uberdionysus: Quick question about economics...

Troy Swain: Black Box Miasma (

uberdionysus) wrote,
@ 2009-02-19 18:07:00

Entry tags:

economics

Quick question about economics...

Economics

Quick question for any economist: The Obama team was reportedly looking at issuing debit cards with a expiration date. Supposedly, they rejected the idea because the infrastructure isn't in place. Since the money couldn't be saved, that would seem to perfectly fit Keynes' solutions. It seems like a great idea. One problem I imagine is that it would have no lasting effect on our country, unlike spending on infrastructure or creating jobs, but it could kick the economy into gear. Right?

What economic problems or theoretical downsides am I missing?

(51 comments) - (Post a new comment)

	lord_whimsy 2009-02-19 11:09 pm UTC (link)
	I'm not qualified to comment in any way, but it seems that giving people a sum of money that had a timetable might help pump cash into the system--unless of course those receiving the money then sit on that cash. (Reply to this) (Thread)

uberdionysus
2009-02-19 11:12 pm UTC (link)

Yeah, that's what it seems like, which is exactly what Keynes proscribed for a stimulus. Granted, there would be no longer term structural effects - not directly, anyway. No roads or anything, and potentially not even any jobs, but it seems to be exactly what the Keynes' stimulus plan requires. And it would prevent saving, since it would be a debit card and you'd have to re-sell whatever you bought.

I must be missing some fatal flaw in the plan. I mean, it would cause inflation as much as a regular stimulus, right? Which isn't a worry since we're in a deflationary spiral, right?

(Reply to this) (Parent)

gringo_in_tj
2009-02-19 11:21 pm UTC (link)

I thought of this as well. My idea, since the concept is to also get money that is being earned and saved into the economy (not just freshly printed stuff that the government owes), was to send two types of debit cards. One is for food only, and the other is for non-food goods only. In my framework, it isn't a full debit card, it's a matching debit card. In other words, buy forty dollars of groceries, you pay twenty and your debit card pays the other twenty. You buy a two-hundred dollar television and the debit card pays half.

I scrapped the idea for the main reason that it could breed a lot of corruption, especially amongst the impoverished. There were other problems with my idea too, in that ultimately it could actually cause people to save more of their earned money in the long run. But I'm not an economist.

I have recently met one, though! If I get an opening, I'll ask him what he thinks (and yes, I ran our argument by him, and his answer was very interesting, he sort of sided with both of us, but I don't want to draw him into our discussion if he isn't willing to participate).

(Reply to this) (Thread)

Yes, ask!

uberdionysus
2009-02-19 11:41 pm UTC (link)

I dated an economist for a hot minute, and would always ask her questions. She finally told me, "Only one question per day!" Unfortunately (and typical for me) she's no longer around to answer my questions.

Your plan is great, but I think it's infeasible. I don't think we have cheap, practical, and ready-made technology that could do a 50/50 split like that. And I'm not so worried about corruption. There will always be corruption and that plan seems like a direct way to take care of our emergency (and seemingly would have less corruption than most other ways). (Similarly, I'm unconcerned with pork - which is odd for me, but I know it doesn't matter re: effectiveness of a stimulus.)

But I don't think I understand where you're coming from; I don't think I get your complaints about the stimulus.

My position is pretty simple. Inflation is a long-term problem, but for now irrelevant. Right now we're in a massive emergency, and all of the standard ways of dealing with it have failed. Since it's global, and since severe recessions often lead to awful things, "riding it out" is not smart. Therefore, we should try Keynes' plan, inflation and debt be damned. (Because the money lost due to inflation and debt pales next to the money lost if we stay in a severe global recession for a two years, let alone a decade.)

My other complaint with you is that I don't think you get fundamentals, and I feel like you're often parroting libertarian talking points, which I think are utterly bankrupt in every way.

So what is you position? Is it that inflation (and the consecutive debt) is worse than the current crisis?

(Reply to this) (Parent)(Thread)

Re: Yes, ask!

gringo_in_tj
2009-02-20 12:01 am UTC (link)

Oh, no, I mean, I am concerned about inflation in the long term, but I never had a big sticking point with you that inflation fears should quell any thought of stimulus, we might have misunderstood each other. Our biggest argument was two-fold; I feel that there is far too much irrelevant spending in the bill (not designed as stimulus), and that Keynes stated or implied that government money spent to correct an economy in recession should go toward infrastructure.

His response was that it is not only conceivable, but also entirely probable that two different economic professors could teach either theory concerning the infrastructure issue. And while he didn't get specific on the amount spent on non-stimulus devices, I got the impression that he wasn't nuts about the bill as written, for many reasons.

I'll get his take on this, just as soon as he posts something else, and I'll ask for his participation. I don't like to invade someone else's personal responses without their permission, but he seems like a nice guy, so let's hope he shows up, I'll try.

(Reply to this) (Parent)(Thread)

uberdionysus
2009-02-20 08:55 am UTC (link)

But I read the relevant chapters and there wasn't any talk of infrastructure. Maybe I should re-read it? But the infrastructure obsession seems to come from his followers. Maybe it's a hold-over from The New Deal?

Maybe people still equate The New Deal with saving us from The Great Depression, even though it didn't? Maybe it's because you and I are still benefiting from those infrastructure investments, so it's all infrastructure, infrastructure? It DID end up a wise investment (and they did create a lot of jobs) even if it didn't do diddly to stop the depression.

As opposed to that, a capital injection straight to the consumer doesn't have any lasting effect, and seems superficial?

I'm also not crazy about this bill. It's better than nothing, but right now anything is better than nothing. I think anyone who says otherwise doesn't understand the severity of the situation. Also, from my understanding, this stimulus package simply won't work. Not if we take Keynes seriously. But I guess it will be the New Deal Pt. 2, which is good, but not effective.

(Reply to this) (Parent)(Thread)

gringo_in_tj
2009-02-20 09:10 am UTC (link)

Troy, honestly, I sold the book back right after I got my grades. And man, that was well over twenty years ago. I don't pretend to know anything for certain.

I'd go on, but it's one in the morning, I've had a half bottle of tequila, I miss my kid, and I'm tired as hell.

I really want this to work. I have so many doubts, and politics seems to get in the way of everything, but I would rather that it works.

Talk to you tomorrow, my friend.

(Reply to this) (Parent)(Thread)

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uberdionysus, 2009-02-21 03:43 am UTC

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gringo_in_tj, 2009-02-21 04:10 am UTC

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uberdionysus, 2009-02-21 03:49 am UTC

bord_du_rasoir
2009-02-20 12:20 am UTC (link)

You know people get food stamps through debit cards called EBT cards nowadays, right? So I don't understand the "infrastructure isn't in place" argument. Debit cards with time limits are the perfect way to force people to spend in the short term while waiting for the arguably more stimulative infrastructure to really get into gear in nine or so months from now.

The other options, though, are just to withhold less from each paycheck starting June 2009 or to get one lump sum rebate in April 2010. But the reality is we're only talking about $400 per person for 2009 and another $400 for 2010. I believe there is no hope for the child tax credit, earned income tax credit, and the tuition credit to be anything other than a lump sum rebates in April 2010, which is unfortunate.

Ideally, we would give $1,000-on-average limited-time debit cards (allocated at $167/month for the last 6 months of 2009 and $83/month for 2010) to the 50 million taxpayers who need it most. And it would end up costing us $50 billion in 2009 and $50 billion in 2010. And if people don't end up spending it all (I remember this happening after Katrina), they just lose it. That would insure that all money allocated is for stimulus and none of it is "wasted" on personal savings.

(Reply to this) (Thread)

	I love that you crunch numbers. Seriously. uberdionysus 2009-02-20 08:57 am UTC (link)
	Yeah, I thought of food stamp credit cards when I read that. But do you know of any reasons why a debit card is a bad idea (economically)? (Reply to this) (Parent)

internought
2009-02-20 01:16 am UTC (link)

One thing that immediately leaps to my mind is that even if the money in the debit account has to be spent in a certain timeframe and can't be saved, it would quite possibly lead recipients to save more of their earned money, since they would be able to use the debit account to fund part of their normal expenditures, leaving extra money in the earned part of the budget to save. The net effect on consumption, this scenario, would likely be minimal, but deflationary pressure on the currency would increase due to the increased saving drawing down the money supply. Thus, the government would be spending a lot of borrowed money just in order to deflate the currency, which doesn't seem like a very good idea.

(Reply to this) (Thread)

	uberdionysus 2009-02-20 08:58 am UTC (link)
	Yeah, that's a good point. Shit. (Reply to this) (Parent)

	avez_kristen 2009-02-20 02:01 am UTC (link)
	My solution is to not get fired from my job by performing more excellently (increasing revenue for my company, making more products, producing more wealth for the nation), and not withdrawing my money from my failed, bought out bank (Downey Savings). That's all I've got as far as a solution goes - personal responsibility. (Reply to this) (Thread)

	uberdionysus 2009-02-20 09:00 am UTC (link)
	This crisis has little to do with personal responsibility, and everything to do with systemic failure which was brought about by a laissez-faire philosophy. Remember that, and remember to remind anyone who mentions personal responsibility. (Reply to this) (Parent)(Thread)

avez_kristen
2009-02-20 05:31 pm UTC (link)

I recognize that the crisis has little to do with personal responsibility. I'm not a libertarian... but I know my contribution to the solution is to be aware of my personal impact. I don't have to chops to tackle the big picture.

It's logical to me that the solution is a going to be a complex, cumulative effort between lawmakers and individuals. Neither lawmakers/government or individuals should rely solely on the other to make the changes.

(Reply to this) (Parent)

kumakouji
2009-02-20 07:28 pm UTC (link)

It has a lot to do with personal responsibility, but discussing the role of personal responsibility is of little help because we can't force individual people not to be irresponsible idiots in this situation.

Lots of people took on loans and got themselves into debt, and they shouldn't have if they couldn't afford it. Financial institutions shouldn't prey on the vulnerable or deal with the irresponsible.

(Reply to this) (Parent)(Thread)

pdanielson
2009-02-21 12:29 am UTC (link)

How were most of these people supposed to know they couldn't afford it though? If all the mortgage brokers were pushing their product, the fed was pushing policies pretending that housing prices would never go down, and all the talking heads on the teevee were ridiculing naysayers, what information source was your average person supposed to turn to in order to know that these loans would push them into potential bankruptcy only a few years later? It's like telling people they shouldn't have been smoking back in the '50s when doctors were lighting up on TV.

This isn't to say that there weren't people out there who did know and just got greedy, but the almost total asymmetrical imbalance of knowledge, sophistication, and information in favor of the lenders when they were making these bad loans means they should bear the bulk of the blame, but that doesn't play into libertarian/republican talking points and people who want an excuse to blame minorities and the poor for the crash.

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kumakouji, 2009-02-21 08:46 am UTC

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uberdionysus, 2009-02-21 03:36 pm UTC

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kumakouji, 2009-02-21 04:07 pm UTC

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uberdionysus, 2009-02-21 11:42 pm UTC

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kumakouji, 2009-02-22 12:30 am UTC

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uberdionysus, 2009-02-22 07:12 am UTC

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uberdionysus, 2009-02-22 07:20 am UTC

part 1 -

kumakouji, 2009-02-22 12:10 pm UTC

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uberdionysus, 2009-02-22 03:21 pm UTC

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uberdionysus, 2009-02-22 09:59 pm UTC

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kumakouji, 2009-02-22 10:51 pm UTC

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uberdionysus, 2009-02-23 04:54 am UTC

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uberdionysus, 2009-02-24 07:53 pm UTC

Part 2 -

kumakouji, 2009-02-22 12:51 pm UTC

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uberdionysus, 2009-02-22 03:20 pm UTC

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uberdionysus, 2009-02-21 11:49 pm UTC

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kumakouji, 2009-02-22 12:39 am UTC

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uberdionysus, 2009-02-22 06:39 am UTC

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uberdionysus, 2009-02-22 06:42 am UTC

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pdanielson, 2009-02-22 06:18 pm UTC

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kumakouji, 2009-02-22 06:41 pm UTC

	uberdionysus 2009-02-21 03:13 am UTC (link)
	Paul pretty much said what I wanted to say. There's a tendency lately to blame these people, who were victim. They didn't have access to the information and had no reason to distrust the "experts." They were conned. And we shouldn't have allowed banks and lenders to act like con artists. (Reply to this) (Parent)(Thread)

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kumakouji, 2009-02-21 08:50 am UTC

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uberdionysus, 2009-02-22 07:26 am UTC

never_the_less
2009-02-20 04:21 am UTC (link)

I am definitely no economist, but it seems like you are assuming that "perfectly fitting" a Keynesian model = success in terms of rehabilitating the economy, no? Why? Correct me if I'm wrong here, but hasn't the Japanese economic disaster of the last 20 yrs been fueled by Keynsian policies?

To be quite honest, I think that if anyone actually knew these answers, we wouldn't be in the situation we are in. More than anything else, I feel like this economic slump is an epistemological object lesson...popularized Newtonianism run wild, until it finally hit a brick wall, and we are now learning the hard way that the idea that we can know and predict everything is a pretty antiquated world view. (Though I do suspect that economists themselves know the limitations to the claims, I just think popular consciousness still believes that Science will lead us to Truth.)

(Reply to this) (Thread)

About Japan...

uberdionysus
2009-02-20 09:33 am UTC (link)

No, there's no guarantee that a Keynesian solution will work. That said, there's no other options right now.

And no, the Japanese "Lost Decade" is not an example of failed Keynsian policies, since they did everything wrong, according to Keynes. Paul Krugman partially made his name on his analysis of Japan's "Lost Decade," and he comes to wildly different conclusions than Libertarian think tanks like this one fro the American Enterprise Institute, or apparatchiks like this one from Reason. If you want some serious meat, try this chapter from Adam Posen's book.

This is a wonderful introduction to the debate in the Financial Times, which is very clearly on my side (and which I agree with).

Basically, introducing small stimulus packages doesn't work. It needs to be the size of the loss in GDP. That is, it needs to fill the hole, not just be some dirt thrown in. When Japan DID do that, it worked,even on the smaller scale (like in '95). Not only did Japan not follow the Keynesian solutions, but they wasted a lot of their stimulus on absolute crap. Worse (and this is really what fucked them over for 10 years) is that they never fixed their banks. Their banks were effectively insolvent, but they couldn't inject enough money into them to save them (because of voter anger) and couldn't nationalize them because of the power of the bankers. Once they fixed their banks, their economy started improving. Also note that they were exporting goods this entire time, which is no longer an option for anyone.

(Reply to this) (Parent)

uberdionysus
2009-02-20 09:43 am UTC (link)

And I disagree with your second paragraph. Plenty of people were warning about this precise scenario. Plenty of people were warning about the housing bubble and derivatives based on subprime loans, etc. That said, they were being soundly ignored, even though the numbers were on their side. (I'm talking about Roubini, Soros, Krugman, Delong, Taleb, Stiglitz, etc.)

If anything, this slump reminds people how ideology colors everything, and that it's often better to pay attention to the numbers, regardless of what the dominate theory says. If anything, this is epistemological object lesson that careful observation can go against dominating ideologies, which is exactly what science is good at, and exactly what gets us to truth.

This crisis should have been avoided, but too many people were fervent believers in the miracle balm of the free market, and couldn't see how the free market could lead us astray. It was a stupid ideology in retrospect, but it was believed by many. (Still believed by many, despite the mess it has got us in.)

(Reply to this) (Parent)(Thread)

never_the_less
2009-02-20 09:02 pm UTC (link)

Point taken on Japan, and certainly, a lot could have been avoided in this situation. Or that a lot the decisions made weren't political.

I definitely will never agree that science leads to truth, (or that truth is attainable, or that it is anything more than an intellectual conceit) however. (Not that I am an idealist, and don't believe that things actually exist in the world.) But that's okay, different philosophies is what makes the world go round.

(Reply to this) (Parent)(Thread)

uberdionysus
2009-02-21 03:17 am UTC (link)

I'm not a believer in some metaphysical Truth; I'm a pragmatist (roughly). But science definitely has a better track record than any other system of thought. Of course, it's shit for an ethical system, but as a way of understanding the world, I find the simple fact of the light switch a more persuasive argument than thousands of pages on theology or Hegel.

That's not very philosophical of me, I know.

But back to our current mess: the numbers were there; people could have listened to people like Krugman, but they chose to believe in a faulty system, which was NOT backed up by the numbers. To me, this mess is proof that ideology can trump overwhelming evidence against it.

(Reply to this) (Parent)

	beforetheflood 2009-02-20 07:30 am UTC (link)
	Whenever a relative sent money to me, my mom would have me write a thank you and say what I spent it on. Maybe everyone should write the gov't and say what they bought, then anyone who doesn't owes the amount in taxes the next year. (Reply to this)

xchimx
2009-02-21 12:45 am UTC (link)

I ain't much of an economist but it doesn't seem that great of a long term solution.

The company I work for lost 4 major construction projects this year due to loans not going through. In the downtown Seattle area alone I believe there are like 16 major (ie sky rises) construction cancellations. I've had to be on unemployment for 6 weeks this winter already because of a lack of work -- twice as much as last year already, and the rainy season ain't even over yet.

Washington state has something like a $6-8 billion deficit. My girlfriends union (SEIU-nursing) had their recent contracts canceled by the state, blaming a lack of funding so the nurses who are understaffed and over worked can't even get their cost of living raise.

I want a solution that addresses shit like this. We need money going towards job creation. Help investors get construction projects back on track. Invest in infrastructure.

I would also like the federal gov't to better assist state budgets to some degree. Our governor is too big of a fucking pussy to raise taxes because she is afraid of loosing companies like Boeing to other states, which are desperately wooing the company. So while Boeing execs are seeing massive profits, people like my girlfriend have to foot the fucking bill and have their union contracts canceled.

(Reply to this) (Thread)

uberdionysus
2009-02-21 03:24 am UTC (link)

Yeah, but you're being hit by all three of our current problems. The debit card could possibly stop the deflationary spiral (which is the most pressing problem). I think a massive stimulus to the states was and is a good idea, but the Republicans nixed that. Obama was only proposing $40b, which doesn't even cover CA's $37b.

But you're also hit by the other two problems, which are the banks and a deflationary situation for housing prices. Those need to be stopped, but the banks are doing their best to stop the government from reducing the principle on mortgages, which is the best way to stop the housing crisis, and from nationalizing the banks. Both of those things are going to have to happen eventually, and I wish (hope) that Obama will throw down this Monday, and smack the shit out of the banks.

And raising taxes in the middle of a deflationary spiral is a bad idea. Obama should give enough money to the states so that they don't have to do it, but it doesn't look like it's going to happen. So many states are going to have to do it. It sucks, because we probably need higher taxes, but right now is the worst possible time to start them.

(Reply to this) (Parent)

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