FDR, without the monetary stimulus

Right on the eve of the biggest negative NGDP shock since the 1930s, Congress and the Bush administration got the bright idea of raising the minimum wage by 40%.  Now President Obama seems to want to double down on that failed policy.

WASHINGTON—President Barack Obama’s proposal Tuesday to raise the federal minimum wage is likely to rekindle debates over whether the measure helps or hurts low-income workers.

White House officials say the move to boost the wage to $9 an hour, from $7.25, is aimed at addressing poverty and helping low-income Americans.

FDR tried to artificially raise the nominal wage rate 5 times during the 1930s.  Each increase was followed by a sharp slowdown in industrial production growth.

President Obama seems determined to follow the FDR playbook, but forgot to include the monetary stimulus that prevented an outright disaster.  Admittedly Obama’s proposed increase is far smaller.  But do we really want to make it harder for illegal immigrants to find jobs, just as we consider amnesty?

If the House GOP wants to do something intelligent for a change, they’ll block this insanity.  That’s why I’m so worried.

PS.  It could have been worse:

In 2008, while first running for the White House, Mr. Obama proposed raising the minimum wage to $9.50 an hour by 2011. But the White House never followed through with a push for changes in this area, and he hadn’t brought the issue up again as president until Tuesday night.

PPS.  Yes, I know that there are a few studies that claim higher minimum wages don’t cost jobs.  But as far as I know none consider the monetary offset mechanism.

PPPS.  And universal pre-school.  Modern liberalism: a bottomless pit of “unmet needs.”  (Never met by shrinking government.)  No sooner is universal health-care done that we’re on to the next “universal.”


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128 Responses to “FDR, without the monetary stimulus”

  1. Gravatar of Jonathan Cast Jonathan Cast
    13. February 2013 at 08:59

    Gee, and here I thought universal healthcare would be it, and once that was done American leftists would become neolibs and push for broad-based market-based reforms like their European counterparts.

  2. Gravatar of Liberal Roman Liberal Roman
    13. February 2013 at 09:04

    Just three words for you guys:

    “Cradle to Grave”

  3. Gravatar of Kevin Bob Riste Kevin Bob Riste
    13. February 2013 at 09:06

    Mr. Sumner, do you have any salient thoughts on what I thought was the more interesting component of the proposal to raise the minimum wage, that is, indexing it to inflation? It seems like something you would be especially qualified to comment on. Specifically, how that affects the relationship between unemployment and NGDP, both statically (as you’ve addressed) and dynamically, going forward?

  4. Gravatar of Liberal Roman Liberal Roman
    13. February 2013 at 09:12

    @Kevin Bob Riste,

    It only makes it worse by not allowing the Real minimmum wage to gradually fall as the years go by.

    BTW, I actually liked a lot of the speech. There was talk about more natural gas drilling, encouragement for more 3D printing technology and revolutionary talk (in my opinion) of giving federal funding support to more than just accredited four-year universities.

    The minimmum wage hike is awful idea and finally some liberals are beginning to get it. Here is Dylan Matthews:

    “Forget the economic debate about whether the minimum wage destroys jobs. Does it actually improve the plight of the worst off, at a reasonable price? Depends on your definitions, but economist Adam Ozimek makes a smart point. According to a 2007 study by the CBO, an increase in the minimum wage to $7.25, like that eventually passed that year, would increase wages by $11 billion, of which $1.6 billion went to poor families. By contrast, increasing the Earned Income Tax Credit for large families (as happened in the stimulus bill) and for single people would cost $2.4 billion, of which $1.4 billion would go to poor families. The EITC option costs one fifth as much to society but does about as much good for poor families. That suggests that if you want to help families escape poverty, wage subsidies are a more cost-effective option than the minimum wage.”

    I don’t really care how liberals come to the conclusion that minimmum wage hikes are a bad idea, but I hope they come to that conclusion soon. I would MUCH rather take an increase in the EITC than a minimmum wage hike.

  5. Gravatar of Niklas Blanchard Niklas Blanchard
    13. February 2013 at 09:19

    I’m would hope that though Krueger co-authored the famous minimum wage study that is likely at the forefront of left-leaning intellectuals’ minds when they think about the issue, he would agree (on “economistic” grounds) that of the range of income support options available to government, the minimum wage is far and away the worst. But then again, the minimum wage isn’t about income support.

    On universal preschool, Obama wildly oversold the data we have (Head Start data in particular show no effect). However, I can think of worse things to waste money on…just grab a few billion from the defense budget, no need to even raise new revenue.

  6. Gravatar of TallDave TallDave
    13. February 2013 at 09:27

    Why not raise the minimum wage to $100, then we’ll all be rich.

    Let’s just hope Obama doesn’t decide to start using lucky numbers as the basis of monetary policy like FDR did.

  7. Gravatar of TallDave TallDave
    13. February 2013 at 09:30

    the more interesting component of the proposal to raise the minimum wage, that is, indexing it to inflation?

    Oh goody, more political pressure to overstate CPI, thus causing our inflation targeted monetary policy to be even more deflationary.

  8. Gravatar of JoeMac JoeMac
    13. February 2013 at 09:32

    Scott,

    When you write… “Yes, I know that there are a few studies that claim higher minimum wages don’t cost jobs. But as far as I know none consider the monetary offset mechanism.”

    Can you explain this. The studies showing that minimum wages don’t cost jobs rely on a model of monopolistic competition in the labor market. What would you add to those models when you say “monetary offset mechanism.”? What factor that is unique in a monetary recession that they have missed.

  9. Gravatar of Adam Adam
    13. February 2013 at 09:36

    I’m confused. Wouldn’t an implication of the “Sumner critique” suggest that it doesn’t matter if the Fed offsets it? Why do we think that won’t happen?

  10. Gravatar of Aidan Aidan
    13. February 2013 at 09:51

    I can see you’ve really though out this universal pre-K stuff, Scott. Incredibly convincing stuff.

  11. Gravatar of Mike Sax Mike Sax
    13. February 2013 at 09:58

    I was waiting for this post. I did see it coming

    http://diaryofarepublicanhater.blogspot.com/2013/02/the-state-of-union-is-good-as-president.html

    Sorry. Elections have conequences. If people wanted a low minimum wage or no minimum wage they would have voted for Romney.

    I actually do think it may happen. The GOP may hate it-as you do-but most people like it-it polls very well across party lines. Bush signed the hike in 2007 so the GOP can be shoved.

    Speaking of monetary offset-you aren’t suggesting Bernanke could tighten monetary policy if it happened are you? Why would it have any impact on it?

  12. Gravatar of FDR, without the monetary stimulus | Fifth Estate FDR, without the monetary stimulus | Fifth Estate
    13. February 2013 at 10:00

    [...] See full story on themoneyillusion.com [...]

  13. Gravatar of Randomize Randomize
    13. February 2013 at 10:04

    Dr. Sumnler,
    Universal pre-school is a fantastic idea. Studies have shown that pre-pubescent kids are much more receptive to certain types of learning than their older counterparts, especially in the regards to language development. We would get more bang for our buck by getting kids on board with reading, writing, and foreign language earlier. To pay for it, let’s expand Running Start programs and get more of the smart kids out of high school and into college during their Junior years. On a side note, and this is purely from my own experiences, it needs to be understood how truly broken our current system of subsidized childcare really is. Because the programs require that the parents be both sober enough to fill out the paperwork and either have a job or be actively looking for one, the kids of the truly aweful parents wind up stuck at home in their grandparents’ basement watching daytime television while mom and dad shoot up. These kids need to see friends and build relationships with responsible adults as soon as possible or else their parents’ culture will become their baseline.

    It should also be mentioned that the service industry, which relies almost entirely on minimum wage workers, has been the main source of new jobs in the post-2008 US. I’m not saying that the higher minimum wage hasn’t cost jobs, I’m just saying that the recent recession is hardly strong evidence of such. Liberal Roman is right: the EITC is a much more cost-effective method of subsidizing low-income labor.

  14. Gravatar of RAstudent RAstudent
    13. February 2013 at 10:29

    Modern liberalism: a bottomless pit of “unmet needs.”

    Its not clear to me what’s worse Modern liberalism or

    Modern conservatism: a bottomless pit of “Narcissism.”

  15. Gravatar of Becky Hargrove Becky Hargrove
    13. February 2013 at 10:49

    $9 an hour – Oh dear God no. Why does a government not understand that inclusivity – which Obama wants so much to be associated with – is not posssible when the only adjustment mechanism everyone uses is slanted upwards (with artificial floors) instead of ultimately towards the mean. $9 an hour just forces ever more people out of localized systems and definitions of inclusion within the economically defined whole. Inclusivity is not about “pretend or fake” caring, it is about allowing technology and product definition to reach toward all people in an economic spectrum instead of forcing them out of the spectrum itself.

  16. Gravatar of Brett Brett
    13. February 2013 at 11:03

    Universal Pre-K calls were being made before Obamacare passed, because it’s a good idea – and one that’s getting better as we find out how crucial the first two or three years are for lifetime development.

    And I’ve heard so many cries of distress over minimum wage raises in the past from economists that I’ve got a “boy cried wolf” complex towards them. Remember how the last one created serious unemployment issues for low-skilled workers? No? Me neither. Maybe the labor demand for those jobs is less elastic than you think it is.

  17. Gravatar of Brett Brett
    13. February 2013 at 11:08

    Actually, as Kevin Drum has pointed out, age 4 is probably still a little late – age 1-2 would be the best. Presumably the free Finnish daycare and nursery program preceding the age 6 kindergarten system (which Cowen neglected to mention in his post) helps with that over there.

  18. Gravatar of Liberal Roman Liberal Roman
    13. February 2013 at 11:13

    @Brett,

    How would you know that it didn’t cause serious unemployment issues for low-skilled workers? Do you expect marauding bands of low-skilled workers at your door telling you its a problem? Then would you understand?

    I’ll admit the effects are not dramatic, but can you please give an explanation of how making it more expensive to hire low skill labor will not cause employers to reduce hiring low skill labor. And your explanation has to be more than just, I don’t see a huge spike in unemployment. I mean I am sorry but I am pretty sure that the laws of supply & demand hold even for low-skilled labor.

    If not, then I want a raise too. Make the minimmum wage $50/hour. Why not? I also want an explanation why $9/hour minimmum wage is OK but $50/hour is not.

  19. Gravatar of Mike Sandifer Mike Sandifer
    13. February 2013 at 11:27

    Yes Scott, which is why we need the wage subsidy idea to become part of the national discussion.

  20. Gravatar of Niklas Blanchard Niklas Blanchard
    13. February 2013 at 11:37

    @Brett: Four is almost certainly too late, and it is likely one is as well. Also, glad to hear there aren’t significant employment issues for low-skilled workers.

  21. Gravatar of phil_20686 phil_20686
    13. February 2013 at 11:38

    I actually think that the minimum wage is defensible.

    I think you guys have in your mind a picture where the labour market is an efficient beast rewarding workers with their marginal productivity. Obviously, some of the time that is the case, when workers are in high demand, they can demand wages up to their MPC.

    However, sometimes the labour market has lots of slack, and as a result companies can bargain down wages even though its already highly profitable to employ people. In such a case a minimum wage is probably in societies interest, as those who are paid minimum wage may lack bargaining power even when the labour market is strong, and it is not a given that raising wages causes companies to employ fewer people, as they may be able to fulfill demand and also lower wages without hiring any more people.

    I genuinely believe that there is a trade off to be had here. Perhaps I am unduly influenced by the Rowntree report, and my knowledge of the victorian age, which I think is a place where it is clear cut that a minimum wage would have had societal benefit, as people with full time jobs in factories were literally starving to death as they did not have enough money to purchase food. (http://en.wikipedia.org/wiki/Seebohm_Rowntree was an interesting guy).

  22. Gravatar of Morgan Warstler Morgan Warstler
    13. February 2013 at 11:41

    Guys let’s just say it:

    Guaranteed Income / Auction the Unemployed is exactly right. Far better than EITC.

    Even rortybomb agrees.

    Don’t dance around with weak tea stuff, get the ask right the very first time.

    Scott, never you fear buddy, govt. is gonna shrink. I’m riding to the rescue. There’s an app for that!

  23. Gravatar of Morgan Warstler Morgan Warstler
    13. February 2013 at 11:45

    Phil, that whole argument falls under my plan.

    We instantly have 40M more people working. We reduce costs of real life improvement services in the areas with most unemployed.

    But we now have a wage premium on any employers who needs to lock their labor down for more than a weekly basis.

    If we make being employed at the low end far more dynamic, with far less friction, that’s a positive that sticking to one boring job is going to have to pay you for.

  24. Gravatar of Mike Sandifer Mike Sandifer
    13. February 2013 at 11:56

    phil_20686,

    Eliminating the minimum wage and giving the poor a wage subsidy would make more sense. That would presumably increase employment not only on the wage front, but would increase the spending power of the working poor, which could provide fiscal stimulus, if the Fed allows it.

  25. Gravatar of TallDave TallDave
    13. February 2013 at 12:01

    If people wanted a low minimum wage or no minimum wage they would have voted for Romney.

    If they wanted a higher minimum wage, they would have elected a Democrat-controlled House.

    Elections do have consequences, though. Very often said consequences are a painful learning experience for the electorate.

  26. Gravatar of TallDave TallDave
    13. February 2013 at 12:08

    Mike Sandifer,

    An EITC boost is certainly better than a minimum wage hike. As Cowen points out, the poor can face some ridiculously high MTRs.

    I am starting to wonder, though, how much we’re distorting things by rewarding lower productivity.

  27. Gravatar of Mike Sandifer Mike Sandifer
    13. February 2013 at 12:15

    TallDave,

    There is a general trend involving increasing automation and a lowering of the value of human labor in general. I see no reason that will change, except that it will accelerate.

    There have to be limits to merit-based pay, not only to maintain the political consensus for pro-capitalist policies, but also because it’s the right thing to do. There’s no reason current and future generations should have lower living standards in some ways than their parents, while the economy gets ever more efficient, meaning output/capita is increasing.

  28. Gravatar of Scott Sumner Scott Sumner
    13. February 2013 at 12:25

    Kevin, I suppose indexing it to NGDP/person would be more logical, but I don’t favor any sort of indexing.

    Liberal Roman, Yes, the EITC is much better.

    Niklas, I agree, except the “few billions” to be saved from defense have already been spent several times over.

    JoeMac, A higher minimum wage leads to a higher ratio of W/NGDP, and hence fewer jobs, if the Fed is targeting either NGDP or inflation. That effect would not show up in Card and Krueger-style cross sectional studies.

    Aidan, I assume my readers are familiar with the literature on Head Start.

    Mike Sax. You said;

    “Sorry. Elections have conequences. If people wanted a low minimum wage or no minimum wage they would have voted for Romney.”

    There are times when your logic leaves me speechless. I presume you also used this logic in defending any and all Bush administration policies. And didn’t the Germans vote for Hitler in 1932?

    Randomize, You said;

    “Because the programs require that the parents be both sober enough to fill out the paperwork and either have a job or be actively looking for one, the kids of the truly aweful parents wind up stuck at home in their grandparents’ basement watching daytime television while mom and dad shoot up.”

    Perhaps Obama should ask his aides why so many Americans live this way, and how his policies will resolve this problem.

    RAstudent; You said;

    “Its not clear to me what’s worse Modern liberalism or

    Modern conservatism”

    There are some questions that are too hard for even me to answer.

  29. Gravatar of TallDave TallDave
    13. February 2013 at 12:27

    Mike Sandifer,

    Well, yes and no. On the one hand, a lot of unskilled labor is so unproductive it’s been rendered obsolete e.g. — there are far fewer shovel-wielding ditch-diggers anymore. But obviously even unskilled labor is rewarded at a rate far in excess of that of, say, 1950, in terms of ability to consume. And that’s because we’re so much more productive, and has nothing to do with merit.

    In a free economy it is very difficult to increase economic output and not increase living standards for the large majority of people, because those are almost the same thing given the way incentives align. For example, if only 1% of people were in the market for iPhones or Googles searches, would Brin and Jobs have become so rich?

    OTOH it’s not difficult to forecast a time when human labor is nearly obsolete. I think John Barnes had it right when he envisioned a future in which living standards are much, much higher but very few humans do much useful work (outside of entertainment). The government and social implications of such an economic arrangement I will leave unconsidered!

  30. Gravatar of Evan Soltas Evan Soltas
    13. February 2013 at 12:33

    Scott, in case you’re interested, I did a look at the economics literature on the minimum wage about a month ago for Bloomberg.

    http://www.bloomberg.com/news/2013-01-03/two-reasons-not-to-raise-the-minimum-wage.html

    (I had a feeling this would be in the address…Really, all you have to do is look at what the Center for American Progress and the Center on Budget and Policy Priorities are publishing and then it’s a one-two jump to a policy proposal from the Obama administration.)

  31. Gravatar of Scott Sumner Scott Sumner
    13. February 2013 at 12:37

    Brett, You said;

    “Remember how the last one created serious unemployment issues for low-skilled workers? No?”

    Really? You don’t recall how the unemployment rate for low skilled workers soared after the last one was passed. You don’t recall that unemployment among the low skilled in this recession is even worse than the previous recession with 10% unemployment (1982?)

    And what’s next after universal preschool? Universal daycare? Universal eldercare? How about paid maternity leave for men? Some countries already have that.

    Mike, I agree about wage subsidies.

    Everyone, President Obama is a participant in the middle class war on the poor. Until he changes his views on things like the war on drugs, he won’t be able to address the real problems facing the poor. A $9 minimum wage is not going to address the key issues, nor will universal pre-school.

    BTW, the first 6 years of life are the best 6 years—why ruin that by forcing kids into school? Doesn’t Obama also want year around school? Summer vacation was all I had to live for when I was young.

    The brave new world . . .

  32. Gravatar of Scott Sumner Scott Sumner
    13. February 2013 at 12:41

    Evan, Very good post. My research on the 1930s has convinced me that a higher minimum wage would cost jobs.

  33. Gravatar of What will $9 an hour do? | Historinhas What will $9 an hour do? | Historinhas
    13. February 2013 at 12:43

    [...] Scott Sumner writes: Right on the eve of the biggest negative NGDP shock since the 1930s, Congress and the Bush [...]

  34. Gravatar of Aidan Aidan
    13. February 2013 at 12:47

    Scott, what do you think of the research Yglesias cites here? It’s not like liberal research on the minimum wage ended with Card/Krueger.
    http://www.slate.com/blogs/moneybox/2013/02/13/minimum_wage_research_the_case_for_a_higher_minimum_wage.html

  35. Gravatar of Brett Brett
    13. February 2013 at 12:47

    Really? You don’t recall how the unemployment rate for low skilled workers soared after the last one was passed.

    No. Can you point to a chart showing it? Preferably one that can be disentangled from the effects of an on-going recession.

    And what’s next after universal preschool? Universal daycare? Universal eldercare? How about paid maternity leave for men? Some countries already have that.

    Yes, yes, yes, and yes. That great bastion of pro-market policies, Singapore, has paid Paternity leave.

  36. Gravatar of Mike C Mike C
    13. February 2013 at 12:54

    I’ve always considered minimum wage to be a living thing. I can see how a higher minimum wage in the “infancy” period of an economy can be beneficial, as it attracts the best and brightest to increase productivity and reduce turnover, aka Henry Ford raising wages to 5 dollars. It would not surprise me in some of these high minimum wage nations if they are closer to a manufacturing sector style of economy, rather than a human capital / high-skilled / ideas based economy like that in the US. In a manufacturing sector, turnover matters, training matters, etc.

    I guess what I’m saying is, you don’t try and attract the best and brightest janitors. You do try and attract smarter / more efficient people in a manufacturing or agricultural sector, though. As other high-skilled jobs have been demanding higher wages, the minimum wage has been increasingly concentrated into highly replaceable job types. Therefore, a rise in minimum wage now isn’t really doing much to help anybody, other than those who are lucky to have a low-skilled job at this very moment, since there certainly won’t be a push to hire more janitors.

  37. Gravatar of Jim Glass Jim Glass
    13. February 2013 at 13:02

    Universal Pre-K calls were being made before Obamacare passed, because it’s a good idea – and one that’s getting better as we find out how crucial the first two or three years are for lifetime development.

    Ha. As if these calls haven’t been made — and the empirical results of Head Start and countless other such programs haven’t been analyzed en masse — since LBJ’s 1960s.

    You know what would *really* improve educational results in the USA, significantly? For all? Again by the empirical evidence?

    Pay for quality of performance for teachers, as all *real*
    professionals get … more choice for parents among schools — see the dramatic results in New Orleans from the post-Katrina charter schools … eliminating travesties like this.

    But did you hear Obama endorsing any of *those* ideas? Ha!

    (And as they are all efficiency-increasing cost savers, they’d help the budget problem too!)

    But that speech is not at all about solving real problems — it is entirely about political posing to project an attractive appearance to the political base and the inattentive political middle — absolutely **without** offending anybody by proposing *anything* that is actually difficult for and/or unpopular with *anybody* in those groups. As ALL remedies for real problems require. (Or they wouldn’t be problems!)

    More good things “for the children”! Yea! Who’s not for that? That’s nice!

    Let us not mention the complications of empirical reality. They are not nice.

  38. Gravatar of TallDave TallDave
    13. February 2013 at 13:20

    Brett,

    They get 1 week, capped at $2500.

    But fine, if we can have Singapore’s 17% of GDP government spending and their top tax rate of 20%, which we apparently agree are better, we’ll also take their paternity leave.

    (While we’re at it, can we get Sweden’s all-voucher education system?)

  39. Gravatar of Mike Sax Mike Sax
    13. February 2013 at 13:44

    See this is why conservatives never win these days. Evan just gave you guys a very effective argument. As a Democrat myself giving me the choice between increasing the EITC and raising the minimum wage would face me with a quandry.

    However, judging by the responses of both Morgan and Scott neither of you sound very interested in making that argument.

    Morgan maybe auction the unemployed is optimum or your mind. Failing thta would you take EITC?

    If not you’ll probably end up with the minimum wage hike. It polls very well.

  40. Gravatar of Tom Tom
    13. February 2013 at 13:47

    Timothy Taylor did a blog post on how ineffectual Head Start actually is, and he is sympathetic. From his post:

    “I’ll just admit up front that the vast inequities that exist even before children start school bother me, and that I am predisposed to favor programs that would help disadvantaged children early in life. Thus, I was delighted when Head Start announced some years back that it was going to carry out a randomized control trial–that is, to assign some preschool children randomly to Head Start and others not–so that it would be possible to do a statistically meaningful test of how well Head Start worked. I presumed that the test would provide ammunition for my pre-existing views.

    But as the evidence has built up, Head Start is failing its test.”

    http://conversableeconomist.blogspot.com/2013/01/head-start-is-failing-its-test.html

  41. Gravatar of Aidan Aidan
    13. February 2013 at 14:15

    Dylan Matthews pushed back some on just relying on that one Head Start study: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/13/hey-congress-pre-k-is-a-better-investment-than-the-stock-market/

    Also, just using Head Start as a way to entirely write off the importance of pre-K education is incredibly lazy. I’d like to see Scott make an argument that isn’t “Modern liberals just won’t stop trying to address unmet needs!” and “I won’t make the case for why this is a bad idea because I assume my readers already know this is a bad idea.”

  42. Gravatar of Aidan Aidan
    13. February 2013 at 14:18

    Seriously though, if the strongest case against liberalism is that it continues to try to address unmet needs then I’m not going to lose much sleep.

  43. Gravatar of Becky Hargrove Becky Hargrove
    13. February 2013 at 14:27

    “Everyone, President Obama is a participant in the middle class war on the poor.”

    I believe this. While I don’t understand why, decades ago I observed that the lower and upper classes understood one another better than the middle classes understood either one. Perhaps it is just the fact that much of the middle classes has little time for thinking about the state of the world, which leaves them more open to exploitation by politicians distant and local.

    Then there is the problem that the War on Drugs is such a moneymaker for local communities, even to the point of paying for police salaries in Texas, because of the ongoing confiscation of property which has escalated since the eighties. A “win-win” for government and local community who gain “fun” War on Drug toys and get the “riff raff” of the streets. Blegh.

  44. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    13. February 2013 at 14:41

    ‘That great bastion of pro-market policies, Singapore, has paid Paternity leave.’

    They also have caning. Here, even Catholic schools, think it’s a crime to spank misbehaving children;

    http://blogs.seattletimes.com/today/2013/02/seattle-catholic-school-staffer-hit-2-kids-with-belt-police-told/

    ‘An employee of St. Therese Catholic Academy in Seattle has been placed on administrative leave after allegedly removing his belt and hitting two children with it last week.

    ‘The two students had apparently ignored the employee’s repeated orders to stop throwing pencils at each other when the man allegedly hit them on the buttocks with a belt Wednesday, according to a report from the Seattle Police Department, which is investigating the incident. Neither of the students needed to be treated for injuries afterward, and they returned to their classes that day, the report says.’

    Maybe that’s why some workers remain so unskilled they can’t even produce enough for their employers to justify employment at the minimum wage.

  45. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    13. February 2013 at 14:45

    Jim Glass is right, Obama is all about posturing for political effect. He doesn’t give a damn who gets hurt in the process, as long as HIS needs are met.

  46. Gravatar of Mike Sandifer Mike Sandifer
    13. February 2013 at 14:47

    Mike Sax,

    If you’re liberal, like me, you should want to replace minimum wages and virtually all other assistance to the poor with a wage subsidy.

    Why cost poor people jobs, while forcing them into section 8 housing, WIC, food stamps, etc., with the attendant administrative costs of these programs? Why not give them the freedom and dignity that comes with just giving them more cash for work? Let them decide how to spend it.

  47. Gravatar of Mike Sandifer Mike Sandifer
    13. February 2013 at 15:01

    Scott,

    I agree that it doesn’t necessarily make sense to force kids into school at younger ages, in an ever-wealthier economy. A similar argument applies to the need for more education for adults today than in prior generations. As a country gets wealthier, shouldn’t its citizens be able to gradually take it easier, or as least not have to spend ever more time and money on higher education and occupational training?

    On your statement about not being able to tell if modern conservatism or modern liberalism are worse, I can’t follow you there. It isn’t even close. Point out all the flaws with popular liberal ideas you want, but conservative ideas trump them easily.

    What liberalism needs are some smart leaders to really move the party toward technologically, economically and morally informed policies. Liberal core values are not too far from where they should be, compared to the conservatives.

    Just call yourself liberal Scott, without the “right wing” label, and try to move the liberal debate. It’s astounding to me that every econ professor I’ve talked to about wage subsidies thinks it’s the way to go, yet where’s the push from Krugman, Reich, Bernstein, etc.?

  48. Gravatar of Tom Tom
    13. February 2013 at 15:03

    @Aidan
    The two programs cited were completely different than what universal pre-K would mean, both in terms of cost and affected populations (as pointed out in the article). Not to mention it’s based a sample size of 58 and 65, rather than the 8 million 3-4 year olds as of 2010.

    (http://nces.ed.gov/programs/digest/d11/tables/dt11_020.asp)

    Head Start is much closer to what you would actually achieve and thus more pertinent to this discussion.

  49. Gravatar of mnop mnop
    13. February 2013 at 15:42

    Mr. Sumner, what about Australia’s 5.4% unemployment with a $15.59 minimum wage?

    $15.59.

    http://www.theamericanconservative.com/articles/raising-american-wages-by-raising-american-wages/

  50. Gravatar of Randomize Randomize
    13. February 2013 at 15:48

    Dr. Sumner,

    “Perhaps Obama should ask his aides why so many Americans live this way, and how his policies will resolve this problem.”

    If you have any legislative suggestions for curing people of being losers and moochers, I’m all ears. In the mean time, we can stop punishing kids for the behavior of their parents and perhaps break the cycle of loserdom by giving them access to the same education enjoyed by the children of nearly every middle class+ family.

  51. Gravatar of Bill Ellis Bill Ellis
    13. February 2013 at 15:50

    Libertarians, Conservatives, et al… I knew the sky would be falling around here.

    WHAT LIBERAL ever said that we would be satisfied with just Universal health care ? You guys act like we kept it a secret that we will be fighting for more… You guys act like we made you cons some sort of promise that health care would be it.
    You act like we are being sneaky… but maybe you should just get out of your info bubbles and start listening ?

    Here. Listen…Obama:

    “It is our unfinished task to restore the basic bargain that built this country – the idea that if you work hard and meet your responsibilities, you can get ahead, no matter where you come from, what you look like, or who you love.”

    Us Liberals have been saying the same kinds things forever right? Where do you guys think this line of thought leads anyway ?

    My more in particular version of his statement goes like this….

    Liberals believe that as long as any person is willing to work full time in America that they should be able to feed, clothe, educate, house, and provide medical care for their families. (Of course a right to a job is implied too.)

    SO that is where that line of thought leads… OK ?… YOU have been warned… Again.

    We really don’t care how that stuff is achieved. If “Free market” solutions would work we would be thrilled. In fact lot of natural liberals did believe that the “free market” would be our saviour. ( Saint Ronnie convinced them.) But after 30 years of watching evermore “market solutions” harm the middle class and became cash cows for the elite we are left with hollow promises right.
    At the same time we witnessed that the world’s great social democracies could… IN REALITY … actually achieve and maintain things like health care for all.

    Come on guys. Half the libs hated Obamacare and did not support it and said, rightly, that it was an unsustainable massive giveaway to big Med and insurance.
    The other half also recognized that it was Unsustainable and only supported it because it was a bit better than what we have now fiscally, but more MOST importantly… WE recognized that the real battle was not about What particular universal system was used…It was all about establishing universal health care as a De Facto right in the minds of Americans. And we did it.

    That was your real defeat. Did you realize it yet ? Did you think America would reject Obamacare and elect Romney to kill it ?… Like the folks at FOX kept telling you was happening ? Did you finally realize it on election nite ? You guys need to understand what you really lost… the Minds of America is what you lost.

    Now that Americans believe that universal health care is a right… the question in our citizen’s minds no longer is “Can we do it”. The question has become what is the best way to do it.

    My libertarians/Con friends you can keep crying about why would should not provide health care for all… But you will be out side the debate.

    The debate you now need to compete in is HOW. What is the best way to achieve Care for all ?

    Liberals will of course push the system toward single payer. We will be able to make arguments that it saves us big bucks. I think that our way is America’s destiny.

    What can libertarians offer to oppose us? More tails of the magic of the free market ? More promises of “Some day when the Libertarian revolution is complete” then efficiency will provide for all ?

  52. Gravatar of dtoh dtoh
    13. February 2013 at 16:20

    I don’t think comparisons with other countries are relevant. In what other countries do they have the same percentage of unskilled (i.e. can’t read, can’t show up to work on time, etc.) workers. If you lower wages enough, an employer can hire and train these unskilled workers to be productive. Raise the minimum wage and they will never, ever get a job where they can be productive.

  53. Gravatar of Bill Ellis Bill Ellis
    13. February 2013 at 16:25

    Scott Sumner, Hyperbolic much ?

    Scott Sumner says ” Modern liberalism: a bottomless pit of “unmet needs.” (Never met by shrinking government.) No sooner is universal health-care done that we’re on to the next “universal.”

    Here is a complete list…
    “Liberals believe that as long as any person is willing to work full time in America that they should be able to feed, clothe, educate, house, and provide medical care for their families. (Of course a right to a job is implied too.)”

    Which of these “Needs” would you want to put your dismissive quotes around ?
    People really don’t need….”Food”, “Cloths”, “Education”, “Shelter”, “Medical care” or “Jobs” !
    Silly libs !

    OK, how will shrinking the government supply any of this ? The Magic of the free market ? In a prefect world… maybe. But most americans recognize in their guts now that the freedom you would need to make it work… will be used by the elite to rig the game.

    I guess you don’t believe that yet ?

    ( You can not eliminate Corrosive power from the culture man. Too many of us need it to function. It can be transfered from say the government to corporations. But the only way to arrest or contain Coercive power is by pitting those who hold it against each other. )

  54. Gravatar of Bill Ellis Bill Ellis
    13. February 2013 at 16:29

    dtoh,

    We need unskilled workers. It makes no sense for business to train them all for higher skilled jobs. So they won’t.

  55. Gravatar of Matt Waters Matt Waters
    13. February 2013 at 16:31

    “Mr. Sumner, what about Australia’s 5.4% unemployment with a $15.59 minimum wage?”

    Well, that didn’t take much googling. The unemployment rate among workers 15 to 19 is 16.5%.

    http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/866EB53A3517BC58CA257A3800169F46/$File/62020_jun%202012.pdf

    From a quick browse of the document, I couldn’t find it by education, but I would guess the uneducated have a similarly poor unemployment rate. Australian NGDP has also grown at an astounding rate, from 920 billion to 1.4 trillion 2009 to 2011. At such growth rates in the 90′s, the US had 3% unemployment.

    To say higher minimum wages do not cause unemployment takes a certain bit of refusal to acknowledge the math of the situation. To create no unemployment, demand for all low-wage workers would need to be perfectly inelastic up to the new minimum wage.

    Let’s say an increase of $7.25 to $9 would mean an extra $100 million dollars in income a year if no worker earning $7.25-$9 lost their job. This money has to come from a combination of four sources:

    1/2. If NGDP is the same, then the money has to come from either other, higher-paid workers or corporate earnings.
    3. NGDP is increased through higher prices, and the AD curve is perfectly inelastic.
    4. NGDP is increased through monetary/fiscal policy, which shifts the AD curve outward.

    For #1, workers simply do not suddenly earn less than they are worth to pay off other workers. Those workers can then go to competitors who will pay them more and still make a profit. #2 is the most likely answer in the short-run due to the lags in getting more automated equipment. With sunk capital, the incentive is to have the capital run at the highest production even if the gross margin is less due to minimum wages. Over the long-run however, these lower gross margins will not earn rates to attract capital to replace depreciation. This means either lower total volume of low-wage work (i.e. higher unemployment) or more automation which now earns more attractive gains. This is why McDonald’s in France have more automation than McDonald’s in the US.

    #3, as far as I know, just doesn’t happen over a whole economy. Some people may have very inelastic demand for Big Mac’s, but even cursory knowledge of the food business says demand is generally quite elastic. There’s a simple, no-labor substitute of Ramon Noodles or whatever. Higher minimum wages and other minimum costs like Obamacare insurance mandates are also why you seldom see things like free delivery now.

    #4 was more likely to apply in the 70′s before central banks woke up to the dangers of inflation. Today this is simply not the case and if central banks are not loosening enough to alleviate 8% unemployment, they’re unlikely to loosen more due to minimum wages adding a few tenths of a percentage point. (Indeed, nobody is saying that minimum wage increases will raise unemployment a substantial amount because not many workers earn it.)

    So there you go. These argument apply more to general above-market wage policies like NIRA or the strong unions of the 70′s (and today in some jurisdictions). Unless you go some full-blown Socialist/Soviet route, there is no outrunning the elasticity of capital markets and customers in search of higher-than-market wages.

  56. Gravatar of Catherine Catherine
    13. February 2013 at 16:32

    Scott wrote:
    “BTW, the first 6 years of life are the best 6 years—why ruin that by forcing kids into school? Doesn’t Obama also want year around school? Summer vacation was all I had to live for when I was young.”

    No kidding.

    Kids need more time with their parents, not less. Schools are filled with bullies & mean girls — why would we want to force tiny little children to spend even more time inside them than they already do?

    Time to read Gordon Neufeld: “Hold On To Your Kids.”

    Or, alternatively, New York Magazine’s recent article on high school: Why You Truly Never Leave High School
    “New science on its corrosive, traumatizing effects.”

    http://nymag.com/news/features/high-school-2013-1/

    The extreme age segregation practiced by contemporary schools is historically novel & quite unnatural. Foster peer orientation in 3-year-old children from low-income families and you will be creating a completely unmanageable cohort of low-income teens 10 years down the line.

  57. Gravatar of Matt Waters Matt Waters
    13. February 2013 at 16:38

    “Liberals believe that as long as any person is willing to work full time in America that they should be able to feed, clothe, educate, house, and provide medical care for their families. (Of course a right to a job is implied too.)”

    That’s the idea of the negative income tax from that pinko commie Milton Friedman. The issue is not liberalism’s goals as much as how any sort of economic logic in achieving those goals falls on deaf ears. If you want to ensure a minimum standard of living, requiring “living wages” is a horrible method of going about it. Some of the lower-class will earn the living wages, but more than before will have their human capital utterly wasted. Even if there’s welfare payments for the unemployment, there will be more unnecessary government cost and much less opportunity to work and improve their skills.

    Unfortunately, the fact that liberals still expound such illogical policies and other dumb things like rent control and price-gouging laws shows how much we still need to teach basic Micro. Market-friendly policies and safety nets are not mutually exclusive.

  58. Gravatar of Carl Carl
    13. February 2013 at 16:43

    Bill Ellis: the only way to arrest or contain Coercive power is by pitting those who hold it against each other.

    Which corporation is so big and powerful that the government needs to grow to be able to contain it?

    “Liberals believe that as long as any person is willing to work full time in America that they should be able to feed, clothe, educate, house, and provide medical care for their families. (Of course a right to a job is implied too.)”

    Work full time at what?

  59. Gravatar of Jim Glass Jim Glass
    13. February 2013 at 17:03

    Dylan Matthews pushed back some on just relying on that one Head Start study…

    *One* Head Start study? This thing has been studied without end since 1965. Time:

    Time to Ax Public Programs That Don’t Yield Results

    …there is no creative destruction when it comes to government programs. Both “liberal” and “conservative” subsidies linger in perpetuity, sometimes metastasizing into embarrassing giveaways. Even the best-intentioned programs are allowed to languish in waste and incompetence…

    Take, for example, the famed early-education program called Head Start…

    Head Start did work well in several pilot programs carefully run by professionals in the 1960s. And so it was “taken to scale,” as the wonks say, as part of Lyndon Johnson’s War on Poverty.

    It is now 45 years later. We spend more than $7 billion providing Head Start to nearly 1 million children each year. And finally there is indisputable evidence about the program’s effectiveness, provided by the Department of Health and Human Services: Head Start simply does not work.

    According to the Head Start Impact Study, which was quite comprehensive, the positive effects of the program were minimal and vanished by the end of first grade…

    These results were so shocking that the HHS team sat on them for several years, according to Russ Whitehurst of the Brookings Institution, who said, “I guess they were trying to rerun the data to see if they could come up with anything positive. They couldn’t.”…

    Note the loopiness between:

    Stage 1: Run an idealized test on 85 students that is run personally by the highly-motivated creators of a prospective reform program, with the resources they want and need, on students they select, who have parents they select, in circumstances they select as fitting their reform — and finding, “Hey, it works”!

    And then concluding that reform will work in …

    Stage 2: Applied to the masses by the millions, by a great bureaucracy, which doesn’t care at all about the program except as it being the latest it has been instructed to follow, and which has no stake in positive results whatsoever — indeed, which operates under the philosophy stated by Mrs Crabapple when administering a standardized test to the kids on The Simpsons: “Remember children, the worse you do the more money the school gets, so don’t knock yourselves out.”

    That going from Stage 1 to Stage 2 works is the great liberal fantasy. It is seen over and over, in public education for sure, but in many other places too — see William Easterly on a trillion dollars spent on aid programs in Africa.

    But while it is obvious nonsense, it sure is seductive nonsense for those who want it to be true. It does work politically, which is what matters to the politicians, which is why they give us so much of it all at such great cost — and why these programs never die, no matter how they fail at however great a cost.

    Ooops, did I say ‘cost’?

    “These programs would not add a dime to the deficit. Not a dime.”

    :-)

  60. Gravatar of TravisV TravisV
    13. February 2013 at 18:41

    Interesting that Tyler Cowen likes the new New Republic:
    http://marginalrevolution.com/marginalrevolution/2013/02/the-new-new-republic.html

    But Marty Peretz doesn’t:
    http://online.wsj.com/article/SB10001424127887324880504578299863042281122.html

  61. Gravatar of TravisV TravisV
    13. February 2013 at 18:46

    Stupid blog post by Joe Weisenthal, who is typically smart:

    “Ben Bernanke Is Actually A Hawk”
    http://www.businessinsider.com/ben-bernanke-is-a-hawk-2013-2

    Volcker allowed plenty of inflation: 4%+ inflation for a number of years during the “Reagan Recovery,” etc. etc.

    Is today’s FOMC willing to allow that kind of recovery to take place? N-O!!!

  62. Gravatar of marris marris
    13. February 2013 at 19:21

    @Bill Ellis, I think you’re right about how this health care debate has played out. Lots of Americans have been tricked into thinking that total government control of health care is part of an ideal system. With each crazy welfare scheme, the lobbyists, lawyers, and loophole writers get a bit more of my grudging respect. At least someone escapes this tarpit.

    Here are the “needs” I would quote:

    - feed: I was unaware that people were starving in the streets of the US. I thought they get full on junk food (because it tastes good) and don’t exercise (because it’s hard work). BTW, I sympathize with both positions.

    - clothe: where do you live, that you’re tripping over naked people? I want to move there.

    - educate: Put down the XBox controller and do your homework. It’s not the universe’s job to edutain you.

    - house: I grew up in the projects in NYC. It was not a place where I want any kid to grow up. But it’s what the “liberal movement” gave us.

    - provide medical care for their families: I don’t care what BamBam promised. Don’t try this at home.

    peace

  63. Gravatar of Niklas Blanchard Niklas Blanchard
    13. February 2013 at 19:33

    @Mike Sax: I made the same argument as Evan in the comments here (condensed to a soundbite), and Scott agreed…which makes your argument confusing.

  64. Gravatar of mnop mnop
    13. February 2013 at 19:50

    “Well, that didn’t take much googling. The unemployment rate among workers 15 to 19 is 16.5%.”

    Sorry Matt, but that doesn’t cut it. The U.S. teenage unemployment rate for teenagers is 24.4%.

    There may be in fact be evidence that the Australian minimum wage of $15.59 AUS is destructive, but this isn’t it.

    (Personally, I am astonished that Australia is succeeding with a $15+ minimum wage, as it goes against most conventional economic wisdom.)

  65. Gravatar of Mike Sax Mike Sax
    13. February 2013 at 19:56

    Niklas I was talking to Morgan as well. Scott doesn’t entirely agree with what Evan wrote-Evan argues against the minumum wage in exchange for a higher EIC. As I like both the EIC-which was a conservative idea from Friedman originally-and the minumum wage I think Evan is right that if the GOP argued for raising the EIC you’d put liberals like me in a quandry

    Note that Evan actually says that raising the minimum wage doesn’t significantly raise unemployment. Scott maintains it does. So there’s a difference there too.

  66. Gravatar of Saturos Saturos
    13. February 2013 at 20:26

    Why don’t we just make everybody read Plato’s Republic in school and decide then and there if that’s what they want. That would settle things. (For “balance”, they could read Aristotle’s Politics too.)

  67. Gravatar of Matt Waters Matt Waters
    13. February 2013 at 20:34

    That’s not an apples-to-apples comparison, because as I said Australia has seen a huge NGDP boom. I did check US teenage unemployment and it was also around 15% in 2007. That’s about the same, which is still strange for $15+ minimum wage. That’s gets into debates on the employability of Australian teenagers vs. American teenagers and whether some jobs can somehow get around the minimum wage. The question is also how long they have been at the wage. It takes time to change economic patterns, as I said.

    The signal vs. noise ratio is simply terrible with minimum wages but broad truths do come out with big changes. I believe, for example, that minimum wage was at its highest real level in the 50′s and teenage unemployment was double what it was before the large minimum wage hike. Furthermore, the high wages and prices policy in the 30′s did in fact lead to high unemployment, as economic logic says it would.

  68. Gravatar of Saturos Saturos
    13. February 2013 at 21:00

    Not entirely unrelated: apparently liberals and conservatives’ brains really do work differently – http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0052970

    This is also interesting: http://www2.macleans.ca/2013/02/13/why-canada-hates-the-volcker-rule/

  69. Gravatar of Benjamin Cole Benjamin Cole
    13. February 2013 at 21:02

    I can remember going to kindergarten, and that was optional (1960). Many kids did not.

    Now they are screaming about preschool, and pre-preschool and who knows what.

    They claim this results in better education. But the people measuring the results usually have a stake…or the people who send their kids to preschool care more about their kids anyway.

    Finland starts their kids late.

  70. Gravatar of TravisV TravisV
    13. February 2013 at 21:12

    I asked David Beckworth:

    “I’ve heard you argue in the past that rapid NGDP growth above 5% in 2005 and 2006 was a major contributor to the housing bubble.

    If that’s true, then……why didn’t we have any similar crazy asset bubbles during the 1970′s (when NGDP grew much more rapidly)?”

    Beckworth’s reply:

    The answer is that there was a productivity boom on the early-to-mid 2000s that needed interest rates to rise (and inflation to fall) for monetary policy to remain neutral. That was not the case in the 1970s; productivity was actually falling. There is a chapter in my book on this point. Below are some links that speak to the issue as well:

    1.) http://macromarketmusings.blogspot.com/2011/01/having-my-cake-and-eating-it-too.html

    2.)http://macromarketmusings.blogspot.com/2010/09/what-role-did-fed-play-in-housing.html

  71. Gravatar of Mike Sax Mike Sax
    13. February 2013 at 21:19

    Saturos:

    “Why don’t we just make everybody read Plato’s Republic in school and decide then and there if that’s what they want. That would settle things. (For “balance”, they could read Aristotle’s Politics too.”

    I don’t know what you’re saying that in relation to, but I agree on general prinicple.

  72. Gravatar of dtoh dtoh
    14. February 2013 at 01:01

    Bill Ellis

    “We need unskilled workers. It makes no sense for business to train them all for higher skilled jobs. So they won’t.”

    Fewer and fewer every year. And it depends what you mean by unskilled. There are a lot of potential workers who can’t get any job because they haven’t been trained in basic work skills (getting to work on time, putting in a full day, etc.) Businesses could and would train these people in basic work skills but not at $7.25 or $9 an hour.

  73. Gravatar of ssumner ssumner
    14. February 2013 at 05:33

    Aidan, You can find studies on both sides of the issue. Cross sectional studies are the norm, and ignore monetary offset. (Yglesias alluded to that issue, but didn’t really address it.

    My own research on the 1930s convinces me they do have a disincentive effect on employment. I’d much prefer wage subsidies targeted at those who really need it (families), not teenagers picking up some spare change.

    Brett, If we cut government spending in half, to get closer to Singapore levels, I’m fine with paid paternity leave.

    Aidan, If I’m wrong, when was the last time modern liberals tried to address “unmet needs” by reducing the size of government? 1978?

    There are always unmet needs in any society. If you only solution is more government (and that seems true of Obama) then government will grow steadily larger over time.

    Mnop, PPP anyone? BTW, Australia’s government is smaller than ours–I’d gladly swap systems.

    Randomize, You asked:

    “If you have any legislative suggestions for curing people of being losers and moochers,”

    1. Legalize drugs.
    2. Stop paying people not to work.

    Bill Ellis, You said;

    “You guys act like we made you cons some sort of promise that health care would be it.”

    Actually, lot sof liberals did, right after ObamamaCare. “The final piece in Americas welfare state blah blah blah.”

    You said;

    “It was all about establishing universal health care as a De Facto right in the minds of Americans. And we did it.

    That was your real defeat. Did you realize it yet ?”

    It’s really hard to take morons like you seriously. I favor universal health care (ala Singapore) and have said so dozens of times. As you often comment here I presume you know that.

    You said;

    “OK, how will shrinking the government supply any of this ?”

    I can think of lots of ways. How many ways can you think of? Zero? Not much of an imagination, eh?

    (Legalize drugs, legalize organ transplants, legalize universal education vouchers, health savings accounts, eliminate restrictive zoning, eliminate reduce tariffs, eliminate quotas, eliminate occupational licensing laws that prevent low income people from driving a taxi or braiding hair, simplify tax system, legalize cheaper medicine by reducing regulations that are barriers to entry, reduce intellectual property restrictions that funnel money to the rich and raise prices, end marriage penalty for low income workers, stop taxing capital to boost capital stock, privatize overly expensive public services, cut absurdly high taxes on cigarettes. and a zillion other ideas.

    And you can’t think of anything? Seriously?

  74. Gravatar of ssumner ssumner
    14. February 2013 at 05:37

    Ben, I also entered Kindergarden in 1960.

  75. Gravatar of J Mann J Mann
    14. February 2013 at 06:50

    If you’re cynical, one advantage to increasing the minimum wage is that it’s off budget. Obama gets to take credit for increasing the pay of any minimum wage worker who still has a job, but he doesn’t have to put it on his budget. EITC increases or other wage subsidies put the transfer above the line, so people know who is paying and who is collecting.

  76. Gravatar of Tyler Joyner Tyler Joyner
    14. February 2013 at 07:22

    Can anyone explain to me how it is that all the lessons we should have learned from the massive failure of socialism in the 20th century, have somehow been forgotten?

    I’m not suggesting that no one should be at all liberal or progressive, but that some people who self-identify as such are unselfconsciously promoting forms of government which failed miserably over and over again in a variety of different contexts. I feel like I’m taking crazy pills.

  77. Gravatar of Becky Hargrove Becky Hargrove
    14. February 2013 at 07:41

    J Mann,
    Good point. I thought about that yesterday.

    Tyler Joyner,
    This is one of those times when history is not as helpful as it might seem, for the causes run deeper than any political affiliations, which mostly scramble to do something about the side effects. For whatever reason, people (over time) harden in the ways they define how society should be run, ever more laws and regulations by both parties ensue, and it only becomes more and more difficult to carry out the ways people in power insist things should be done. Some people think everything is just fine nonetheless (Obama, have you looked at the rest of the world lately?) and others just want to knock it all down and start all over with the same broken process, instead of securing what is and finding better ways to move ahead.

  78. Gravatar of TallDave TallDave
    14. February 2013 at 08:28

    Wow, nice list Scott. Might have to steal that…

  79. Gravatar of TallDave TallDave
    14. February 2013 at 09:00

    mnop,

    Too much exogenous junk in that comparison — e.g. compare US/Aus teen unemployment rates in 2005 and then adjust for ethnic breakdown and you get a very different answer! Also, Australia is relatively poor on PPP GDP per capita basis and also taxes minimum wage incomes at much higher rates than the U.S. Australia also has no EITC.

  80. Gravatar of errorr errorr
    14. February 2013 at 09:04

    Most of my liberal friends agree that EITC tax is a superior program but raising the minimum wage doesnt raise official taxes and thus wont affect how we calculate the debt.

    Sign me up for the replacement of all in kind services with cash transfers.

  81. Gravatar of Randomize Randomize
    14. February 2013 at 09:33

    Dr. Sumner,

    “1. Legalize drugs.
    2. Stop paying people not to work.”

    Legalizing crack wouldn’t make them any less crack addicts. It would save all parties involved the time and expense of locking them in jail but let’s not fantasize that they’ll suddenly get good jobs and care about their kids more than their next high. As for cutting off their food stamps, it would be, in effect, further punishing the child for the failings of the parents. I get it – that sort of welfare is the epitome of moral hazard – but with only those legislative changes in place, not only would the kid be unable to go to pre-school because the parents are losers but the kid also wouldn’t have enough to eat.

    Honestly, universal pre-school is exactly the sort of bootstraps socialism that we should all support; the proverbial teaching a man to fish. We could even cut the parents’ food stamps and use the money to provide the kids’ school lunches.

  82. Gravatar of Becky Hargrove Becky Hargrove
    14. February 2013 at 09:51

    Randomize,
    There are a lot of people in this world who would not need most addictive behaviors on any regular basis, if they had real, honest to goodness economic access and the sense of self respect and social identity that goes with it. Without economic access, some long term unemployed can be compared to, say, the young anorexic who feels they are “never good enough” in the eyes of the world for anything that they might be expected to do, or to be.

  83. Gravatar of Suvy Suvy
    14. February 2013 at 09:57

    “FDR tried to artificially raise the nominal wage rate 5 times during the 1930s. Each increase was followed by a sharp slowdown in industrial production growth.”

    This is because FDR was trying to prevent falling prices and wages across the board. At the time, the US was basically stuck in a debt deflation and he felt that those procedures would help stop that course. FDR did arrest the problem of falling prices, wages, and output; however, the central way that was done was primarily through printing massive amounts of money.

    According to the history at the time(at least from my understanding), FDR didn’t actually know what he was doing. All he knew was that the primary problem was falling prices, wages, and output that primarily resulted from underwater balance sheets. This was solved in two separate stages:
    1. The reflation of 1933-1937
    2. Massive government deficits of 1939-1945
    (1) inflated a major parts of the debt away while (2) turned the private sector debt into public sector debt. Note that in (2), the debt could not be inflated away because inflation was being controlled by wartime controls on prices and wages. Once the private sector balance sheets were repaired and the wartime controls on prices and wages were removed after World War, the limits on aggregate demand were released and we saw a massive post-war boom.

  84. Gravatar of ChargerCarl ChargerCarl
    14. February 2013 at 10:32

    Assuming it really is beneficial, I like the universal pre-school initiative. Thats exactly the type of redistribution we should be doing.

  85. Gravatar of Tyler Joyner Tyler Joyner
    14. February 2013 at 11:23

    ChargerCarl: Assuming it’s a beneficial one, I like any policy you can name or dream up.

    Randomize said: “Honestly, universal pre-school is exactly the sort of bootstraps socialism that we should all support; the proverbial teaching a man to fish. We could even cut the parents’ food stamps and use the money to provide the kids’ school lunches.”

    This is the issue with how we make policy today: “the concept sounds good so let’s do it”. Not nearly enough thought is put into execution.

    We have universal K-12 education, and it’s riddled with inefficiencies, inconsistencies, and perverse incentives. Presumably we’d have a difficult time giving standardized tests to four year olds; we also likely could not afford to pay the employees of the government-provided pre-school a good wage. If the rest of our education system is anything to go by, this problem would be at its worst in poor areas.

    So why should we institute a univeral pre-school system which will end up costing much more than whatever the initial estimate is (what government program doesn’t?), and which will inevitably be of much better quality in relatively affluent areas?

    If you want all US children in pre-school, vouchers would be a much better alternative. Our government mis-handles literally everything that is “universal”.

  86. Gravatar of Squarely Rooted Squarely Rooted
    14. February 2013 at 11:46

    Totally unrelated, but given the name of your blog I felt I had to post it here:

    http://thinkprogress.org/economy/2013/02/14/1596051/blackburn-minimum-wage-oops/

    Tennessee Rep. Marsha Blackburn (R) chose a different reason to oppose the proposal today. A stronger minimum wage, Blackburn said, would negatively affect the ability of young workers to enter the workforce as teenagers, and would prevent them from learning responsibility like she did when she was a teenage retail employee making a seemingly-measly $2.15 an hour in Mississippi:

    BLACKBURN: What we’re hearing from moms and from school teachers is that there needs to be a lower entry level, so that you can get 16-, 17-, 18-year-olds into the process. Chuck, I remember my first job, when I was working in a retail store, down there, growing up in Laurel, Mississippi. I was making like $2.15 an hour. And I was taught how to responsibly handle those customer interactions. And I appreciated that opportunity…

    Blackburn was born in 1952, so she likely took that retail job at some point between 1968 and 1970. And according to the Bureau of Labor Statistics’ inflation calculator, the $2.15 an hour Blackburn made then is worth somewhere between $12.72 and $14.18 an hour in today’s dollars, depending on which year she started.

    At that time, the minimum wage was $1.60, equivalent to $10.56 in today’s terms. Today’s minimum wage is equivalent to just $1.10 an hour in 1968 dollars, meaning the teenage Blackburn managed to enter the workforce making almost double the wage she now says is keeping teenagers out of the workforce.

  87. Gravatar of Niklas Blanchard Niklas Blanchard
    14. February 2013 at 12:00

    @Mike Sax: Fair enough. I think that Morgan’s idea of auctioning the unemployed is sub-optimal for identification and search/match reasons.

  88. Gravatar of TallDave TallDave
    14. February 2013 at 12:46

    It would save all parties involved the time and expense of locking them in jail but let’s not fantasize that they’ll suddenly get good jobs and care about their kids more than their next high

    Actually, several studies suggest that’s exactly what would happen in a lot of cases. Drug addiction creates a crushing time horizon problem. Imagine what your life would be like if tomorrow food was made illegal and the only way you could feed yourself was a shady guy on the corner selling $100 hot dogs full of God knows what, and you’ll understand why addicts have so much trouble functioning even when they really, really want to do better.

    One of the most well-known examples is a surgeon from the turn of the century named Halsted, so well-respected some consider him the father of modern American surgery. He had his diary sealed for 75 years after his death and when it was opened we found out he was a lifelong morphine addict.

  89. Gravatar of TallDave TallDave
    14. February 2013 at 12:51

    TravisV 13. February 2013 at 21:12 — That was interesting, thanks for sharing.

  90. Gravatar of Randomize Randomize
    14. February 2013 at 14:51

    Tyler,
    I never said that vouchers aren’t a way to do it. That’s what we have now except they aren’t universal.

  91. Gravatar of Randomize Randomize
    14. February 2013 at 15:41

    TallDave,
    That’s a fair point about high prices being partly to blame for their squalor and I would be the last person to argue against legalization. However, your counterexample of Halsted seems like more of an exception than a rule. How many of the goods and services we enjoy in everyday life could be produced by people who are high on hard drugs? Perhaps more importantly, would employers be willing hire them for fear of the liability?

  92. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. February 2013 at 17:07

    Why am I not surprised by this;

    http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx

    ————quote———
    Australia’s minimum wage is $15.96 per hour or $606.40 per week. Generally, employees in the national system shouldn’t get less than this.

    An employee’s basic rate of pay depends on such things as their age, job classification and what industrial instrument they’re covered by (e.g. a modern award, pre-modern award, transitional Pay Scale, workplace agreement and so on).

    ….Special national minimum wages have also been set for trainees, apprentices and juniors who are not covered by any other award or agreement. These apply from the first pay period on or after 1 July 2012.

    For junior employees, the minimum rates are:

    Under 16 years of age $5.87
    At 16 years of age $7.55
    At 17 years of age $9.22
    At 18 years of age $10.90
    At 19 years of age $13.17
    At 20 years of age $15.59.

    For apprentices, the rates are:

    Year 1 of apprenticeship $10.22
    Year 2 of apprenticeship $12.08
    Year 3 of apprenticeship $14.87
    Year 4 of apprenticeship $17.65.
    ———endquote———-

  93. Gravatar of JimP JimP
    14. February 2013 at 17:54

    quite a speech by Adair Turner – print it and spend it

    DEBT, MONEY AND MEPHISTOPHELES: HOW DO WE GET OUT OF THIS
    MESS?

    http://www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf

  94. Gravatar of Mike Sax Mike Sax
    14. February 2013 at 22:12

    Obviously there are some sharp differences on the minumum wage-even, especially, among economists. However, many of the same people who are totallly opposed to the minimum wage see Australia as a model of free market capitalism and a high standard of living.

    It also has an unemployment rate that’s much lower than ours. Yet they have a minimum wage that is $15 an hour in U.S. dollars.

    Since this is already a lot for those opposed to the minumum wage to even digest, I guess I shouldn’t also throw in that they had a much larger fiscal stimulus than we did in 2009-rather than bailout the banks they literally sent taxpayers an average check of almost $1000.

  95. Gravatar of Saturos Saturos
    14. February 2013 at 23:52

    “However, many of the same people who are totallly opposed to the minimum wage see Australia as a model of free market capitalism and a high standard of living.”

    Yes, clearly we must be hypocrites, then.

    “It also has an unemployment rate that’s much lower than ours. Yet they have a minimum wage that is $15 an hour in U.S. dollars.”

    Yes, and US life expectancy is much greater than India, even though Indians eat much healthier. I suggest you break out the donuts right now.

    Mike, you know from reading this blog that the reason the crisis went global was aggregate demand, not subprime mortgages. Australia dealt with that problem, so we didn’t have to bail out banks. Heaps of pork, of course, Rudd and Gillard went on a “nation-building” binge (google “Pink Batts”). But yep, they gave us 950 dollars in Feb ’09 (which all intelligent people put in the bank, because Ricardian Equivalence). How much did Obama give you, wasn’t he bragging about a rebate too?

  96. Gravatar of J Mann J Mann
    15. February 2013 at 06:33

    The link to Australia is interesting. A couple quick points:

    - Separate minimum wages for adults, teens, and apprentices is smart.

    - At a very rough cut, Australia’s per capita GDP is significantly higher than the US’s. I haven’t worked that through, but if it’s true that they’re a lot richer than we are, then I’m suspicious about just importing their minimum wage dollar for dollar.

  97. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    15. February 2013 at 07:23

    The key to a minimum wage not hindering an economy is to keep it below the market clearing wage. Obviously that’s true for Australia.

    Though when they finally have a recession it will be interesting to see how flexible their economy actually is. With them exporting 20% of their GDP (mostly mined commodities), that should be an interesting time down under.

  98. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    15. February 2013 at 08:09

    Speaking of Australian recessions, they haven’t had one in over 20 years…and their unemployment rate is over 5%! Hardly impressive (it is about the average of the W. Bush years, with two recessions).

  99. Gravatar of Floccina Floccina
    15. February 2013 at 08:25

    IHMO we should be pushing hard to get more young men working in the taxed economy. A minimum wage increase pushes in the wrong direction replace it with a wage subsidy. There is evidence that blue collar workers are happier and even live longer when they have jobs.

  100. Gravatar of TallDave TallDave
    15. February 2013 at 09:33

    Randomize,

    Certainly very few addicts will be as productive as Halsted — of course, very few non-addicts will either! :)

    I think what private employers choose to do should be left up to private employers. You generally can’t show up to work drunk, even though you can legally drink yourself to death with a little effort.

    Recent research suggests addiction is generally related to past trauma, a kind of PTSD self-medication. Some of them will actually function considerably better with safe, reliable access to drugs than they would under prohibition (if this seems strange, consider the millions of people who can’t wait to drink on Friday nights).

  101. Gravatar of Floccina Floccina
    15. February 2013 at 09:41

    As for universal pre-k, I see it as an attempt to improve the poor. I think that should not be a government function.

    Also if you provide government paid for pre-k school, do you compensate middle and upper class people who do not send their children to Pre-k that they have already paid for and other rich and middle class people use? Better to admit you goal is to improve the poor and pre-k school freely available to the poor only. To get philosophical suppose some poor want to let their children enjoy their early years without school, is it right for us to attempt to change their values through pre-k?

  102. Gravatar of Morgan Warstler Morgan Warstler
    15. February 2013 at 09:51

    I’m fine with Pre-K as long as it is done with vouchers in private sector (without unions).

    If the lefties want Pre-K for the poor and working moms, let them prove it, by doing the entire thing as an outright admittance that public schools are a failure.

    Then, they’ll have my full support.

  103. Gravatar of Doug M Doug M
    15. February 2013 at 10:02

    Morgan,

    What I have seen in California, when they introduced pre-school for all. The public school system doesn’t have the infrastructure for all of those extra kids. And the requirements for child care professionals is quite different from those for an elementary school teachers. Pre-schools are a varitety of private not-for-profit, a segement of private for profit, and quasi-private schools (quasi-private — the adminstration is independent from the state but 100% of the money comes from the state) All are regulated by the state department of education.

  104. Gravatar of TravisV TravisV
    15. February 2013 at 10:41

    Prof. Sumner,

    You recently wrote the following:

    http://www.themoneyillusion.com/?p=19358

    “the aggregate problem is not too much saving, it’s too much money hoarding.”

    Could you explain this just a little bit? Here’s my take: it’s too simplistic to say that there is too much saving and not enough consumption. Consumption is a side-issue. The real problem is that people are hoarding cash rather than investing in the real economy.

  105. Gravatar of Grim23 Grim23
    15. February 2013 at 10:47

    Australia’s employment law is far too complicated. We have 122 complex and overly prescriptive awards which range from 50 to 100 pages long setting out the pay and conditions of every single worker in every single business in an entire industry/occupation across the whole country. There is little flexibility, and any collective agreement can vary the award terms but only subject to the “better off overall test”. Awards include about 7 or 8 minimum wages, as well as overtime, penalty rates for nights, saturdays, sundays and public holidays, shift loadings, annual leave loadings, ordinary working hours, rules for working outside of those hours, rules for sunday work, minimum shift lengths, meal allowance, travel allowance, cold work allowance and more that I can’t recall from the top of my head and this is in addition to the 10 national employment standards which includes annual leave and sick leave etc.
    How is a small business employing 20 people supposed to handle this? If businesses don’t know what they’re paying their workers, and workers have to call up some government hotline to work out what they’re entitled to, then surely there’s something wrong with the system.
    Scrapping awards and having one single set of minimum conditions would be a much better option. I think British, Irish or New Zealand laws would serve as a good model which could be implemented without too much controversy, as long as unfair dismissal laws were kept in place.

  106. Gravatar of TravisV TravisV
    15. February 2013 at 11:36

    Prof. Sumner,

    Do you expect this story to have an impact on NGDP growth expectations?

    http://www.businessinsider.com/wal-mart-tanks-2013-2

    “Bloomberg is reporting on emails circulating among Wal-Mart executives calling February sales a “total disaster.”

    The emails say February sales are off to the worst monthly start in seven years.

    The executives attribute the dismal performance to the expiration of payroll tax cuts.”

  107. Gravatar of Federico S Federico S
    15. February 2013 at 12:31

    I’m assuming my comment will be lost in the flood but just in case:

    Here’s a crazy thought: What if Obama completely agrees with the negative effects that the min wage hike would have on jobs, but also believes (perhaps knows) that the Fed doesn’t target inflation or NGDP and will increase monetary “stimulus” in order to offset the negative employment effects? Ok, granted Obama would never think that but it could be an unintended consequence of the policy and just maybe the increased “stimulus” would be kept in place for long enough to increase NGDP growth expectations.

    On a more realistic note — I don’t know why you say “do we really want to make it harder for illegal immigrants to find jobs”. I assume you’re saying that an increase in the min wage makes it more difficult for undocumented workers to find a job. I think it’s exactly the opposite. Undocumented workers can credibly promise to work for below the minimum wage without voicing any legal complaint. It will reduce the total amount of jobs but I think the composition shift towards undocumented workers offsets this by enough in favor of undocumented workets.

  108. Gravatar of Geoff Geoff
    15. February 2013 at 12:41

    Can someone explain why it is that for government financing expansion of its wars via the printing press, which could very well be sufficient for increasing NGDP, should be regarded by myself, or anyone else who is skeptical, as a beneficial and positive thing for society?

    Shouldn’t we regard different forms that an NGDP growth rate of 5% could take as not all created equal, even if their numerical values are all equal?

    I honestly don’t understand why the makeup of NGDP seems to be taking a subsidiary role as compared to the NGDP number itself, in every MM discussion.

    I know the Fed isn’t (officially) in charge of wars and whatnot, but it is still the case that MM seems to be telling me to support an increase in NGDP to get to a target, no matter what the makeup of it happens to be, over no increase at all, despite the fact that I don’t think NGDP should be increased for its own sake if it means more war over less war, or whatever other form the increase takes that I think is less desirable than no increase at all.

    I’d rather be unemployed than shot at.

    Why should I support an increase in NGDP that is related to spending that has innocent people getting shot at?

  109. Gravatar of Geoff Geoff
    15. February 2013 at 12:50

    I suspect that most people here prefer to have the increase in NGDP the result of private investment and consumption, but we don’t live in a world where the only increases in spending are driven by private investment and spending. We live in a world with government spending as well.

    Government spending is a positive component of aggregate spending. If MM focuses on that aggregate, NGDP, rather than say “Private NGDP” only, then MM has taken the responsibility for including all government spending as part of its theory, therefore I am think I am justified in asking the question above. I don’t think it makes sense for MMs to be saying they want higher NGDP, but then when asked about why people should support an increase in NGDP that is brought about by government inflation and spending on wars, that the reply is “Oh, well, I don’t support THAT kind of NGDP increase.” Because then that would be implying not all NGDPs are created equal, and that would open up a whole new framework that would differ quite substantially from NGDP targeting qua NGDP targeting.

    Not trying to be snarky, I just really want to know why I should even come with a lightyear of supporting an increase in NGDP if that increase is due to more wars. I mean at what point should my humanity come into play here? I can’t possibly support every increase in NGDP.

    What if during 2008 the Fed inflated a lot more, and the result was more spending on wars, which would have seen no collapse in NGDP? Would that have been better than what actually took place? I think it at least deserves a debate.

  110. Gravatar of TallDave TallDave
    15. February 2013 at 13:44

    Patrick R Sullivan,

    Wow, that’s certainly, um… different than the spin that’s been put on Aussie minimum wage law. Nice find!

  111. Gravatar of Federico S Federico S
    15. February 2013 at 14:43

    Geoff, MM is probably only looking at the “aggregate NGDP” perspective. I don’t agree with your comment that “MM has taken the responsibility for including all government spending as part of its theory”. Basically the MM approach is roughly something like: The Fed determines NGDP. The executive, congress and the private sector decide the split of NGDP into sectors. MM is focusing on the fed.

    Also, you seem to implicitly be making the assumption that higher NGDP (which is controlled by the Fed) will somehow result in higher govt spending, which I don’t see as being the case (to be fair, you’ve never said that directly)

  112. Gravatar of Saturos Saturos
    16. February 2013 at 05:29

    (Unsurprisingly) Mankiw nails it: http://gregmankiw.blogspot.com.au/2013/02/why-9.html

  113. Gravatar of Daniel Daniel
    16. February 2013 at 08:51

    Wow, Geoff, you’ve really gone off the deep end on this one.

    So we’re saying, basically, that because wages and debts are sticky, NGDP needs to get back on its pre-2008 track – and the best you can come up with is “I’d rather be unemployed than shot at” ? Non-sequitur much ?

  114. Gravatar of Negation of Ideology Negation of Ideology
    17. February 2013 at 15:11

    I agree with Daniel on this, Geoff has gone off the deep end –

    “What if during 2008 the Fed inflated a lot more, and the result was more spending on wars, which would have seen no collapse in NGDP?”

    In what possible scenario could an easier Fed policy in 2008 caused a war? Was Bush planning to invade Canada but said to himself “Well, because of this economic crisis I guess I won’t.” More to the point, where’s the evidence that countries with stable NGDP growth get into more wars than those with unstable economies? The Depression was pretty deflationary but that didn’t prevent WWII.

  115. Gravatar of James in London James in London
    18. February 2013 at 03:38

    new hairdresser just opened up in my relatively wealthy suburb of london, charging £5! i haven’t much hair and it only takes 15 minutes, but a 50% lower price than i’ve been paying over the last few years. i put it down to deflation. or he’s going to go out of business soon. still shop rents for the type of shop he has have been collapsing too.

  116. Gravatar of ssumner ssumner
    18. February 2013 at 06:52

    Randomize, You said;

    “We could even cut the parents’ food stamps and use the money to provide the kids’ school lunches.”

    I’m all for that. If we are going to “do paternalism” let’s at least do it right.

    And lots of crack users have jobs.

    Patrick, Thanks, Why am I not surprised that the Australia fans didn’t tell us that? Remind me to pay no attention to anything they say in the future.

    Mike Sax, They also have kangeroos–which obviously must have some impact on their economic success.

    TravisV, Saving equals investment. If there were lots of saving right now there would be lots of investment. Actually there is not a lot of saving going on right now. The big problem is too little NGDP, which means the demand for base money has increased, slowing the economy. But that’s different than “saving.”

    Generally those sorts of stories (Walmart) are not important unless they have a big impact on stock prices. I didn’t see a big impact on the S&P 500.

    Federico, Perhaps, I don’t have a good sense of how many illegals work in places that pay minimum wages.

  117. Gravatar of Jon Jon
    18. February 2013 at 07:31

    Scott,

    Check out this comparison of revenue vs spending detrended for CPI and population, 1983 base year:
    http://research.stlouisfed.org/fredgraph.png?g=fFH

    Look at the nice level period of spending from about 1985 to 2000. Also look at the level of fiscal stimulus in 2008 compared to past recessions. Some take aways:

    - the budget control acts that congress started to pass in the 80s actually worked. *
    - The republicans suspended these in 2002 to enable the bush tax cuts and the increased militarization following 9/11. The effect on spending was clearly pronounced as we end up on the per-1985 trend.
    - the bush tax cuts aren’t the budget buster they are made out to be. Peak to trough they raise about the same real amount per person as in the 90s. It’s the spending that broke way ahead. How can this be? Bracket creep. The brackets are adjusted for Inflation not GDP per person.
    - Spending growth really kicked up a notch under Obama’s first years and even with the drift down as the stimulus is withdrawn, it looks like all the fiscal discipline under Reagan and Clinton was reversed.

    * Gramm-Rudman 1985, 1987; Budget Enforcement Act of 1990; Balanced Budget Act of 1997

  118. Gravatar of Geoff Geoff
    19. February 2013 at 07:08

    Federico S

    “Geoff, MM is probably only looking at the “aggregate NGDP” perspective. I don’t agree with your comment that “MM has taken the responsibility for including all government spending as part of its theory”. Basically the MM approach is roughly something like: The Fed determines NGDP. The executive, congress and the private sector decide the split of NGDP into sectors. MM is focusing on the fed.”

    I disagree. MM focuses on NGDP, not the Fed. The government does in fact spend money, and so if one looks at NGDP, then one is necessarily including government spending, as a practical matter.

    Moreoever, MMs tend to call for the Fed to buy treasuries in its NGDP targeting. Buying treasuries implies the Treasury is borrowing, and if the Treasury is borrowing, then that implied the Treasury is spending. I find it rather irresponsible and evasive to ignore the fact that government spending is included in NGDP.

    “Also, you seem to implicitly be making the assumption that higher NGDP (which is controlled by the Fed) will somehow result in higher govt spending, which I don’t see as being the case (to be fair, you’ve never said that directly)”

    No, I didn’t implicitly assume that at all. I implicitly assumed that it is possible. That the choice may well be between additional government inflation and spending (on war, for example), or no (desired) increase in NGDP. You have to at least accept this possibility as a matter of rigorous theoretical analysis of MM.

    Daniel

    “Wow, Geoff, you’ve really gone off the deep end on this one.”

    Nope, just analyzing MM at a level that nobody else seems willing to go.

    “So we’re saying, basically, that because wages and debts are sticky, NGDP needs to get back on its pre-2008 track – and the best you can come up with is “I’d rather be unemployed than shot at” ? Non-sequitur much ?”

    Talk about a straw man. That isn’t what I said. I am addressing the part where you say you want a higher NGDP, and I am basically asking the question: “Does it matter what form the increase in NGDP takes”? In other words, does it matter to MMs who spends the additional money, does it matter to MMs what the additional money is spent on, and does it matter to MMs what the outcome in real terms are to such spending?

    I am setting up a choice that could exist in the real world, and then looking to MM theory as to what should and should not be done. I am asking you and other MMs:

    If as a practical matter NGDP increased the way you wanted, but it was accomplished through inflation financed war spending, would that be something to support, or not support? It’s a simple question, and the fact that you and some of the other posters here are insinuating I have mental issues (e.g. “going off the deep end”) is really just telling me you are too afraid to consider MM as closely as I am.

    Negation of Ideology:

    “I agree with Daniel on this, Geoff has gone off the deep end”

    Then my assessment of Daniel also applies to you. You too are afraid.

    “What if during 2008 the Fed inflated a lot more, and the result was more spending on wars, which would have seen no collapse in NGDP?”

    “In what possible scenario could an easier Fed policy in 2008 caused a war?”

    I didn’t say it would cause a war, and you didn’t answer the question. I said war spending. That does not exclude more spending on the same wars/occupations.

    You asking a question in response to my question means you either don’t have an answer, or you do, but you just don’t want to go there because of where it might take you.

    “Was Bush planning to invade Canada but said to himself “Well, because of this economic crisis I guess I won’t.” More to the point, where’s the evidence that countries with stable NGDP growth get into more wars than those with unstable economies? “The Depression was pretty deflationary but that didn’t prevent WWII.”

    This is all churlish off topic prattle.

    I was simply asking the question IF in 2008 the Fed inflated a lot more, and the result was more spending on wars, which would have seen no collapse in NGDP? Would that have been beneficial or not according to MM theory? Why or why not?

    It’s a simple question people!

  119. Gravatar of Geoff Geoff
    19. February 2013 at 07:19

    In other words still, suppose that NGDP rose to where MMs wanted it, but the FORM the additional spending takes is more war spending.

    Should I or should I not support that additional spending as “beneficial/good/stimulus/etc”?

    I am simply asking MMs whether or not it matters what form NGDP takes. As it stands, it doesn’t appear that MMs have seriously addressed this. The rather hostile responses kind of tells me it is an uncomfortable aspect of MM.

  120. Gravatar of James in london James in london
    19. February 2013 at 11:44

    Jon
    great graph!

  121. Gravatar of ssumner ssumner
    19. February 2013 at 17:39

    Jon, I mostly agree, but would quibble slightly with a few points. The Bush tax cuts probably hurt a bit, as revenue fell as a share of GDP.

    That recession spending spike actually began under Bush, who was President until January 20th 2009.

    Geoff, I oppose more military spending.

  122. Gravatar of Jon Jon
    19. February 2013 at 19:30

    Scott, as to the second point, that’s nonsense. You need to read the definitions of how BEA is computing current expenditures. They include net TARP which is a loan unlike most outlays. This boosted outlays in 2008 and early 2009 that made it seem like the spending rose under Bush. But in the subsequent years it is is real spending. Similarly in the later years expenditures are being reported net of TARP repayments. So, spending in the later Obama years has been charged to the tail end of Bush.

    http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/102xx/doc10298/06-29-nipas.pdf

    Your first point is true. The Bush tax cuts are balanced over their life. In years they drew as much real revenue normed for population as the previous 10 years under Clinton and bush I. GDP isn’t the right measure. Taxes and revenue should be declining as a fraction of GDP over time if the rule of thumb is constant real expenditure / revenue per capita.

  123. Gravatar of Scott Sumner Scott Sumner
    20. February 2013 at 08:44

    Jon, OK, but even if McCain had been elected, spending on food stamps, unemployment comp, etc., would have soared in 2009. Having said that, I agree that Obama spent too much.

  124. Gravatar of Geoff Geoff
    21. February 2013 at 11:42

    Dr. Sumner:

    “Geoff, I oppose more military spending.”

    Understood, but this really doesn’t address my concern.

    What if the increase in NGDP that MMs are calling for is composed of more military spending? That’s what I am asking about.

    If the choice was closer to desired NGDP and more military spending, or the status quo without either closer to desired NGDP nor more military spending, what would be better, and why?

  125. Gravatar of Geoff Geoff
    21. February 2013 at 11:56

    I mean, I was under the impression that it follows from NGDP targeting theory that because it is an aggregated sum, that we should call for any increase in spending no matter what it is composed of, if the theory is that NGDPLT is optimal.

    If not all spending is equally stimulative, then why are we talking about the aggregated sum, instead of the components of aggregate spending?

    It seems MM theorists would have to support getting the NGDP they want even if it were composed solely of additional inflating and spending money on the military.

  126. Gravatar of ssumner ssumner
    22. February 2013 at 09:27

    Geoff, I think you are mixing unrelated issues, or else I don’t understand. What if the extra NGDP all goes toward prostitution and herion addiction? It’s pretty obvious the central bank can’t determine where the NGDP goes, only the aggregate amount. Are you suggesting the Fed should create an unstable NGDP path, in the hope that it leads to more or less of one component of NGDP?

  127. Gravatar of Geoff Geoff
    22. February 2013 at 09:54

    Dr. Sumner:

    “Geoff, I think you are mixing unrelated issues, or else I don’t understand. What if the extra NGDP all goes toward prostitution and herion addiction?”

    That’s what I am asking MMs!

    “It’s pretty obvious the central bank can’t determine where the NGDP goes, only the aggregate amount.”

    I am just asking if, in the context of MM, I am to regard an increase in inflation and spending on war as equally “stimulative” as the same increase in inflation and spending on something else.

    Suppose the choice is between increasing inflation and spending on war (assume it achieves NGDPLT) or not increasing inflation and spending on war (assume it does not achieve NGDPLT). Is the additional war spending economy alternative better for the average person, or is the reduced NGDP alternative better, according to MM?

    I would question the assertion that the Fed cannot determine where NGDP goes, even in MM theory. For if the Fed is to be buying government bongs (according to MM theory), then that presumes a particular initial flow of government (borrowing and) spending to that extent, since the banks have to be buying the government’s debt such that the Fed buys that debt to target NGDP. (And, if there aren’t enough government bonds to buy in order to reach the target, then the Fed has to buy something else, and that will presume a particular initial flow of spending as well).

    In short, I am just asking if, according to MM theory, an NGDPLT growth of 5% should be regarded as equally stimulative in all of its various iterations.

  128. Gravatar of Geoff Geoff
    22. February 2013 at 10:07

    Dr. Sumner:

    “Are you suggesting the Fed should create an unstable NGDP path, in the hope that it leads to more or less of one component of NGDP?”

    I am asking if, in MM theory, I should regard all equal increases in inflation and spending as equally stimulative. If MM theory says I should not, if increasing NGDP by way of war is different from increasing NGDP by way of private sector spending, then I would ask why MM theory isn’t focusing on “components of NGDP” targeting.

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