truemuse,

Yes, of course the provincial aspect and seeking power selectively, plays a role. Your points are well taken, even the ones about municipal demands for more power.

But that does not do away with the fact that when the BQ runs in a federal election, they will never have to present an economic plan for the whole country; they will never have to present an overal plan for anything other than for their own little corner of the country. Besides, they will never have to run 308 candidates, and they will never have to organize right across this country, dealing with different aspects within this country. That difference in and of itself gives them more power than a real threat of separation might ever have provided.

A lot of Canadian seemd pacified now that the seemingly real threat of separation is gone, but this largely ‘unseen’ threat is much more dangerous precisely because it is mostly unseen, or unspoken about. The BQ is now safely flying under the radar. And I believe that is what they want, and we should never aid them within such pursuit.

I look at the top of the thread, it’s about fiscal stimulus.

I look at the bottom of the thread, it’s about the Bloc Quebecois.

Well done job of changing the subject, guys! Go Team ConBot!

In any case, government spending is enormously preferable to tax cuts because tax cuts are often just hoarded in this environment. Spending is, well, spending; it’s consumption that helps get the wheels going again. Raging Ranter’s long (if illusory) list of supposed bad spending aside, that’s basic macroeconomics.And, yes, it does work; the New Deal proved that.

(The war was the major factor, but things were already changing long before Pearl Harbor; the problem was that FDR relented and chased budgetary surpluses in 1937 precisely as his reforms were taking effect. Krugman’s been hitting that one hard of late.)

And, RR, why on earth are you blaming Canada’s early 1990s recession on “fiscal stimulus”? That recession was caused by two things: John Crow’s quixotic attempt to create deflation (of all things) through ridiculous interest rates, and the international recession happening at the same time. It wasn’t caused by Rae, or Chretien, or stimulus packages, any more than the boom in the U.S. in the late 1990s was created by Newt.

(It was actually a side effect of DARPA’s networking research–DARPA’s government funded networking research.)

Yes, fiscal stimulus does matter, and a brace of post hoc ergo prompter hoc arguments doesn’t change that.

Oh, and Francien, the problem with saying “let’s wait until Obama executes his stimulus package” is that, like America, Canada might not have that long.

That’s why the big 3 went to Washington; and as much as a pack of idiot internet trolls might like to pretend otherwise, the demise of the North American automobile industry is something that any sensible policymaker and economist would seek to prevent.

Hah! I missed this:

One does not truly pass economics until one thoroughly rejects the Keynesian econobabble about “stimulus” and other such nonsense. Yes, government has a stabilizing role to play, but it has little influence over the depth or duration of an economic downturn. Whatever stabilizing role the government can play, it is already built into the system. Even Bob Rae admits to have learned his lesson. (Exactly what lesson he isn’t sure, but admitting to a problem is the first step towards recovery – he should be commended.)

Yeah, there’s a recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2008 that would like to have a word with you about that whole “Keynesian econobabble” thing.

Stop pretending to expertise you don’t have.

Demothsenes, I was quite clear that government spending DOES NOT cause recession or growth. My whole point is that government spending is inconsequential and ineffective in reducing the depth and duration of recession. So are tax cuts. It is the whole concept of fiscal stimulus that is illusory. If the most recent example of successful fiscal stimulus that you can come up with is FDR’s New Deal, implemented at a time when government spending accounted for only a tiny percentage of GDP, then “basic macroeconomics” needs rethinking.

As for John Crow, he ushered in 15 years of price stability, which we are more or less still enjoying today. Until recently, we enjoyed the longest period of uninterrupted economic growth ever recorded. That wouldn’t have happened had John Crow not slain inflation in the early 90s. Yes, his high interest rate policy certainly made the recession worse, as monetary tightening will do. That was the price we paid for excessive inflation in the late 1980s. After 20 years of stubborn, persistent inflation, only a long, deep recession can snuff it out. There is no other way. (We’d have had a recession, John Crow or not mind you, but his severe tightening certainly made it longer and deeper.) Once you kill inflation, it can, with appropriate central bank discipline, remain dead without the need for such extreme tightening. And we are quite fortunate that the BoC has never returned to its reckless ways of the 1980s. Unlike the Federal Reserve in the US, which has flooded the world with cheap money and excessive debt. Not that the BoC has been perfect – they’ve been far too loose for far too long for my liking. But they never went to the excessive easy money policy that Greenspan did, even as our dollar hit $1.10 US earlier this year and squeezed off exports. That showed some discipline at least.

As for your assertion that fiscal stimulus is “basic macroeconomics”, of course it is. And basic macroeconomics is fundamentally flawed. It has only one answer – stimulating aggregate demand (i.e. consumption) – regardless of what the problem is. What if consumption isn’t the problem? What if consumption – and therefore debt – is already excessive? The Economics 101 answer: “We must stimulate even more consumption!”

The great irony of all this is that it is highly unlikely that even Keynes, were he still alive, would recommend deficit spending today. Keynes favoured an expanded government, but he did so at a time when government was absolutely tiny. There was no safety net, no UI, no public healthcare, nothing. Now we have ALL those things. And government spending, instead of being at 12% of GDP (see hosertohoosier’s post at 18:23 for the figures), is at approximately 40% of GDP. Keynesian economics was hijacked, its theories bastardized, by academia. Nowadays it is also promoted by desperate investment gurus and bank economists who pray that some massive government intervention will work well enough (maybe this time!) to save their jobs.

Demothsenes, the only people pretending to have expertise are the economists who talk as if the field of macroeconomics is a hard science with predictive value. They gather in mutual admiration societies and hand out little prizes to each other. Carlos Leitao, the first economist quoted in Paul’s post, won an award two weeks ago for having the most accurate forecasts. (Actually I think he came in second, but he got an award).

Economic forecasting is a sham. Yet these clowns actually believe that they can forecast, with precision, things like the unemployment rate, CPI, interest rates, etc., for each quarter, sometimes for each month. And they hand out awards to each other for it! Out of 140 economists, or however many were considered for the award, certainly a few of them will be accurate. Just like approximately 1 in 14 million tickets will win the 649 each week. And a handful of mutual fund managers will outperform the others, even making money in a bear market. The holder of the winning ticket is not an expert, merely lucky. But at least he’ll understand that he was lucky. The economist with the winning numbers? He gets a prize.

I don’t have the expertise. The difference is, I know I don’t have it. I also know that the practitioners of modern economics don’t have it either. I was quite fortunate to have had two different economics professors who were willing to tell us outright that much of what we were learning was bunk, and that if we really wanted to understand economics, we’d have to research well outside the accepted curriculum. We were also warned that no matter how well we came to understand it, the predictive value of macroeconomic knowledge was close to zero. (Microeconomics can be somewhat more accurate because you’re dealing with individual units, not aggregates.)

Obviously you’re not going to take my word for it. But enlighten yourself sometime by reading Nassim Nicolas Taleb’s The Black Swan . He’s got Ph D.’s in both mathematics and statistics. He teaches at Harvard, where he heaps scorn on the idea that advanced mathematics and statistics can be applied to economics to allow it to become a precise, or “hard” science. Interestingly enough, he has praise for both Keynes and F. A. Hayek. It’s Keynes’s alleged devotees and their cumbersome crackpot mathematical models with whom he takes issue. He writes with humour and wit, and absolutely skewers fund managers, bankers, investment gurus, and anyone else who has deluded themselves into thinking they can predict the markets and/or the economy. I’m sure you’ll find it much more enjoyable than wading through my long dreary posts.

Demos, here are two other winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel:

Myron Scholes
John C. Merton

They won the 1997 Nobel Prize in Economics. Less than a year later, the hedge fund they were managing blew up, requiring a $1 billion rescue package. Even that wasn’t enough, and it folded for good in 2000. The fund was called Long Term Capital Management. Ring any bells?

Myron Scholes was author of another farcical money management tool known as the Black-Scholes Options Pricing Model. The use of this model has been nothing short of a fiasco for numerous money managers and options traders. It’s predictive value disappears in volatile markets. It’s proved to be an intellectual fraud. Yet money managers still use it, for managing your money. Because they have nothing else. Worse than that, Harvard MBAs (and MBAs everywhere) are still learning it, as part of Modern Portfolio Theory (another intellectual fraud, as the recent performance of numerous fund managers, investment gurus, and risk managers clearly demonstrates). They teach it because they too, have nothing else.

There are some good economists who have one the Nobel Prize. Not sure who won it in 2008, though if he’s a Neo-Keynesian, he isn’t one of the good ones.

About that Nobel Prize in Economics, the Nobel family still wants it to stop using Alfred Nobel’s name. They claim he was opposed to an economics award, because he didn’t believe it was a hard science. That’s why he never set one up. So economists waited until he was dead, and set up their own trust with which to pay for awards – in memory of Alfred Nobel. Come to think of it, stealing the Nobel name in order to allow economics to masquerade as a science is as close as economists are likely to get to admitting that there’s really isn’t a hard science.

>In any case, government spending is enormously preferable to tax cuts because tax cuts are often just hoarded in this environment.

I assume you mean the latter part of the sentence (“in this environment’”) to be a caveat to the first.

In effect, people who are nervous about converting their cash and savings into goods and services have to be forced to covert – and not into something they might want or need, but something someone else deems appropriate. Is that supposed to make people more or less nervous about converting their remaining cash and savings?

Cutting taxes won’t necessarily achieve the opposite effect – providing people with a margin of cash above whatever level it is they wish to “hoard” – but it has the singular advantage that no-one has to guess what would be a useful spending target.

It is entirely possible to spend without a useful result; the urgency in some quarters to spend and assumption that governments can do no wrong by spending are unwise and unsupportable.

The banks do not seem to need any more money; what the Big 3 domestic auto manufacturers are looking for is bridge loans or grants to carry them through until next spring (and then what after that?); topping up the EI fund (why immediately and not wait to see whether the fund is already sufficiently large) and enlarging other safety net programs are not fiscal stimuli. Where, exactly, would the proponents of fiscal stimuli have us spend?