Administration Celebrates the ARRA (“Obama Stimulus Package”)–And Cites Bastiat!
I am pretty sure this qualifies as heresy. At least Paul Krugman has the decency to call French classical liberals cockroaches when discussing their relevance to fiscal multipliers. But Scott Sumner alerts us to page 33 of the Obama Administration’s 5-year report on the American Recovery and Reinvestment Act (ARRA), aka the Obama Stimulus Package passed in early 2009:
The Recovery Act and subsequent jobs measures also contained a large number of
provisions that were aimed at strengthening long-term growth. In designing the Act, the
Administration believed that it was not just the quantity of the fiscal support that mattered, but
the quality of it as well. In this sense, the Administration took to heart a lesson that has been
pointed out by many but can be traced back as early as the 19th century to a French writer and
politician named Frederic Bastiat. Bastiat (1848) wrote of a shopkeeper’s careless son who broke
a window in the storefront. When a crowd of onlookers gathered to inspect the damage, Bastiat
took objection to the discussion that ensued: “But if, on the other hand, you come to the
conclusion, as is too often the case, that it is a good thing to break windows, that it causes money
to circulate, and that the encouragement of industry in general will be the result of it, you will
oblige me to call out, ‘Stop there!’”For this reason, the Recovery Act was designed not just to provide an immediate, short-
term boost to the economy, but also to make investments that would enhance the economy’s
productivity and overall capacity even after the direct spending authorized by the Act had phased
out. The Act’s investments in expanding broadband infrastructure and laying the groundwork for
high-speed rail, to take two examples, are a far cry from the broken window in Bastiat’s parable
because they do so much more than simply restore things to how they once were. Rather, these
types of investments will raise the economy’s potential output for years to come, from a rural
school that can now offer its students and teachers high-speed Internet access, to a business that
has a new option to transport its goods more quickly.
Note that the formatting is from the original, including the omission of “锑s from his name. They were trying to save taxpayers money, I’m sure.
Last thing: In the Executive Summary, they claim that the ARRA directly provided $674 billion in “fiscal support through 2012,” and that it saved or created “about 6 million job-years” of full-time employment through 2012. That works out to $112,000+ per job. Did all those beneficiaries get (or keep) jobs that paid an average of $112,000 in annual salary? If not, what would the numbers need to look like for the Administration to report, “Man we wasted a lot of money.” ?
(And of course I dispute the figures from the outset; I think the ARRA reduced employment. I’m just pointing out that even on their own terms, this was a very inefficient use of money.)
The way government is explaining makes sense. They are not breaking anything and then rebuilding it. They are building something anew, in addition to something already in existence. So this makes this endeavour less evil than simply breaking the window and fixing it.
So what’s the problem? Does the fact that government is making the decision by the taxes or borrowed money instead of letting the market decide what’s better the issue?
Raja
The taxation is a “broken window” in the figurative sense. Just as the broken window obliges the shopkeeper to buy a replacement window instead of increasing his wealth in goods, the taxation does the same to the taxpayer.
I see what you are saying. The loss (broken window) happens when the tax is levied. I had taken it literally. Thank you.
No! Push back! Treasury view! Ricardian equivalence!
I feel like there’s some kind of unwritten rule that 90% of the invocations of Bastiat have to be misapplications.
Daniel wrote:
I feel like there’s some kind of unwritten rule that 90% of the invocations of Bastiat have to be misapplications.
I agree the White House report is a misapplication of Bastiat.
Ya it was weird.
When I saw that in Sumner’s post I was sure it was going to be a citation of Bastiat talking about measures in times of crisis. I did not expect it would go for the broken window… I kinda want to know who slipped that in there.
It’s hard to invoke it in supporting stimulus because it just doesn’t apply. But that’s not excuse for using it inappropriately against stimulus!
Oh sorry Daniel, I actually underestimated you. I thought you were being sarcastic in saying that I was unfairly getting mad at them.
Well it’s kind of a stupid passage. Don’t worry, though. I fully expect you are up to the task of misapplying the broken window. Just wait until 2014 hurricane season 🙂
I think they just mean it in a stock/flow context. ARRA will add to the stock (infrastructure) and add to the flow (income).
Kind of weird though coz isn’t that what you’d expect from a stimulus program ?
Its not like they would have had a plan to go out and knock down a load of bridges and have people rebuild them and then someone read Bastiat and realized that would have been a mistake.
This is the passage that I said I expected them to cite. Here, Bastiat is in full agreement with Paul Krugman about how even if Ricardian equivalence holds exactly true it’s still not an argument against fiscal stimulus:
“There is an article in the Constitution which states:
“Society assists and encourages the development of labor…. through the establishment by the state, the departments, and the municipalities, of appropriate public works to employ idle hands.”
As a temporary measure in a time of crisis, during a severe winter, this intervention on the part of the taxpayer could have good effects. It acts in the same way as insurance. It adds nothing to the number of jobs nor to total wages, but it takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times.
As a permanent, general, systematic measure, it is nothing but a ruinous hoax, an impossibility, a contradiction, which makes a great show of the little work that it has stimulated, which is what is seen, and conceals the much larger amount of work that it has precluded, which is what is not seen.”
Why aren’t we doing THAT?
What theory of democracy states that what never happens is what everyone agrees on?
I suppose they didn’t bother to actually read him, though. http://bastiat.org/en/twisatwins.html#taxes
In other words, “come on, we’re not just breaking windows and replacing them. We’re breaking windows and making people put in *better* windows, which is totally different.”
The shopkeeper may THINK he wants a new window, but he’s really better off with a light rail system, so we’re gonna make him pay for that instead. He’s better off, even if he’s too dumb to realize it. Trust us.
Cash for clunkers and darn near everything else this administration has done. They always omit production maintenance and repair cost of newer replacement item. These people hate thrift. Maybe they road the short bus( or should have.) Oops now I just insulted a much smarter, more talented group.
“If you like your window, you can keep your window….unless and until we decide it really is just a substandard window – and possibly shouldn’t even be classified as being a “window” – so that we can force you to buy a newer and better one that we deem sufficiently meets your needs.”
I wish I could laugh.
“When a crowd of onlookers gathered to inspect the damage”
How boring was it in Bastiat’s day that a crowd would gather to inspect and discuss a broken window ?
How exciting is your life that you can be walking down a street, see a nearby shop window shatter into a million pieces, and not be bothered to go check things out?
How the heck more losers are we, that we’re wasting time discussing a hypothetical situation in the comments of a blog?
Yeah, we are still talking about that dumb window!
Oh! 🙂
I think this blog, like many others are a response to state aggression, never the less, a waste of time and resources.
Sad indeed.
Maybe broken windows were the econ blogs of their day.
People would gather around, start discussing a serious topic, start to disagree and then give up on the discussion and just start hurling abuse at each other.
I know you are joking but broken windows are a metaphor for the stupidity of state intervention.
Nobody was breaking any windows back then, they would have been shot on site…
Or more generically that destroying the stock to increase the flow is a bad idea.
And of course tha’st what the reference to Bastiat here was supposed to mean:
ARRA was meant to increase both the stock and the flow.
The best kind.
$112,000+ per job.if you don’t count the projects that were created. You pay 10 people to build a bridge and the total cost is 1 million, that’s not 100,000 per job since you have a bridge there that people will use.
Govt spending killing jobs when excess reserves are piling up makes about as much sense as a 6000 year old earth.
Hey Jerry Wolfgang, you forgot to throw in a reference to being stoned by Gary North.
Yeah, and we should focus on labour in a recession instead of crowding out capital, if we are going to do it.
So $/job-year is a fine indicator of effectiveness and this number sounds too high.
I actually suspect humans are a special case of idle resources. It’s weird that Keynesians don’t care enough to run surpluses in good times and they don’t care enough to develop shovel-ready, labor-intensive, and cheap projects for recessions. They also seem to relish making their proposals as disgusting to people like me as they can.
Apparently administration figured out tea party people have been introduced to Bastiat by libertarians. And now tea party people and other more main stream political people have been using Bastiat The Law as a resource, guiding light. Now administration is trying morph. S.O.P.
Let the twisting, perversion begin. next they will try to claim Nock, then Rothbard,lol.
“I’m just pointing out that even on their own terms, this was a very inefficient use of money.”
Bob, I hope you don’t take seriously the administrations publicly stated rationale for the ARRA. That’s just the pabulum that is spoon fed to the clamoring, gullible masses. The actual purpose of the stimulus was to make Obama look like a dynamic problem solver who cares about the little people and, as an added bonus, buy as many votes with other people’s money as possible. Given his successful re-coronation I would say that the ARRA was very successful in efficiently achieving it’s real (political) goals.
” I would say that the ARRA was very successful in efficiently achieving it’s real (political) goals.”
State centralized control regardless effect and outcome?
http://online.wsj.com/news/articles/SB10001424052702304680904579366903828260732
Obama wants to ensure our news organizations publish “approved” news only.
No, the FCC is just conducting a voluntary study to see the extent to which local news stations convey certain so-called critical information, in order to determine the whether it needs to remove barriers to entry to other emerging news organizations which might convey that information if the existing news broadcasts do not. (If the local news is conveying the critical information, then new spectrum may be sold to non-news entities instead.). But the policy has nothing to do with the censorship of local news organizations, or with preventing them from publishing stories about other topics that the FCC does not deem critical.
By the way, out of curiosity how do Rothbardians feel about ownership of the radio spectrum and public airwaves? Is each radio frequency a good that can be homesteaded by the first person who broadcasts in it? When radio was first invented, could someone have just sent a simple Morse code message on all frequencies and then claim the entire electromagnetic spectrum for themselves?
You are so unbelievably gullible. The FCC has the authority to grant or withhold licenses. Voluntary, in theory, but don’t you know how “political pull” works?
The author of the OP-ED is commissioner at the FCC. I didn’t just link to a random blog post or some third rate news site.
If the FCC really was concerned about “removing barriers” then it would just do so, without sending in NARCs to news stations across the country “studying” them.
This is what’s called “camel’s nose in the tent.”
To placate “conspiracy theorists” and to strengthen the “believers” like you, they first make it voluntary. This is to get the news stations and the public “used” to having federal agents snooping around. The political pressure builds to air “approved” stories. Ones that don’t criticize the state? Then after some time, it goes from voluntary, to mandatory. Then the state will start to make decisions on what is to be shown and what not is to be shown.
History. Do you study it?
Keshav, I know your mind just doesn’t “get it”. You have a completely different view of government than me and other libertarians. You see benevolent mommy and daddy, and I see power and coercion.
To answer your question, Rothbard answers this in his books.
“The FCC has the authority to grant or withhold licenses.” I highly doubt the FCC would withhold an NBC affiliate’s license for failure to participate in a study. The FCC does all sorts of studies, and not all organizations choose to participate
“If the FCC really was concerned about “removing barriers” then it would just do so, without sending in NARCs to news stations across the country “studying” them.”. Well, the FCC has limited spectrum to sell. It can either sell the new spectrum to a new news organization or it can sell it to some other entity unrelated to news. To determine which of these helps the public interest more, it’s trying to see whether there’s important local news that current news outlets are for some reason neglecting to cover. That’s why it wants to look at the procedures news outlets use to select the stories they choose to cover, to see whether those procedures are systematically under-covering certain categories of news which are important for local communities or certain segments of those communities.
“This is what’s called “camel’s nose in the tent.”” Well, by that argument I suppose you can say that pretty much any government policy has the potential to lead us to total government control. But compared to other government policies, is this really that big a deal.
“You have a completely different view of government than me and other libertarians. You see benevolent mommy and daddy, and I see power and coercion.” You’re right, I see in government the capacity to do great good, even if in practice they may commit all sorts of immoral acts.
“To answer your question, Rothbard answers this in his books.” Can you summarize Rothbard’s answer for me?
Major_Freedom, this blog post shows just how innocuous the FCC survey is:
http://m.motherjones.com/kevin-drum/2014/02/story-behind-obamas-latest-assault-our-precious-freedoms