“The government has to bail out its citizens.”

Posted by Marc Hodak on December 5, 2008 under Irrationality | Read the First Comment

In what passes as “economics” writing, a CNN writer discusses the current thinking about a government bailout of its citizens:

One leading economist, Economy.com founder Mark Zandi — who was an unpaid adviser to the campaign of Republican presidential candidate John McCain — boosted his estimate for needed stimulus to $600 billion from $400 billion in just nine days late last month.

The fact that this is reported with a straight face actually accounts for a lot of what ails this country economically. It means that the writer of this story in our mainstream media actually believes what she is writing, and that many readers actually think Zandi’s estimate is based on something other than augury or tasseography.

Folks, there is not enough ‘science’ in economic science to say that our $13 trillion economy in the shape it’s in now needs a $0.4 trillion or $0.6 trillion stimulus. We’re lucky to get the order of magnitude right, sometimes even the sign. In fact, an economist could argue that the right amount of stimulus is $0.0 trillion, and many do. Taking seriously a number between $400 and $600 billion is first order hogwash. The fact that the credulous reporter was wowed by Zandi’s number growing that large in just nine days is second order hogwash. Could I amaze you, lady, if I grew my estimate from $100 million to $900 billion in nine hours! I would do that for you, because I’m that kind of guy.

When you think it can’t get any sillier, the writer includes this:

“Be skeptical of all these numbers. All of them are guesses. … They’re based on notions without foundation, that we can forecast the depth and duration of the downturn,” said Douglas Holtz-Eakin, a former Congressional Budget Office director who served as McCain’s top economic adviser during the campaign.

The risk of making the wrong assumptions about the scope of the downturn is that Congress commits too much or too little money to deal with it, or disburses the money at the wrong time in the economic cycle.

Actually, Mr. Holtz-Eakin, not to put too fine a point on it, these number are without foundation because they suppose that even if we knew the depth and duration of the downturn, could we adequately estimate the correct amount of stimulus. That might make Mr. Holtz-Eakin’s quote third order hogwash, although after a while, we’re getting down to the angels-on-a-pin debates.

The fact that both Zandi and Holtz-Eakin were McCain advisors lends credence to those who say that Obama couldn’t possibly be worse on economic issues. Of course, Obama’s man, Larry Summers, confidently puts the “needed stimulus” number at between $500 billion and $700 billion.

Not to be outdone by political hacks, the writer finds a private sector economist, Rich Yamarone, director of economic research at Argus Research, to find a course in this mainstream:

He’s still reasonably optimistic that the economy might start to turn around next summer if Congress passes a stimulus package in the neighborhood of $700 billion and if the infrastructure projects funded by that package and intended to create jobs are up and running within 30 to 90 days from the time the package is approved. Any longer and he said he’ll have to rethink his forecast.

At this point, it’s all about jobs and fostering conditions to create them, Yamarone said. “The government has to bail out its citizens.”

He must have spent extra time with the calipers and protractors to come up with this scientific assessment, while hedging his bets based on how quickly the government can act. Tell, Mr. Yamerone, if the government takes 100 days to build its infrastructure projects, how much more will it need? Surely an economist making a statement like that would have a formula or curve to explain the relationship between time and investment level. I would give our yammering tool $100 billion if he can produce that curve in 30 to 90 days.

All of this, of course, comes down to the premise expressed in that last quote: “The government has to bail out its citizens.”

I’m picturing a boat with leaks springing up left and right. (That’s where the “bailout” analogy starts, right?) I’m picturing a group in the boat called “government” and a distinct group called “people.” It’s hard to do this, but I can manage. Now, I’m trying to picture what resources “government” has to do the bailing. Whatever they may be, they would have to come from the “people.”

That’s right; you and I are the resource that government uses to bail us out. It’s our money, except funneled through Washington D.C. instead of spent directly by us. Or, worse, it’s our government borrowing funds that our children will have to pay back instead of each of us individually contracting that inter-generational debt and tagging it to our own children, because real parents would never do that to their own children. But collectively, we would all do that to each others’ children.