• LibraryThing
  • Book discussions
  • Your LibraryThing
  • Join to start using.

To stimulus or not to stimulus

Pro and Con

Join LibraryThing to post.

This topic is currently marked as "dormant"—the last message is more than 90 days old. You can revive it by posting a reply.

Feb 4, 2012, 3:35pm Top

I read this today and thought it might support some discussion.


I liked this in particular.

"the government should take advantage of such conditions to accelerate investment in infrastructure, training, and so on. This is the obvious and almost universally accepted nugget of economic wisdom that's been trampled by the other debates."

My question wrt to infrastructure is whether there could be a big ticket item with long term economic payback like TVA or the interstate system?

Does space represent such an investment, although it is perhaps not such a traditional infrastructure investment. Could it be?

The article poses several questions, all of which interest me.

As does a contextual question about the impacting shadow of election year politics on the debate and any implementation of stimulus.

I think it would be interesting to have comments on any stimulus or austerity moves in Europe as well.

Edited: Feb 4, 2012, 3:39pm Top

Cameron's voluntary austerity measures leave the British economy in the doldrums. Obama's stimulus spending has the US economy on the upswing.

Feb 4, 2012, 4:14pm Top

There has been improvement in the unemployment figures. There has also been some decline in the labor force participation rate and the employment population ratio, as well as a big increase in part time employment. Take your pick of the statistic you want to emphasize.

My tendency though would be away from austerity as a policy. It just seems that it would tend to make circumstances worse as efforts to wise cost cutting and improvements in efficiency blend into harmful cuts.

Feb 4, 2012, 4:44pm Top

In terms of using infrastructure projects as a means to stimulate the economy you needn't look for some grand new project. All you need to do is look at the rather decrepit state of our country's roads and bridges. Our roads and bridges urgently need billions of dollars worth of repairs just to bring them up to the general standards of other OECD countries.

Judge Richard Posner, in his book on the financial crisis titled, A Failure of Capitalism, made a very strong argument for just such a stimulus. His primary reasons for supporting it were that the hardest hit sector of the economy at the time was construction and that such a project would have benefits beyond just the stimulus effect itself. Although, he did argue that just paying people to dig holes and fill them in again would be preferable to doing nothing.

Edited: Feb 4, 2012, 5:06pm Top

A major repair effort might just be the best grand new project.

I am not so much looking at stimulus as a job provider, but as a long term economic investment, that happens to provide real employment in addition to long term real returns. I think, being the totally non economist that I am, any productive stimulus needs to have the emphasis on productive rather than stimulus. But the effect should be to provide both. So I am not so happy with the digging holes to fill holes approach. I would rather a large Education Bill be passed along with support to relocate. (If that were possible without further inflating college costs.)

High speed rail, internet, energy, smart grid, have all been part of discussions. We can't seem to get behind anything. I guess it is not possible to expect our politics to get behind anything.

I don't think there is anything bigger than a move away from fossil fuels. Any estimates on how long a massive effort to develop technologies would take - batteries, solar, wind.

Can we have a goal to set the world rid of dependency on fossil fuels and to return it to renewable fuels, before this decade is out?

Feb 4, 2012, 5:43pm Top

I think you might be overlooking the productivity side of a roads-and-bridges stimulus. I can't remember the numbers off the top of my head, but the U.S. wastes billions of dollars every year because of its poor infrastructure (mostly damage to cars and waiting in traffic jams). Part of improving that might have as an aspect something to do with rail, but it would primarily be about road building and repair.

A renewable fuels effort would actually, in my opinion, be an overall negative. The main reason being that it would simply cost too much and provide too little stimulus. You really wouldn't be creating or fixing anything, you would just be switching the source of the country's energy from non-renewable to renewable. There might be other benefits to doing that (e.g., increasing energy independence and security and decreasing pollution and greenhouse gas emissions), but from a purely stimulus perspective it would probably wind up being a boondoggle. The only productivity-side argument that I can think of that could be made is efficiency--that is, energy from renewable fuels is more efficient (cheaper per kWh) than energy from non-renewable fuels. From what evidence that I've seen, that isn't the case, but, then again, maybe that could be the goal of the effort in the first place: to make it more efficient.

Feb 4, 2012, 6:46pm Top

I did not mean to suggest that a roads and bridges stimulus would not be productive. I actually stated that it might be the best grand new project - the most impact ROI and impact on employment.

Though I am not sure that I would like to see a massive education and relocation effort - not real sure how that would take shape. We have lost some mobility because of housing value depreciation. Maybe that is a bad idea.

I remember how excited I was when first hearing about cold fusion. Thinking that it would revolutionize the world in every way. In some ways as the Internet has in real terms revolutionized the world, with more promise to come.

What are the opportunities in a world with cheap and renewable energy? Maybe it would not change things so much.

What is an infrastrucure change that would open under developed populations?

Now I am daydreaming.

The article has some other points besides infrastructure expenditures.

Feb 4, 2012, 7:13pm Top

Up here in Alaska we have oil taxes, and thus a fairly large capital budget. In spite of the seasonal nature of our work year (You cant dig holes on either side of -40 for a while) we have a robust economy and a lower unemployment rate.

If all we did was fix the nations' bridges, upgrade power plants, renew internal infrastructure (water and sewer) that would be enough to keep us afloat, and make the country a better, safer, cheaper place to live.

Edited: Feb 4, 2012, 7:17pm Top

You could dig ice holes, melt them, poor the water back to reice and then repeat. That is if the economy up there ever needed stimulus for stimulus purposes.

BTW, your thoughts, AS, on the Keystone pipeline as stimulus and as longer term economic benefit?

Feb 4, 2012, 7:50pm Top


Whether you think that a "stimulus" effort in education would work really depends on what you believe to be the problems that the country's education system faces to begin with. Is the problem that it is underfunded? Perhaps. Although most studies that I've seen indicate that underfunding is a problem in only a small portion of underperforming schools (not surprisingly those school districts that are the poorest to begin with). But even American students in well-funded schools lag behind similarly situated students in key subjects (i.e., math, sciences, and writing) in other OECD countries like Japan, Finland, and Canada.

Education reform is something that would probably have highly positive consequences down the road, but I just don't think that there is much that can be done from the perspective of tying it into a stimulus package. That is, education reform to me is really a whole other ball of wax in that money and jobs really aren't the issue.

Feb 4, 2012, 7:54pm Top

Sure, stimulus investments will help revive an economy during a recession. But at what long term cost? Is it worth adding a trillion dollars to your national debt to avoid a year or two of recession?

I'm not opposed to stimulus plans, even if they are debt-financed, as long as they are balanced by fiscal prudence during the good years. Unfortunately, most countries run large deficits even when their economies are booming. That's when they should be saving (running a surplus) for the next recession.

Feb 4, 2012, 7:54pm Top

Pretty interesting "Currently Reading List" on you profile, Bretzky1. How do you like the plot in the Financial Crisis Inquiry Report?

Edited: Feb 4, 2012, 8:58pm Top

that is my concern, that stimulus not be primarily a jobs program, but a long term and needed investment that results in the production of jobs in the present.

TVA, the interstate system, Hoover Dam - come to mind for me. I cannot imagine no interstate system.

As far as education providing immediate stimulus, I am thinking it would go with relocation benefits. Part of our problem, I think, again as a non economist, is we have a mobility issue.

Feb 4, 2012, 9:42pm Top

The Financial Crisis Inquiry Report is one of the few things that I've ever read that I actually can't read in large doses because I get too angry while reading it so I only get through about 40 pages a week. I've been reading it for close to two months now. But I would recommend it to anyone interested in knowing what happened in 2007-08. Although, it's not exactly written in a way that someone with no previous exposure to the finer points of the mortgage industry or bank regulation could just dive in and pick things up as you go along. The report assumes an above novice level of knowledge with the subject matter.

Most of those books on my Currently Reading list are from courses that I'm taking for my masters degree in international affairs. As you can probably tell, one of the courses that I'm taking is on understanding and preventing genocide. That's not a very happy classroom for the three hours that we're in there, but it is a very interesting subject nonetheless.

Feb 4, 2012, 9:58pm Top

I have a copy of the Financial Crisis Inquiry. Have not cracked a page. If you can do 40 pages a week, I am impressed. I wonder how many Congress people have read it. Probably most likely all of them have studied it.

Feb 5, 2012, 8:31am Top

More people working means a broader tax base. With government investing in infastructure improvements comes collateral benefits to supporting private business--creating even more jobs. A high speed rail network could not only create thousands of jobs but give the people of this country a cheaper alternative and environmentally friendlier, less stressful way of exploring their own country. To me roads, bridges and high speed rail are all great ways of kickstarting our economy. I expected Obama to be on this kick already but that was the pre-POTUS visionary Obama who hasn't lived up to all that many of the dreams he envisioned. No doubt there has been a massive push back from the opposite side but these kinds of ideas have all but disappeared from our political dialogue.

Newt's ideas about colonies on the moon OTOH are not going to create all that many jobs and are going to be super-expensive and are not going to be beneficial at all to the average citizen left standing on the sidelines. The only potential benefit I can see from this is one Ron Paul alluded to--one in which Newt himself is one of the colonizers. Maybe he could be the king.

Feb 5, 2012, 9:32am Top

Moon colonization by itself would not likely result in much economic stimulus, but it could do so indirectly through technological spin-off. Technological spin-off is the process whereby technology developed for one purpose (e.g., sending people to the moon) is adapted by others for a different purpose (e.g., CAT scanners and MRI machines, the base technology of which was developed for the Apollo program).

NASA claims that there are over 100 technology spin-offs from the shuttle program alone. Some of the primary ones that they tout are the artificial heart, insulation, and video stabilization software. Other common things that people use that are the result of technological spin-off from unrelated government programs are microwave ovens, the computer mouse, and water-filtration systems.

I too, however, think that such a program would be more wasteful than helpful. If you are going to deficit spend on a stimulus program, you'd better use that money in such a way that you get the biggest bang for your buck. For me that use would be in fixing the country's transportation infrastructure.

Edited: Feb 5, 2012, 10:49am Top

I agree with #13, the proper place for the government to spend money is where only it can do it, and where what it does has a benefit to the general population by enabling them to do more.

I am a big fan of the Interstate system, except for the Bud Shuster Highway in PA. That (along with I-238 in Hayward, CA) just abused the nice, non-partisan Interstate numbering system.

Edited: Feb 5, 2012, 12:52pm Top

We have a few votes here in support of repairs to roads and bridges. Does that provide long term impetus to driving the economy, or does it more slow the economic decline?

Does a high speed rail change the game for the US economy? Or is it just a big project with little true impact?

What happens if we provide forgiven student loans or scholarships for math, science, engineering, and technologies, along with a relocation incentive for A/B grades. Does that improve our infrastructure, in terms of people?

Can we build a decentralized smart grid? Is that a game changer?

Where are these discussions in the campaign? Are there any big ideas in this election - other than taxing the 1%?

Without even any discussion there is certainly no possibility of getting anything moving.

Feb 5, 2012, 5:25pm Top

More people working means a broader tax base. With government investing in infastructure improvements comes collateral benefits to supporting private business--creating even more jobs.

Maybe, but if you're taking money away from the people who earned it and using it to make your improvements, you're either spending the money in the same way they would have spent it (in which case there's no gain involved in your taking it away from them, and any costs involved are lost), or you're spending it in some way they wouldn't -- i.e., for something less valuable than whatever they would have done with it (in which case even more is lost). Fortunately (from your point of view, as the would-be-improver), the harm is all hidden (nobody can see what would have happened in your absence), so you get to claim credit for whatever's left over...

Feb 5, 2012, 5:37pm Top

#20--not sure what you're getting at. That people aren't being taxed?--or that you think the argument is to tax more? or that we can't use what's already being taxed in some kind of different way than it is now? We already know that many corporations are getting away with not paying taxes at all. We could go even further--religious institutions, colleges and universities aren't (or very often aren't) taxed either. The fact that many of the most wealthy--like the GOP frontrunner--are paying a smaller % of taxes than the average taxpayer.

Your first sentence in any case is confusing. Taxing to make improvements that 'people' intend? or were going to spend on the same improvements? Not sure who you are talking about but if I were to guess it's the wealthiest amongst us. Back to Romney who seems more intent on not paying his fair share of the tax burden--even Gingrich seems to think so.

Feb 5, 2012, 6:06pm Top

...or you're spending it in some way they wouldn't -- i.e., for something less valuable than whatever they would have done with it...

Sorry, but there are things that society can collectively spend money on that are to everyone's benefit but that individuals would not have paid for themselves.

Feb 5, 2012, 6:41pm Top

1> something less valuable than whatever they would have done with it

No something that at most is less valuable to them.

Feb 5, 2012, 7:50pm Top

Sorry, but there are things that society can collectively spend money on that are to everyone's benefit but that individuals would not have paid for themselves.

How do you know?

Feb 5, 2012, 8:10pm Top

How do you know?

Feb 5, 2012, 8:27pm Top


That's fairly standard economic theory.

There are primarily two situations in which there are goods or services that people would benefit from providing, but where, regardless of such benefit, provision of those goods or services will not occur. The lack of provision arises from the free rider problem and from problems of coordination.

The free rider problem occurs when a good or service is considered to be non-rival and non-excludable. Non-rival means that any person's consumption of the good or service does not effect another person's ability to consume the good or service. For example, when I am listening to a radio station on my radio, it has no effect on your ability to listen to that same radio station on your radio. Hence, we have no rivalry for consumption of the radio signal. Non-excludability means that there is no effective way to exclude a person from consuming the good or service once it has been provided. For example, if someone who owns a coal-fired power plant goes to the expense of reducing the amount of pollutants it puts into the air, there is no way for that person to capture all of the benefits of the cleaner air for himself. That is, everyone in the area will be able to enjoy the cleaner air.

When you put these two things together (non-rival and non-excludable) you get things that are called public goods. The quintessential public good is national defense. The benefit that I get from the provision of national defense by the government does not in any way affect anyone else's ability to benefit from such provision. And, once the government provides national defense to the territory it governs, it cannot exclude anyone living within that territory from its benefits.

The free rider problem exists with public goods because the person who provides the good or service effectively cannot prevent others from taking advantage of their provision of the good or service. That is, the person who provides it must incur all of the cost of doing so, but only enjoys a part of the benefit directly and cannot recoup the excess costs over his benefit from others. Therefore, no one person, or even group of people, has an incentive to provide the good or service on his or their own initiative. Their incentive is to free ride on some other person's or group's provision of it. Therefore, if such goods and services are to be provided, they generally must be provided via the government. The government taxes the people who benefit from the provision of the good or service thereby overcoming the free rider problem.

Since this is getting too long, I'll continue it in another post.

Feb 5, 2012, 8:38pm Top


The problems of coordination exist with both public and non-public goods. A person or group of people can possibly recoup the excess costs above their benefits, but, even if they can, they cannot coordinate on what the good or service should exactly be.

Private actors generally overcome the problem of coordination through the use of hierarchy. That is, they create a structure with someone at the top who makes the final decisions on the contested issues (like a corporation with a CEO at the top). Government was eventually the hierarchical entity that came to be used to overcome such coordination issues.

While coordination problems aren't as great as they used to be due to the advent of mass communications technology, as the incumbent method of overcoming coordination problems, government has a built-in advantage that likely will be difficult to unseat. Plus, government has the advantage that private actors do not have of being able to force recalcitrant hold-outs to give in. For example, once the government has coordinated on where the road should go, anyone whose property stands in the way can be made to leave through the coercive power wielded by the government. Whereas private actors do not have the same coercive power (as least those who play within the rules set by the law anyway).

Feb 5, 2012, 9:24pm Top

I keep thinking we need a game changer. We got the Internet - new rules. Can it open the world to new markets. It has made commerce different, but the new markets are slow to open, I think.

Is there another game changer - that is what I would want from investment into high speed rail, smart grid, renewable energies, and yes even rebuilt bridges, and space the somewhat underdeveloped plan of Newt Gingrich nothwithstanding.

A real question though, is the time right now? Can we afford it now, or should we cut taxes and expenditures?

Feb 6, 2012, 1:33pm Top

# 28:

If there is one thing that the history of dirigisme has taught us, it is that governments are woefully equipped for the task of identifying "game changers." What governments do best in the realm of investment is waiting for the market to identify a need and then filling that need if the market cannot do so itself.

Beyond that, there have been very few "game changers" throughout history. And by game changers I take to mean something that comes along and substantially improves the productivity of the economy as a whole, not just in select industries. You are looking at things like literacy, agriculture, the printing press, the wheel, the steam engine/internal combustion engine, air travel, the computer/internet, etc. In that regard, a roads and bridges program is not a game changer, but it is something that could provide an incremental improvement to the productivity of the economy as a whole.

The only thing that I can think of off the top of my head that would rise to the level of "game changer" is nanotechnology. In theory, there are endless possible uses for nanotechnology that would significantly improve the productivity of the economy as a whole, primarily from applications related to materials and human health. The problem is that there is no "project" there to fund. The government can't just spend a bunch of money and say, "give me nanotech in X amount of years." It doesn't work like that.

What you are looking at with nanotech is an incremental process of technological roll-out where, as technology becomes available, the market or the government uses the technology in ways that make incremental improvements. But there isn't going to be a light-switch effect where nanotech is now off and then later it's on. It's more like a dimmer switch that will make the light progressively brighter as time passes.

Feb 6, 2012, 2:44pm Top

#26, 27, 29--Now I enjoyed reading all of these. Good work.

Feb 6, 2012, 10:08pm Top

I keep asking for a like button. :)

Bretzky, you listed the major game changers. But I think government can have some impact that can change circumstances, even if it cannot be expected to drive innovations as you have listed.

The interstate system was a game changer I think, same as TVA and Hoover and the transcontinental railway. Even the postal service.

All I can think of is the high speed rail and smart grid, but surely there are some brilliant minds who are thinking of ways to make the world smaller and faster, more open?

Of course, every week it seems there is a new green energy company going bankrupt.

But we are not having this kind of discussion nationally, not that I have heard.

Feb 6, 2012, 11:20pm Top

That's fairly standard economic theory.

Yeh, and rubbish theory it is, but also missing the point; how do you determine whether or not something is beneficial? Given that you can't do everything, how do you find out whether it's better to do A or B, etc.? (Hint: there is no answer to this question that applies to tax-funded actions)

Feb 6, 2012, 11:36pm Top

Yeh, and rubbish theory it is

How do you know?

Feb 6, 2012, 11:37pm Top


Actually it's been shown empirically to be the case. It's not as strong in reality as the theory says, but nothing in the social sciences ever is. In other words, there are things out there that people would prefer to spend their money on, but that the problems of coordination and of "free riderism" (I know I just made that phrase up, but I'm sure you get the drift) prevent or, at the very least, strongly discourage, such expenditures from being made.

Feb 7, 2012, 1:39am Top

Yeh, and rubbish theory it is

How do you know?

To quote Henry Hazlitt, "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

there are things out there that people would prefer to spend their money on

How do you know? You can't base it on people telling you what they prefer; the only way to determine what they actually prefer is to see what they do when they have to choose between mutually-exclusive options. The "free rider" thing is a made-up non-problem, invented for the purpose of excusing some people's making decisions for others.

See, for example, Public Goods and the Problem of Economic Calculus; Fallacies of the Public Goods Theory and the Production of Security; National Goods Versus Public Goods: Defense, Disarmament, and Free Riders; National Defense and the Theory of Externalities, Public Goods, and Clubs (ch. 9 here).

Edited: Feb 7, 2012, 2:27am Top

34> "Free rider" is used by Mancur Olson, The Logic of Collective Action. It is not a "made-up non-problem" (as per #35) if one has comprehension of what the concept is meant to explain.

Edited: Feb 7, 2012, 4:35am Top

"Free rider" is used by Mancur Olson, The Logic of Collective Action.

Oh, well, if it's used by Mancur Olson, that's different!


It is not a "made-up non-problem" (as per #35) if one has comprehension of what the concept is meant to explain.

Of course it is, if one has comprehension of what the concept is meant to explain.

Feb 7, 2012, 9:01am Top

You can't base it on people telling you what they prefer; the only way to determine what they actually prefer is to see what they do when they have to choose between mutually-exclusive options. The "free rider" thing is a made-up non-problem, invented for the purpose of excusing some people's making decisions for others.

I think we'll have to agree to disagree about this. The evidence that I have seen, both for and against the existence of the problems of free riding and coordination, leads me to the conclusion that they both exist and that they both prevent the provision of some goods and services via the market that people would willingly pay for. The issue really is how much would they be willing to pay for them. That is, free riding and coordination are problems of supply, not demand.

I also disagree that you can't tell what people prefer based solely on what they tell you.

Feb 8, 2012, 11:38pm Top


In terms of the idea of helping Americans relocate as a means of perking up the economy, this article might be of interest to you.

Edited: Feb 9, 2012, 3:56am Top

Thanks Bretzky1.

I had missed that article.

It is interesting conclusion. I have spoken to some of the 110,000 who cannot relocate because of housing problems. I have spoken to many of the 110,000 who are letting homes go back or negotiating (have negotiated) short sales to relocate to new employment.

But it may be that the actual numbers are not statistically important. It is hard to argue with the conclusions of such a study.

It is also interesting, this conclusion:
"The Boston Fed paper doesn’t reduce the importance of sorting out the housing sector as part of generating a better and more enduring recovery. As long as mortgages remained widely distressed, the housing market will be a drag on what is already a middling recovery. It’s a safe bet a decent chunk of the still high rate of unemployment flows directly from housing problems"

What do you think is the reason for this "importance in sorting out the housing sector" to generate a "more enduring recovery"? I still think mobility is a big part of that importance.

Feb 9, 2012, 9:03am Top

Part of that probably is related to mobility, but perhaps an even bigger part is related to onerous debt levels.

A not insubstantial portion of the economic growth that has occurred over the last two decades has been fueled by home equity loans. Whether it's wise to have such activity as the basis for a part of your economic growth is one thing, but if it is, and you have a large enough percentage of your population unable to use home equity loans to finance consumption because they have no equity in their homes, then you are going to have lower growth than you otherwise would.

I personally think that it's simply unsustainable over the long run to have the economy's health based on consumer debt taken out for consumption. It's one thing to go into debt to buy a house or a car or to get an education, which are "productive" assets, but it's something else altogether to have people doing so to buy things like televisions and vacations. Debt-financing for such things is essentially a trade-off: you get the thing faster than you otherwise would have in exchange for paying more for it overall. I'm not so sure that people were really making that rational calculation when they used debt-financing for purely consumption expenditures rather than it being simply an "I want it now" impulse buy.

Feb 9, 2012, 9:21am Top

Let me follow.

The growth in 2000-2007 was funded by easy credit, expanded with easy mortgage lending debt - high LTV's and weak credit standards, along with easy repayment (or even non repayment) terms. The housing market crashed, credit standards raised, with the impact that consumption fell.

Consumption drives the economy and any real economic recovery?

The idea is that consumers cannot or will not consume enough stuff to support the labor supply?

And of course the solution now is for the government to borrow enough for us all. :)

Feb 9, 2012, 9:23am Top

The growth may even have been illusory with little employment gains and increasing numbers of troubled banks even at mid decade.

Which missed obseration is the thing that bothers me about retaining the brain trust of Bernanke and Geithner.

Feb 9, 2012, 12:16pm Top


That would be the Keynesian response to what has happened. At least, that's what Keynes would recommend if the pre-crisis level of consumption was "normal" for the economy and not merely a bubble.

I tend to think that it was in fact a bubble funded, as you say, by easy credit. In other words, much of the growth that the economy experienced from 2002 to 2007 was not "new" growth, but growth that was just brought forward in time through the use of extensive amounts of consumer debt. The GDP growth rate and labor force participation rate that the U.S. had during that time period were therefore artificially inflated due to loose monetary and fiscal policy.

If there was an unsustainable bubble, then the government's use of deficit spending and easy credit in the hopes of returning the economy to the growth rates and employment levels we had during that time period might well be damaging to the economy (and ultimately futile if the people do not react the same way they did to the previous period of loose monetary and fiscal policy, that is, the people decide not to go into debt to bring forward future consumption). If, however, the government's goal is to get us to a natural level of growth and employment, then it could be money well spent.

My own feeling is that the long-run proper levels for the U.S. economy are a GDP growth rate between 2% and 2.5% with a labor market participation rate between 64.5% and 65.5%. If you look at the output gaps from the last decade, you will see that they generally show that the U.S. was producing between 150 and 250 basis points above its potential output.

Edited: Feb 9, 2012, 1:49pm Top

I was going to ask what you thought of the declining participation rate, related to the improving UE numbers. I sure would like to feel confident that we are turning, and looking at a sustainable recovery.

Feb 9, 2012, 1:34pm Top

That's the scary thing about the economy. Yes, the unemployment rate is dropping, but it's mostly due to people having stopped looking for work, not to there having been a drastic increase in jobs. The number of jobs that have been created has barely been able to match the increase in the overall labor force.

You can see the labor force participation rate since 2002 here.

Feb 9, 2012, 8:54pm Top

Could any of the decline in labor force participation be due to baby-boomer generation beginning to retire? Or does retirement not factor into this number?

Feb 9, 2012, 9:41pm Top

My understanding of labor force is that it is working age and does not include the population over retirement age. The decline is not a good number and points to a known long term unemployed problem. It also dampens the good news about the unemployment rate improvement.

Feb 9, 2012, 9:45pm Top

Yes, it is possible that baby boomers who have retired could be causing a drop in the labor force participation rate; but I doubt that's the case. The labor force participation rate is the number of people in the labor force (i.e., the number of people who are considered employed or unemployed) divided by the number of people in the working-age population (i.e, everybody 16 years of age or older who is not in the military or not institutionalized (i.e., not in prison or a mental hospital)). Retirees can be included in the labor force if they do part-time work, but if they are completely retired, they would no longer be considered part of the labor force.

I don't think that's having much of an impact though. The bigger impact is at the other end of the age scale: those between the ages of 16 and 30. Because of the poor job market, the labor force participation rate among those in the lower age brackets has dropped significantly.

According the Bureau of Labor Statistics, the labor force participation rate for 16 to 24 year-olds dropped from 65.4% in 2000 to 55.2% in 2010. For those aged 55 years and older, it actually increased from 32.4% in 2000 to 40.2% in 2010. Not only are young people falling out of the labor force, but seniors are having to stay in longer than they used to, most likely because of the sharp deterioration in retirement funds that has occurred over the last five to six years.

Feb 9, 2012, 9:59pm Top

You had mentioned that additional deficit spending would be Keynes' response. I have wondered what he might think given our debt level, and that we have not seemed able to retire the debt in better times.

More borrowing to stimulate an economy already stimulated by heavy deficit spending?

And still we seem to have no plan for the future growth, no room to invest into the future - we have mentioned declining roads, a need perhaps to invest into rails, nano technology, perhaps superconductivity research, space, I would like a large accelerator in the US, hig speed Internet, alternative fuels, a better smarter power grid. We mentioned needed changes in education emphasis.

We have no room.

I am no economist and it is hard for me to evaluate the danger, but I see Greece and Spain, and wonder how close are we in the US? And what happens then.

Feb 9, 2012, 10:25pm Top

48 & 49: Thanks for the clarifications. The numbers are troubling. Although taking the longer view.


We have been at lower levels during other times in our history (or the history of this statistic) even when times were considered "good"? Does this one number really point to economic turmoil or conversely economic boom? For example, my wife does not work by choice and yet we do fine; just anecdotal evidence of course. My point is though, does a lower participation rate necessarily mean a stagnant economy? I claim no expertise, but just some thoughts & questions?

Feb 9, 2012, 10:52pm Top


I am no economist either, but I think we are in new times. With lost jobs that are not coming back. That is why I keep asking about mobility and game changers.

We need some smart folks to learn something other than how to trade a derivative.

Feb 9, 2012, 10:54pm Top


At different points in history you are going to find different natural levels of labor force participation rates due to changing cultural norms regarding work. For example, over time women have entered the labor force in greater numbers, which increases the rate. So what might be considered a poor participation rate today, might be viewed as a very good one in years past.

Also, the participation rate going up or down is not necessarily a sign of the economy's health. The real measure that you want to look at in terms of employment is what percentage of the working-age population that wants a job is unemployed, underemployed, or out of the labor force altogether. Measuring underemployment is difficult, but the other two have both gone up as a percentage of the working-age population over the last decade.

But even that number can be tricky because once someone has been out of work for a long time they have a tendency to not even want a job if someone offers it to them. Therefore, they would become part of the working-age population that is not in the labor force and doesn't want a job, but their only reason for being in that category is really that the economy tanked. That's the real danger of long-term unemployment, and it's what is currently eating apart the under-30 generation. We have a generation of Americans for whom the economy is passing them by.

Feb 9, 2012, 11:06pm Top


Keynes would likely say, "debt be damned." If you have an economy that is underperforming its potential, then the government must prime the pump to get demand going again. It can worry about paying debt down later.

Keynes would likely advocate that such deficit spending should be focused on labor-intensive investment instead of simple government consumption. That is, build things like roads and bridges and dams and buildings, things that will add to the country's productive capacity, but that require a lot of labor to do (although, given modern technology, the amount of labor required to do those things is a lot less than it was in Keynes's day).

Part of the problem of having an economy that is as productive as the American economy is that it is difficult to find ways of making it even more productive. There is, to my mind, nothing out there that the government could simply put a bunch of money in and get back an economy-wide shot of productivity that would get businesses hiring again. More likely the government will have to keep making do until something like that comes along for it to invest in or the private sector starts hiring again due to a more sanguine view of the future. Businesses are certainly making the profits that would warrant more hiring, but they are reluctant to do so because of their lack of faith that the economy isn't going to be back in the red sometime soon.

Feb 13, 2012, 5:58pm Top

What's a trillion dollars among friends, huh?

Edited: Feb 13, 2012, 6:05pm Top

I have quit counting. What is that saying - a trillion here, a trillion there. And pretty soon......

Though it might be a good exercise for the LT brain trust to discuss the budget items and priorities - if we can do so without name calling. I am certain that the public debate on Capital Hill will proceed with due respect for all parties and with earnest focus on the nations priorities.

Feb 13, 2012, 6:47pm Top

>54 Bretzky1:
Keynes would likely say, "debt be damned." If you have an economy that is underperforming its potential, then the government must prime the pump to get demand going again. It can worry about paying debt down later.

I'm not so sure. He is of course known for advocating those pump-priming policies, but that was in a context in which mountains of government debt, exceeding GDP and growing rapidly, were rare, outside of wartime. It would be interesting, though only as an exercise in the history of thought, to reanimate his corpse and see what he'd advocate in the present situation.

(Correction: It would also be interesting as an exercise in necromancy.)

Feb 13, 2012, 7:15pm Top

The lesson we may have learned from Keynes is that it is OK to use massive government borrowing to finance incumbent campaign promises, to receive and not to give. And when we need actually need a stimulus we are close to all borrowed out.

Feb 13, 2012, 7:24pm Top

The US is an insurance conglomerate with a large standing army.


Feb 13, 2012, 7:25pm Top

Wrong link above, but what the hell it is worth looking at too.


Edited: Feb 13, 2012, 9:01pm Top

So when Hillary Clinton spoke of the federal government "standing up to insurance companies" a few years ago, she was way off.

Feb 13, 2012, 9:02pm Top


I'm not so sure. He is of course known for advocating those pump-priming policies, but that was in a context in which mountains of government debt, exceeding GDP and growing rapidly, were rare, outside of wartime.

But if you look at the timing of when Keynes released his The General Theory of Employment, Interest and Money, you might reconsider. This was Keynes's magnum opus and essentially set forth his argument for what we call today Keynesian economics. He published it in 1936. By that point, if this data can be believed, British government debt was already around 150% of GDP. As far as I know he was actively calling for even more deficit spending at that point, so our relatively meager government debt at 100% of GDP would likely be pooh-poohed by Keynes. And Britain's current debt-to-GDP ratio is around 68%, which boggles the mind really.

Feb 13, 2012, 10:14pm Top

There are so many viewpoints from different economists, and I suppose different agendas, that it hard to know whether sovereign debt is a good or bad thing, and what measure to use to determine what is to much.

Yet when we look at Greece and Spain, it gets scary.
When we look at the amount of US debt owned by other nations, it can be worrisome.

One question though, come the good times in the US, will we have the will to pay it down. Or do we just inflate it away?

Feb 14, 2012, 8:31am Top


While I do think that Britain has been a bit overzealous in its deficit reduction goals, to be fair, what is threatening Britain's rating is largely out of the hands of the government. Britain's strong ties to the eurozone are what is really threatening its rating, not anything intrinsic to Britain's fiscal policy.

I also think the ratings agencies have gone a bit bonkers in their ratings as of late. Their credibility really took a hit with the crisis in 2007-08. Ever since then they've been overly sensitive to possible defaults so that they don't get caught flat-footed again. If you fail to warn and something bad happens, people are going to give you grief about it. If you do warn, and nothing happens, you'll get some grief for it, but not nearly as much as in the other scenario. Moody's has remained a bit more realistic in its ratings than S&P has, but even they seem to be going a bit batty now.

Edited: Feb 15, 2012, 9:41pm Top

>63 Bretzky1:
Hmm, it's possible that you're even more right than you knew. I followed the link you provided and it's net public debt that's about 150% of GDP. The gross public debt presumably would have been even larger!

On the other hand, a couple of points:

• When Keynes advocated pump-priming circa 1936, did he know how high the debt/output ratio was? Remember, this was 1930s; it wasn't possible to get data in anything like real time. The ratio could rise because debt rose or output fell, and he didn't have real-time data on that. In fact, in the General Theory he laments lack of knowledge, speaking of income (which is equal to output):
It should not be difficult to compile a chart of... blah blah... from the statistics (if they were available) of aggregate income... At present, however, our statistics are not accurate enough... (Chapter 10, part V, emphasis added)

• Keynes had a more nuanced position on deficit spending than we recognize nowadays. We often tend to whitewash away the nuances. For example, he said,
I like Meade's Social Security proposal... About other forms of deficit financing I am inclined to lie low because I am sure that, if serious unemployment does develop, deficit financing is absolutely certain to happen, and I should like to keep free to object hereafter to the more objectionable forms of it. (Quoted in the Journal of Post-Keynesian Economics Spring 1995, p.344)

Feb 15, 2012, 9:47pm Top


That certainly is a good point about whether Keynes would have known the extent of Britain's debt at the time.

Another thing I didn't think about but that must be considered is that GDP (according to Wikipedia) was not created as a measure of economic output until 1934. And it was created in the United States, not Britain. GNP was the popular measure of economic activity at the time, and given the extent of Britain's colonial connections at the time, its GNP probably would have been noticeably higher than its GDP. Although I doubt either was doing very well. Therefore, if Keynes did have access to any information, it probably would have been a debt-to-GNP ratio, not a debt-to-GDP one, and the former would likely have been better than the latter (although I can't imagine that it would have been by more than, say, 30 percentage points, but that's just an educated guess).

Group: Pro and Con

399 members

113,902 messages


This topic is not marked as primarily about any work, author or other topic.

You are using the new servers! | About | Privacy/Terms | Help/FAQs | Blog | Store | APIs | TinyCat | Legacy Libraries | Early Reviewers | Common Knowledge | 115,165,985 books! | Top bar: Always visible