Comment by mos1 | Hacker News Reader

Comment by mos1 | Hacker News Reader

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Frankly, I don't think there's a need to complicate this discussion with mentions of Keynes or interest rates. Their error starts far earlier, at the basic measurement of value.

Joe works at WidgetCo and makes $60,000/yr. His loaded costs are a little over $100,00/yr.

WidgetCo pays this because his skills are worth about $125,000/yr to them, so it's a great deal.

At this point, if you are a well-meaning, but rational cherub, what is the highest rational price to pay to get Joe working again? I'm guessing anything up to $125,000.

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But that's not the end of our grossly simplified model. We also have the fact that Joe spends his paycheck on niggles. He fucking loves the shit out of niggles. As he consumes $60,000/yr of niggles, he personally pays for 1/2 of an employee at the niggle factory (and that guy spends his money on something too...)

So now we have to recognize that if Joe loses his job, there's going to be a negative ripple effect, and if Joe gets a job, there's a positive ripple effect.

So now, as a well-meaning, but rational cherub, what's my highest rational price? Well.. at this point I'd probably call in an economist to help me figure it out, but it's clearly more than $125,000/yr... it's likely close to $200,000/yr.

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And now somebody hands me a "stimulus" proposal, and it turns out that I could create a job for Joe for about $150,000/yr. So let's see... $200,000/yr of value for $150,000/yr... sounds like a great investment to me! Very good value for money, even if it does lead to an annoying headline indicating "$60,000/yr jobs cost silly cherub $150,000!"

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Obviously this is grossly glossed over (I didn't even mention the obvious fact that if people are buying widgets, they must provide value), and actual models of costs and benefits of various scenarios are quite complex, but I simply meant to demonstrate that simply dividing the total cost of a package by the number of jobs is silly, and misses the point widely.

Isn't that an example of the "multiplier effect" ... which has never really been seen in the wild (or so I understand)?

E.g. because on the other side of the ledger the government crowds out private borrowing (see my comment in this thread to byrneseyeview) and/or taxes others to get this money, plus this almost always is accompanied by attacks on businesses of all sorts, on Main Street as well as Wall Street. Extreme examples include 1937, when capital in the US went on strike and we had the Recession of 1937–1938 and didn't really recover until WWII changed the game.

In serious times of trouble, can you point out examples where this has worked in more than the short term? It didn't for the US in the Great Depression, and Japan is now nearing the end of it's second lost decade (we through they were pulling out of it, but that turned out to be a side effect of the world wide bubble that popped a little later this decade).

The meat of my post was simply an attempt to show that the economic value of an individual is far greater than their salary, thus demonstrating that if one looks only at specific jobs and salaries, the analysis is not complete.

As for more specific discussion, I'm not motivated to spend weeks putting together semi-legitimate models of various stimulus efforts, and doing less than that would be pointless. That said, when you talking about crowding out effects and such, you should be aware that economists are aware of these effects, and they are part of the math that sits behind a stimulus model.

The only thing I'll address in passing about the roosevelt recession is that it emphatically did not occur during a period of government stimulus, rather it came at a time when the government was adopting austerity measures and increasing taxes, which is pretty much the opposite of the situation today.

That said, I stand by my original point that proper analysis is complex, and that there really isn't any substitute for it. Anything less is just noise... so let's leave it to the technocrats.

Analysis of this sort is indeed very complex and I did increase the scope of the thread beyond what you were addressing.

As for the "Roosevelt Recession", it's worth pointing out that sooner or later you have to tighten the screws (later might be when external to your country effects come into play, e.g. right now I think the biggest question is when will the Federal government run out of people willing to finance its 1.5 trillion dollar a year deficit (yeah, its supposed to go down to 1 trillion soon, but who believes that absent some major political shifts?)).

That late '30s experience suggests that counter-cyclical spending might only delay the day of reckoning, with perhaps the Japanese showing what happens when you mostly try to indefinitely delay it ... and they can finance their deficit spending for at least a little while longer (well, until too many retirees try to draw down their assets).

Hmmm, I should also point out that a lot of this has to do with whether you have a liquidity ("It's a Wonderful Life") or solvency problem. There are a lot of short term fixes you can justify for the former that for the latter work only if the surviving institutions can earn their way back to solvency ... until which they're zombies.

The Austrian School is dedicated to zombie killing ^_^.

The japanese are generally regarded as not having done nearly enough in counter-cyclical spending over the last 2 decades, specifically at the beginning.

The problem in 37 is generally understood to have been "too much, too soon" in terms of austerity measures. Penny-wise and pound-foolish if your austerity measures cause the economy to collapse back into recession.

That late '30s experience suggests that counter-cyclical spending might only delay the day of reckoning

It in no way suggests this.

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