Krugman: Mission Not Accomplished


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Too bad he doesn’t understand monetary operations and writes this out of paradigm stuff that undoes him in further discussion with the mainstream:

Mission Not Accomplished

By Paul Krugman

What is true is that spending more on recovery and reconstruction would worsen the government’s own fiscal position. But even there, conventional wisdom greatly overstates the case. The true fiscal costs of supporting the economy are surprisingly small.

You see, spending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn’t a complete free lunch. But it costs far less than you’d think from listening to what passes for informed discussion.


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Payrolls


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Karim writes:
Reaction possible dampened by the recent rally, but this is a really bad number, especially as it relates to consumer income and spending.

But really weak across many metrics and shows a worsening, not just less bad.

  • NFP -263k w/net revisions -13k
  • UE rate up from 9.657% to 9.832%
  • HOURS -0.5%
  • Diffusion Index 34.9 to 31.9
  • AHE +0.1%
  • Total Unemployment (Discouraged workers, would rather be full-time,etc) up from 16.8% to 17%
  • Main weakness was retail (-30k net change), Education (-43k net change) and State and Local Govt (-30k net change)

Labor Income is HoursXJobsXHourly Earnings. Looks like will be down about 0.5% for the month and will drive y/y personal income even more negative.

Tough to see inflation with that background!


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Barro and Redlick on ‘stimulus’


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Thanks, at least he’s off most of his prior ‘Ricardian equivalence’ nonsense:

Stimulus Spending Doesn’t Work

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending.

That’s a good thing. It means we can have taxes be that much lower for a given level of spending.

That’s a ‘good thing’ in my book!

Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

Not to mention a payroll tax holiday. And federal revenue sharing. And funding an $8/hr job for anyone willing and able to work.

Mr. Barro is a professor of economics at Harvard and a senior fellow at Stanford University’s Hoover Institution. Mr. Redlick is a recent Harvard graduate. This op-ed is based on a working paper issued by the National Bureau of Economic Research in September.

Please forward this to Mr. Barro and Mr. Redlick, thanks!


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