Shortly after class, an economics student approaches his economics professor and says, "I don't understand this stimulus bill. Can you explain it to me?"
If you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you."
On Saturday, they both went out back to the pool, and the professor handed the student a bucket and said, "First, go over to the deep end, and fill your bucket with as much water as you can."
The student did so. Then the professor said
"Go to the shallow end, and then dump all the water from your bucket into it. We're trying to increase the depth of the shallow end. "
The student was confused, but did as he was told.
The professor then told him to keep repeating the fill-walk-empty process.
After the 6th trip, the student was certain that the professor had gone mad, and said:
"All I'm doing is wasting valuable time and effort on unproductive activities.
No matter how long I continue doing this, everything will be at the same level it was before, so all that will have been accomplished is the waste of what could have been truly productive actions!"
The professor replied with a smile,
"Congratulations. You now understand the stimulus bill."
Sorry to jump into the middle of this very lively thread about the stimulus package, Eric, but I found your pool and bucket analogy both interesting and misleading.
The story implies that the purpose of the stimulis bill is to increase the depth of the water at the shallow end in the pool. Not so. I believe the goal of the legislation is to increase the amount of water in the buckets.
I suggest that this story improves if I label the images used and add more students to the project. The total amount of water in the pool should be viewed as the country's total wealth, albeit deeper at one end of the social spectrum than it is at at the other. Let's label the professor "GOVERNMENT SPENDING" and have him invite the entire student body over on Saturday instead of just one student. Organizing a multitude of bucket brigades ("INDUSTRIES"), the professor observes long lines of students ("COMPANIES"), each taking a bucket from one, passing it to the next, and reaching back to the first to grab another bucket. The more students passing buckets, the larger the buckets, and the faster the pace, the greater the volume of water ("GOODS AND SERVICES") moving from one end of the pool to the other.
The total volume of water moved is our Gross Domestic Product (GDP), the "value of all final goods and services produced in a country in one year" and it is the yardstick used to measure the pace of the economy. I suggest that now is not the time to measure the amount of water in the pool nor to debate who should occupy the deep or the shallow end. I also feel that now is not the time to argue whether the buckets are painted red or blue. Now is the time to get the water in the pool circulating from end to end.
Your analogy falls flat at two points:
1. You say "The total volume of water moved is our Gross Domestic Product (GDP), the 'value of all final goods and services produced in a country in one year' and it is the yardstick used to measure the pace of the economy."
Your analogy confuses PRODUCTION ("goods and services produced") with circulation ("total volume of water moved"). Circulation of money and credit may facilitate an increased GDP; however, it is not the equivalent of the GDP. Your wrongly assume that gov't creates new wealth--all it does is appropriate wealth and redistribute it on the basis of ideology and crony-ism. If the GDP is a pool of water, and the bucket brigade is gov't employees and gov't funded projects, you can add to your image buckets being spilled and missing the pool, people keeping buckets and dumping it into their own pool, etc. Gov't spending is a NET DRAIN on the pool, it creates no new water. Where it does circulate, it wastes through inefficiency and skims off the top for favorites. The bottom line is that gov't has to get out of the way of those who create wealth for this nation, and END these tired old policies of wealth redistribution, social engineering and waste. It didn't work during the New Deal, it didn't work during the Great Society and it won't work now. It truly is the SAME OLD--the same old tax and spend. The same old make the people dependent on gov't.
The gov't needs to create incentives for the production of goods and services, rather than punish the most productive for the sake of social engineering and political favoritism. The more money gov't takes from the people and the more it makes the people dependent, the more power it wields and the more freedom it extinguishes.
Our nation's wealth and productivity did not arise because of our gov't, but as a result of our gov't allowing its most productive fulfill their potential with minimal interference.
2. You say that now is not the time to debate and argue; now is not the time to paint red and blue.
To the contrary, debate and argument and scrutiny is all the more necessary when the gov't spends trillions of dollars that it doesn't have. The basic premise of a multiparty system is debate. And if ever there were a blue bill passed by Congress, the recent stimulus is blindingly blue. No debate, he says! No questioning the Messiah! Questioning is only allowed when Republicans make policy! only allowed when a conservative perspective gets voiced!
OK, Nick... At least you are now not calling anybody names and actually said something. Just feeling victimized toward the end there--though perhaps it is your perspective given the blueness of where you live. (?)
Intelligent fiscal conservatives seem to be worried about the enormous spending (and who wouldn't & isn't--it is unprecedented as things stand), but as students of economics and history, see that there may perhaps be a logic to the pendulum swing towards the left for the time being.
As Sullivan says, "Better, I guess, to have a serious and accountable Democratic president doing this with care than a pseudo-Republican doing it incompetently."
As it stands, the Rebublican side (which many contend is not truly conservative, but neo-con) offers no alternative response to the economic crisis. They are completely in a state of childish denial that they lost; they want to raise objections about the speed of legislation, pick fights, point to foreign policy -- but not because they actually care about the speed of the legislative process or the other fights they're going to pick. It's all about stopping the democrats & Obama's agenda.
You know why in art school some believed that postmodernism (though it is more complicated than that in art theory, in all actuality) would 'fail?' It isn't really an aesthetic theory in its own right, but a reaction against an older (OK, I'll say it, though it labels me 'regressive--I find somewhat more valid) theory--that of modernism. The Republicans, in short, are acting like a bunch of dumb, vacuous artists creating noise and stamping their feet--but they have nothing decent to show. Time for them to go back to the drawing board and take off their neo-con shrouds, or it will surely be their death.
You have not made a substantive reply to the economic issues I raised with regard to gov't spending. Furthermore, I'm not sure why you would be quoting people like Sullivan as if somehow this lends more credibility to the nothing you are saying here.
Wow...am I hallucinating, or do I actually agree with Mark Knowles for once?
I'm confused... I thought the government had magic money trees that they just need to sprinkle with pixie dust and they grow all the money we need... Have they been lying to me. They told me my free lunch was on the way... Or was that hyper-inflation that is on the way?
PS. Great story and basic explanation! Thanks.
No comment. Think Ralph Deeds is well qualified to explain the situation--if he cares to--though.
Translation: He doesn't agree with little Gordon Gecko wannabe weenie lawyers. (I suspect I'm the only one here who actually studied economics as an undergraduate and graduate student.) The lack of economic literacy among this motley group is appalling.
I totally agree :-)
You suspect wrongly. However, I was fortunate enough to retain some common sense, as well as a sense of humor, despite studying some economics. However, I certainly don't regard myself as being an economist, or professing any great skills in the area.
I take it that you believe this economic stimulus package will work. Well - We'll have to agree to disagree on that one.
And we'll see whose opinion is borne out by future events. It shouldn't take too long.
I am with the Tasmanian on this one. I too, had the misfortune to study economics, and in technical terms, we are in deep doo-doo.
There is general agreement on that. But there is a lack of agreement on the Obama recovery program.
Some don't grasp the concepts that government spending will stimulate economic recovery and that the cost of the stimulus spending would be greatly exceeded by the unrecoverable economic loss in production, wages, profits, dividends and taxes of a deep, prolonged recession, let alone the cost of a genuine depression. This is the answer to those who, like Bobby Jindal, are objecting on the ground that we are saddling our children and grandchildren with debt. Moreover, it should be noted that while the level of debt is quite high, it is within the postwar experience and manageable. Here are the figures for the debt under each president, Tturman through Bush. http://zfacts.com/p/318.html
Secondly, there is a debate over the content of the program--tax cuts versus spending increases, infrastructure spending versus extended unemployment compensation, etc. The bill that was passed was the product of Congressional pulling and tugging. Not perfect, but generally okay.
Third, a number of reputable economists including two Nobel prize winners question whether $800 billion will be sufficient to do the job. Time will tell on this one. I'll bet that additional spending will be needed.
I'll bet that additional spending will be needed too I'll also bet that additional money will be printed, and I will further bet that GDP will shrink by a far greater amount than anyone is writing into their forecasts, thus making the debt to GDP ratio look a little different.
In the meantime, there are a number of states that are not so sure it is going to help and are getting worried where this is headed:
http://newworldliberty.wordpress.com/20 … nt-rights/
This is not just a worry in the USA. The same thing is happening all over the world. Germany just bailed out yet another bank:
http://blog.luxuryproperty.com/another- … k-bailout/
England just dumped another £14 billion into Northern Rock:
http://business.timesonline.co.uk/tol/b … 793001.ece
Completely reversing their earlier attempts to create a strong bank.
Ms. Clinton just left China. Why was she there? To try and persuade them the US treasury bonds they bought will actually be worth something.
I heard on the radio this morning that the Obama administration plans to use the media to attempt to humiliate the state governors into accepting and using the stimulous money as directed.
Democracy, at its best, rests on a foundation of mutual respect among co-equal citizens willing to take the time for serious debate. After all, even on the momentous issues that divide us, there is usually the possibility that the other side has a good argument. Yet if we paint our opponents as monsters, we owe them no obligation to pay attention to what they have to say.
Forty-five years ago, in his classic essay “The Paranoid Style in American Politics,” Richard Hofstadter warned against this tendency, and worried that it would recur in every era. There is, he suggested, something in the Western psyche that too often makes us retreat to a vision of politics in which there is no complexity. “Since what is at stake,” wrote Hofstadter, “is always a conflict between absolute good and absolute evil, what is necessary is not compromise but the will to fight things out to a finish.”
Complexity is the enemy of such fundamentalism, and, as our public dialogue grows more fundamentalist, complexity fades. If you read Ray Bradbury’s “Fahrenheit 451” — and everyone who loves democracy should read it, at least every two or three years — pay attention to the speech by the fire chief, Captain Beatty, explaining why they burned the books. The reason was not national security or political power. It was complexity. Books, says the fire chief, make ideas too difficult. The reader winds up lost, he says, “in a great welter of nouns and verbs and adjectives.” The people demanded the books be burned because they wanted no complicated ideas.
We may not be burning books, exactly, but we are burning argument and ideas, replacing them with applause lines. If we Americans can make our way past the fanfare over the most controversial words in Mr. Holder’s speech, perhaps we can learn from his reminder that democracy needs dialogue more than it needs bumper stickers.
Stephen L. Carter, a novelist and Yale law professor, is writing a book about what democracy needs now.
Whew! Thank you Ralph! Well stated.
(And thanks also for posting here earlier at my >sort-of< prompting.)
Ah, well, I am no longer under the delusion that live in a democracy
I will put it more simply then:
There is not enough money to fix the problem.
They're running the printing presses on three shifts!
No kidding. Not sure I subscribe to the views of that blog I linked to, but there is some odd and disturbing stuff going on. One of my good friends is ex-head of an Amex National office and honestly says he does not understand what is happening. I will give you an example:
On 28th November 2008, the US gov INC invested $20 billion in cash in to Citi Bank:
http://www.nytimes.com/2008/11/24/busin … ibank.html
Just a few days later, Citi "invested" $8 billion of that money in Dubai's government infrastructure works:
http://internationalpropertyinvestment. … -from-citi
Now - how does that add up?
Edit - this is a link to something I didn't write:
http://zawya.com/story.cfm/sidZW2008121 … To%20Dubai
Studying economics at two Marxist schools hardly qualifies you as "economically literate"--it just makes you a Marxists. The prevailing ideology at these schools is no secret. Ivy League schools get orgasmic when it comes to "celebrating diverse" with one exception: intellectual diversity.
Keynsian economic theories failed during the New Deal, failed during the Great Society, failed with Jimmy Carter and they will fail again with Obama.
I didn't study economics as an undergrad but I managed to pull it off as a grad.
Ha ha ha...that is the BEST explanation I have ever heard for this stupid "stimulus" bill!! Thanks for sharing!!!
Reminds me of the segment in Fantasia where Mickey Mouse is the sorcerer's apprentice:-).
You know - Tasmania - where the Ozzies sent their convicts. - Eric
Just so I can clarify this beyond a shadow of a doubt... are you saying that Eric is from Tasmania?
Yes, I am.
It's a closely guarded secret, known only to those who pay me lots of money, or make the effort to look at my profile
I know it's shocking to think somehow that a Tasmanian got their hands on a computer!
I thought it was against the law to allow those 'down under' Down Under to operate machinery.
It seems I leave Oz for a decade and the inmates take over the asylum.
Scary.....very scary.......hold me....
And I just finished watching the latest Presidential address. Obama definitely knows how to talk the talk....let's hope the Government can walk the walk.
The world is watching.....
Yep, It's one of those fantastic Commodore 64's.
I had to pass a special test to be allowed to use it, as it has a LOT of processing power.
You should be.
Especially since I've knitted my own 5 megabyte hard drive out of some spare steel wool and a couple of bin liners, and am storing my favourite Hub Pages posts on it.
It's a good example, except that the level of shit isn't staying the same; it's getting alot deeper.
Eric, Tasmanian or not, I like this explanation. I'm Victorian which makes absolutely no difference, except I know I only have one head. Perhaps I need a few more to fathom how the hell we are going to get out of the doo doo.
Totally understandable, I can't disagree with the explanation. So WHAT IS the alternative here?
Is a stimulus action the only way of getting the economy going? Perhaps it's the quickest way? Perhaps it's the only known way? Do we know another way besides going back to the vegie patch and sewing and mending our own clothes? Do professional economists side with this because it's within the box and it's the box or nothing?
Love to know.
Wrong questions Jewels
The right one - do we need this kind of economy at all? And - interesting, what will grow on the ruins of the current economy?
"[The above is a short summary of the opinion of orthodox economists rather than voodo supply-siders, astrologers and little weenie wannabe Geckos.]"
LOL. Yep, yep, Ralph. That is clear, even to artists and/or writers, lol... The weird thing is a couple here clearly are capable of maybe reading a bit more than they do.
Oh, well, all in good fun.
"Democracy, at its best, rests on a foundation of mutual respect among co-equal citizens willing to take the time for serious debate. After all, even on the momentous issues that divide us, there is usually the possibility that the other side has a good argument. Yet if we paint our opponents as monsters, we owe them no obligation to pay attention to what they have to say."
"Studying economics at two Marxist schools hardly qualifies you as "economically literate"--it just makes you a Marxists.(sic) The prevailing ideology at these schools is no secret. Ivy League schools get orgasmic when it comes to "celebrating diverse(sic)" with one exception: intellectual diversity."
Some people never learn, despite education. I guess that makes you a fascist Catholic elitist with spelling problems, then.
What I haven't seen yet is a comparison between the US/Australian and New Zealand approaches to the recession.
My understanding of Obama's bill is that its primarily aimed at bailing out banks, large manufacturers and a few home owners in foreclosure, some tax cuts.
In Australia the government is about to start handing out around $950 to most taxpayers and beneficiaries but also last year upped the first home owner's grant which has started a mini-boom of people buying new homes (they get $21k from the govt if first home buyers - this is not means tested).
The government has also guaranteed bank deposits and helped with some commercial property loans - the bottom line in Australia is that property is down around 15% from the peak a few years ago in most markets and unemployment may get close to 10% (its now below 5%)
Little (4 million people) New Zealand - hasn't paid any tax payers any money, there may be small tax cuts - but the taxes are comparable to other trading parties. The interest rates are now historically low, housing with be affordable again this year but unemployement is worryingly high - at 4.9% LOL Property has dropped around 8% on average in the last year. They haven't bailed out any banks cause only one that is owned in NZ the others are just branches of Australian banks. Having personally just rolled over a heap of loans in the last 6 months, while out of the country with little income that the NZ bank has recourse to, I can tell you credit is still pretty easy to get. We haven't bailed out any manufacturing industry because they were all wiped out in the 1988 crash - seriously we only manufacture the odd film special effect, milk and cheese!
I did a bit of economics but I do understand that NZ has one of the world's most open economies: we don't restrict foreigners from buying our currency, our property, our shares. We have a simple tax system and a GST (sales tax) but no other special taxes such tax of property purchase or payrolls. Maybe its time for some of the unproductive industries in Australia and US to fail - the US car industry is a joke -it hasn't competed against the imports for years- yes many more people will lose their jobs (NZ's unemployment in the late 1980's hit around 15% at the same time interest rates were 20%) - but down the track it does seem that NZ is much better placed to weather this particular storm.
"blah, blah, blah...."The bottom line is that gov't has to get out of the way of those who create wealth for this nation, and END these tired old policies of wealth redistribution, social engineering and waste. It didn't work during the New Deal, it didn't work during the Great Society and it won't work now. It truly is the SAME OLD--the same old tax and spend. The same old make the people dependent on gov't.
The gov't needs to create incentives for the production of goods and services, rather than punish the most productive for the sake of social engineering and political favoritism. The more money gov't takes from the people and the more it makes the people dependent, the more power it wields and the more freedom it extinguishes......blah, blah, blah.."
"You have not made a substantive reply to the economic issues I raised with regard to gov't spending. Furthermore, I'm not sure why you would be quoting people like Sullivan as if somehow this lends more credibility to the nothing you are saying here...blah, blah, blah."
It's very interesting, because that 'substance' (or lack there of as you see it) I provided was indeed a summary of the current thought concerning the stimulus from generally complex conservative view points and taken directly from Sullivan's blog. Only fitting that I would quote Sullivan, as I was taking much of the material from Sullivan.
I guess its good enough to be published in The Atlantic, but not good enough for you.
It's very interesting also, that such entitlement programs that we take for granted today, such as Social Security were put in place by the New Deal in the 30's (actually, I believe Ralph has an excellent hub written on it), and have been going strong for close to 80 years now.
I understand you have a severely partisan stance. I understand the capitalist Gordon Gecko bit, as Ralph has aptly applied it. I'm suggesting your stance is the old hat. I'm suggesting that your partisanship gets in the way often, of seeing anything very clearly. I'm suggesting that perhaps there is a give and take in government and the way our economics work that "there may perhaps be a logic to the pendulum swing towards the left for the time being," to quote said source once again.
I do wonder what this fascination you have with "people becoming dependent on the government," is however. What? You fear they won't be exploited by the self proclaimed masters of the universe that got us to this point to begin with--that you wish to identify with?
Its all BS contrived to keep people busy talking about things when in reality it makes no difference. Money is just a printed exchange medium, the banking and Finance community own nearly all of the US and they have moved on to bigger and better Targets Asia and Africa. Demicans and Republicrats are like the Gladiators of old (only really pansified) just a spectator sport designed to keep the masses busy.
There you go. A two party system in which it impossible to tell the difference between them and their policies always end up the same. Except on abortion, gay marriage and a few minor hot-button issues.
See England for a similar system. Public housing, the National health service and privatizing the post office being the issues.
So much fuss is being made over the ex-chairman of Royal bank of Scotland's pension that no one is talking about the £400 billion just dumped into the bank.
Oh, TMG! Between you and Nick, I don't know who is more cynical!
Hopefully I am, I have lived and seen a little more than him. LOL
I learned a scientist has no business in an economics program. I wrongly thought economics was a science but learned it was a fiction/fantasy program.
The same tactics are used everywhere, Lissie was talking about the first time homebuyers in NZ we to have been doing that for two years now.
I use the poker game analogy to explain it. Imagine you and everyone in your community are going to play in a poker game with Warren Buffet(Finance industry).
The initial buy in is a little high for about half of your neighbors so they have to sit on the side lines (the younger folks or people who haven’t saved enough yet)
The rules are simple every hand is an all in hand (your life savings as a down payment) you may win the first few hands (Each successive buy and sell or refinance of your house as the price goes up) But Warren has so much money he can keep doing it until you lose (now he has all the money and all the houses).
In order for Warren to clean out your whole community he has to lower the buy in (First time home buyer programs and deflation of property values).
Even though the younger folks (or late bloomers on getting their saving built up) just watched Warren Kick everyone's ass at the tables they think well the buy in isn't so High I shouldn't take a chance and they all jump into the game. They will win a few hands (The magical recovery of our economy) and once all the money is on the table again Warren will get his straight flush.
All the while these guys are playing the next generation will be lining up at the door, faithfully saving all of their money for the Buy in (The American Dream). That is how the game is played!!
Yah, I know that. They have most all fooled. The trick to that is to become unstuck in that outlook (I AIN'T paying for some stupid house for 30 years and working some job forever) and use some of their 'tricks' on the players. See behind the hype.
I don't need that much, but I own two properties, and plan to own more... Of course, Warren Buffett started out with rich parents, and a loan of $100,000 to start his empire. I started out with nothing. Most, damned before you do. Same with education...
This is of course, speaking very plainly and at a personal and micro level--but it is the same at the macro level.
Your exact scenario was addressed almost to a T in the book "Games People Play," incidentally. States that mortgages and savings actually "give people purpose." Yes, to slavery, and an American Dream highly influenced by society.
I'm somewhat with you. I just haven't given up all illusions of decency in some of humanity. Or belief that some have ideals and live by those. If that makes sense.
Oh, I believe in the decency of some humanity ... just not the politicians. I think most of them start out as honorable, but the system is designed (or has eveloved) to seduce and corrupt even the most decent among them. A small compromise here. A slightly larger one there. And suddenly, if you want to be elected or re-elected - you need to be corrupt.
I had a guy working for me, a democrat running last election against an incumbent republican (I am unappolgetically socially and politically conservative). Still I liked this guy persoally (I lived in a different district so I didn't have to vote against my friend!) he was truly honorable. He spoke his truth. He was intelligent and understood economics and social issues VERY well. He was moral, compasionate. He refused to lie. He refused to take money from anybody with an agenda the differed from his own. He was critical of both sides when appropriate.
He got slaughterd. I mean absolutely devistated. He got fewer votes as a percentage than anyone in the entire election running as a member of a mainstream party. The very definition of "dead last".
I don't believe that decent people much of have a chance of being elected these days. I used to wonder if it was just because I saw so many decent republicans I know get slaughtered ... maybe I was just a sore loser deep inside.
This guy, though ... philosopically, I wanted him to lose, but personally I wanted to see him "do well" and would not have been too upset if he won. It was then I was sure that decent people on both sides of the aisle have a very slim chance of getting in.
It makes total sense to me, Nobody is born this way, they are made that way by years of indoctrination and alienation that makes it all possible. :-) But yes I find myself always the optimist on the inside. Just don't tell anyone.
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