3/31/2009

Stimulus -Not- Thinking

http://www.nytimes.com/2009/04/01/business/economy/01leonhardt.html?_r=1
I found this gem of an article on the New York Times website, it is titled "Stimulus Thinking, and Nuance." The article relates Obama's recent presence at the G20 Summit with that attented by global leaders back in 1933. The author sets out defending stimulus packages and how throughout history they were nothing but effective. He names three! The Germans in the 30s, FDR, and the Japanese in the 90s. I'm sure we can go out on a limb and say there were more than three recessions and more than three attempts at stimulating the economy. I'm not sure where the Times dug up this guy, but it is apparent he hasn't done his research. I'd like to focus on his defense of FDR and his use of stimulus in boosting the economy. The author says the following: "When Roosevelt stuck to a stimulus program, unemployment fell markedly, and the biggest stimulus of all — World War II — did the rest." One could argue that FDR kept our country in a recession (or depression) longer than if nothing had happened at all. For the author to claim FDR saved us is silly and uneducated. Unemployment rates were sky high and not to mention a tax bracket reaching as high as 94%. The biggest stimulus of all truly was the war, because it put people to work. Right now jobs are being slashed left and right, even as we are in the midst of a war. This just goes to show how we cannot accurately compare different recessions across time. There are just too many variables to accurately predict what the effects of a stimulus will be. Maybe this guy knows something we don't, but chances are he is just ill-informed on just about everything except dates and names.

4 comments:

Gracie said...

While I agree that the author might not know what he is talking about, I also saw an error on your part. While tax brackets were very high during FDR's presidency they did not reach 94%. According to Dr. Burt Folsom, an economic historian, FDR proposed a tax bracket of 99.5% but it only passed at 79%. I agree however that a stimulus package can not necessarily be compared acurately to another stimulus in the past because all recessions are different. If you want to read more about what Dr. Folsom has to say you can at: http://www.chronwatch-america.com/articles/4514/1/New-FDR-Book-quotNew-Deal-or-Raw-Dealquot/Page1.html

anthony said...

I heard just last week about the debate over whether FDR was a great president or a horrible one. I know in (at least my) high school they praised him for getting us out of the Depression. Apparently there was a lot more controversy there then they wanted to cover. Maybe the problem though wasn't the stimulus package or fiscal policy, maybe it was the 79% tax bracket. Obviously with a tax bracket that high, people would have little incentive to start businesses, thus dragging the recession on even further.

Sophia said...

I looked into the tax rate and here is what I found: http://www.taxfoundation.org/taxdata/show/151.html You'll need to scroll down to the year 1944-1945The highest marginal tax rate did indeed reach 94% in these years, and FDR was president until he died in April of 1945. This was the rate that individuals who made over $200,000 had to pay.

Dr. Tufte said...

Ooh Sophia: Leonhardt is one of the best people you can read in the legacy media. I don't always agree with him, but he's very well informed.

Now ... he did take a pretty strong pro-stimulus stance in this article. But, we study this stuff because it is hard, not because it's easy. And, we really don't know if stimulus packages work or not. There's a lot of evidence going both ways.

We also need to be concerned about attribution error.

In sum ... I think you need a much bigger gun to go after Leonhardt on this one.