Random Links XIV
CDO Loss Watch:
Tax Rebate Stimulus: http://economicsofcontempt.blogspot.com/2009/01/tax-rebates-as-stimulus.html
Interesting. The ’01 & ’08 tax rebates, widely panned by commentators, apparently weren’t quite as un-stimulating as suspected.
Hamilton on Potential Output: http://www.econbrowser.com/archives/2009/02/the_paradox_of.html
He’s mainly discussing stimulus & the paradox of thrift, but also had this fascinating (to me) line:
where I may disagree with some of my colleagues is in their presumption that wage or price rigidities are the core frictions that are responsible for producing the present situation. I have in my research instead stressed technological frictions. For example, when spending on cars abruptly falls, there is a physical, technological challenge with getting the specialized labor and capital formerly employed in manufacturing cars into some alternative activity. In my mind, it is a mistake to pretend that any federal program is capable of immediately re-employing those resources into an alternative, equally productive enterprise. More fundamentally, I have suggested that our present situation is as if someone had quite successfully sabotaged the basic functionality of our financial system. Until we once again have a financial sector that can successfully allocate credit to worthy projects, we’re not possibly going to be able to produce as much in the way or real goods and services, no matter what the level of aggregate demand or stimulus package might be. In terms of the textbook Keynesian models that people play with, I’m suggesting that “potential” GDP growth for 2009:Q1– that growth rate which, if we try to exceed it by stimulating aggregate demand, we primarily just get more inflation– is in fact a negative number. I do not accept the proposition that there is a level of government spending– however large a number you choose to suggest– that will prevent the unemployment rate from rising above 8%
I found this an interesting contrast with the notion (see, e.g., here) that potential growth remains unaffected by the credit crunch, and that sufficiently large fiscal stimulus is all that’s needed to restore growth. If potential GDP growth is in fact negative, then a large stimulus may be unnecessary, since the “output gap” to be closed thereby is much smaller (and may even be nonexistent). Another implication of the above is that fixing the financial system should take priority over stimulus, since so long as the former remains undone, the latter will prove a temporary palliative at best.
Related to the above, here’s a post on the notion of “technological regress”: http://www.econbrowser.com/archives/2009/02/the_current_dow.html
Shovel Ready (Un)Defined:
Stimulus & Governmental Size:
How differing notions re. the size of government may affect the stimulus debate.
Irving Fisher & Debt Deflation:
Balance Sheet Recession:
Great Depression Overview: