albeit w/ far different policy preferences — in Sunday’s NYT. And without a trace of irony, Krugman — coming off some vintage BDS — claims it’s not a coherent argument. Instead, he claims investment is driven by the business cycle, despite Keynes admitting biz investment is part of aggregate demand.

    Karl (37b303)

  13. Tpaw was the ‘splunge candidate, and he’s not being indecisive’

    ian cormac (ed5f69)

  14. How stupid is it to expect that using borrowed money to artificially stimulate the economy to produce goods and services for which there is little or no demand will result in new jobs?

    About as stupid as expecting buyers to line up for Chevy Votls.

    The only thing Stimulus programs stimulate is more debt.

    ropelight (9a4076)

  15. Yes, ropelight. Until this government gives up its addition to debt, the economy will be pretty unstable.

    It’s like a crack addict, who really just needs to stop doing drugs, but before the job interview, convinced himself that he needs one last high just to make it through the day. And he’ll keep telling himself that forever.

    It’s kinda scary that Obama would actually try this one more time, or that the other democrats wouldn’t eventually contradict him. They have weaker Republicans to thank for that. If the GOP was plainly and strongly supporting a balanced budget, the democrats would have much less cover.

    Dustin (b2fb78)

  16. Yawnplenty is boring.

    DohBiden (d54602)

  17. 11. A day or two ago Don Surber listed some across-the-spectrum endorsements for Perry.

    “Donny Osmond won’t even endorse Romney.”

    A Rove endorsement is a kiss-of-death, Pawlenty a kiss-of-halitosis.

    gary gulrud (790d43)

  18. I know 14 months is an aeon but:

    Some just a week back were worried about electability. No longer.

    How about looking ahead to a likely foe when Urkel sleeps with the fishes?

    gary gulrud (790d43)

  19. President false choices knows only how to tax.

    DohBiden (d54602)

  20. Remeber post-Lehman when AIG was crumbling, Hank Paulson on his knees? Greek 1-year notes now paying 117% and Europes interbank lending gridlocked:

    Holy Shitshow: Recordathon In French Bank, European CDS Following Atriocious Italian Bond Auction, Dexia Bail Out, Libor Explosion

    The fat lady bellows.

    [note: released from moderation. –Stashiu]

    gary gulrud (790d43)

  21. Bachmann is a hypocritical loser.

    DohBiden (d54602)

  22. Here’s an entrepreneur’s response to Obama’s latest fantasy….

    “…Note to Leftists: when the U.S. government declares “WAR” against business people, we don’t fight back….we just quit. One result–my annual federal income tax payments: 2007 > $500,000; 2008 > $500,000; 2009 = $0; 2010 = $0; 2011 = $0 (actually, I expect a rebate/credit of over $20,000)…”

    Read it all @
    H/T- Instapundit

    Another Drew - Restore the Republic / Obama Sucks! (de8c31)

  23. 21. The York column indicating Bachmann is pissed about being elbowed into the stands by the Media lack of attention, and will be going after Perry on SS doesn’t pass the smell test.

    I could be totally wrong, naturally, but I’ll bet this is Rollins misdirecting, hoping the interviewers will toss her a bone expecting ditziness on behalf of Shape Shifter.

    Only to be wrong-footed.

    gary gulrud (790d43)

  24. That is really frustrating, Drew. Understandable, but frustrating.

    High taxes don’t impact the ultra-wealthy as much as the rest because they can just shut down. They can invest, while many are just trying to survive, and have no mobility or investment money.

    There’s something incredibly regressive about progressivism.

    Dustin (b2fb78)

  25. Never know which way
    Obozo lurch next
    Smart man keep cash

    Comanche Voter (0e06a9)

  26. But president false choices said no new taxes.

    DohBiden (d54602)

  27. Doh, of course Obama will find some way to blame others for his taxes. Like all politicians who increase spending, including Bush, Obama has always been responsible for more taxation.

    Dustin (b2fb78)

  28. Dustin, it is all so predictable, and was right here at PP in ’08 going in to the election.
    We had discussion after discussion on how people were going to “Go Galt” when the taxes and regulations started flowing from DC, impeding the normal course of business development. You could see it at with the growing sales of “Atlas Shrugged”.
    Ayn Rand wrote a work of fiction grounded in her experiences with totalitarianism;
    who knew it was a “how-to” book?

    Another Drew - Restore the Republic / Obama Sucks! (de8c31)

  29. President False Choices is blinding me with douschebaggery.

    DohBiden (d54602)

  30. Leftys like to insist israelis only care about themselves which is ironic.

    DohBiden (d54602)

  31. Gotta love the perrybots who insist your a racist if you want to keep illegal aliens out of the country.

    DohBiden (d54602)

  32. i’am looking at warlocketx.

    DohBiden (d54602)

  33. However, fear of current and future Obama administration policies does not fit neatly into Keynesian computer models (which haven’t worked well) or progressive ideology (ditto) and thus must be dismissed as a cause of economic malaise by Keynesian progressives. That’s science!

    This bit of yours made me chuckle.

    What’s the difference between a 4th century B.C. soothsayer and a central planning economist?

    The soothsayer can’t keep a straight face while saying “economic multiplier.”

    Hadlowe (163d77)

  34. Sorry but I’am very passionate about my beliefs.

    DohBiden (d54602)

  35. Q: Why aren’t you creating kobs as I tell you to?

    A: Payroll tax cuts(+)

    Proposed cut off deductions at 200k(-)
    Obama care health care requirements(-)
    Higher electricty bills from “green” directives(-)
    Proposed individual tax increases(-)
    Total uncertainty about what Govt will do

    =I am worse off and they are trying to make it even worse

    =save money, don’t invest, be cautious.

    Harcourt Fenton Mudd (329cc1)

  36. lowering taxes on the wealthy and not scaremongering citizens is an injustice?

    DohBiden (d54602)

  37. The seniors will have to pay for medicare really trolls?

    DohBiden (d54602)

  38. The “payfors” give their game away.

    JD (68ff46)

  39. I assume you mean the weprin cultists.

    DohBiden (d54602)

  40. I assume you mean the weprin cultists.

    DohBiden (d54602)

  41. Since President McMultiplepivottojobsmiserablefailure has not paid for my mortgage or for my gasoline and has cast a black cloud of uncertainty over this country with his war on business and runaway regulatory regime, I am almost 60% certain at this point he will not be receiving my vote next year should the Democrats have the audacity to place him on the ballot.

    daleyrocks (bf33e9)

  42. President falsechoicemcletmebclear should not be your vote anyways.

    DohBiden (d54602)

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