Balkinization: Our defective state constitutions? (Or, does this crisis portend the end of what remains of robust federalism?)

Comments:

Sandy,

1) Krugman is advancing the historically incorrect notion that Herbert Hoover somehow brought on the Depression by maintaining a balanced budget and FDR saved us all from the Depression with heavy deficit spending to "stimulate" the economy.

In reality, Hoover brought on the Depression by enacting the Smoot Hawley tariffs, causing other nations to retaliate, and then raising the marginal income tax rate sharply for millionaires. During his term, Hoover actually increased federal spending significantly.

FDR's new deal deficit spending on make work programs, in addition to his pro union policies, spiked labor costs and thereby extended and deepened the Depression because no one was hiring workers under the resulting artificially increased wage levels.

2) Schwarzenegger (RINO), Strickland (d), Patterson (d), and Granholm (d) are coming to Washington to loot the treasury not because their failing blue states spend too little, but because they spend far too much and wish to continue to increase spending during a recession by taking the federal tax revenues from more fiscally responsible states.

The problem in these states are not spending on "public education, law enforcement, and provision of emergency medical service (not to mention imprisoning people...)," but rather insane increases in health care entitlements and outrageous public employee wage and benefit agreements to pay off their unions electoral base.

Governor Palin, who you think is unqualified to be a government Executive, is handling Alaska's drop in oil tax and general tax revenues with aplomb and is not seeking to raid the Treasury. The Palin Administration tucked away money during the fat times to cover part of a recession shortfall in revenues and Palin has proposed a budget cutting spending to cover the rest. Rather than plunging Alaska into a depression, Alaska's economy is doing rather well compared to the disasters that are CA, MI and NY.

# posted by

Bart DePalma : 6:48 PM

Count me as a proudly "fanatical" guy who thinks that a government balancing its budget is not a particularly bad idea.

# posted by

KipEsquire : 6:53 PM

The constitutional provisions in the states were put there because during the first half of the 19th C, states behaved in fiscally irresponsible ways (over-committing bonds for corrupt projects, for example). A number of states actually went bankrupt. The balanced budget rules enforced fiscal discipline on the states in an era when that was probably a good idea. The cost to this was that during the second half of the 19th C, the country suffered from deflation in part because of rules like this (and for other reasons as well).

Things today have changed a lot. For one thing, governments have gotten much better at financial gimmicks to "balance" the budget (see Schwarzenagger). For another, economists have now recognized the downside of balancing state budgets in a recession (the upside being that the states offset the expansionary tendencies of the federal government in inflationary times). For a third, the financial system is much more sophisticated and investors less likely to be fooled by state corruption or irresponsibility.*

The bottom line is that we might very well be able to do away with these restrictions, but only under a regulatory system which would interfere with current federalism doctrine. Alternatively, we could have the feds take over most current state responsibilities (e.g., we could nationalize the regulation of lawyers and accountants, healthcare systems, etc.), and not worry about the states because they would be relatively small economically.

*There probably remains some moral hazard here, since it seems unlikely that the feds would let CA or NY or TX default on their bonds.

# posted by

Mark Field : 9:07 PM

Bart,

To partially counter your statements in point 2:

Fed taxes per capita paid vs. Fed payments per capita received:

CA: Paid $8028 Recieved: $6709
OH: Paid $6130 Received: $6791
MI: Paid $6568 Received: $6415
NY: Paid $8737 Received: $7503

vs.

AK: Paid $5434 Received: $13950
LA: Paid $4565 Received: $8798

Basically, it's a lot easier to balance your budget when you already have an enormous investment of federal funds in your state. I have a feeling that if Alaska and Governor Palin were not already recipients of enormous amounts of federal largesse, then they would be in a slightly tighter budgetary situation. Maybe, since they are in such good budgetary shape, they will be willing to forgo a proportionate amount of federal funds in order to help out their fellow citizens.

Regarding point 1. Please provide a cite, and not non-economists.

# posted by

Fraud Guy : 9:08 PM

Fraud Guy:

The federal taxes paid per capita have nothing to do with the two points of my Section 2 - the cited blue states are failing and they are seeking to gain federal tax revenues from other states.

[BTW, the differential between per capita federal taxes paid by high cost and high wage states and low cost and lower wage states is a product of a progressive income tax system that does not take in account cost of living. There is a sort of karmic justice that Blue voters get gouged by their progressive income tax system.]

As in all other large states with small populations, the per capita federal spending in Alaska is primarily based upon infrastructure spending on things like roads and bridges that cover large distances and serve a relatively few locals. This has nothing to do with Alaska's government operations.

Alaska's rainy day fund was accumulated when Palin held the line on spending back during the fat years earlier in the decade and socked the new oil revenues into a rainy day fund and returned the rest to the citizenry in tax rebates

As to the points I made in my Section 1, check out:

Thomas Sowell on the spike in unemployment after the Smoot Hawley tariff.

As to the New Deal extension and deepening of the Depression, you can get started with these two studies:

Out of Work: Unemployment and Government in Twentieth-Century America by Richard K. Vedder and Lowell E. Gallaway

Harold L. Cole and Lee E. Ohanian, New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis,
Journal of Political Economy (1984).

# posted by

Bart DePalma : 10:07 PM

Basically, it's a lot easier to balance your budget when you already have an enormous investment of federal funds in your state. I have a feeling that if Alaska and Governor Palin were not already recipients of enormous amounts of federal largesse, then they would be in a slightly tighter budgetary situation.

It's also a lot easier when you can indirectly tax citizens in other states to subsidize your own citizens. AK citizens, after all, don't consume more than a small fraction of the oil produced in that state. The state taxes AK imposes on oil get passed on to consumers elsewhere in the world, including those of us in the lower 48, all in obvious violation of Art. I, Sec. 10 (though, because they're clever, not the precise words of that clause).

Thus, we get to subsidize Alaskans two ways: through our federal taxes and through their state taxes. Sweet.

# posted by

Mark Field : 10:13 PM

I agree with Mark, but I'd like to point out some concepts from mathematical control theory that might apply.

Without sufficient flexibility, a stable equilibrium is only possible when a system is subjected to perturbations which are tiny or predictable.

When an inflexible system is subject to a perturbation in excess of its stable range, it breaks. A new stability will be achieved, but it might be as pieces on the floor.

All the states which are caught between their commitments and the shortfall in income will undoubtedly suffer a certain amount of "breakage", but California, with its bizarre tax and budget situation should be watched carefully to see just what happens, as a warning to other states that might be susceptible to similar problems.

Perhaps California could manage to get itself declared as a "bank" and become eligible for bailout money. the shortfall is 24 billion, so it would need only a third of what AIG got.

I fully expect that some sort of state aid will be forthcoming from the federal government, and it will involve a political brouhaha of epic proportions.

# posted by

C2H50H : 10:19 PM

As in all other large states with small populations, the per capita federal spending in Alaska is primarily based upon infrastructure spending on things like roads and bridges that cover large distances and serve a relatively few locals. This has nothing to do with Alaska's government operations.

Baghdad, none of that changes the fact that the rest of us are subsidizing Alaska.

# posted by

Bartbuster : 10:51 PM

I don't want to say too much about Bart's analysis of the Great Depression, except it's one of those areas where the conservative movement has put out a story because they need one-- allowing FDR to be seen as a liberal President whose policies worked in any way is unacceptable.

The orthodox economic view (i.e., that view put out by people who aren't trying to advance the conservative ideological agenda) is that FDR's policies didn't solve the Great Depression (only World War II did that) but that they certainly didn't make it any worse (and some of the policies, especially the jobs programs Bart decriss, were EXTREMELY important on a microeconomic and confidence-building level even if they didn't make a huge dent in the unemployment rate).

The view Bart takes is one that the vast, vast majority of economists, liberal and conservatives, believe is not only wrong but highly dishonest.

That said, he's right on the Smoot-Hawley tariff, though that was far from the only cause of the Depression.

# posted by

Dilan : 1:24 AM

Bart,

Thank you for looking up your sources on Wikipedia. It appears that they are listed in the "Conflicting Interpretation" section of that entry, which, as of 1995, was held by a very small minority of economists and historians, according to your research source. Those interpretations you cited are collected with theories that the New Deal was tied to both Communism and Fascism. Interesting company your support keeps.

I just ran across a post on Obsidian Wings, which better explains the attitude of those who were listening to the experts who were actually predicting our current economic crisis. I came late to the party, so I can claim no special position, here, but I particularly like the last paragraph, which explains a potential course for an always wrong expert:

Whether or not Samuelson realizes it, I take the point of his op-ed to be that he is not competent in his alleged area of expertise, and moreover lacks one of the basic skills that a PhD in a discipline almost always provides: the ability to spot good arguments in that discipline made by other people, and to decide who is worth listening to and who is not. In his shoes, I would ask myself what, in the absence of competence or the ability to learn from the writings of others, could possibly justify my continuing to take up valuable space in the Post. It's certainly not obvious to me.

I think that some of the details can be changed to fit claimed experts in many fields.

# posted by

Fraud Guy : 1:52 AM

Dilan said...

I don't want to say too much about Bart's analysis of the Great Depression, except it's one of those areas where the conservative movement has put out a story because they need one-- allowing FDR to be seen as a liberal President whose policies worked in any way is unacceptable.

Please. Even a child can test the hypothesis of whether the New Deal "worked" in pulling the country out of the Depression. The facts show that the Depression continued for another seven years after the New Deal policies started taking hold and worsened in 1937. This is hardly the definition of "worked."

# posted by

Bart DePalma : 9:37 AM

Even a child can test the hypothesis of whether the New Deal "worked" in pulling the country out of the Depression

Baghdad, who said "the New Deal pulled the country out of the Depression"?

# posted by

Bartbuster : 9:50 AM

Fraud Guy:

Science and economics are not popularity contests.

Facts are not determined by consensus.

If you disagree with the argument, offer contrary evidence.

However, if you want to operate on faith in and hero worship of FDR, you are offering a cult of personality and not proof.

# posted by

Bart DePalma : 10:09 AM

If you disagree with the argument, offer contrary evidence.

I'm sure he will as soon as you offer some evidence supporting your argument.

# posted by

Bartbuster : 10:16 AM

"However, if you want to operate on faith in and hero worship of FDR, you are offering a cult of personality and not proof."

To his credit, little Lisa's bro finally seems to have lost his faith in and hero worship of George W. Bush, finally recognizing overwhelming proof of the incompetence of his former hero's cult of personality.

# posted by

Shag from Brookline : 10:55 AM

Bart, you are so amusing -- and so wrong. Science is nothing more nor less than the consensus opinion among scientists as to which theories best explain the available facts, and the publication and peer review process by which consensus is reached.

Fraud Guy is right, you are wrong.

This is not to say that the consensus is always right. Sometimes it takes a while and new facts before scientists are convinced. Unfortunately for economics, there are no new facts about the Great Depression. There are, of course, people who have opinions at variance with the consensus, but the likelihood that their theories will ever be accepted as a new consensus is vanishingly small.

# posted by

C2H50H : 11:50 AM

Krugman is advancing the historically incorrect notion that Herbert Hoover somehow brought on the Depression by maintaining a balanced budget and FDR saved us all from the Depression with heavy deficit spending to "stimulate" the economy.

Close, but no cigar. Krugman argues that FDR could have eased the Depression if he hadn't insisted on cutting spending and raising taxes in 1936. This concept shouldn't be so foreign to you--hasn't "spend it all, tax no one" been the GOP battle cry for the last 8-28 years?

Facts are not determined by consensus.

Tell it to Kuhn.

# posted by

PMS_CC : 12:13 PM

C2H50H said...

Bart, you are so amusing -- and so wrong. Science is nothing more nor less than the consensus opinion among scientists as to which theories best explain the available facts, and the publication and peer review process by which consensus is reached.

The scientific method is as follows:
1) Ask question.
2) Offer hypothesis to answer question.
3) Test hypothesis against EVIDENCE.

Unfortunately, in far too many venues, what passes for science is a consensus over a hypothesis without confirming that hypothesis with actual evidence. This is faith, not science.

Krugman is part of a politically based consensus among some left leaning economists in support of a hypothesis that the New Deal pulled the nation out of the Depression. Unfortunately, that consensus hypothesis fails the test of evidence of actual unemployment and GDP growth/decline facts.

# posted by

Bart DePalma : 12:39 PM

Unfortunately, in far too many venues, what passes for science is a consensus over a hypothesis without confirming that hypothesis with actual evidence. This is faith, not science.

And you are projecting. This is the sort of thing you do all the time.

# posted by

Bartbuster : 12:47 PM

Bart, I wonder if you can link us to just one place where Krugman argues that the New Deal pulled the nation out of the Depression.

# posted by

Steve M : 12:47 PM

PMS_Chicago said...

BD: Krugman is advancing the historically incorrect notion that Herbert Hoover somehow brought on the Depression by maintaining a balanced budget and FDR saved us all from the Depression with heavy deficit spending to "stimulate" the economy.

Close, but no cigar. Krugman argues that FDR could have eased the Depression if he hadn't insisted on cutting spending and raising taxes in 1936.

By calling governors who balance their state budgets a group of Herbert Hoovers, Krugman is attacking balanced budgets as a Hoover policy.

Krugman is also in error as to his separate claim that the New Deal make work programs prior to 1936 eased the Depression and their withdrawal in 1936 caused the 1937 deepening of the Depression.

The Depression was a retraction of the private economy. "Easing the Depression" would require returning the private economy to growth and a normal unemployment rate of around 5% or less.

In fact, economic growth was minute and unemployment remained round 20% after the New Deal make work programs were implemented, meaning that the New Deal failed to ease the Depression in the first instance and a withdrawal of make work programs therefore could not be the cause for a deepening of the Depression.

In fact, the 1937 deepening of the Depression followed massive government supported labor unrest and strikes crippling industry. Like most leftists, FDR blamed business for putting itself out of business, investigated a capital investment "strike" and found nothing of the kind.

# posted by

Bart DePalma : 1:00 PM

Bart,

Speaking of faith-based: please point out, precisely, where Paul Krugman says that FDR's policies "pulled us out of the Depression."

I have read Krugman for a long time, and I think you have to interpret him with a mind blinded by faith in order to construct that interpretation.

Your understanding of science is woefully inadequate. You left out peer review and the replication of experiments, without which there is no science. In the case of economics, replication of experiment is not really possible, which makes peer review even more important.

The step of convincing others of the correctness of your theories is what prevents science from being the realm of the crackpot, and medicine the province of the quack.

# posted by

C2H50H : 1:02 PM

Steve M said...

Bart, I wonder if you can link us to just one place where Krugman argues that the New Deal pulled the nation out of the Depression.

Read Chapter 3 of Krugman's book "Conscience of a Liberal:"

Chapter three, the New Deal chapter, explains—one gets the feeling that his real intended audience here is today's Democrats—how it was the political choices made by Roosevelt and his colleagues, and not impersonal economic forces, that lifted the country out of depression and poverty and built the middle class. The result was, in the phrase of two economic historians he cites, "the Great Compression," the narrowing of the gap between the rich and the rest, and the reduction in wage differentials among workers.

Three decisions by the government stood out. The first was raising taxes on the rich. The wealthiest Americans went from paying a top rate of 24 percent in the 1920s to 63 percent during FDR's first term and 79 by his second. By the mid-1950s, it was 91 percent (today's top rate is 35 percent). Corporate and estate taxes went up as well. The second decision was to make it easier for workers to unionize: in consequence, union membership tripled from 1933 to 1938, and then almost doubled again by 1947. The third decision was made after Pearl Harbor to use the National War Labor Board to encourage employers to raise the wages of the lowest-paid workers. And after the war ended, "the amazing thing is that the changes stuck."

# posted by

Bart DePalma : 1:07 PM

C2H50H said...

In the case of economics, replication of experiment is not really possible, which makes peer review even more important.

Sure it is. Economists peer review each other's data and analysis all the time.

# posted by

Bart DePalma : 1:10 PM

I see Bart isn't able to produce a single quote from Krugman where he offers this so-called hypothesis... he can only quote a book review which seeks to characterize Krugman. Odd, isn't it, that Krugman repeatedly seeks to push this particular hypothesis (or so Bart claims) and yet he never once states it explicitly.

# posted by

Steve M : 1:36 PM

In fact, economic growth was minute and unemployment remained round 20% after the New Deal make work programs were implemented, meaning that the New Deal failed to ease the Depression in the first instance and a withdrawal of make work programs therefore could not be the cause for a deepening of the Depression.

At this point, Bart's just lying, so I am not sure why I bother with this, but here are the unemployment rates year by year during FDR's portion of the Depression:

1933 24.9
1934 21.7
1935 20.1
1936 16.9
1937 14.3
1938 19.0
1939 17.2
1940 14.6
1941 9.9

In other words, yes, FDR did reduce the unemployment rate from 24.9 down to 14.3 in his first 4 years of office, and though it went back up, it never approached even 20 percent again.

There are, of course, people who refuse to count the government work programs as "employment", which allows them to claim otherwise. However, since the workers were actually working and getting paid, that's not a credible argument (and do these same people exclude government workers from the workforce when they talk about, e.g., Reagan's unemployment rates?).

# posted by

Dilan : 1:39 PM

One exceptional condition in Schwarzenegger script-reader's state CA is a proposition which voters passed akin to the property tax rebellion in the 1980s, namely, in CA the legislature since passage of that prop in the late 1980s, has been bound to achieve a 2/3 majority to pass yearly budgets. In a typical CA legislature demography, 2/3 is slightly more than the proportion of Democratic party members, meaning if Republicans keep internal caucus solidarity, the eventually passed budget basically is whatever Republicans say.

Under Schwarzenegger script-reader, the budget process has been pretty much cut health care, cut schools, cut local roads projects, and read the bon mot cards written by RNC lackeys who are outsourced to control Schwarzenegger's administration. There is an admix of good people in his administration, but the final product usually is business as usual national Republican political agenda implementations.

In the Reagan presidency and subsequently the Republican surge in congress carried with it a suppressive technique imposed on Democratic party congresspersons, the tradeoff balance rule whereby Republicans could scream for no new spending without an equal budget cut somewhere else, essentially halting government net growth in its tracks.

CA needs to reduce the budget process leverage of Republicans by passing a new prop giving Democrats more chance to spend more, or Republicans will continue to produce more poor and more ways to balance the budget on the backs of the poor. CA has yet to pass its summer 2008 budget, thanks to Republican script reading and posturing.

On the national scene, the Democratic party has got to move away from the gentleman's and gentlewomen's agreement to cut old projects as much as they spend on new projects. That is the only way forward. Derivative markets are going to have watchdogs, so less fiction and more worthwhile spending are important goals.

Back in CA, the Republicans recently passed a specious prop which alters the effect the 2010 census will have upon allocation of voter district boundaries, essentially gifting the Republicans an increment of 1/7 more influence in subsequent legislatures. The CA Democratic Party leadership has to mitigate this impending debacle by encouraging voters to strengthen the CA state Democratic party's capability to pass the yearly budget, and to end the vaudeville Republicans delight in propagating when they refuse to cooperate to pass a 2/3 approved budget.

On the national level the DoJ needs reconstitution in its areas of protecting redistricting, and voting processes oversight. Further are the issues of government transparency, which in this information age were retrogressed under the Bush Cheney strategies.

Information and spending are two nice functions of government, but that is not what the Republican minority has as its goals; I think the short term plan is to obstruct nominations and appointments; the Republican party is hoping for the crises of 2005 over judgeships redux. Freezing the functionality of government will be one more hope for Republicans still slavering for a few more fleeting moments of profiteering before real change begins. It is time to tax and spend again.

# posted by

JohnLopresti : 2:09 PM

Dilan:

As I posted, my discussion is limited to the Depression in the private economy.

Putting people into government make work jobs by definition does not do a thing to increase employment in the private economy.

The drop in nominal unemployment reflects the government putting the unemployed into temporary make work jobs - not an increase in employment in the private economy.

The base unemployment rate in the private economy without make work jobs is somewhat above the 17 -19% in 1937-1939 after FDR ratcheted down, but did not eliminate, the make work programs. If he had eliminated these programs entirely, the unemployment rate would have still been "around 20%" as I posted.

# posted by

Bart DePalma : 2:34 PM

Steve M said...

I see Bart isn't able to produce a single quote from Krugman where he offers this so-called hypothesis... he can only quote a book review which seeks to characterize Krugman. Odd, isn't it, that Krugman repeatedly seeks to push this particular hypothesis (or so Bart claims) and yet he never once states it explicitly.

I do not own Krugman's book to give you a direct quote. The NYT employs Krugman and gave him a glowing review. Are you suggesting that the NYT is lying about Krugman's positions in his book?

# posted by

Bart DePalma : 2:37 PM

There are, of course, people who refuse to count the government work programs as "employment", which allows them to claim otherwise. However, since the workers were actually working and getting paid, that's not a credible argument (and do these same people exclude government workers from the workforce when they talk about, e.g., Reagan's unemployment rates?).

Dilan, the unemployment rate is not, despite what its name suggests, simply a measure of the percentage of the population that is (not) "working and getting paid." If it were, then housewives (sorry, "stay-at-home parents"), college students, retired seniors, the disabled, and infants would all be included as "unemployed," since they are, in fact, not working.

Rather, the unemployment rate is actually a measure of the ability of the economy to generate jobs. Thus, we routinely exclude people who aren't looking for work -- such as those in the aforementioned groups -- from the "unemployed" category when we calculate the unemployment rate, even though this makes the statistic's name literally inaccurate, because their lack of employment has no relation to the strength of the economy.

Similarly, it doesn't make sense to include people on de facto welfare -- government make-work "jobs" -- in the "employed" category, because their "employment" has no relation to the strength of the economy. The mere fact that we make these people show up each morning and paint murals doesn't, in any meaningful sense, make them "employed" any more than those on de jure welfare who get their checks without doing those make-work jobs.

As to whether other government workers ought to be excluded from the workforce, one could make that argument; one could also draw a distinction between people being paid to do jobs because we actually want those jobs done and people being paid to do jobs because we want to manipulate the unemployment rate.

# posted by

David Nieporent : 2:42 PM

# posted by

Bartbuster : 2:54 PM

Bart,

As with every time I go to check out your sources, I discover that you've got it all wrong again:

1. It's the New York Review of Books, not the NYT. We don't know who paraphrased the chapters in question, so we cannot evaluate their honesty or accuracy.

2. The point Krugman was making was that, by making society less unequal, FDR's policies lifted the country out of the depression -- by the 1950s. It's clear from the full section, which you, oddly, didn't include, that this was what Krugman meant, not that the policies lifted the US out of the depression before the War.

Is it your reading comprehension, or is it simply dishonesty, that produces this inability to give honest evidence?

Oh, and speaking of reading comprehension, The point I was making in my last comment seems to have gone right through, in one ear and out the other, without making an impression, because your reply made no sense.

# posted by

C2H50H : 2:57 PM

Bart vs. Krugman! Make 'em fight!

Bart:
"The facts show that the Depression continued for another seven years after the New Deal policies started taking hold and worsened in 1937. This is hardly the definition of 'worked.'"

Krugman:
"F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms."

Bart:
"Krugman is also in error as to his separate claim that the New Deal make work programs prior to 1936 eased the Depression and their withdrawal in 1936 caused the 1937 deepening of the Depression."

Krugman:
"To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus? Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office."

Bart:
"In fact, economic growth was minute and unemployment remained round 20% after the New Deal make work programs were implemented, meaning that the New Deal failed to ease the Depression in the first instance and a withdrawal of make work programs therefore could not be the cause for a deepening of the Depression."

Krugman:
"After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs."

It's eerie...it's like double vision! (Yes, I know they differ on the specifics and the implications thereof, but aren't we in some sense watching a man argue with himself?)

# posted by

PMS_CC : 3:14 PM

C2H50H said...

1. It's the New York Review of Books, not the NYT. We don't know who paraphrased the chapters in question, so we cannot evaluate their honesty or accuracy.

I stand corrected as to the source. However, there is no reason to dispute their detailed summary of Krugman's positions.

2. The point Krugman was making was that, by making society less unequal, FDR's policies lifted the country out of the depression -- by the 1950s. It's clear from the full section, which you, oddly, didn't include, that this was what Krugman meant, not that the policies lifted the US out of the depression before the War.

I did not attribute a time period for Krugman's claim that "the great compression" caused by New Deal tax increases and artificial labor cost increases somehow created the economic growth that pulled the US out of the Depression. I simply observed why it was in error.

# posted by

Bart DePalma : 4:03 PM

Similarly, it doesn't make sense to include people on de facto welfare -- government make-work "jobs" -- in the "employed" category, because their "employment" has no relation to the strength of the economy. The mere fact that we make these people show up each morning and paint murals doesn't, in any meaningful sense, make them "employed" any more than those on de jure welfare who get their checks without doing those make-work jobs.

You're confusing two distinct things, namely productivity and employment. You can argue that the workers in the 1930s weren't productive (if you do, my grandfather, bless his soul, will punch your lights out; well, he would if he weren't incorporeal*), but you can't argue they were "unemployed". If you try to argue that people whose job is relatively worthless are "unemployed", then you're going to have to re-write the whole economics discipline.

*Or you can re-watch "AfterLife" (S6) and consider the consequences.

# posted by

Mark Field : 4:03 PM

However, there is no reason to dispute their detailed summary of Krugman's positions.

Sure there is. For all we know that person could be as delusional as you.

# posted by

Bartbuster : 4:08 PM

Bart at 9:37AM:

"The facts show that the Depression continued for another seven years after the New Deal policies started taking hold and worsened in 1937. This is hardly the definition of "worked.""

Bart at 4:03PM:

"I did not attribute a time period ..."

I'm sure that Bart, the master at interpretation, will be able to interpret his own remarks so as not to be in direct contradiction, but, frankly, I don't think any further degradation of his credibility is possible at this point.

# posted by

C2H50H : 4:22 PM

PMS:

It's eerie...it's like double vision! (Yes, I know they differ on the specifics and the implications thereof, but aren't we in some sense watching a man argue with himself?)

Your post shows the hazards of selective quotes without context.

Krugman: "F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms."

Bart: "In fact, economic growth was minute and unemployment remained round 20% after the New Deal make work programs were implemented, meaning that the New Deal failed to ease the Depression in the first instance and a withdrawal of make work programs therefore could not be the cause for a deepening of the Depression."

Krugman:
"After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

My position is that the New Deal made things worse from the beginning and Krugman's position is that FDR did not give us enough New Deal.

BTW, perhaps the most obscene and wrong headed idea of Krugman's is his claim that WWII was a stimulus package. The role of the economy is to provide the consumer with jobs and an ever increasing selection of goods and services to purchase. While WWII did indeed put people to work, the citizenry on the home front had their goods and services severely reduced to channel goods and services into a war to be destroyed. The 20+ million men and women drafted into the armed forces had received far less goods and services and ran the very real risk of injury and death in return for their meager pay.

What finally pulled the United States out of the Depression was being the only intact industrial power left in the world facing no competition and supplying the goods and services for much of the world. International trade was freed up again in the Bretton Woods agreements of 1944 and the New Deal's artificial increase in labor costs were reduced by the Taft-Hartley Act of 1947.

# posted by

Bart DePalma : 4:23 PM

C2H50H said...

Bart at 9:37AM: "The facts show that the Depression continued for another seven years after the New Deal policies started taking hold and worsened in 1937. This is hardly the definition of "worked.""

Bart at 4:03PM:

"I did not attribute a time period ..."

I'm sure that Bart, the master at interpretation, will be able to interpret his own remarks so as not to be in direct contradiction, but, frankly, I don't think any further degradation of his credibility is possible at this point.

I am getting tired of having you and other liars intentionally misrepresent my posts. Here is the full passage of my post which you intentionally took out of context:

I did not attribute a time period for Krugman's claim that "the great compression" caused by New Deal tax increases and artificial labor cost increases somehow created the economic growth that pulled the US out of the Depression.

My observation of how much longer the official Depression lasted after the New Deal started taking effect and how long Krugman' believes the New Deal took to fully effect the economy are two entirely different things.

# posted by

Bart DePalma : 4:29 PM

BTW, perhaps the most obscene and wrong headed idea of Krugman's is his claim that WWII was a stimulus package.

Actually, I think you'll find that most rational people see World War 2 as the stimulus for ending the Depression.

While WWII did indeed put people to work, the citizenry on the home front had their goods and services severely reduced to channel goods and services into a war to be destroyed.

So fucking what? They still got paid. And after the war they spent all that saved up money.

The 20+ million men and women drafted into the armed forces had received far less goods and services and ran the very real risk of injury and death in return for their meager pay.

I must repeat. So fucking what?

# posted by

Bartbuster : 4:50 PM

Bart,

I'm sorry if I misrepresented your confused recitation of half-truths, misunderstandings, and quotes from the alternate reality of right-wing think-tanks. If I have missed some valid points mixed in with your obvious mistakes, do forgive me.

# posted by

C2H50H : 5:01 PM

"I'm sure that Bart, the master at interpretation, will be able to interpret his own remarks so as not to be in direct contradiction, but, frankly, I don't think any further degradation of his credibility is possible at this point."

And yet you all continue to argue with him, like you're making a difference. It's cute, really. In the way that watching a bird smash into a window is cute.

# posted by

dmv : 6:56 PM

This comment has been removed by the author.

# posted by

Bartbuster : 7:47 PM

And yet you all continue to argue with him, like you're making a difference. It's cute, really. In the way that watching a bird smash into a window is cute.

# posted by therandomthinkery : 6:56 PM

It's much like watching your attempts to get people to stop confronting him.

How is that going for you?

# posted by

Bartbuster : 7:49 PM

Science and Economics are not popularity contests.

Facts are not determined by consensus.

If you disagree with the argument, offer contrary evidence.

However, if you want to operate on faith in and hero worship of FDR, you are offering a cult of personality and not proof.

# posted by

Fraud Guy : 10:15 PM

Putting people into government make work jobs by definition does not do a thing to increase employment in the private economy.

That's Alice in Wonderland. In the real world, these people worked, and they got paid. They didn't starve or stand in soup and bread lines, they weren't homeless, etc.

It is completely irrelevant who paid them. The first goal of public policy is to get people employed, not to worry about who is employing them.

And answer my question. Surely when defending Ronald Reagan, you admitted that the unemployment rate was much higher than reported because government workers didn't count, right? (Heck, why should government CONTRATCTORS' workers even count? They are getting paid with government money too, right?)

# posted by

Dilan : 2:07 PM

Rather, the unemployment rate is actually a measure of the ability of the economy to generate jobs. Thus, we routinely exclude people who aren't looking for work -- such as those in the aforementioned groups -- from the "unemployed" category when we calculate the unemployment rate, even though this makes the statistic's name literally inaccurate, because their lack of employment has no relation to the strength of the economy.

No, we exclude them because if a person doesn't WANT a job, that's usually an indicator that the person has some financial security.

The unemployment rate is a measure of the number of people without the financial security of a paying job. And being employed by the government is a form of financial security.

Look, in the end, this is just about libertarians being ***holes. They DON'T LIKE governments paying people to work. They think people are better off starving. After all, they might have to pay some taxes to put these freeloaders on the dole.

But we don't measure unemployment to fulfill the masturbatory fantasies of libertarians. We measure it to determine whether people who want a job have one. And working for the government counts.

Again, I am sure that you don't just apply your standard to FDR and you NEVER count government or government contractor jobs as employment with respect to ANY President, right? Or is this a special rule for FDR?

# posted by

Dilan : 2:10 PM

As to whether other government workers ought to be excluded from the workforce, one could make that argument; one could also draw a distinction between people being paid to do jobs because we actually want those jobs done and people being paid to do jobs because we want to manipulate the unemployment rate.

David, you have no freaking idea how many useful things were built with FDR's "make work" programs. Bridges, highways, stadiums, office buildings, etc., all built by the WPA. Many still exist. I've utilized some of them.

And FDR didn't do what he did to manipulate the unemployment rate. These are PEOPLE you are talking about. Not statistics. PEOPLE. People in bread lines. Why don't you grow some compassion and realize that these programs saved their lives?

# posted by

Dilan : 2:12 PM

Dilan said...

BD: Putting people into government make work jobs by definition does not do a thing to increase employment in the private economy.

That's Alice in Wonderland. In the real world, these people worked, and they got paid. They didn't starve or stand in soup and bread lines, they weren't homeless, etc.

Once again, when we speak about economic recovery, we are speaking about the private economy growing and hiring employees.

Government make work jobs are to real employment by private companies as a bandage is the healing the wound. The bandage can stop the bleeding, but the body will only recover when the wound is healed.

And answer my question. Surely when defending Ronald Reagan, you admitted that the unemployment rate was much higher than reported because government workers didn't count, right? (Heck, why should government CONTRATCTORS' workers even count? They are getting paid with government money too, right?)

Government employees allegedly provide necessary services to the population. To the extent that they do so, government employees are fundamentally different from make work employees that do not provide much of anything of use in getting the economy moving again. However, the number of government employees it takes to provide useful services is a minute portion of the work force.

# posted by

Bart DePalma : 3:04 PM

This comment has been removed by the author.

# posted by

Bartbuster : 3:17 PM

To the extent that they do so, government employees are fundamentally different from make work employees that do not provide much of anything of use in getting the economy moving again.

# posted by Bart DePalma : 3:04 PM

I suspect that FDR's WPA workers provided more to get the economy moving than do DWI attorneys.

# posted by

Bartbuster : 3:18 PM

You're confusing two distinct things, namely productivity and employment. You can argue that the workers in the 1930s weren't productive (if you do, my grandfather, bless his soul, will punch your lights out; well, he would if he weren't incorporeal*), but you can't argue they were "unemployed". If you try to argue that people whose job is relatively worthless are "unemployed", then you're going to have to re-write the whole economics discipline.

I'm not confusing two different things at all, nor did I mention "productivity." I'm saying that the unemployment rate, despite its name, is not intended to narrowly measure literal unemployment, and as evidence for that, I cited the fact that many literally-unemployed people are not counted in the unemployment rate. If all we wanted to know was the % of the population that went to work each morning and got a check, we'd count all those people as unemployed. Since we're not, we must really be trying to measure something else, and given the categories we exclude, and further given that the unemployment rate is usually discussed in the context of economic conditions, what we're really trying to measure is the ability of the economy to generate jobs. The government paying people to do makework is unrelated to the strength of the economy. The people engaged in government makework may be "productive" as that term is used in economics, but they're not employed in the sense that someone with a non-makework job is.

# posted by

David Nieporent : 4:10 PM

what we're really trying to measure is the ability of the economy to generate jobs.

This is just wrong -- every measure of employment includes government jobs, which, by definition, are not "generated" by the private economy.

The government paying people to do makework is unrelated to the strength of the economy.

You have a choice. You can either accept that all government jobs (even essentially useless ones like Vice President) get counted towards the employment figures, or you can make the value judgment that some jobs aren't worth a bucket of warm piss. In the latter case, you'll have to change the way we measure private employment also.

# posted by

Mark Field : 4:29 PM

And FDR didn't do what he did to manipulate the unemployment rate. These are PEOPLE you are talking about. Not statistics. PEOPLE. People in bread lines. Why don't you grow some compassion and realize that these programs saved their lives?

Really? How does it "save lives" to give people makework jobs as compared to handing out welfare, which is what we're talking about here? The only difference is subterfuge: one looks a little less unpalatable to people who are paying the taxes. And despite your claim that these jobs were so valuable -- sure, they built a few bridges; so did Ted Stevens' and Don Young's pork. And they painted murals. And compiled oral histories. -- these makework projects weren't continued after the Depression ended, now were they? The WPA was disbanded -- not just suspended -- during the war. Why? Because these were not real jobs; they were just designed to create the illusion of employment. As soon as the economy was capable of generating real jobs, these programs were shelved as wasteful and unnecessary.

Again, I am sure that you don't just apply your standard to FDR and you NEVER count government or government contractor jobs as employment with respect to ANY President, right? Or is this a special rule for FDR?

Objection. Asked and answered: "As to whether other government workers ought to be excluded from the workforce, one could make that argument; one could also draw a distinction between people being paid to do jobs because we actually want those jobs done and people being paid to do jobs because we want to manipulate the unemployment rate." So, no, it's not a "special rule for FDR." Any makework jobs should be excluded, regardless of who is president.

# posted by

David Nieporent : 4:32 PM

@Mark:

This is just wrong -- every measure of employment includes government jobs, which, by definition, are not "generated" by the private economy.

The permanent ones are, in a sense. But that's a constant, so it's irrelevant to the larger point. But if you insist...

You have a choice. You can either accept that all government jobs (even essentially useless ones like Vice President) get counted towards the employment figures, or you can make the value judgment that some jobs aren't worth a bucket of warm piss. In the latter case, you'll have to change the way we measure private employment also.

Well, if I had to make that choice, I would choose the value judgment one. But I wouldn't have to change the way we measure private employment, because all private employment has value. Unlike with the WPA, nobody held a gun to anybody's head in the private sector to force them to pay someone else's salary. If an employer is voluntarily employing someone, we know that the job has value to the employer. As opposed to those murals, which few were voluntarily paying for.

# posted by

David Nieporent : 4:38 PM

As opposed to those murals, which few were voluntarily paying for.

# posted by David Nieporent : 4:38 PM

That is not true at all. If you don't want to pay taxes for roads, bridges, and schools, you are free to remove your sorry ass from the country. And yet, here you are.

# posted by

Bartbuster : 6:06 PM

Well, if I had to make that choice, I would choose the value judgment one.

Fine, but as I said, the economics profession does NOT make that choice.

But I wouldn't have to change the way we measure private employment, because all private employment has value. Unlike with the WPA, nobody held a gun to anybody's head in the private sector to force them to pay someone else's salary. If an employer is voluntarily employing someone, we know that the job has value to the employer. As opposed to those murals, which few were voluntarily paying for.

All employment of any kind has value -- someone paid for it. You can't base the distinction on the voluntariness of the payment, since all taxes are involuntary, yet taxes pay for government employees. You're just quibbling about the amount of value again, i.e., confusing productivity with employment.

# posted by

Mark Field : 6:39 PM

Government employees allegedly provide necessary services to the population. To the extent that they do so, government employees are fundamentally different from make work employees that do not provide much of anything of use in getting the economy moving again.

Bart, at some point you simply need to pull your head out of your ass and learn about the things the WPA, TVA, and CCC actually did. Your characterizations are offensive and libelous.

# posted by

Dilan : 6:47 PM

If I am wrong on this, pardon my ignorance.

Jobs, whether from public sector jobs or private sector, give the worker income with which to pay bills, buy necessities, etc. I think we can all assume that as a given.

Right now, our economy is shedding jobs like a forest sheds leaves in the fall. That means that there are very large numbers of people who have reduced ability to put the income from their jobs into the economy. Because of this, there is starting to be a ripple effect, where businesses who sell to these people will start having reduced income, to the point where large numbers of them (one estimate I heard is 25% of retail stores) will not be able to continue in business, thus throwing their employees out of work.

These workers will, in turn, lose their ability to make purchases, which will cause further stress on the remaining businesses, possibly or probably causing further businesses to close, etc., until we reach some point where we finish the crash and bottom out.

Mr. Nieporent, despite your apparent disgust for "make work" public sector jobs, they are designed to allow workers with these jobs to keep putting their income back into the economy to prevent the cycle of crashes which would cause Depression level unemployment. Right now, the private sector cannot provide the jobs which would allow us to minimize that crash, requiring some sort of public works commitment. I would hope that they would be designed to serve as a safety net sufficient to save a family but not enough to not encourage remaining in the job for an extended period, but that depends on the private sector to recover, which is not likely in the near term.

Your argument right now is like the person whose regular brakes failed, and refuses to try the parking brake to avoid driving off a cliff, because he knows that using the parking brake can damage his brake system. I'd rather take the chance of brake damage against the likelihood of a major collision.

I am not saying it's a perfect solution, and there will be consequences, but they are less severe than the alternative.

Also, just as an aside, the U3 unemployment number, which makes everything seem not so bad, is based on a smaller percentage of the jobless than the "neo-classically unemployed". U6 is closer to the mark, including partial employment, "discouraged" workers, and underemployed workers, and it was at 12.5% the last I looked, almost double the "official" U3 number. We're a lot closer to depression than the official numbers look.

# posted by

Fraud Guy : 8:00 PM

Really? How does it "save lives" to give people makework jobs as compared to handing out welfare, which is what we're talking about here?

Actually, we're talking about the New Deal, not welfare. And having a New Deal job did in fact put money in the bank and food on the table. Are you still mystified by this?

The only difference is subterfuge: one looks a little less unpalatable to people who are paying the taxes.

So "subterfuge" is your word for promoting the work ethic?

And despite your claim that these jobs were so valuable -- sure, they built a few bridges; so did Ted Stevens' and Don Young's pork.

Except that the Alaskan projects you mentioned were not conceived and executed as part of a coordinated response to a national economic crisis.

And they painted murals. And compiled oral histories. -- these makework projects weren't continued after the Depression ended...

That's right. They were terminated when they were no longer needed. This too appears to mystify you. So maybe Einstein you're not. Nor Gandhi neither.

BTW, what would you suggest a proper response would be when the "private" economy is unable to generate enough jobs to maintain a reasonable facsimile of full employment? And if you're going to start up with "tax cuts" do you have any evidence --aside from wishful thinking--it would be effective at this time and in these circumstances?

# posted by

mattski : 11:13 PM

Mark:

David, is correct that there is no distinction between make work and unemployment/welfare payments because both only transfer income and produce nothing that will get the economy growing again. Neither make work or unemployment/welfare income produces stimulus because it is simply taken from someone else who will be unable to spend or invest it. Indeed, make work programs are worse than unemployment because a wake worker is unlikely to be looking for gainful private employment.

Government jobs are indeed completely dependent upon the private economy. Government does not produce wealth, it simply takes it by force through taxes. No private economy, no tax revenues, no government jobs.

All employment of any kind has value -- someone paid for it.

The government pays for valueless and indeed counterproductive activities all the time. Paying farmers not to grow or to destroy crops comes to mind.

The proper responses to this economic downturn should be to reduce government imposed costs of doing business to free up money to invest and employ more workers. That means lowering the nearly highest corporate income taxes in the world, reducing personal income tax rates back to where they were in 1987, reducing the insane number of regulations on business and helping failing companies restructure and break uneconomic union contracts so such businesses can hire more people at lower market wages. The single best long term investment we could make for economic growth is open up domestic energy supplies to keep the energy costs at their current lowered rates. Finally, we need to restore confidence that the government imposed costs of doing business will not get worse by foreswearing highly destructive policies like tariffs, union card check and carbon offset taxes. Then we wait for the economy to do its thing.

# posted by

Bart DePalma : 10:43 AM

The proper responses to this economic downturn should be to reduce government imposed costs of doing business to free up money to invest and employ more workers. That means lowering the nearly highest corporate income taxes in the world, reducing personal income tax rates back to where they were in 1987, reducing the insane number of regulations on business and helping failing companies restructure and break uneconomic union contracts so such businesses can hire more people at lower market wages. The single best long term investment we could make for economic growth is open up domestic energy supplies to keep the energy costs at their current lowered rates. Finally, we need to restore confidence that the government imposed costs of doing business will not get worse by foreswearing highly destructive policies like tariffs, union card check and carbon offset taxes. Then we wait for the economy to do its thing.

# posted by Bart DePalma : 10:43 AM

Baghdad, we've had 8 years of a government that has done all those things. It caused our economy to tank.

# posted by

Bartbuster : 11:20 AM

If Mr. Bush had done these things over the past eight years, there would be no need to do them now.

# posted by

Bart DePalma : 12:54 PM

If Mr. Bush had done these things over the past eight years, there would be no need to do them now.

# posted by Bart DePalma : 12:54 PM

Too bad for you that you're one of the few remaining dead-enders who actually believes tbat.

In any case, it's good to see we do agree on one thing. This mess is all the fault of the Republicans.

# posted by

Bartbuster : 1:28 PM

Bart wrote: "Putting people into government make work jobs by definition does not do a thing to increase employment in the private economy."

Really, "not a thing?" Do these people only buy from the government and not from retailers? Are not retailers able to hire more when they have more people able to buy their products? Lowering the unemployment rate by 7 points or more has no compensatory effects for the private sector?

Also, what about contractors--aren't they helped by government expenditures? Think about Halliburton and its no bid contracts, Bart, and how much profit that private sector firm made. And also, aren't private companies helped by the improvements in roads constructed by the CCC, the building of local post offices performed by the WPA?

You can make the claim that it would have been better if the money would not have been allocated this way, that the Depression would have lessened significantly more if conservative measures were tried, but to claim no compensatory effects whatsoever is ludicrous.

Let's see what the people at the time thought. Oh, it looks like you're right Bart--they thought New Deal measures worsened the Great Depression and so overwhelmingly chose Alf Lan--whoops, it looks like they overwhelmingly re-elected FDR in '36!

# posted by

cds : 2:43 PM

This has become simply pathetic.

Bartbuster, I have total sympathy with your desire to poke fun at Bart and his opinions, both, in my opinion, totally deserving of scorn and derision.

However, let me suggest that you are going about your task less effectively than you could.

Here are some strategic suggestions which will make you more effective.

1. Look for more humor.

2. Cut down your attacks..

For example, in a thread only a bit down the page, Bart delivered himself of this wisdom: "It is hazardous to one's credibility to opine on something of which one obviously has very little knowledge."

I laughed out loud when I read that, as I'm sure others did as well.

Then he came to this thread and proceeded to opine extensively on science and economics, about which he clearly knows next to nothing.

Ordinary argument is totally ineffective when the other person has so little self-awareness. You have to make the case so obvious that even he cannot discount it.

# posted by

C2H50H : 2:57 PM

Here are some strategic suggestions which will make you more effective.

While I appreciate your suggestions, I find it difficult to respond with my A material all the time when there is so much bullshit to respond to. Sometimes you're just going to have to put up with some humorless anger.

# posted by

Bartbuster : 3:33 PM

Lowering the unemployment rate by 7 points or more has no compensatory effects for the private sector?

While your other points are well-taken also, I'd emphasize this: peak to trough, unemployment dropped 11% during FDR's first term. That's more drop than the highest level of unemployment we've had in any year since WWII (1982 under Reagan).

# posted by

Mark Field : 4:59 PM

The friend who holds your hand and says the wrong thing is made of dearer stuff than the one who stays away.
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# posted by

Unknown : 2:26 PM