Who thinks Rudd's idea will increase eco activity as desired.

[brendan]

I wrote this not too long ago:
http://andrewnorton.info/2009/01/gdp-and-well-being/#comments

Part of the problem with using GDP as proxy for well-being, that is often overlooked by macroeconomists, is that it includes government purchases at cost. If the government hires people to produce stuff that is worthless, that stuff is included in GDP just as much as if the government buys something valuable that people want. When calculating GDP, the national income accountants do not pass judgment on the social utility of government spending.


Entropy, suppose the government borrows some money and:

a) uses the money to give me a lump-sum payment (such as a tax rebate) and I choose to spend my free time sitting at home reading Andrew Norton’s blog

b) uses the money to hire me to sit at home and read Andrew Norton’s blog.

Now, (a) and (b) are identical in terms of final allocations and social welfare. I am doing the same thing and the money flows are the same, but the figures in the national accounts are different (transfer payments are not included in government spending). In (b), I am employed producing a government service and so in the macro statistics this will show more hours worked, and a higher GDP.

Now let me add:

c) uses the money to hire me to sit at home and read The Age which I do not enjoy as much as reading Andrew Norton's blog.

Now social welfare is lower in c) than in b) but in b) the national accounts will show GDP to be higher than it would have been the case in c)

[costargh]

Because people can study for years in university trying to work out how to deal with this stuff and still have no clue.  And because people are scared of losing their jobs and Rudd reckons this will save jobs.  They're not so much telling schools what their priorities are as finding something for the construction industry to do.  If schools don't want buildings they'll build buildings in the next school.  I know my school could do with a couple of new buildings.  

But how about all the jobs that are lost from not giving schools the option to choose what they get to spend on?


I don't get how you can say that its "not so much telling school what their priorities are" when they are forcing them to build a new building.

It's actually fairly irrelevant whether or not anecdotally your school or any new school "could do with a couple of new buildings". Does that make the other higher priorities less important?

[costargh]

Ever heard of opportunity cost?


In your example you assume that the person has the funds available to also buy the apple.

What if the government's demand that the funds be spent on building limit the ability of the school to also spend on other areas?

You're still ignoring a massive part of economic theory; that in market forces the most prioritised and valued products will be produced first.

[brendan]

You're just offering people something they may or may not need, and by doing so creating jobs (which is the most important part.)

Yeah but where does the resources to offer that chocolate come from? In the end a government cannot give without also taking. There is no free lunch. Those resources that are confiscated to offer "chocolate" could have been better used elsewhere on goods and services that people actually wanted.

And that's the problem with government, when you have a captive audience, and you can just forcibly confiscate their money whether they like it or not, you have little to no incentive to actually give people what they want.

[marbs]

increase eco activity compared to what and why should econ activity matter?

The government could go around breaking everyone's windows. That would increase economic activity.

An increase in eco activity from consumers and producers gives the ability for higher growth. If the economy is growing, confidence is likely to be alot higher than what it is now.

Confidence is the key to the recent interest rates cuts, and this new proposal.

A

[brendan]

An increase in eco activity from consumers and producers gives the ability for higher growth. If the economy is growing, confidence is likely to be alot higher than what it is now.

Confidence is the key to the recent interest rates cuts, and this new proposal.

A

That seems like a confused statement

[marbs]

What is confusing about it?

If consumers demand more, producers will likely need to supply more thus an increase in market interraction and an increase in eco activity.

Higher eco activity gives the chance to increase growth.

When is confidence going to be higher? When the economy is slowing, or growing?

What has been the key to the recent i rate cuts, and this proposal if its underlying reason is not confidence?

[costargh]

Yes I know about opportunity cost, but when it comes to government spending the opportunity costs are endless.

Don't you want to minimise opportunity costs? Why then would you allow the government to allocate to areas where there is not necessarily priority.

Also, the government is using taxpayers money BUT the point is to stimulate the economy to create MORE resources for tax payers in the long run.

Yes and so giving the schools the choice of what they spend the money on wouldn't stimulate the economy? 

I'm not saying its not reckless or that its the best thing to do, just that your arguments have obvious flaws.

Show me where my arguments have 'obvious flaws'.

[brendan]

the government is using taxpayers money BUT the point is to stimulate the economy to create MORE resources for tax payers in the long run.  

So I take it that the the proposition you are making is:

Rudd's "stimulus plan" will  stimulate the economy in the short-run more than what would have otherwise been the case without the government spending plan, and by "create MORE resources for tax payers in the long run." i take that to mean that long-run real income per capita will be higher than what would have otherwise been the case without the government spending plan.

All the empirical evidence and theory is against you on the second point. In fact i doubt there is any economist out there that would seriously think that such actions will raise long-run income per capita. Those who do support such government spending plans typically don't even refer to the long-run costs, because it would be too damaging to their case. So they just talk about the short-run benefits. And that's where much of the debate amongst economists is today. The long-run effects have been more or less settled.

The problem with only considering short-run effects is that anyone of us here could increase their short-run standard of living: go out and take on mountains of debt to fund your lifestyle today. But what's the obvious problem here? One day you are gonna have to pay that debt back and that would mean lower consumption in the future.

[costargh]

If the government allowed the schools to choose where the money was spent, it wouldn't necessarily be spent in ways that would immediately stimulate the economy or save jobs, and therefore the government is telling them where its going.  And a lot of schools do need new buildings the government just couldn't be bothered paying for them until they had another incentive.

And the whole point of my posts have been to point out "obvious flaws"

Why would you assume that higher priority needs would take longer to stimulate the economy than lower order needs (if the case was that the school had higher priorities than a new building.)
I'm not saying that schools don't need new buildings, but I'm saying that the government is telling them that they need them more than anything else (even if that's not the case).


I really have to ask but have you studied Economics at all in any way shape or form?

[brendan]

the economy needs

Who is this economy?

[costargh]

the economy needs

Who is this economy?

Lol yeh I stopped an Lol'ed when I read that.

[brendan]

I think some people are forgetting that a government cannot give without also taking. There is no free lunch. A government that can give you everything you want is a government that can take from you everything you have.

Furthermore, some people are not being specific as to what metric by which they would judge any "stimulation", is it:
a) short-run real GDP
b) long-run real GDP
c) short-run real GDP per capita
d) long-run real GDP per capita
c) social welfare

All 5 have very specific and distinct meanings in economics, particularly the last, so I do not mean "social welfare" in the general sense of the word.

Furthermore to prove causation (say to prove event A causes event B) you have to look at the counter-factual i.e. what would have happened but for the event A.

Say you wanted to examine the effect of a drug on a patient. Simply showing that after taking the drug, the patient is in a better condition, doesn't prove it. What if the patient would have gotten better anyway? Who is to say that they would not have been in even better health had they not taken the drug? To get past this problem, drug trials typically have a "control group" who simply take a placebo (a sugar pill). Then the health of the control group is compared to that of the treatment group.

The argument that some people seem to be making is that if the "drug" (Rudd's stimulus package) is taken on today and you see an increase in GDP, then the spending package must have been good.

[brendan]

What is confusing about it?

If consumers demand more, producers will likely need to supply more thus an increase in market interraction and an increase in eco activity.

Higher eco activity gives the chance to increase growth.

When is confidence going to be higher? When the economy is slowing, or growing?

What has been the key to the recent i rate cuts, and this proposal if its underlying reason is not confidence?

Confusing in the sense that, what does it have to do with the Government spending plans?

[theduck]

Instead of handing out cash payments they should give these payments out in a different form i.e. a credit card which must be used by a certain date. I do realize this may be inflationary however if you stage the release of these credit cards over a period of time then this affect should be lessened. Then the argument of well this may not provide enough stimulus because it is occuring over such a long period of time however those people must realize that it is better than the next best alternative of cash payments which some may never actually spend but instead save. The subsiding of essential services is also flawed as it does not create economic activity rather save in the expense of using these services on the consumers behalf  as if they are essential then demand will be high no matter the price (inelastic). Why not increase funding for our hospitals so that waiting lists for elective surgery is cut down while economic activity is being created, furthermore hospitals are much more likely to invest in capital goods as many are currently unable to do due to a lack of funding.