In which Robert Reich and Tim Geithner red-line my BS meter

posted at 9:30 am on August 4, 2010 by King Banaian

I won’t assume Tim Geithner and Robert Reich coordinated their pieces yesterday, but both are of a piece with the latest meme on economic policy from the Administration’s supporters.  This goes either “it could have been worse” or “you don’t know how bad it would have been.”  Twittered to me by “ParisParamus” last night, here’s Reich:

Consider the stimulus package. Although it’s difficult to separate the consequences of fiscal and monetary policy, most knowledgeable observers conclude that the stimulus has had a positive effect. Real GDP is now increasing at an annual rate of 2.4%, and although the recovery is still fragile it’s unlikely we’ll fall back into a full-fledged recession.

“Difficult to separate”?? The reason it’s difficult is that you need a model of how the economy works to do that. Blinder and Zandi tried that last week. If you have a different model, you get a very different answer. John Taylor, at least, does not agree with how that study was done.  We simply don’t know if it had a positive effect.  I make the probability of “zero or negative” effect less than 50%, but the range of my estimates is very broad, imprecise, uncertain.  I think I qualify as a “knowledgeable observer” when I say “I don’t know that the stimulus has had a positive effect.”

Reich again:

In fairness, no one knew how sick the economy was in February 2009 when Congress approved the initial stimulus. Yet by late spring 2009 the White House knew the extent of the damage and should have pushed much harder for significantly more spending. Almost a third of the initial stimulus, moreover, came in the form of temporary tax cuts, which already had been proven relatively ineffective at spurring demand after President Bush tried them in 2008. And many states were engaging in reverse stimulus policies, slashing spending and increasing taxes. The administration knew its stimulus was not nearly up to the job.

Anyone reading my Twitter feed Monday night should know this is the paragraph where I popped a gasket. Where to begin?

  1. There was at the time and remains to this day a great deal of uncertainty about “how sick the economy was in February 2009.”  The Administration said repeatedly in February 2009 that they were comfortable with the size of the stimulus package; Brad DeLong was saying in June they thought the stimulus should have been 2.5 times the size it was.  But the Administration had bought their own estimate of potential GDP and the size of the gap they had to close.  (See also this from Michael Kiley.)
  2. On July 12, 2009, Geithner was quoted on CNN saying “I think all economists believe, and this was inherent in the design of the program, that the biggest thrust or force would start to take effect in the second half of this year. And we’re going to start to see that happen. But I don’t think that’s a judgment we need to make now, can’t really make it now prudently, responsibly.”  It did not know “its stimulus was not nearly up to the job.”  It thought in summer that indeed it WAS up to the job.
  3. There is no one model, or even one measure of potential GDP.  Truth is, we’re all over the place.  At no point does Reich show any understanding of that which he asserts so glibly.  I am utterly astounded by how thoughtlessly he asserts these things.
  4. As to those ineffective tax cuts, The Administration’s CEA reported that they estimate those silly tax cuts contributed 1.7% of GDP gap closing and 1.4 million jobs “saved or created.” Even Romer’s own academic paper shows an effect of tax changes on GDP.  (Relatedly, I have yet to watch Robert Barro’s AEI speech, but the slides look worth reading.)

Geithner, meanwhile, plays this little trick:

The new data show that this recession was even deeper than previously estimated. The plunge in economic activity started an entire year before President Obama took office and was accelerating at the end of 2008, when G.D.P. fell at an annual rate of roughly 7 percent.

There was none of this concern about re-estimated GDP in 2009 when setting the size of the stimulus. We knew the start of the recession was December 2007 on December 1, 2008, six weeks before the Romer-Bernstein memo.  The GDP figure at end of 2008 was $75 billion less than had been estimated.  Given your administration’s estimate of a multiplier of 1.56, that implies your stimulus package was short by about $48 billion.  Most of the downward revision was in 2009, meaning your policies were even less effective than previously thought.

Panicked by the collapse in demand and financing and fearing a prolonged slump, the private sector cut payrolls and investment savagely. The rate of job loss worsened with time: by early last year, 750,000 jobs vanished every month. The economic collapse drove tax revenue down, pushing the annual deficit up to $1.3 trillion by last January.

So the passage of stimulus in February 2009 did not stop the panic. Glad to have that on record. As to the # jobs vanishing, this 750,000 is a measure of the peak, true for two months (ok, we’ll give you three, though February 2009 was actually 726,000. Close enough for government work.) As to “the economic collapse drove tax revenues down”, the state of the economy is removed from the cyclically adjusted budget deficit by CBO, and that was 7.5% in 2009, 6.5% in 2010.  Their estimate shows that even if we were at full employment, the budget deficit would still be $1,018 billion.

Do they even bother to read their own government reports?

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Related satire: Democrats Tout Their Role in Stopping Employer Interrogation Program

Mervis Winter on August 4, 2010 at 9:34 AM

Do they even bother to read their own government reports?

Do the demorats in Congress read their own bills before voting on them?

Does PBHO hate golf?

Is Pete Stark sane?

Bishop on August 4, 2010 at 9:36 AM

…most knowledgeable observers conclude that the stimulus has had a positive effect.

Because anyone who disagrees is obviously a stupid poopyhead who dosen’t know anything.

DamnCat on August 4, 2010 at 9:38 AM

Can I be the first in this thread to use the “Bush’s fault” meme? Thank you, I think I will.

di butler on August 4, 2010 at 9:40 AM

…the private sector cut payrolls and investment savagely.

Savages! If only they were more refined and knowlegeable like their betters in government.

DamnCat on August 4, 2010 at 9:42 AM

most knowledgeable observers conclude that the stimulus has had a positive effect.

“Most knowledgeable”? Did you give them a test or what?

Akzed on August 4, 2010 at 9:42 AM

Do they even bother to read their own government reports?

those reports are hidden under their ideology manuals…

ted c on August 4, 2010 at 9:43 AM

I knew those articles were bullshit because Das Stimulus was a farce from the beginning. Wasn’t the problem with the stimulus that it was packed with pork and political favors? That was the only way it was “targeted.” The rest was literally throwing money at people. It was insane.

So to attribute some intended effect from it is a joke.

GTR640 on August 4, 2010 at 9:43 AM

Reich is a commie … Surprise surprise.

tarpon on August 4, 2010 at 9:46 AM

Why do these tools still believe that throwing $800 billion out the window had a snowball’s chance of convincing a businessman in Atlanta not to lay off people when his sales plummeted? Why do they not understand that employers panicked when they started hearing the anti-business rhetoric from this Administration and Congress before Obama was even inaugurated? How could they not see that the stcok market tanked the day after the first Obama budget was released and read like a rewrite of Das Kapital?

rockmom on August 4, 2010 at 9:48 AM

Where is all this unspent stimulas money I’ve been reading about for the last year?

Jaynie59 on August 4, 2010 at 9:50 AM

Treasury Secretary TurboTax Geithner the well known tax evader is indifferent to tax increases while Lollipop Guild chairman Robert Reisssssshhh hints at how bad the economy was in February 2009 after already having been under control of his fellow Democrats for two years by that time.

What’s wrong with this picture? Everything.

viking01 on August 4, 2010 at 9:51 AM

“stupid poopyheads” covers it for me.

ORconservative on August 4, 2010 at 9:51 AM

They’ve done nothing to give the private sector any confidence in the future that would cause them to start spending (Hiring). Indeed, they have done their best to scare the crap out of them with voluminous bills that are still being de-ciphered and the possibility of more to come. The government uncertainty factory is producing at full capacity!

cartooner on August 4, 2010 at 9:51 AM

Do they even bother to read their own government reports?

Those reports aren’t there to be *read*! Silly man!

Those reports mere show that we have done something with our time, and justify that tiny paycheck we receive every two weeks.

It’s not like anyone is actually going to read these reports before voting for whatever position supports them personally, now is it?

/Gvt. employee off

NavyspyII on August 4, 2010 at 9:53 AM

Classic Alinsky…always move the goal post…Constantly say “It’s a good start but, we have to keep going with what we’re doing. It just wasn’t quite enough.” Enough is never enough with an Alinskyite. That way, they can’t be blamed for anything and they have the chaos that they thrive on.

indccc on August 4, 2010 at 9:55 AM

This really is unforgivable coming from Robert Reich, who is a trained economist and former Labor secretary. He of all people should know that this recession is qualitatively different from previous ones, and unemployment isn’t going to be reduced by fiscal stimulus in the form of more government borrowing and spending. The people thrown out of work by this financial crisis and subsequent consumer panic are not going to take jobs digging ditches or renovating schools. They are mostly retail and white-collar workers.

rockmom on August 4, 2010 at 10:03 AM

Do they even bother to read their own government reports?

Read reports? They don’t even read bills why should they read reports.

USMCDevilDog on August 4, 2010 at 10:05 AM

Almost a third of the initial stimulus, moreover, came in the form of temporary tax cuts, which already had been proven relatively ineffective at spurring demand after President Bush tried them in 2008.

So if tax cuts are considered so ineffective, then why does The One continue to tell us how he gave 95% of the public tax cuts?

Mo_mac on August 4, 2010 at 10:09 AM

Didn’t Reich once say something along the lines that if everyone was taxed over 250K or 500K or something like that, and that every dollar over that limitwas taxed, then the govt would make X amount of money. I am pretty sure he said something along those lines in the early 90′s working for Clinton.

The actual dollar amount don’t work because it is pure stupidity. If I am a renowned surgeon and make 1 mil a year and you tell me the max amount of money I can make is 500K, then I will combine my practice with another surgeon and we will both work 6 months a year.

Reich may have been able to regurgitate theories he has heard in college, but understanding how they work and memorization of theories are two entirely different things.

jeffn21 on August 4, 2010 at 10:17 AM

Bah! That should be above The actual dollar amounts don’t matter…

jeffn21 on August 4, 2010 at 10:18 AM

The people thrown out of work by this financial crisis and subsequent consumer panic are not going to take jobs digging ditches or renovating schools. They are mostly retail and white-collar workers.

rockmom on August 4, 2010 at 10:03 AM

Speaking for myself, I’m willing. Problem here in AZ, most jobs require being bi-lingual so you can talk to your co-workers. I was one of the only 3 English speakers working at an auto salvage yard and we were the only ones laid-off. Not that I’m bitter about it… /

Jeff2161 on August 4, 2010 at 10:22 AM

most knowledgeable observers

(that’d be me)

conclude that the stimulus has had a positive effect.

Riiiiggghhhttttt…….

N. O'Brain on August 4, 2010 at 10:23 AM

EVERY dime taken by the Feds is a dime not available to spend elsewhere.

WHY is this so hard to understand? It isn’t even economics, its basic common sense or physics(money can’t be in two places at once).

DavidM on August 4, 2010 at 10:26 AM

Only God can understand an economy. Get out of the way of the people Tax Cheat Timmy.

Mojave Mark on August 4, 2010 at 10:26 AM

rockmom on August 4, 2010 at 10:03 AM

I learned Robert Reich didn’t know a damned thing about economics when I heard him talking about a “living” wage. I have tuned him out ever since.

Kafir on August 4, 2010 at 10:32 AM

This doesn’t speak well of Pelosi’s claim that the best form of stimulus is unemployment compensation, where every $1.00 spent returns $1.40.

Question to Nancy: Where’s the 40% return? Maybe you should talk with Lil’ Timmy and tell him we are actually in a $400B surplus annually.

BobMbx on August 4, 2010 at 10:48 AM

Speaking for myself, I’m willing. Problem here in AZ, most jobs require being bi-lingual so you can talk to your co-workers. I was one of the only 3 English speakers working at an auto salvage yard and we were the only ones laid-off. Not that I’m bitter about it… /

Jeff2161 on August 4, 2010 at 10:22 AM

No habla. Where eees my freeee dinero?

BobMbx on August 4, 2010 at 10:49 AM

I think this is all about this:

http://www.politico.com/news/stories/0710/40242.html

Not this article specifically, but this concept. It’s a commentary about the fact that we’re at 17 months for Obama’s recovery package and he’s got nothing. In comparison to Reagan, who the media is furiously comparing his numbers to, who at 17 months was at the beginning of his sharp recovery & the Reagan boom. Obama of course got his package in February and Reagan’s tax cuts didn’t go through till August, so there is a lag time for Reagan.

lizzie beth on August 4, 2010 at 10:49 AM

Now what was that button…. ahhh…

‘If you laid all the economists of the world end to end they would all point in different directions’

If you don’t have a model that can model past policies and economies you have little chance of modeling current ones. Any other ‘model’ is wishful thinking with math thrown at it, especially if you don’t qualify and quantify the measurements and their limits. After that the rule of thumb is – every buck from my pocket that goes to government has 45% waste in it for non-productive overhead. I can spend that buck way better than the government ever can, and when they weaken it by being free spenders trying to inflate a bubble economy the only result is hyper-inflation. The bubble, she is popped. Geithner and Reich should be busted for perpetrating, aiding and abetting fraud on the American people.

ajacksonian on August 4, 2010 at 10:50 AM

Do they even bother to read their own government reports?

If I were them I’d be looking at the real data, not the crap they feed to the rest of us.

FloatingRock on August 4, 2010 at 10:53 AM

Prof. Banaian, you deserve the Nobel Prize that the socialists in Norway gave to the American socialist Paul Krugman. I’ve wondered for years how SCSU, an extremely leftist institution, tolerates a supply side economist like you as a department head. But it is great that students there do not learn economics from a Krugman textbook, like my nephew currently has to at a prominent eastern school.

You do not stimulate an economy (for long) by giving other peoples’ money to unions or other politicians.

simkeith on August 4, 2010 at 11:03 AM

It’a all hocus pocus.

These Ruling Class criminals are not constrained in any way by the truth.

The American people know what happened, and they know the economy wasn’t in a recessions in the summer of 2008 but was so by the time the election was over.

And they know that it was caused by the criminal government loans-for-deadbeats programs.

And they know that the stimulus was simply a political payoff to the criminal Obama’s supporters.

And they know that the depression will never end until the criminals are frog-marched to the guillotine.

notagool on August 4, 2010 at 11:28 AM

It’s almost as if they were trying to stimulate something else besides the economy. Something like, say, votes perhaps?

Lily on August 4, 2010 at 11:39 AM

Do they even bother to read their own government reports?

Magic 8-ball sez: “Unlikely”

Vyce on August 4, 2010 at 11:39 AM

Before they address whether the size of the stimulus package was appropriate to the need, they might inquire whether the Dems used the money to feed their favorite constituencies and programs, regardless of whether such spending was stimulating, or whether most of it was to be spent in the coming years. In other words, whether the stimulus package was even designed to stimulate, or whether it was a windfall opportunity to spend money they would not have otherwise had.

NNtrancer on August 4, 2010 at 12:17 PM

No habla. Where eees my freeee dinero?

BobMbx on August 4, 2010 at 10:49 AM

Uh no, there is no free lunch… You must check your “cinco de quatro” for that.

ExpressoBold on August 4, 2010 at 12:23 PM

I have a very simple model, to wit, if Republicans screw up as badly as they did under the Hoover administration, the next adaministrtion will make it much worse. So far my model is working perfectly. I still have hope that Obama will leave in 2013, but I am glad we have the twenty second amendment.

burt on August 4, 2010 at 12:26 PM

Where is all this unspent stimulas money I’ve been reading about for the last year?

Jaynie59 on August 4, 2010 at 9:50 AM

I think they are saving the money for the election to help get some of their progressives elected. I really do think that is what they will do with it. Plus to pay the unions for helping obama with the election.

Bambi on August 4, 2010 at 12:39 PM

Whoops, should’ve ended the quote.

Bambi on August 4, 2010 at 12:40 PM

“This goes either “it could have been worse” or “you don’t know how bad it would have been.”

.
“It could be worse”

mrt721 on August 4, 2010 at 12:44 PM

ExpressoBold on August 4, 2010 at 12:23 PM

Actually there is free lunch here. I’m not kidding. There is free lunch all summer at the elementary schools and signs all over town advertising it. Bilingual signs.
No qualification necessary just free lunch.
Honestly none of it makes sense to me. I think these socialist idiots are talking about Monopoly money.

ORconservative on August 4, 2010 at 12:54 PM

I can’t stand Reich. I often watch Kudlow’s CNBC news at 7pm because I can’t tolerate Shemp Smith, but Reich is a frequent guest on Kudlow’s show which is the downside.

slickwillie2001 on August 4, 2010 at 1:46 PM