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We shall what we shall see. However, the first six months, if they are a harbinger of the next 6 months, pretty much scare the heck out of me.

But it's not just Obama that bothers me. I can't give you two cents for Congress and that is worse than an empty suit President, IMO.

- I hope to see some follow-through on his eloquent "robust growth" statement ...

Please don't hold your breath, Steve. If growth were high on BHO's agenda, the stimulus bill wouldn't be a laundry list of political payoffs for getting him elected, it would be aimed at growth. It's not.

Some of us have had the Orator-in-Chief's number since the Democratic Primaries. Don't say you weren't warned.

I completely agree with Bob. Congress is a much bigger problem. Has been for a decade. Maybe two.

Also agree on Ryan. And on the health care issue, I understand your priorities are elsewhere, but at some point I'd be interested in reading your incisive thoughts on why we're abusing insurance - a tool for mitigating financial risk - and using it to pay for a routine cost of living that everyone can plan around (I'm not referring, of course, to catastrophic care that can be paid for through major medical policies). Why we do this only for health care is a mystery to me. I want health care, but all the politicians and pundits are telling me I have to have insurance.

It's my thinking that comprehensive health care insurance is the primary cause of high-priced health care: by spreading costs of care over a population of plan members, it allows the price of health care to increase, artificially, far beyond any individual's ability to afford it. As commodity economics go (and again, we're talking about routine, commodity care here, not heart or brain surgery), it seems that the economic model is completely broken when it comes to health care, where costs are allowed - encouraged even - to increase in a virtually open-loop fashion.

The question that really matters is what will be the newest black swan. Is it going to be nanotechnology, the rise of Africa, or some other unforeseen event?

The most probable black swan is healthcare. I support Obama not because I believe is is particularly well-versed in economics, but because the alternatives are far worse and also because I believe growth will be the (unintended) effect of Obama's policies. I see a population which will not get any younger, and a massive pent-up demand for healthcare of all types, preventative, alternative.

Black swans are not the result of one mad scientist working in a basement. The conditions have to be ripe for such an event and the fast aging population combined with massive spending will grow the economy, not sink it. Of course when it happens revisionists will attempt to say Obama hindered the recovery like they said the New Deal hindered the recovery during the Great Depression. They will say so not with facts or numbers, but out of a philosophical opposition to deficit spending and a belief that government intervention is wrong in every case other than defensive wars.

Libertarians don't understand that confidence is extremely important for growth. You can see this with their opposition to Cash for Clunkers. Confidence creates demand which creates growth. The best they can come up with is accusations of broken window fallacy or price controls and price tampering, when replacing a window that's already broken (low MPG cars) and giving business the opportunity to raise prices to cover operating costs during a recession is neither broken window nor price control but the complete opposite. Nevermind its not someone else breaking the window but the owner choosing to "break" the window (nobody is forcing consumers to trade in their cars), so it is a false analogy to parable of the broken window which is about a child breaking a shopkeep's window.

Regarding Cash for Clunkers (an inappropriate name), how exactly does mandating the destruction of a working vehicle to buy a subsidized new vehicle that must only be 4 MPG more efficient than the destroyed vehicle create confidence in the economy?

Confidence in economics translates to spending now rather than later, consuming rather than hoarding. Of course if you don't believe in the existence of multiplier you will call this not true economic stimulus and any gains not true economic growth because "it would have been spent later anyway."

I find such arguments ridiculous and a misunderstanding of how economies of scale works -- one dollar spent separately one million ways cannot accomplish a fraction of one man or one company spending one million dollars the former buying one million one dollar toys the latter perhaps a house -- an analogy which should be enough to convince even the most skeptical that multipliers exist, but some simply refuse because they think incentives are coercion.

Many people (Politicians, journalists and this blog) have compared the current recession to the great depression. When talking about the debt-to-GDP ratio the severity of our current debt-to-GDP ratio is often downplayed by comparing it to the WWII high of ~120%. Steve has often pointed out that we reduced the post WWII debt/GDP by growing the economy after the war, not by “paying off debt.” I may just have a lapse of understanding here, but weren’t the conditions of the economy immediately following WWII somewhat different than they are now? The enormous manufacturing capabilities built up during the war were redirected into domestic production, a large influx of labor from returning GIs, GIs getting trained and educated by the GI bill, pent up demand for goods. In general the post WWII economy was ready for growth. It seems to me that we are in a harder position because we are lacking some of the conditions that allowed us to grow our way out of the post WWII debt so quickly. Don’t get me wrong, I agree with the overarching message that we either grow or die, but I’m concerned growth may be harder to stoke this time (which is why I would have liked to see more spending in the stimulus bill directly geared toward growth and infrastructure). Like I said it may just be an understanding gap on my part (if it is, correct me please), but I hope Obama can make good on his rhetoric and stimulate growth fast.

I have been 100% behind Obama for over 2 years. At the same time, I completely buy into this theory that we must grow the economy "or die".

Is there an economist/apolitical type on here, that can explain to me how nationalized healthcare can comtribute to, or conversely,take away from, the growth of the U.S. economy.

My gut says that nationalized healthcare means no profits to tax, and is therefore "taking away" .

The truth is.....

on the other hand, with nationalized healthcare, where the govt., is in effect the insurance company, ALL the profit is "tax revenue". So I am very interested in any comments.


I have an issue with Cash for Clunkers because it only applies to sect of people with gas guzzlers looking to buy new vehicles. It's intended to update those people's MPG but it's poorly implemented. The effect on general consumer spending confidence from the government helping those people to buy new cars is debatable.

Its intent is largely (thankfully) irrelevant. It ends now with 457,000 transactions which would have happened either later or never without the program. Complaining about the program not being perfect is one thing. If the idea is the program isn't perfect and it could be improved then I agree with you. But I do not think that's your idea since you A. bring up broken window fallacy B. bring up moral hazard C. bring up coersion. The economic facts (not philosophical facts such as fear of government intervention) are it was a fast program which resulted in real gains and most importantly (and often overlooked in stimulus programs) it is ending. So the "crowding out" theory doesn't even apply to cash for clunkers: it was money that was not in motion that moved due to a relatively small investment.

Cash for clunkers should be the model for government intervention: speed, limited scope, limited duration.


Do your ABC's apply to me or to some imaginary libertarian you're having an argument with? I haven't mentioned any of the points you raise. But you casually stake claims that are debatable in nature, and I did my part to bring that to light for you, without invoking any of your least favorite arguments.

I'm not really that interested in a protracted debate over Cash for Clunkers or other programs like it. Stimulation is great, but you and I will simply disagree that general consumer spending confidence is restored when the government decides to buy cars for people that own old gas guzzlers.

You mentioned "mandate" and "destruction" both as negatives. Concern over mandate is just another way of phrasing concern over coercion (for example libertarian fears of mandated healthcare) and concern over wanton destruction is just another way of phrasing broken window fallacy. The primary objection towards subsidy is moral hazard, followed by crowding out. You mentioned all these adjectives for a purpose, to describe what you see as a negative program. I addressed your concerns one by one pointing out this is not broken window fallacy, moral hazard is minimized due to the non-permanence of the program and force is minimal. You can't escape my rebuttals by pointing out you used different words for the same concepts.

General consumer spending confidence could be most affected by a helicopter drop which will never happen due to political realities. So the pragmatic must settle for programs like this that increase confidence in specific sectors. Which by the way is quantified by sales. I will note that due to CFC JD Power says auto sales will rise over 1 million for the first time this year. We may not agree that this improves consumer spending confidence (surely there is a difference between "restore" and "improve") but the 1 million mark is important akin to keeping the DJIA over 10k.

Thanks for the Paul Ryan reference.


It's clear you don't really need me to have an argument with me. You can just continue to tell me what I meant by what I said.

This is very simple: Mandating the destruction of working vehicles is a description of how the program works. The program says, destroy a working vehicle that meets these conditions, and buy a new one, and we'll give you money. It is not an invocation of the broken window fallacy unless *you* think the broken window fallacy applies to the program. But destruction of working cars *is* mandated by the program. It is how the program works. This is not me talking. It is a description of the program. Maybe you don't care that that is how the program works. Fine, your prerogative. But remember, I'm just describing the program, and I did so because I think a description alone is sufficient to sow doubt that the program can have any great impact on consumer confidence.

And what exactly do you think is wrong with the broken window fallacy as an argument anyway, besides the fact that you just plain don't like it?

You think that description alone is sufficient to sow doubt? Ignoring the fact that you were responding to me and I mentioned broken window fallacy (if you didn't want your comment to be interpreted in the context of defending that false claim perhaps you shouldn't have mentioned destruction) simply describing something then saying it is self-evident that the program is bad through its description certainly is not sufficient. I might as well describe any economic program I don't like, then say it is self-evident it doesn't work. Creative destruction is a real economic concept whether you like it or not and it even belongs to the Austrian school not the Keynesian school.

There's nothing wrong with broken window if it's really a broken window. For example, war and vandalism are broken windows because the owner has not agreed to the destruction of his property. In this case he agrees merely by participating in the program because he could certainly refuse to participate with no consequence as you point out because he has a working vehicle. You are verging on strawman by saying I don't like broken window when anyone can read up and see I don't like misapplication of broken window.


We're discussing mainly your claim that Cash for Clunkers increases consumer spending confidence. We're discussing consumer confidence. Consumer confidence is a trend, right? It takes time to discern, and in the meantime, we're free to debate what we think will happen. My original critique of Cash for Clunkers was specific, using the description to illustrate that the people affected by it are few, and that the specificity of the program, as well as the gearing toward environmental impact, would in my opinion not have a large impact on consumer confidence (except perhaps the few beneficiaries that will continue to expect subsidies and handouts). Now we must simply agree to disagree, although I hope you see now how the issue is debatable.

My friend, you should look around and see that nearly everyone depends on so-called handouts and subsidies: roads, hospitals, large public works projects, defense, education and so on are all the domain of government.

The difference between a growing and a stagnant economy is a few percentage points of GDP. If the price to be paid is giving a few who do not earn their worth a few dollars so those who do earn their work have work to do, then it's a price worth paying. A boost in economic growth by half a percent may be "debatable" to you but it certainly is not to me.

Regarding your original critique I repeat the point that intent is irrelevant, only fact. And the fact is even though the requirement might have been 4 MPG higher, average fuel economy of trade-ins was around 15 while buys was around 25. That's a tremendous increase in fuel economy, and is not about keeping nature beautiful or even clean air but rather efficiency and conservation of a strategic resource. If this "environmental impact" deters economic growth for you, you should read up on peak oil and its consequences: then you would understand that any and all actions which curb fuel consumption are acceptable even if it involves "evil" government handouts.

Also, for the purpose of debate, one cannot easily rule out the broken window fallacy here simply because people agree to use the program. Agreeing to the destruction isn't the only criterion in determining broken window fallacy (which we can see if we consider the case of an ignorant person that willfully destroys his own property--no net benefit is required to occur). In order to decide whether or not there is a broken window, we have to look at the costs of the transaction. There are hidden costs in this case which include the loss to the used car industry and the loss to the American taxpayer. Further, we should decide whether or not the program resulted in purchases that were not going to be made anyway at some later date (those that used the program may have been in the market for cars anyway, http://tinyurl.com/lrm22y). We can see the difference easily if we consider that net economic wealth would be greater had the program simply not mandated the destruction of the vehicles. There are exceptions to everything, and the exception here would be a bad economy where the money would not have been in motion without the program. But whether or not the money would have been in motion in this case, is itself debatable, as I pointed out above.

And you are misappropriating creative destruction. Creative destruction applies to what takes place under market forces, like if a new, technologically advanced car company puts older car companies out of business.

So you do believe this is broken window?

Agreeing to the destruction is not the only criteria but is certainly the overriding criteria, especially if you believe in market forces. Certainly if you believe the market is best positioned to decide winning and losing technologies you believe the individual consumer is best positioned to decide what to destroy and what to keep. You say net economic growth would be higher, but net economic growth where? Most possibly in third world countries http://tinyurl.com/noz29h (also your source). The NYT is concerned about the environmental impact, but that is not the only issue with older cars going to third world countries; organized crime, less benefit to America than if they were scrapped here, and continued inefficient use of a strategic resource. Your point would have more merit if people were actually buying 15 MPG used cars in America. They aren't (at least not in America), so at worst the government is telling people to do what they're already doing. If government allowed the used car industry to sell CFC cars, it would actually be reversing market forces and encouraging sales of 15 MPG cars.

As for "misappropriating" creative destruction I agree that it is mostly concerned with layoffs and company restructuring, but creative destruction also rebuttals your objection that there's less economic benefit to destruction. When personal computers displaced perfectly functional typewriters (and I'm sure there's many more examples like betamax, hddvd) all/many of those things went to landfills. These are all classic examples of creative destruction. By your logic all of these were broken window because they destroyed functional equipment. You are right that it's no longer creative destruction if the government picks winning or losing technologies, but it is not: it is providing incentive for what the market has already decided is a loser. I also remind you that broken window parable is unconcerned with whether the government or private sector breaks the window (boy breaking window is as much broken window as government dropping bombs), so if your overriding criteria in identifying broken window is whether government is involved you misunderstand broken window.


I agree that broken window doesn't depend on the government and I don't think that handouts are always "evil." I also don't necessarily think that Cash for Clunkers is an example of the broken window fallacy, but I see both sides of it and I think a case can be made either way.

By net economic wealth I mean of the US economy as a whole if one could tabulate the value of all goods, services, and potentials for some time frame. As I understand broken window, it was meant in part to show that a short-term rise in GDP could lead to long-term losses and that GDP therefore isn't always the best determinant of a country's economic wellbeing.

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