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2012 January 11 Wednesday
Greek Govt Creates Drug Shortage With Price Controls

In article about Greek parents abandoning children they can no longer afford a couple of sentences show that the Greek government is demonstrating the ability to make a bad situation even worse. If the majority of Greeks support this they deserve to go without drugs.

Pharmacists are struggling to stock their shelves as the Greek government, which sets the prices for drugs, keeps them artificially low.

This means that firms are turning to sell the drugs outside of the country for a higher price - leading to stock depletion for Greeks.

There's no excuse for such blatantly destructive policies.

One wonders: Do Greeks end up buying drugs from web sites to get shipped in from other European Union nations?

What I wish: that I could get a government as good as I deserve and better than the ignorant majority deserve.

By Randall Parker    2012 January 11 09:42 PM Entry Permalink | Comments (12)
2010 April 07 Wednesday
Robert Barro Skeptical On Fiscal Stimulus Benefits

Harvard economist Robert Barro is skeptical that government spending provides a big stimulus to the economy.

In terms of the stuff that’s not wartime spending – which we’re probably most interested in in the current climate –it’s just hard to know from the history of the data and the time series. The New Deal is part of my research, and it’s bigger than the other non-defence expenditure in terms of stimulus, but it’s not enough to really sort it out.

So I don’t think you can reliably say what the effect is. But conceptually you’d expect the wartime spending to have a bigger effect for various reasons on the GDP than the equivalent amount of expenditure in a non-war situation. And the wartime effect you can estimate pretty precisely, and the multiplier is clearly less than one, even in World War Two – it’s in the order of 0.6, 0.7, something like that.

So your point is that even in the context of massive expenditures in a wartime situation, the multiplier effect of government spending on the economy is less than one – ie, it is not a multiplier at all. In other words, fiscal stimulus does not work. I read your WSJ editorial on this. Is that a good way for the layman to understand your arguments? Also this, on the “Voodoo Multipliers" and your September 2009 NBER working paper (most recent version available on the left)?

Yes, those articles refer to this kind of evidence, and I’ve been working more on it, trying to make it more precise. Some economists have argued that in a time of slack the multiple should be bigger, because there’s more capacity to respond to the extra demand. There’s a little bit of evidence that that’s right. A lot of that comes from the build-up in World War Two, because in 1941 the unemployment rate is still around nine per cent, so you can see what is the effect in that environment, in a high unemployment situation, of having a big expenditure increase. (Later in the war, the unemployment rate is close to nothing, so you don’t have that setting.) There’s a little bit of evidence from that that the multiplier is bigger when there’s more slack. But it doesn’t look like the multiplier gets up to one, even when the unemployment rate is nine per cent. It’s getting closer to that, but even then it is not one.

So the United States and some other countries are going deeper into debt in order to lessen the depth and length of the current economic downturn. But all that debt which will burden us in the future isn't delivering much benefit today.

Obama's economic advisers see government as more efficacious when it comes to boosting the economy. Barro thinks the evidence doesn't support their optimistic pronouncements.

And yet neo-Keynesians – which include White House economics adviser Christina Romer – often cite the number as being 1.5, and you say in your article that the Obama administration is using 1.5 as a basis for its fiscal stimulus policies. How do they come up with that then?

Oh they pulled that out of the air. I have the advantage of having at least a little bit of empirical evidence: as I said, it’s based particularly on military purchases. So even though that evidence is not that great, it’s infinitely better than the alternatives, which are no evidence. I think Valerie Ramey’s work is the best in terms of empirically trying to figure what the effect is of expenditure on the macro-variables. She has focused mostly on the post-World War Two period, but she’s looked somewhat at the earlier part.

I see a few of motives for why politicians support fiscal stimulus. First off, politicians can use stimulus packages as pork. Hand out goodies to favored constituencies. Second, during a recession politicians want to be seen as doing something to respond to the pain of their constituents. Third, politicians, especially on the political left, want to believe that government is an agent of positive change. All these factors make them choose economic advisers who look at the evidence of economic history with a bias toward finding benefits from fiscal stimulus.

The problem is that America can't afford to pile up more debts. We are headed toward a sovereign debt crisis.

By Randall Parker    2010 April 07 09:16 PM Entry Permalink | Comments (2)
2009 August 15 Saturday
New York Times Misses Real Cash For Clunkers Effects

Writing in the New York Times David Sanger reports on the sorts of objections to the Cash For Clunkers program that the New York Times notices.

The first is that the program is simply not ambitious enough — in an effort to make sure American carmakers are among the biggest winners, it set the mileage requirements for newly purchased cars too low. The second is that Congress and the White House are essentially rewarding car owners who in years past chose to buy gas-guzzlers — violating Mr. Obama’s own first rule of environmentalism, which is that polluters should pay.

And the third question is the one that haunts any big government subsidy: Does it make more sense to pay Americans to buy a new, slightly more efficient car than it does to insulate their homes? Or to go to the health club, in hopes of lowering future health care costs?

That's the best they can do? How about a few other objections?

  • The Cash For Clunkers Program steals sales from future quarters. Some of these cars would have been purchased this fall or winter. So sales will dip this fall and winter.
  • People who are spending more on cars are cutting back on other expenditures. In fact, in July non-auto retail sales dropped 0.6% while auto sales rose 2.4%.
  • It is redistributionist in a lottery sort of way. Just happen to have an old car with very little resale value? Just happen to want a new car that fits the program's criteria. You get a deal at the expense of everyone else.

I have an even more fundamental objection: American taxpayers are paying other citizens to get cars that stimulate the economies of Japan and South Korea. What about the American economy?

The top five models purchased in the week ending Aug. 5 included three Toyotas — the Corolla, the Prius and the Camry — along with the Honda Civic and the Hyundai Elantra.

Um, I want more American jobs, not more Japanese jobs. Japan not my country (though its an interesting place to visit). I do not pay taxes to the Japanese government. I do not have a Japanese passport.

George Pipas at Ford admits Cash For Clunkers shifts sales from future quarters.

The sales last month from the federal incentives may result in fewer buyers later this year after the program ends, George Pipas, Ford‘s sales analyst, told CNBC today.

The demand effect of the incentive is already waning.

“A lot of demand got sopped up in the first mad rush, now the pressure is off to be first in line,” said Edmunds.com senior analyst Michelle Krebs, adding that sales may drop after the program ends. “We‘re nervous about what September and October will look like after this plays out.”

Okay, we taxpayers are funding the shifting of sales from future quarters and we are also funding displacement of the purchase of other goods and services so that people buy cars instead. This isn't hard to figure out.

If the US government is going to spend money to stimulate the economy I'd prefer the money get spent on something with lasting value. Nuclear power plants come to mind. They are made here. They produce energy for decades and avoid the pollution of dwindling fossil fuels.

But the Cash For Clunkers program is small potatoes compared to what is being lavished on GM, Chrysler, and the UAW retirees and workers.

The bailout of America's auto industry--General Motors, Chrysler, their finance units, their parts suppliers, Cash for Clunkers, etc.--is costing American taxpayers more than $100 billion.

By Randall Parker    2009 August 15 10:29 AM Entry Permalink | Comments (3)
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