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?

And no, I don’t attribute much value to my statements. I attribute very little value to the consensus forecasts and policy prescriptions of economists either.

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.

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.

That being said there are measures that this government should be taking. Mainly retraining and a large focus on higher education. It is obvious that the demand in the Canadian job market is changing. It is essential to come out of this recession/slow down with a better educated and trained work force. In the next ten years we will see an unprecedented level of retirement from the baby-boomers as they exit the workforce. You want to see an economic slow down and businesses leaving Canada??? Just wait until there are no skilled individuals to fill employers needs.

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.

“the demise of the North American automobile industry is something that any sensible policymaker and economist would seek to prevent”

and how would the “three stooges” (imagine) manage to do that??

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.

“So the Bloc is an old party. They are not reform. They balance this overall tendency toward dissolution through ‘change’ messages.”

Yes, exactly. The BQ is not reform at all. I believe the Quebec people are afraid of reform. They in fact hold back reform. And yes, to fool the Canadian public continuously with their cameleon characteristics is a sad state of affair. But that, I believe, is precisely the danger they present for the country as a whole. They pretend! And the rest of us pay!

Personally I don’t care much for pretend unity. I much rather have things in the open. Only there can real progress be found.

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.

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.

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.

Your point is well taken, and perhaps Harper should have proposed another date for cut-off from public subsidies, but I think he should not have backed down on the proposal of it.

My main point being that the public funding of the separatist party is negatively affecting the Canadian economy because since we have the constant thread of 50 BQ members sitting in Parliament, the chances for majority governments will be slim, now and in the forseeable future. And trying to run this country under minority governments for a very long time, will not benefit Canada at all. Our voting system is not set up for that, nor is the scale of the country such as it is.

The prospect of continual minority governments counts for the Liberal outlook at well. They too will be faced with the same dilemma. And for the Liberal party to not see that at this time is rather selfish, I think. But it gets even worse: The Liberals are not only complaining about the elimination of public funding for a separatist party; they are now willing to form a government in cahoots with the separatists. That is the ultimate insult to Canadians.

But my other question would be this:

Who will the GG call upon if the current government is defeated? Will it be the leader of the opposition or just any member within the house? That particular question has thus far not been answered, to my knowledge. “They” can say that the GG had no choice, but what will her choice be when calling in a particular person for forming this new government?

And if it can only be the leader of the opposition who is qualified for forming an alternative government, then what to do about Mr.Dion? Are the Liberals that desparate that they will ignore party leadership elections???? Will they now go ahead and rush this leadership contest through for short term political gain???

Interesting questions, methinks, but answers are lacking.

The ones who went joyriding? That would be Trrudeau, who was responsible for the structural deficits that took several decades to unwind.The ones who made it seaworthy? That would be Mulroney who laid the groundwork with the GST.
What I find remarkable is that it is the Liberals who are hyperventilating that Harper is not out there spending recklessly and yet all they talk about is how they are the ones who were there when the deficit turned around (thanks to Mulroney). They can’t have it both ways pretending they are the only ones who understand how to stay away from deficits and yey braying at the top of their lungs that the government is not spending more.

What’s really missing is a true debate. When we come to the real crux of the Canadian dilemma ( and propping up a separatist party with Canadian taxpayer’s money certainly belongs in that category), then the debate seems to stop.

“Since we all seem to agree that trying to cut off the party subsidies was mainly political rather than economic,”

I don’t think that at all ! I think the public funding of a separarist party is severely negatively affecting our Canadian economic outlook.

What are the long term trends in the economy? (The price of oil will not stay this low forever)

Will the environment still be a concern? (If so then we should invest in alternative energy now)

Is Asia still going to need more of our resources? (Most likely, then maybe we should have tax deductions to invest in our mining cie to make sure they have access to capital during this liquidity crisis all the while allowing Canadians a tax break which could make us all rich in the next up cycle)

Once we answered these pressing questions then and only then can we invest (not spend) our monies wisely for the benefit of all Canadians.

No. It does not matter how competently executed a policy is, if the policy itself is a product of incompetence.

Not only has Bush propped up the banks and brokerages and hedge funds with $700 billion, he’s bailed out Fannie Mae and Freddy Mac for $89 billion, and handed out BILLIONS in tax credits and emergency tax “refunds” DIRECTLY to consumers. He’s also run deficits for as many years as he’s been president. Keynesian economics is all about stimulating consumption. That’s why it’s called Keynesian demand management. That’s why Keynes’ major contribution to macroeconomics is called the Keynesian Consumption Function. It’s all about stimulating aggregate demand – under the belief that consumption is the only thing that really matters. Now, after an orgy of credit-fueled consumption that lasted the better part of 15 years in the US, and ten years in Canada, we need to stimulate aggregate demand?!! As long as it’s competently executed?

Until recently, the Conservatives have been criticized, with good reason, for unprecedented levels of government spending. Now they’re not spending enough???? How can I possibly think, even for one moment, that a stimulus, or five stimuli, or ten stimuli, would work? How can we afford ourselves even one moment of such irrationality? And by the way, propping up failing companies is exactly what so-called stimulus packages all over the world are doing. Britain and the Netherlands have taken ownership of major banks. The US has re-taken ownership of the mortgage insurers. Dion, Layton and Duceppe want a Big Three bailout right freaking now. The US is considering the same. Throughout the 1990s, Japan spent trillions propping up banks that would otherwise be insolvent. Much of the Reagan deficits of the 1980s were spent on the Savings and Loans fiasco, propping up insolvent banks and compensating investment funds. Brian Mulroney engineered a Canada Post takeover of Purolator Courier in 1993 because Gerry Schwartz’s holding company Onex Corp. was bleeding red ink keeping Purolator afloat. Canada Post payed nearly nothing in cash for Purolator, but agreed to take over ALL of Purolator’s debt. Which was massive. (I remember it well because I worked at Purolator at the time.)

So much for competently executed fiscal stimulus. I’ve had a few people give me the example of Chretien’s infrastructure program of 1993-95 as an example of a successful fiscal stimulus. The $2 billion in federal funds were matched by $2 billion each from the provinces and participating municipalities.) Starting in 1995 however, the provinces lost more than that in transfers. And of course they had accumulated an additional $2 billion in debt to pay for their share of the infrastructure program. Ask them how they like that fiscal stimulus. The first half of the 1990s were dismal. A recession from 1990-93, and slow growth until at least the end of 1995. What put an end to the economic doldrums in Canada? A boom in exports to the US, and a (razor-thin) defeat of the separatists in the October 1995 referendum. It was NOT the Infrastructure program, as Liberals argue, NOR was it the Harris-Klein tax cuts, as Conservatives argue. The US boomed, then we did too. Infrastructure was a drop in the bucket – a drop that was clawed back many times over in the coming years.

Interestingly, Canada’s economy grew even faster once Martin started cutting spending. So did the US economy after Newt Gingrich’s gang took over Congress in January of 1995. No, I’m not arguing that spending cuts boost economic output. They don’t. I’m arguing that swings in government spending, whether positive or negative, are inconsequential.

I don’t plan to make my posts this long. Honestly I don’t. They just end up that way, because there are SO MANY examples of hare-brained fiscal stimulus efforts that, in retrospect, were colossal wastes of money.

In calling everything else stupid, you are assuming that the only job of governemnt, it to react rationally to the problem at hand.

This isn’t the case.

Let’s suppose, (and supposing is allowed, or even required these days) that the price of oil did reach such high levels of over $ 140 @ barrel this past summer because a lot of that price had reflected the superficial predictions (hidden within the belief that mortage availability and carrying capacity, and level of economic growth, etc, etc, ) for the future.

All the hedging, lock in of futures, etc, is fundamentally based on gambling upon future developments, not?

And so, if the price of oil and other commodities, and wages and GDP numbers were all tied into this sort of gambling upon futures aspect then perhaps the market and our future economic picture had, for a large part, been filled with hot air.

Now then we need to get rid of this hot air and come to a realistic understanding of what the real future might possibly hold. Undergoing that process does not mean an end to the world, it just means we have to re-adjust.

Would the provision of excessive stimulus packages not undermine this move toward realistic expectations? In other words, would these sort of packages not keep us within the bubble we had wrongly been projected into?

Here I am not saying that part of the economic downturn has been caused by living beyond our means, although that is certainly part of it, but what I am saying is that part of the economic downturn has been caused by depending (believing) too much on future projections ‘unknown’ .

The game theory has been mentioned, whereby the players plug in certain expectations and then see how together with other input partners, the game will unfold. But the game theory results can never be expected to be correct because the very aspects which determine the ultimate outcome, or direction of the game, are precisely the unknowns. Would any game theory only depend on knowables, the game itself would not exist.

“I fail to understand why the words ‘we can’t have a stimulus package until we see Obama’s’ cannot come out of the mouths of anyone in the government.”

Perhaps, just perhaps, the government voices haven’t been spoonfed as much when growing up.

Shocking – Bush hands out hundreds of billions in stimulus packages with *no strings attached*. The banks use the money to prop themselves up and NOT to restore the flow of credit So the economy fails to improve.

The conclusion you draw? That stimulus packages are doomed to fail under any conditions!

You don’t think for a moment that *competently executed* stimuli might have a positive effect?

Everything else is stupid.

Canada has best economy of G-8 countries .

What kind of economy would we have under Dion/Layton/Duceppe do you suppose.

“Current economic thinking is rotten to its core” is more like it. Ask George Bush how them stimulus packages are working. (What is is – four of them now in the past six months?) Ask Japan how well 15 years of deficit-financed stimulus worked? Ask Mulroney how much stimulus he got from his deficits. How much did Trudeau get from his?

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.)

Hitler is a very poor example for a few reasons.

1. Germany’s policy shift came not under Hitler but under Von Papen’s shortlived government (which preceded Hitler). Hitler merely carried on Von Papen’s policies.

2. Germany was autarkic, meaning it engaged in almost no foreign trade. As a result higher incomes did not mean people would import more goods. By contrast, about 40% of Canada’s GDP comes from trade, while barriers to trade (both through tariffs and through geography) are far less than they were before. Think about the consumer goods you would buy with another $1000 – how many of them are made in Canada?

3. The German economic recovery was not intended to be a long-term plan, and as such the economy was overheating by the late 1930′s (which pushed Hitler towards fighting a near-term war). This posed problems for the Germans – despite having the plunder of Europe at their disposal, their economy grew much slower during the war than before. It wasn’t just bombing either – in 1940, for instance, they had a recession.

4. A key advantage of a dictatorship is that it was possible to maintain wage restraint because unions were curtailed, limiting the effects of inflation, and keeping public disorder to a minimum. Obviously this doesn’t apply to Canada.

5. Germany’s recovery was as strong as it was, in part because they were affected more strongly by the recession in the first place. If the economy goes into a tailspin the bridges and factories and such are still there – you are going to have a stronger recovery just as a function of the depth of economic decline.

PS: if you want an example of a country that beat the recession largely by NOT spending more and more, how about… Canada.

Bennett was derided as a do-nothing, but actually did expand government spending and run deficits. How did that go?

Growth in real GDP per capita
1929: -2% (GDP of $5,065/person)
1930: -5%
1931: -17%
1932: -8%
1933: -8% (GDP of $3,370/person)
1934: +9.5%
1935: +7% (GDP of $3,951/person)

Government as a % of GDP
1928: 6.8% (gov spending at 412 million)
1929: 7.6%
1930: 8.8%
1931: 11% (gov spending at 515 million)
1932: 12.4%
1933: 11.2%
1934: 10.5%
1935: 10.3% (gov spending 442 million)

So in Canada the recovery began as government spending fell, not rose. Of course probably just as important were interest rates, and Canada’s decision to use the monetary flexibility offered by its leaving the gold standard. Before 1934, Canada maintained high interest rates to keep the Canadian dollar relatively stable in value. Afterwards they paid more attention to the domestic economy.

Interest rates in Canada
1928: 4.45
1929: 4.85
1930: 4.62
1931: 4.7
1932: 5
1933: 4.55
1934: 3.9
1935: 3.7

The head of the TD is all ready on record as saying any further financial assistance to them is not required at this time when the Tories agreed to purchase $50 billion in additional mortgage insurance for them earlier this month.

You’ll note that the economists in question aren’t asking for money to the banks either: they’re looking for targeted initiatives to benefit damaged sectors of the economy and blunt potential damage from lost jobs by extensions and other changes to EI.

Frankly I do challenge the statement by the Laurentian guy – it is obvious that there will be a fiscal stimulus, just not right now.

1. We need to coordinate with the Americans – if they go the route of industry-targeted bailouts (which is a bad one), we may need to follow suit to protect our own auto industry.

2. Spending cuts give the government more room to engage in a fiscal stimulus. Stimulating the economy isn’t just a matter of picking whether to throw money into the Sydney tar ponds or Great Bear Lake, it is a matter of picking options that will get people spending money and potentially have long-term as well as short term benefits for the economy.

If you look at what the spending cuts being discussed are, they are primarily in public sector wages. So by extension, this Laurentian guy is pushing for a fair-sized chunk of the stimulus to be made up with public sector wages. This is a bad idea because:

-public sector employees have strong unions that make firing nigh-on-impossible.
-public sector employees are better paid than their private counterparts, and as a result, have a higher saving rate.
-there is no appreciable long-term economic benefit to higher public sector wages.

By contrast, infrastructure spending is a much better conduit because it creates low-end jobs (hiring the same folks increasingly finding themselves unemployed, who will spend most of their income), it has long-term economic benefits, and you can turn off the spigots in a way you can’t by continuing the expansion of the civil service.

Hitler in ’34-’35 is probably a classic example, though one I doubt most politicians would want to cite… :)

Purely a freakish coincidence that defies all statistical and mathematical laws of probability, I’m sure.

Equally entertaining will be the election of el saviour and new Liberal leader, and the corresponding fawning hopefulness the media will be bestowing upon “the one who can lead us from this conservative nightmare”.

It’ll be close to the coverage of Obama, though nothing will compare to that embarrassing episode in which the media literally mortgaged their credilibity and their stock prices for partisan personal reasons (could there be a greater example of such wide spread expropriation of corporate assets for the personal political motives of a segment of the respective corp’s employees?)

From where issues the certainty that the changes made in the past are not responsible for the relatively enviable (per the other G7 and G20 countries) condition we currently enjoy? A pre-emptive measure is generally more effective than a reactive one.

And, as pointed out above, to spend in deficit it is necessary to sell debt. Exactly who is lining up to lock up their free cash for low rates of return? Once the pool of prospective creditors is exhausted, what then – print money and erode the value of savings and fixed incomes?

Depends on what we are talking about. When I think of infrastructure I think of new bridges, roads, hospitals .. etc and it takes a long time for shovels to be put into dirt. If retraining workers counts as infrastructure than 3-5 years does not apply.

I would love it if one of parties had the gumption to ‘ride roughshod’ over environmental concerns but I don’t think any of them do. I would be amazed if Libs/NDP have the brass ones to ignore environmentalists concerns in order to quickly start building things, but we’ll see.