The Perfect Keynesian Stimulus

Hardcore Keynesian theory says that even paying someone to dig a hole one day and fill it in the next is stimulative.  This has always seemed insane to me -- how could it possibly be a net gain in growth and wealth to shift resources from productive activities to unproductive ones?  But in line with this theory, the Keynesians in the Obama Administration have hit on the perfect stimulus:

A cargo train filled with biofuels crossed the border between the US and Canada 24 times between the 15th of June and the 28th of June 2010; not once did it unload its cargo, yet it still earned millions of dollars... The companies “made several million dollars importing and exporting the fuel to exploit a loophole in a U.S. green energy program.” Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.”

Whole thing here

  • obloodyhell

    Obama. The gift that liberals keep on giving.

  • obloodyhell

    Obama -- The gift that liberals keep on giving.

    Kinda like a fruitcake, but immune to re-gifting.

  • obloodyhell

    Something substantially wrong with the comment engine. Just FYI

  • Rocky

    This is government at it's best and it will never change since it's other peoples money they are pissing away. This is right up there with 10k toilet seats and the like. Our government is good at only 2 things, finding ways to take our money and F**king up every thing they get their hands on with our money.

  • Brandon Berg

    The assumption is that this won't be shifting resources from productive to unproductive uses, because the government will be paying unemployed people to dig and fill in holes. In a hypothetical world where the government can make sure to implement this perfectly, it's not clear that this is wrong. The problem is that real-world stimulus often does shift resources from productive to unproductive uses.

  • LarryGross

    re: filling holes.. re filling potholes... deploying armed forces to over 500 bases wordwide ... how "productive" is that? Paying someone to "be prepared" for 20 years.. they never even serve in a combat zone.. then they retire with full pension and health care.... and this is considered a "good" expenditure of tax dollars, right?

    we currently take in about 1.3 trillion in income taxes. When you calculate (fairly) ALL the spending we do for "National Defense" which includes things like Homeland Security, NASA military satellites, Energy nuclear work for the military, the VA, and of course the pension and health care "entitlements" for not only the active duty but the retired and their families - we spend about 1.3 trillion.

    In other words, we spend as much on National Defense alone as we take -in in taxes.

    I keep asking - what percentage of income taxes that we take in - should be spent on National Defense?

    50%, 75%, 90%??? what is the right number?

  • jdt

    The aforementioned resource that is being shifted isn't the person, it is the money that is paying him or her, isn't it?

  • marque2

    There are levels which can be excessive, but I would say paying people to sit around just in case they have to defend our country is worth it, because part of the reason folks can create free enterprise on a large scale is that we do not have to worry as much about our possessions being destroyed or stolen by foreign invaders.

    I am not sure if your stats are accurate, but yes, it is a valid question, what amount is really needed and what is excessive. I would submit that having a base in South Korea, is good policy, Having a base In Germany which is no longer the front line to anything - and is kinda out of the way, is bad. (Clinton tried to close the bases in Germany, but after years of jeering at us, once we decided to close, they begged us to stay, realizing having troops around would stimulate the German economy. Clinton backed down :-( )

  • marque2

    The 10K toilet seat was a misstatement of what was going on. 30 years ago plus the military was making some fairly complicated systems. and computers weren't ubiquitous, and were too costly to account for all the parts. So they calculated what all the parts would cost for the system, and estimated a repair cycle - and then divided the total cost of all parts so they would all be the same exact price. Yes the toilet seat was excessive(I can see $250 for an air certified seat), but the government was also getting 100K engine frames, at a 90% discount when they broke, since they were also accounted to cost 10K. It all balanced out in the end.

    Of course by the time the anti military leftists came out with the garbage about the 10K seat, computer power was available to do normal accounting of the parts - it was just a matter of old contracts still being fullfilled.

  • LarryGross

    here's the revenue: http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png

    I'll show the National Defense spending in the next post

  • LarryGross

    Here's the National Defense spending:

    http://en.wikipedia.org/wiki/Military_budget_of_the_United_States

    scroll down to Budget Breakdown 2012

  • LarryGross

    I don't buy the simplistic notion of a 10K seat either - but it's true that if you add up everything we are spending on National Defense - it's about twice what the DOD budget is, in part, because things like the VA and NASA and Dept Energy projects that support the military are not in the DOD budget but in their budgets.

    You also have to count active and military entitlements, INCLUDING Social Security and Medicare which retired military receive as entitlements also.

  • http://profiles.google.com/maruadventurer john mcginnis

    Nothing new here, Frederic Bastiat detailed the assumptions in an 1850 essay that most modern economists call the `cobblers window conundrum`.

    The present example is the maxim of the stupidity of central planning.

  • LarryGross

    but you know....... central planning was first enabled by the Constitution which allowed for the National Defense of the country... that's central planning, right?

  • marque2

    Larry, I wouldn't just dump defense spending, like I said part of the reason the western world is so prosperous is because we are able to defend - or scare off those that would harm us.

    As I said above, I am sure there are areas in Defense that can be cut. But I think you have a chip your shoulder about this issue, rather than rationally thinking about the importance of defense.
    "Paying someone to "be prepared" for 20 years.. they never even serve in a combat zone." - kinda gives ya away.

  • marque2

    Defense is pretty much the only thing the federal government should be doing. That and arbitrating disputes between the states.

  • marque2

    It was a common accounting method in the days before ubiquitous computers. It was a net wash cost wise to us. Did we need to buy the airplane or frigate in the first place - well that is another debate.

  • LarryGross

    As I said above, I am sure there are areas in Defense that can be cut. But I think you have a chip your shoulder about this issue, rather than rationally thinking about the importance of defense.
    "Paying someone to "be prepared" for 20 years.. they never even serve in a combat zone." - kinda give ya away.

    not really.. I'm making two points:

    1. we currently spend on National Defense - about what we take in in total income taxes. I provided links to back that up.

    2. that the military personnel costs are very expensive compared to the private sector costs and that many in DOD including contractors never are in harms way but they still receive 20 year full retirements.

    I'm entirely in favor of giving years-in-service credits 2X or better for the amount of time spent in a combat zone but I do question why 30 years is not the term of service for non-combat personnel.

    you can get to where I am perhaps by answering this question: What percentage of the tax revenues that we do receive - should be devoted to National Defense.

    This is a dead serious question because how much revenue we actually take in - is a much more relevant metric than GDP. We should only spend what we have available in revenues.
    What percent of that should be devoted to National Defense?

    If we could agree on that - then we could agree on how to NOT create deficits.

  • marque2

    Why don't you read this to get more accurate numbers in the first place.

    http://useconomy.about.com/od/usfederalbudget/p/US-Government-Federal-Budget-FY2012-Summary.htm

  • LarryGross

    I've been there before and you CAN dig out the data if you are persistent but what's wrong with the US data?

    this : http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png

    is from:

    http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables%5B1%5D.pdf

    these are official data...

    even your source says this:

    Half of the Discretionary budget, or $868 billion, was approved for military spending

    Other security-related departments included:

    Veterans Affairs - increased to $58.5 billion.

    State and other international programs, reduced to $43.7 billion.

    Homeland Security - reduced to $39.7 billion.

    National Nuclear Security Administration - $11 billion.In addition, $129 billion was spent in contingency funds to support initiatives in Afghanistan and Pakistan.

    what does that total up to be? over a trillion for sure, right?

  • marque2

    Yes 20% of the total budget, and roughly half of all receipts from taxes, not including SSA and medicare, far cry from what you said above. if you want to really debate an issue, you can't present a bunch of false numbers and then expect us to blindly believe you.

    Anyway - so since you brought it up, how much should we spend on defense. Where should we cut? Seems like the 56% of the budget that is mandatory would be a better place to start, and in the discretionary we could dump most of the Education Dept, and Housing and Human services without harming anyone, and save 100 billion a year there and then look at the military.

    But just tell us what you would do! And as you are doing the exercise ask yourself if you would still feel safe. For instance, it is easy to "Just Say No Nukes" but would it be wise to get rid of them all?

  • LarryGross

    Nope. By your own reference.. about 1.1 trillion go to National Defense. When you look at revenues guy, you have to subtract out the FICA tax which is dedicated to SS and Medicare Part A.

    Once you do that and look at the income taxes only - you'll see about 1.3 trillion in revenues.
    this is also in the reference you provided.

    re: what percent should we spend on National Defense?

    My germane point here is that we really only have 1.3 trillion available for everything once we account for the earmarked/dedicated FICA/SS money and of that 1.3 trillion, what percent would you dedicate to National Defense?

    that's a much more relevant metric than looking at percent of GDP or percent of total revenues and counting FICA in that total.

    I would leave it up to the agencies to decide what to cut based on what they got in reduced revenues. They would need to prioritize ... OR we would have to decide that we do need to
    pay more taxes if we want to better fund DOD but playing this game we are playing now by
    pretending that FICA/SS is part of the revenues available for other spending is self-denial.

    Even worse is looking at Defense as a percent of GDP which is a terrible metric when you only have 1.3 trillion in revenues to actually spend on your whole budget including DOD.

    We are in denial about these numbers.

  • marque2

    By the numbers in the Article we get 1.694 trillion which does not come from payroll taxes (medicare, SSA ...) You add Income tax, Corporate Tax, and Other taxes and fees together. Why would you look at income tax only. And your point is wrong since we have 1694 billion to spend once the payroll taxes are taken out. Defense is roughly half that, @ 868 billion which include Homeland security, VA, Afghanistan and such where do you get that inflated defense number?

    How can I decide if the defense number is appropriate, if you keep giving me incorrect numbers and stats?

    Argue with real facts man, and then we can all decide if your complaint if valid.

  • LarryGross

    In part because some of the other taxes are things like gasoline taxes which are also earmarked/dedicated to specific things and not available for other spending.

    If you look at the reference you did provide:

    Other security-related departments included:

    Veterans Affairs - increased to $58.5 billion.

    State and other international programs, reduced to $43.7 billion.

    Homeland Security - reduced to $39.7 billion.

    National Nuclear Security Administration - $11 billion.In addition, $129 billion was spent in contingency funds to support initiatives in Afghanistan and Pakistan.

    these are all legitimately attributed to "National Defense", right?

  • nehemiah

    Larry, Larry, Larry, you can't be suggesting that defense of the homeland is the equivalent the above government central control policy? Won't bother to ask you what you think of Obamacare. The government builds aircraft carriers why shouldn't they provide free birth control pills?

  • Rocky

    Both of you are nitpicking the point to my rather simplistic but accurate summary of government. Your statements however, do reinforce my point. Look at the few entities you have listed and the bureaucratic train wrecks they have become. Apply this to all other departments of the federal government and my point is indisputable. Granted, government is needed but to a much lesser extent that we currently have.

  • LarryGross

    No. Of course not. But I AM saying that in order to mount a national defense, you have to organize into central planning and once you have created that function - it gets replicated for other things.

    so .. you get central planning for other things when you create it for National Defense.

    right?

  • Noumenon72

    how could it possibly be a net gain in growth and wealth to shift resources from productive activities to unproductive ones?

    All the people who could be productively supplying that person with health care or electronics are instead sitting around unproductively, waiting for customers. And all the money that they're paying him was sitting around unproductively, waiting for an investment opportunity. If you mobilize all those unproductive, unemployed resources, by paying him to do nothing, the economy will improve enough that someone will need to hire him to do something instead.

    That's the theory, anyway. I wouldn't bet on it, but at least I understand it.