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January 08, 2009
Wisdom from Arnold
Russell Roberts
Arnold Kling channels Hayek on the stimulus plan. Lots of insight. An excerpt:
How many people will have meaningful input in determining the overall allocation of the billion stimulus? 10? 20? It won't be more than 1000. These people--let's say that in the end 500 technocrats will play a meaningful role in writing the bill--will have unimaginable power. Remember that what they are doing is taking our money and deciding for us how to spend it. Presumably, that is because they are wiser at spending our money than we are at spending it ourselves.
The arithmetic is mind-boggling. If 500 people have meaningful input, and the stimulus is almost $800 billion, then on average each person is responsible for taking more than $1.5 billion of our money and trying to spend it more wisely than we would spend it ourselves. I can imagine a wise technocrat taking $100,000 or perhaps even $1 million from American households and spending it more wisely than they would. But $1.5 billion? I do not believe that any human being knows so much that he or she can quickly and wisely allocate $1.5 billion.
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" Presumably, that is because they are wiser at spending our money than we are at spending it ourselves."
I would argue that indeed they are wiser and more informed having some of the worlds top advisors, economist and business people advising them.
And they are not spending peoples money because most people don't have money to spend. Most people don't make enough money to even pay taxes. The people who do have money to spend ( the very wealthy) realize there is no demand for which to fill with their investment dollars so they are not spending either. All this is a big result of setting up rules and policies that drive and concentrate money to the top and send wages and savings down for the average American.
Ultimately the money they are going to spend will be that which has accumulated disproportionately at the top because of 30+ years of rule changes favoring them at the expense of the large middle class.
Barak said it well when he said Wall Street doesn't thrive if mainstreet doesn't thrive.
I would really like to know where contrarians like Mr. Kling think demand is to come from if not the government.
Finally, the market recently WAS allowed to allocate resources and provide risk for OUR money and it failed to the tune of Trillions of dollar. I doubt the government could do much worse but indeed what a great time to be a tenured economics professor pontificating from the sidelines with no real skin in the game.
Posted by: muirgeo | Jan 8, 2009 9:24:03 AM
Muirgeo,
Last night I deleted a set of comments that were a personal attack on you. This morning you make a personal attack on me or maybe Arnold Kling. Please limit your comments to the logic of the debate and not the motives or character of the participants. As for the logic of your argument, I encourage readers to respond to that logic without insulting you. I hope they can manage that.
Posted by: Russ Roberts | Jan 8, 2009 10:07:19 AM
muirgeo, you must be on a different planet than me.
Kling is right that this in unimaginable power in the hands of the technocrats. Even the super rich don't have $1.5B liquid to spend. Bill Gates can't just go drop $1.5B, nor Warren Buffett, nor probably to two of them combined. They may be able to direct those dollars into research projects, or buying other firms, but that would require corporate decision making, and they too would have advisors advising. And the difference is they have worked and earned that kind of scratch for their whole careers, the techno-crats have just been thrust a pile of money to deal with, if it works,(whatever that means) great, if it doesn't, they won't be punished, those technocrats also have no skin in the game.
Plus I don't understand your point about people not having money to spend. people are spending money everyday. still. I promise, i see 'em. Buying lunch, clothes, meds, education, lots of stuff. Maybe not as much as you would like, but that's weird of you to care how much or how little I buy. Its pretty strange to worry about where demand is going to come from, don't you think? As if the world has all taken a collective vow of poverty and will now live a more monastic lifestyle. And if it did, so what? They're would be less work and more leisure, they're would be more death and sadness, maybe, but if people get some kind of spiritual reward for letting go of material things, what can you do?
Needless to say, I don't think that's what happening here, that people have suddenly adopted a Zen lifestyle.
Some in the British elite used to say of the Blacks and the Irish that if they didn't force them to work, they would just be lazy all day, and the world would not be productive. You are saying, if we don't force spending, everyone will be all lazy and nothing will get done.
Plus while some people may not earn enough to pay income taxes, but everyone pays taxes. Sales, telephone taxes, tariffs, car taxes, don't be fooled, the gov't somewhere along the line has a plan to get ahold of your coinage.
Posted by: scott clark | Jan 8, 2009 10:16:21 AM
Hayek's insights about the division of knowledge and the impossibility of socialism all came out his his work on _investment_ theory and the economic use of changing, non-permanent _production_ resources. He was working on this problem in trade cycle theory, and began to see the same problem in terms of socialism and Walsarian/socialist models of "general equilibrium".
"Hayek" without the understanding of Hayek's work on investment theory and the economic use of non-permanent productive resources is kind of like John Ford without the pictures.
Posted by: | Jan 8, 2009 10:32:51 AM
"I would argue that indeed they are wiser and more informed having some of the worlds top advisors, economist and business people advising them."
By this logic, the President MUST have been correct in going into Iraq, since, you know, he had some of the world's best advisors, military strategists, and the finest firepower in the world...
By this logic, Alan Greenspan (who I know is NOT a politician, though he influence(d?s?) policy) MUST have been correct in leaving interest rates so low for so long. Since, well he had the top economic advisors in the world running the numbers...
To say that politicians (the same politicians that created the mortgage interest deduction, fannie mae, freddie mac, $250,000 per taxpayer exemption on home loan gains, and allowed the SEC to be totally useless) are wiser than the taxpayer is a pretty laughable argument.
Posted by: Gary | Jan 8, 2009 11:10:37 AM
The idea of "the economy" is a social construct. Macro is political. The idea that the politicians are redistributing the money because they are wiser is absurd. They are redistibuting the money because they want to and because they can.
Posted by: Randy | Jan 8, 2009 11:40:32 AM
"I can imagine a wise technocrat taking $100,000 or perhaps even $1 million from American households and spending it more wisely than they would."
Arnold has an overactive imagination. I have an excellent imagination and I can't imagine that.
Posted by: vidyohs | Jan 8, 2009 11:41:53 AM
I'm sure the late, great Soviet Union had many very smart bureaucrats allocating their national resources. How did that work out?
Posted by: Max | Jan 8, 2009 11:45:49 AM
The structure of the criticism seems strange to me. Is Kling implying that our powers of decision (allocation) grow less acute as the amounts grow larger? I think Hayek (and I alongside) would say that the wisdom of the technocrat falls short even in allocating the first penny. If anything we could offer a limited defense of some large allocations as a way to solve coordination problems, but as for small amounts I see no reason why the problem of allocation is easier at the margin than it is in toto.
Posted by: bbartlog | Jan 8, 2009 11:47:37 AM
"And they are not spending peoples money because most people don't have money to spend."
Muriego-
If they are not spending the people's (taxpayers) money, who do you contend is paying for it?
If they spend and tax it back in the future - it's still the people's money.
If they print the money, it devalues the dollars the people already have - it's still the people's money.
There is no magic button where government can create real money. Their deficit efforts will all be paid through devaluation.
People will not spend so long as the government keeps clouding up the water by splashing up dirt with every action it takes. We need to let it settle at the bottom to make sound financial decisions. Until that environment arrives, spending will remain low.
Posted by: Seng | Jan 8, 2009 12:04:51 PM
bbartlog,
Yep, what I said you said better.
BTW all, perhaps Obama could do some good by directing those wise bureaucrats to buy heaters and heating oil and ship it to Alaska to combat all that Global warming they are undergoing.
http://news.yahoo.com/s/ap/20090108/ap_on_re_us/alaska_extreme_cold
However, look for a bill requesting heaters and oil to be altered by the time it makes it out of committee and to the floor to become refrigerators and Freon.
Posted by: vidyohs | Jan 8, 2009 12:08:34 PM
Finally, the market recently WAS allowed to allocate resources and provide risk for OUR money and it failed to the tune of Trillions of dollar.
I was wrong, George is very imaginative, that, or he just copies the lefty/progressive dialog. IAC, someone is very imaginative to produce such a narrative of recent events.
Apparently, the market is always to blame no matter how extensive the government intervention, and the intervention is always blameless.
Posted by: Sam Grove | Jan 8, 2009 12:44:15 PM
All this is a big result of setting up rules and policies that drive and concentrate money to the top and send wages and savings down for the average American.
After a statement like that, one would imagine a recommendation to get rid of all the rules and policies. Noooooooo! It wasn't the fault of rules and regulations. It was all fault of market with no rules..
Finally, the market recently WAS allowed to allocate resources and provide risk for OUR money and it failed to the tune of Trillions of dollar.
Posted by: Oil Shock | Jan 8, 2009 1:34:49 PM
Oh, yeah, it's all about intentions.
That's why the "right people" have to be put in office. The "right people" would have the "right" intentions and, obviously, the right intentions are all that is required to produce the desired results.
Simple. The failure of the GOP to produce good results is because it is a vessel of "bad" intentions.
Once the "right intentions" are wielding the armed might of government, then right results will naturally follow.
Posted by: Sam Grove | Jan 8, 2009 2:14:19 PM
Most professional economists who appear in the media leave me dumbstruck.
It feels as though I have stumbled into a geology department and been told that the earth is flat. Mainstream economists are not just a little wrong, they're so completely wrong that I watch and listen aghast. 'Have they been brainwashed?', I think to myself, 'is the illuminati behind this?'. The prescriptions of many economists are a recipe for diasaster; if I wanted to destroy the economy, then I would recommend as they do. And they just sit there with a smile and confident pose. This is just crazy, it is as though hardly any of them accrued even a slight knowledge of economics when "earning" their qualifications.
It is almost dogma that Americans do not need to produce in order to consume. Consumption "drives the economy", they tell us. But it is all nonsense. Government policies have induced Americans onto self-destructive course. Producers and governments in places like China have been duped into accepting worthless dollars so that Americans can live the delusion a while longer.
The Fed has just pumping the economy full of fake credit. Real credit sees its purchasing power eventually return to the economy, but the Fed never lets this happen. It has all been pretend, and while suppliers were fooled Americans forgot how to produce.
The wealth of nations is not created during the inflation, or Fed-induced boom, it is squandered. Wealth is created during the bust, people produce to pay for all the consumption enjoyed previously (a deflationary pressure). Congress and the Fed refuse to let the market take its course, and are further squandering Americas wealth and reputation. Meanwhile, most mainstream economists are giving intellectual credibility to this disastrous action.
Posted by: Lee Kelly | Jan 8, 2009 2:50:43 PM
"Most professional economists who appear in the media leave me dumbstruck."
Posted by: Lee Kelly | Jan 8, 2009 2:50:43 PM
I agree with you Lee. I suspect that, hell, like everyone, economists are not above the seduction of power. They've seen an opportunity to have their ideas tested on a grand scale and they've seized it.
Too bad most folks don't realize the economy is not a laboratory...
Posted by: MnM | Jan 8, 2009 3:13:09 PM
Shorter muirduck:
The market sometimes fails, so we should scrap it altogether!
Posted by: Crusader | Jan 8, 2009 4:39:01 PM
"Congress and the Fed refuse to let the market take its course, and are further squandering Americas wealth and reputation. "
Lee Kelly - you assume these people care about America's privately held wealth and reputation. They are nothing less then modern day Bolsheviks intent on gutting what is left of the free market and putting themselves in charge sort of like Putin's mafia government.
Posted by: Crusader | Jan 8, 2009 4:40:48 PM
Shorter muirduck:
The market sometimes fails, so we should scrap it altogether!
Posted by: Crusader
No. Evolved intelligent creatures should plan their future and not trust in some Invisible Hand God. That's all. Nothing about scrapping markets just stimulating and making them competitive. Religion has no place in economic policy.
Posted by: muirgeo | Jan 8, 2009 5:14:50 PM
"Religion has no place in economic policy."
I agree. We should rid ourselves of the idea that "the economy" is something that belongs to "society" and is therefore subject to manipulation by the political class. In fact, I would recommend eliminating all forms of the religion known as progressivism from public policy.
Posted by: Randy | Jan 8, 2009 5:44:38 PM
"Evolved intelligent creatures should plan their future"
Agreed. They can and often do...on the individual level. That you think otherwise is condescending has hell. People don't need you.
"and not trust in some Invisible Hand God."
Another of your themes. Please, demonstrate to me just how we "trust...some Invisible Hand God"?
"Nothing about scrapping markets just stimulating and making them competitive."
Define market. Explain just how government stimulates them and makes them competitive.
"Religion has no place in economic policy."
Agreed; why the faith in central planning, doctor?
Posted by: MnM | Jan 8, 2009 5:47:09 PM
I should proof read. That should read "as hell."
Posted by: MnM | Jan 8, 2009 5:48:13 PM
"No. Evolved intelligent creatures should plan their future and not trust in some Invisible Hand God.
Posted by: muirgeo | Jan 8, 2009 5:14:50 PM"
LOL, I am reminded of what every battlefield commander since history began has written to educate us.
You can plan like hell and do it in exsquisite detail, but when the first shot is fired everything falls apart and you'd better have included maximum flexibility in your plans.
We can plan our futures, and we go out the door and find a bunch of idiots have elected a socialist with no experience in running anything...........ohhhhhhh sh............t!
The first shot was fired.
Posted by: vidyohs | Jan 8, 2009 7:01:47 PM
No. Evolved intelligent creatures should plan their future and not trust in some Invisible Hand God.
If that is an advice, then I agree. But that is an order, spit will fly in your face. And, stop trying to plan the economy of other intelligent creatures. You have no such right!
Posted by: Oil Shock | Jan 8, 2009 7:58:06 PM
Evolved intelligent creaturesYet, you really don't believe in evolution, you believe in intelligent design. It is very evident in all your communist leaning posts.
Posted by: Oil Shock | Jan 8, 2009 7:59:54 PM
"And, stop trying to plan the economy of other intelligent creatures. You have no such right! Oil Shock
Brilliant!
Don't expect a meaningful response to that, just as we won't see a meaningful explanation of anything on The List.
Mierduck and his Merry Band of Socialist Evangelicals want what you have, and are either too lazy or too ignorant to acquire wealth honestly. Want trumps right in their world.
In Mierduck's world, everything is property of the Political Caste. In Mierduck's world, everyone is property of the Political Caste.
Posted by: brotio | Jan 9, 2009 2:52:33 AM
brotio,
"In [Muirgeo's] world, everyone is property of the Political Caste."
This is already the case in the real world as well. Understand that when Muirgeo speaks, he is informing you of what you should think. In fact, he already insists. In the not too distant future, he will demand.
Posted by: Randy | Jan 9, 2009 6:19:48 AM
These must be the wise spending decisions I would want. From this article - http://www.usnews.com/articles/news/stimulus/2009/01/08/why-a-tiny-alabama-town-wants-a-375-million-chunk-of-the-stimulus.html
There's certainly no denying that Edwardsville has big ambitions. Through the various proposals, which include a renewable energy museum, scenic railroad, and vineyards, these small Alabama communities envision themselves becoming a cutting-edge demonstration project for energy sustainability and a hub for tourism.
.
.
.
Along with the more traditional proposals to replace streetlights with solar-powered lights (cost: $3,479,200), to install solar panels on the town hall (cost: $77,000), and to build solar-powered recharging stations for electric golf carts and vehicles (cost: $620,000), Edwardsville and Talladega Springs have assembled a set of even more far-reaching projects.
An outlay of $50.4 million, for example, would go toward installing water pipelines beneath roads to soak up the sun's rays, transferring heat. That technology is currently being used in the Netherlands, which found that while the cost of installation was double that of normal gas heating, the system halved the amount of energy required.
...AND THE REAL CHERRY LINE...
With big dreams, however, come big price tags.
....And big dream realization is especially easy if someone else foots the bill...
Posted by: Harry B. | Jan 9, 2009 1:03:56 PM
"Evolved intelligent creatures should plan their future and not trust in some Invisible Hand God."
Yes, I, and everyone else, should be responsibable for planning their own future. Please stop advocating taking my money away from me to give to someone else so they don't have to plan as well as I.
Please stop trying to "help" me, and just leave me alone. Thanks.
Posted by: Hammer | Jan 9, 2009 2:49:13 PM
You know, I did plan for my future...I figured that with inflation as it historically is, and with the bank I had, all I need to do was keep socking away cash.
Then we elected a socialist president who has announced plans to borrow/print so much money that it's going to send inflation to the moon, destroying the nice little nest egg I had saved up.
Volatile, reactionary, intrusive government makes it hard for us to plan.
Posted by: Josh S | Jan 9, 2009 3:00:42 PM
As I was thinking about the magnitude of this stimulus a couple of thoughts popped into my head. First, as we have recently read, state and local government pension funds are vastly underfunded. Why not take some of this stimulus and give it to these pension funds to shore up their long-term viability? The taxpayer is going to be stuck with this anyhow, so why not make lemonaide out of this pension lemon. If you understand how pension work, the stimulus money given to a pension plan isn't going to be paid out any time soon, but in future years. In the meantime, those pension funds would invest those funds primarily in bonds issued by corporations as well as state and local government. The net effect would be for much of this stimulus money to be guided by pension managers into the economy via traditional investment. It is a win-win. The pension funds become actuarily sound, and the money is wasted on some boon dogle.
The second thought is to provide a little education as to what this kind of money ($1.5 billion per bureaucrat) will buy. We need a chart that shows a ten story office building in Dallas costs $60 million, or a 100 mile stretch of inter-state highway costs $20 million. That way the layman can get an idea of the magnitude of what a billion dollars will buy.
Posted by: John S | Jan 9, 2009 3:47:48 PM
Josh S,
"Volatile, reactionary, intrusive government makes it hard for us to plan."
Very good point. Government "planning" is designed to benefit only the insiders. To the rest of us, such planning is actually anti-planning.
Posted by: Randy | Jan 9, 2009 6:47:09 PM
John S.,
I have been thinking of some way to create "political unit pricing" system like that we see at the grocery store, except applied to government spending, taxation, etc.
For example, and expenditure bill must show how much per head it costs, etc.
I would also suggest banning the use of "tax credit" and instead using "public subsidy" in its place.
Your idea is now included...
Posted by: Aaron | Jan 12, 2009 2:16:15 AM
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