Home > Main > Revised GDP report means Stimulus package needed to be far larger

Revised GDP report means Stimulus package needed to be far larger

July 31, 2011

Back in December of 2008 – during the worst moments of our economic crisis –  I pounded the table on the size of the stimulus.  I said it needed to be at least $1.0T, and that it should be larger.

Turns out, this was correct.

The BEA recently revised the size of the great recession upwards.

Not only that, it means we should be doing more today, right now, to get the economy on track.  We still need more demand to make companies hire.  We still need a larger payroll tax cut.

In related news Tyler Cowen debates Zero Marginal Product workers, and misunderstands Minsky at the same time.  But he’s really smart, right?  [Update: Stephan points out in the comments Tyler Cowen is an important part of the Koch funded Mercatus center.]

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  1. wh10
    July 31, 2011 at 10:49 am

    Can you translate the Cowen piece into those not familiar with this economic jargon and explain why he is wrong?

    • TC
      August 1, 2011 at 9:29 am

      Hi wh10,

      I am on deadline so this will be short.

      I think Tyler is saying he was wrong in this:

      “On one specific, it is quite possible that the new numbers diminish the relevance of the zero marginal product (ZMP) worker story. ”

      That’s awfully weak stuff. I went after the zero marginal product worker here: http://traderscrucible.com/2011/04/14/suicide-and-recessions/


      But the ZMPW story relies on productivity being very high, so there must be some people who can’t work well enough to justify their wages. This was always BS, but the new GDP numbers make it even more obvious – we’re suffering from a vast depression in consumer demand, not an inability of some people to be productive.

      He tries to fit it to the data:

      “Most generally, the ZMP hypothesis tries to rationalize an otherwise embarrassing fact for the structural hypothesis, namely high measured per hour labor productivity in recent crunch periods. ”

      Turns out the data was totally wrong. Michael Mandel says the data was even worse than reported, due to factors like offshoring.

      But the money line is his last line. He tries to elide (translate: fool people into believing) this recession has something to do with people being lazy and non-productive. That’s why he brings up the aggregate supply line:

      ” Finally, you shouldn’t take any of this to deny the joint significance of AD problems; AS and AD problems have very much compounded each other.” Wow – don’t hold such strong opinions, Tyler.

      If you want a way better discussion of this, go over to interfluidity. SRW knocks it out of the park again.


  2. July 31, 2011 at 10:54 am

    Tyler Cowen is one of the most overrated economists of our time. He’ a closet conservative doing the bidding for the plutocrats via the Mercatus Center and camouflaging his agenda with (granted!) interesting posts about food and other non-economics related stuff.

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