public spending

WatsOn My Mind: Stimulus Multipliers

Derrill Watson Economics , , , , , ,

The problems of trying to actually identify Keynesian spending multipliers is nothing new, but it was brought home to me this last week. You see, my mother-in-law passed away just after her stimulus check arrived. Her children chose to use it to pay for her headstone. Being more familiar with the discussion than most spending, I break it down this way:

Someone in government, trying to figure out how many jobs were created or saved by the stimulus bill, would ask us what we spent the money on. We would tell them it went for a headstone. They might figure out how much the monument workers are paid, how much of that $1200 went to the carvers and how much to the stone itself and multiply it throughout by marginal propensities to consume and any other leakages in the system to come up with a fancy number. (For those of to whom that is all Greek, see Jacob Clifford’s introduction.)

The usual first response to this is to cite the Broken Window Fallacy (introductory video here). That stimulus money had to have come from somewhere. Someone else will be taxed or have their savings inflated away to pay for it eventually, and the first round calculation does not take into account the jobs lost from this confiscatory taxation/seigniorage. Thank you, Bastiat.

The other problem more visible to me than usual is that we (the assembled kids) were totally going to get her a headstone either way. The stimulus check was entirely fungible and it will actually be spent over time with a little bit here and a little bit there because someone in the family has more in their savings account than they otherwise would have. Trying to follow and account for that spending and its effects borders on the well-nigh impossible. Forget the distinction between approximate right and precisely wrong (a quote misattributed to Keynes), it’s not even possible to know if you’re even in the right ballpark!

And those distinctions are still before factoring in monetary offset. Though with Powell begging the government to spend more, you might think that’s less of an issue also, but Sumner responds to that idea in the comments section at the same link.

PS – What did we do with our family’s stimulus check? Far as I know it’s still sitting in the savings account. Our needs are met, so we try to keep our mpc kind of low.

Nightcap

Brandon Christensen Links , , ,
  1. The role of the libertarian in non-libertarian societies Fabio Rojas, Bleeding Heart Libertarians
  2. Did I have the coronavirus? Ross Douthat, New York Times
  3. Hospital bed access across Canada Frances Woolley, Worthwhile Canadian Initiative
  4. The future of public employee unions Daniel DiSalvo, National Affairs

Nightcap

Brandon Christensen Links , , ,
  1. How Alan Shepard Became First American in Space Rick Brownell, Historiat
  2. Public Debt: a global perspective Livio di Matteo, Worthwhile Canadian Initiative
  3. Italian voters head for euro showdown Alberto Mingardi, Politico EU
  4. What good is religion? Manini Sheker, Aeon

In health care, expenditures to GDP may be misleading!

Vincent Geloso Economics , , , ,

In debates over health care reform in the US, it is frequent for Canada’s name to pop up in order to signal that Canada is spending much less of its GDP to health care and seems to generate relatively comparable outcomes. I disagree.

Its not that the system presently in place in the US is so great, its that the measure of resources expended on each system is really bad. In fact, its a matter of simple economics.  Imagine two areas (1 and 2), the first has single-payer health care, the other has fully-private health care.

In area 2, prices ration access to health care so that people eschew visits to the emergency room as a result of a scraped elbow. In area 1, free access means no rationing through price and more services are consumed. However, to avoid overspending, the government of area 1 has waiting lists or other rationing schemes. In area 2, which I have presented as an ideal free market for the sake of conversation,  whatever people expend can be divided over GDP and we get an accurate portrait of “costs”. However, in area 1, costs are borne differently – through taxes and through waiting times. As such, comparing what is spent in area 1 to what is spent in area 2 is a flawed comparison.

So when we say that Canada spends 10.7% of GDP on health care (2013 numbers) versus 17.1% of GDP in the US, is it a viable comparison? Not really.  In 2008, the Canadian Medical Association produced a study evaluating the cost of waiting times for four key procedures : total joint replacement surgery, cataract surgery, coronary artery bypass
graft (CABG) and MRI scans. These procedures are by no means exhaustive and they concern only “excessive” waiting times (rather than the whole waiting times or at least the difference with the United States). However, the CMA found that, for the 2007 (the year they studied), the cost of waiting was equal to 14.8$ billion (CAD).  Given the size of the economy back in 2007, this represented 1.3% of GDP. Again, I must emphasize that this is not an exhaustive measure of the cost of waiting times. However, it does bring Canada closer to the United States in terms of the “true cost” of health care.  Any estimate that would include other wait times would increase that proportion.

I know that policy experts are aware of that, but it is so frequent to see comparisons based on spending to GDP in order to argue for X and Y policy as being relatively cheap.  I just thought it was necessary to remind some people (those who decide to read me) that prudence is mandatory here.

Greece: What’s Going On?

Jacques Delacroix Current Events, Economics, Liberty , , , , , , , ,

The Greeks are rioting in the extreme cold. They have been rioting now for weeks to protest austerity measures their coalition government is attempting to impose on them. It’s an emergency government trying like hell to borrow money from richer countries, especially Germany so Greece, the state can pay its bills. The creditors and would-be creditor countries headed by Germany are saying such things as (I am paraphrasing):

You have many more public servants per 10,000 citizens than we (Germans etc, ) have. You will have to reduce the number by so many thousands by such and such a year as a condition of our lending.

Your government’s tax receipt as a percentage of GDP is much smaller than ours. There is also abundant evidence of massive tax cheating that is unheard of in our countries. You are going to have to improve the collection of taxes by such and such. (Note that this say nothing about tax increases.)

The creditor countries are all democracies whose tax-payers have the ability to express what they think about the bailouts of other countries. It’s their money. Their national politicians are lending to a nation-state that my local banker in his best days would not have given a second look to. The long and the short of it is that Greece, the country, is a bad credit risk. That’s why its government would have to pay something like fifteen percent interest if it could borrow money on the open market. For a comparison, I have US Government bonds purchased six years ago that pay 4,6 %. That was considered very good then. It’s even better now.

Note that there is no info about what private Greek concerns have to pay to borrow on the open market. I would not be surprised if they were able to borrow at normal rates. I wonder why this information is lacking. Massive privatization surely looks good with respect to a country where government finances are such a debacle. Big innovations work out best when it’s impossible to say: Situation normal; everything working just fine.

Ordinary Greeks are rioting against the prospect of cinching their belts a lot tighter. They are even thinking Communism again because this all comes as a surprise. For thirty years, they were allowed to believe that Greece was economically more or less a kind of southern version of Germany, not quite as prosperous and productive but pretty damn close and on its way there. Continue reading →