"what I consider to be a plausible range of economic outcomes is, at the moment, quite wide indeed"

From Felix Salmon:

"Can We Really Guide the Economy?

Ryan Avent says that he thinks the "plausible range of economic outcomes is, at the moment, quite wide indeed", and wonders whether "the size of this conceivable range is actually reflective of potential outcomes, rather than simple ignorance":

If it seems like things could go really well or really poorly, is it because outcomes are very dependent on our actions( TRUE ) or because we have no idea what's going on( BOTH ARE TRUE )? And I suppose that if you want to understand the different approaches to policy advocated by liberals relative to libertarians, that question, and its answer, is key( HOW SO? ).

The easy answer is that this is not "simple ignorance". Studies have shown repeatedly and convincingly that the range of possible outcomes is nearly always greater than you think, not smaller. Economically speaking, actual results regularly come out quite far away from even pretty near-term forecasts, which is one reason why asking economists (or journalists, for that matter) to predict when we're going to come out of recession is an exercise in futility( I AGREE ).

On the other hand, that doesn't necessarily mean that outcomes are very dependent on our actions. What action, for instance, did we take to send the price of oil plunging by $100 a barrel in the space of a few short months? That's the kind of thing which can only happen in a highly complex and therefore wholly unpredictable system( TRUE ).

So I don't think of liberals' policy approach as being deterministic( MECHANISTIC ) -- if we do this, then the economy will do that. Instead, I think of it as working the other way around: if the economy does this, then we should do( TRY ) that. Right now, the economy is tanking( A PROACTIVITY RUN), and so we should apply a large dose of stimulus( SPENDER OF LAST RESORT ). We can't predict with any accuracy what the results will be, but there's a very high chance that they will be better than if we did nothing( WE CAN'T DO NOTHING. A PROACTIVITY RUN NEEDS TO BE STOPPED BECAUSE THERE IS NO WAY OF TELLING HOW MUCH WEALTH COULD BE LOST OR HOW MANY JOBS COULD BE LOST UNTIL IT ENDS ON ITS OWN. WE CAN'T CHANCE THAT CATASTROPHIC OF A POSSIBILITY, WHICH COULD LEAD TO SERIOUS SOCIAL DISLOCATIONS AND DISRUPTIONS. ONLY THE GOVERNMENT HAS THE RESOURCES BEHIND IT STAND UP TO A CALLING OR PROACTIVITY OR BANKING RUN IN THIS AGE. NO OTHER INTERVENTION WOULD BE BELIEVED SUFFICIENT TO STOP THE RUN. )., which is the default libertarian position."

Here's Avent on The Bellows:

"Knife Edge

• Posted by ryan on January 8th, 2009 filed in Economics, Miscellany
• 
  

Watching Obama’s speech, it occurred to me that what I consider to be a plausible range of economic outcomes is, at the moment, quite wide indeed( I AGREE ). I can envision scenarios in which recovery is fairly rapid, believe it or not( THIS IS MY POSITION ). A number of economic statistics were trending positively toward late summer of last year — before the dramatic intensification of the financial crisis laid waste to the economy. If we’re able to get banks functioning again, then a quick, large stimulus might jolt us rapidly back to something near trend growth. I can also imagine some very dire scenarios, many of which involve instability abroad and negative feedback loops to the global economic system( VERY TRUE )."

I see Mechanistic Thinking in terms of the Democratic proposals in the specificity of the amounts chosen. In other words, if we plug in this number, this will be the consequence. The usual reason seems to be that we want to replace a recent consumption figure or some number like that. I don't see the problem that way at all. To me, the stimulus is intended to stop the Proactivity Run. The amount we should spend should be enough to accomplish that, as best we can tell. It might be more than some people want or less than some people want in the end. The stimulus should be spent over two years in order to assess how it is functioning. Otherwise, why not just spend enough money to happily employ everyone. Obviously there's a limit to the sense of this amount. As well, the amount we spend could have adverse consequences by spooking our creditors. Prudence here is necessary, as well as speed. Getting bogged down in debating the enormity of the eventual size of the stimulus doesn't seem wise to me.

"Though all parties promise to boost spending and shield the country from the global crisis, none is likely to gain a majority"

There's a definite trend towards government involvement in the economy when a financial crisis occurs. It's not an opportunity for limited government types. Witness Romania via Bloomberg:

"By Adam Brown and Irina Savu

Nov. 28 (Bloomberg) -- The Romanian Social Democrats, led by former communists, may win the most votes in Nov. 30 parliamentary elections by promising increased social benefits as the global financial crisis threatens job losses and economic stagnation.

Support for the Social Democrats rose to 35 percent in the last opinion poll before the vote from 25 percent in September, overtaking the Liberal Democrats, who had 32 percent. In third place was the governing Liberal Party, with 21 percent.

After years of economic boom, Romanians are seeking to prolong the good times and shelter from the worst of the global crisis as emerging markets are buffeted by tumbling stock prices and falling currencies. The Social Democrats, aspiring to power after four years in opposition, risk exacerbating financial instability by increasing social spending in the second-poorest country in the European Union, economists warn.

“The Social Democrats are benefiting from the instability of the global crisis but that’s what we don’t need right now,” Nicolaie Alexandru-Chidesciuc, a senior economist for ING Bank Romania in Bucharest. “We really need a government that can say ‘we need to cut back spending’ and promote fiscal responsibility. The Social Democrats are the very last party that would do it.”

The INSOMAR poll of 12,494 people between Nov. 21 and Nov. 23 showed voter support for the Liberal Democrats, who back President Traian Basescu, has fallen from 39.4 percent in September while support for the governing Liberals has risen from 19.9 percent. The poll has a margin of error of 1.5 percent."

Read the whole post if it interests you.

Bad Liberal Day: Lieberman Not Punished To Their Satisfaction

Liberal apoplexy via AmericaBlog:

"Today, Senate Democrats showed us that disloyalty and trashing the Democratic agenda have no consequences. Joe Lieberman was rewarded for his bad behavior.

Next up, House Majority Leader Steny Hoyer.

Using the coded language of the right wing, Hoyer said today that Democrats in Congress aren't really going to be Democrats:

As the House prepares to elect its leaders, House Majority Leader Steny Hoyer is challenging the idea that the expanded Democratic majority and its leaders will make a hard left turn.

“For the first time in decades, we are a true national majority party—and if we want to stay that way, we must govern like one,” Hoyer (D-Md.) is to say in a speech today at the National Press Club, according to excerpts of his remarks obtained by The Hill...

The Sen. Lieberman decision is causing conniption fits among liberals:

"So, the biggest obstacles to change will be Democrats like Hoyer who will undermine the agenda that the American people think they're getting from President Obama. The corporate-backed Democrats prefer pablum and inaction. And, we've already seen that Senate Democrats are spineless. The Democrats on Capitol Hill are going to be their own worst enemies."

Now Kos, as well, is bothered:

"Mandate for reconciliation

by kos

Tue Nov 18, 2008 at 07:15:05 PM PST

Dean:

So if you run and get a mandate for reconciliation is your first act to kick this guy out of the party?

The question wasn't kicking Lieberman out of the party. Democrats in Connecticut already did that in 2006.

And once again, given this "mandate for reconciliation", I suspect that Reid won't reduce committee staff and seats for Republicans? Since that would be punitive. And we all want reconciliation, right? And maybe we can give Inhofe his committee chairmanship back, because apparently, the American people didn't vote for change.

And while we're at it, it just wouldn't be right for Obama to rid the executive branch of its thousands of political appointees, right? Because the first act once you have a "mandate for reconciliation" shouldn't be booting people out of their jobs for the pesky little reason that they supported the other party.

Right?"

Dear me. Not a good day for liberals and progressives. I hope they're prepared to be disappointed. So far, I'm feeling pretty good.

"Americans, to be sure, are always reluctant to undertake ambitious government initiatives. "

John Judis with a post that I sort of disagree with, via Clive Crook:

"If Obama and the Democrats in Congress act boldly, they can not only arrest the downturn, but also lay the basis for an enduring majority. As was the case with Franklin Roosevelt, many of the measures necessary to combat the recession--such as spending money on physical and electronic infrastructure, adopting national health insurance--will also help ensure a Democratic majority. The rural South remained Democrat for generations because of Roosevelt's rural electrification program; a similar program for bringing broadband to the hinterland could lead these voters back to the Democratic Party. And national health insurance could play the same role in Democrats' future prospects that Social Security played in the perpetuation of the New Deal majority.

Americans, to be sure, are always reluctant to undertake ambitious government initiatives. This is, as historian Louis Hartz once demonstrated, a country founded on Lockean liberalism. But as Roosevelt discovered when he was elected, a national crisis creates a popular willingness to entertain dramatic initiatives. Obama and the Democrats will also not face the same formidable adversaries that Jimmy Carter or Bill Clinton had to face. The Republican Party will be divided and demoralized after this defeat. Just as the Great Depression took Prohibition and the other great social issues of the 1920s off the popular agenda, this downturn has set aside the culture war of the last decades. It wasn't a factor in the presidential election. And the business lobbies that blocked national health insurance in 1994 will incur the public's wrath if they once again try to buy Congress.

If, on the other hand, Obama and the Democrats take the advice of official Washington and go slow--adopting incremental reforms, appeasing adversaries that have lost their clout--they could end up prolonging the downturn and discrediting themselves. What could have been a hard realignment could become not merely a soft realignment, but perhaps even an abortive one. That's not the kind of change that America needs or wants--and, hopefully, Obama and the Democrats understand that."

Here's my problem, where he's specific, I happen to agree with him:

1) Infrastructure spending in the stimulus

2) National health

Why I support 2 is a long story which I've already talked about, but not here. 1 I've talked about a number of times lately.

However, the rest of the post I disagree with. Liberal programs would not work, and, hence, would not end up being popular in terms of economics. Of course, if they were enacted and worked, I wouldn't worry about it, because their working would decide the issue.

I'm not too worried, because it wasn't Judis who was elected.

Leftists Are Listening To Libertarians

Interesting post by Jesse Walker on Reason about the Ron Paul press conference today. I particularly like this:

"I doubt anything concrete will come out of this press conference (other than the damage to Bob Barr among what ought to be his strongest supporters). But the event reflects something interesting and valuable that's happening out there in the ideological long tail, a collection of conversations that cross the ordinary political lines. In essence, two leftists and a paleocon just held a press conference to say, "We're listening to the libertarian." They did this because actual leftists and actual paleocons are listening to libertarians. And even third-party candidates -- or some of them, anyway -- have sharp enough political instincts to respond to their constituencies. "

He's right. Many on the left are now willing to listen seriously to libertarians, and to consider libertarian ideas. This is a trend worth exploring.

I've already mentioned that a balanced budget is a libertarian Democrat position, and so would be decreasing the national debt ( even if they agreed to simply not increase it) , one of the two principles discussed and agreed upon, in theory, today.

Let's keep this conversation going. There's going to be differences, but more agreement than many people think.