It all started when I read this post from Carrie Rubin.  In it, she describes how people make money by entering book giveaways on sites like Goodreads, etc. and then immediately selling the free books they have won, without reviewing or even reading them.

I have an economics degree, so I began thinking about the incentives that cause this, and what adjustments you could make to the market to fix it. It made for a nice thought experiment. And, well, maybe it got a little out of hand.  But I’m posting it anyway; just for fun.

First of all, we need to discuss the concept of expected value. Wikipedia has a nice summary, using the game of roulette as an example, which I quote below:

Suppose random variable X represents the (monetary) outcome of a $1 bet on a single number (“straight up” bet). If the bet wins (which happens with probability 1/38 in American roulette), the payoff is $35; otherwise the player loses the bet. The expected profit from such a bet will be

E [gain from $1 bet] = -$1 x 37/38 + $35 x 1/38 = -$0.0526

i.e. the bet of $1 stands to lose $0.0526, so its expected value is -$0.0526.

Note that the expected value of a bet in a roulette game is negative.  This is why casinos make money and gamblers typically don’t.  The game is designed to be rigged against the player.

In the book giveaway scenario however, the “player” is not required to pay anything to enter.  The only cost to them is the opportunity cost of the time it takes to enter a giveaway, which is minimal once you have created an account.

Of course, to have a realistic shot at winning anything, you have to enter a lot of giveaways.  So the expected value is the sum of the value of each book times the probability of winning it.

Since there is no monetary cost to entering giveaways, the “player” only stands to gain by doing it.

The author, on the other hand, has little incentive to give the book away.  They only will benefit if the recipient likes the book and makes it known to others.  A bad review, or no review at all, goes down as a loss for the author. If the recipient then sells the book to someone else, it’s an even worse loss, because now multiple people are getting the benefit of the book without payment to the author.

How can we fix this?

One way would be to charge a fee to enter the contest, as in the case of the roulette example.  This would probably work too well–nobody would risk losing even $1 unless the potential reward were an extremely valuable book.  Hence, no one would enter the contests.

Another way would be to impose some limit on the number of giveaways a user is allowed to enter in a given timeframe.  After all, for it to be worth their while, the contestants must be entering a fairly high number of giveaways. Placing a cap on that could deter the book-scalpers.

But remember the original intent of the giveaways.  In an ideal world, the way it works is that the reader gets a free book, reads it, and reviews it.  Both the reader and the author benefit–in economics jargon, this means the outcome is “efficient”.

As part of my research for this post, I decided to find out if Goodreads takes reviews into account as part of the algorithm they use to pick winners.  According to this site, they do–citing the giveaway terms and conditions:

“If more people are interested in a book than there are copies available [which is nearly always the case], we will pick the winners at our discretion. The factors that go into our algorithm are: randomness, site activity, genre of books on your shelves, current phase of the moon, and more.”

I notice they say “site activity”, which is pretty vague, but I’ll assume it means that somehow or other they factor a user’s review track record into their chance of winning.

Tweaking that algorithm might go a long way towards fixing the problem.  But I don’t know what their algorithm is, so for the sake of this exercise, we’ll assume that it’s perfect.

Instead of changing the algorithm, another idea would be to change the terms of giveaways.  If a winner doesn’t post a review in some period of time (e.g. 30 days) they are required to pay a small fee–less than the price of a new copy of the book, but still enough to decrease the profitability of re-selling it.

I think this would increase the effectiveness of giveaways.  It incentivizes (to use that horrible word that only an economist could write) giving reviews, but while still benefiting the recipient, since even if they don’t review it, they are still getting the book at a cheaper rate.

That said, there are some potential problems with this plan:

  1. What is the mechanism for charging people?  Goodreads does not require credit card information to make an account. (It’s much more straightforward on Amazon; there, all users have some sort of account that can be billed.)
  2. It could lead to lots of garbage reviews.  People are likely to post short, unhelpful reviews to get their free copy.

We can still do better than this.

Remember, only physical books can be re-sold.  They can’t do much with a free eBook.  So, how about this: when someone wins the contest, they automatically get a free electronic version of the book, but to get the physical copy, they have to review it.

Amazon has a free reader app that runs on almost anything, so chances are, if you have a device that can be used to enter a GoodReads giveaway, it can also read an eBook.  And Amazon owns GoodReads, so it would be easy enough to set this system up between the two sites.

There’s still potentially a problem with an incentive to give garbage reviews, but it’s lessened considerably by the fact that the reader gets rewarded for posting a review, rather than punished for not posting a review.

What do you say, readers? Could this work?  Is it totally insane?  Do I think too much about weird stuff? Is this why everyone hates economists? Let me know what you think!

election-map-3d-by-county
Credit: Max Galka, Metrocosm.com

Before you do anything else, read this Andrew Sullivan column. It’s a few months old, but still incredibly relevant in many ways, and it’s worth your time to read the whole thing. Don’t worry; I’ll wait.

All done?  Good.

The part I loved most was this:

“In America, as Charles Murray has shown in his extraordinary book, Coming Apart, the young and the smart and the talented — the people who would once have formed the core of these small towns — have long since fled to distant colleges and cities. They don’t come back. They would once have been the police chief or the town librarian or the school principal. They once helped make the town a well-run place with a clear identity, where the same families and networks lived together, died together, belonged together. These connections have attenuated … as economics supplants culture, as efficiency erases the individuality of inefficient places, as Amazon rips the heart out of shopping districts, as the smartphone removes us from physical space, and as many more immigrants and their culture alter the feel of a place in ways that disorient those with memories and loyalties.”

This is a highly significant point.  On a superficial level it’s related to what I wrote about here–the fact that so many of America’s problems stem from the high concentration of young, talented, well-educated people in a few cities.

But there’s also a deeper significance to it–the Oswald Spengler quote I referenced here that “the landscape exercises a secret force upon the extinction of the old [culture] and the appearance of the new one,” applies.

Sorry to reference my own posts, but my point here is that Sullivan has very clearly articulated something I’ve subconsciously thought about but have never been able to express.  It’s a fundamental change in the culture of the United States, and it’s something that needs to be understood to ensure a prosperous future for the nation.

For the second time in a week, I’m posting something I wrote years ago.  This one isn’t nearly as fun as “The King”, though. 

But first, some background: I got into a debate with someone the other day about the treatment of Germany after each of the world wars.  To summarize: her position was that Germany was treated harshly after World War I, leading to the rise of the revenge-based Nazi party, which in turn led to World War II. After that war, the Allies didn’t punish Germany as harshly, to avoid another Nazi-like revenge effort. The lesson, she argued, was that it was better to be charitable to defeated enemies, rather than being vengeful and vindictive.

My view is a little different.  And I know a bit more than most about this, because I had to write a term paper about it in college. I’m going to post a section of it here to give my thoughts on this topic. (Be warned, it’s full of irritating jargon as a 19-year-old undergrad tried to write like the professors he’d been reading.)

***

There are several potential reasons for the differences in the treatment of Germany after World War II compared with World War I. The first and most obvious is that Germany suffered far more direct damage as a result of World War II. Many German cities were destroyed in addition to the number of lives lost. In addition, the destruction of the German government was more complete than after World War II; the elites could not be said to be left intact this time. These facts alone may explain in large part why the allies felt the need to aid the German recovery more than they did post-World War I. Also, it may have been thought that in the wake of this utter defeat, the German people had, in essence, learned their lesson. The allies may have felt they had “finished the job”, unlike after World War I.

Another reason is the dynamics of Europe after World War II. The Soviet Union and the United States, though allied in the war, immediately were at odds by the end of it. As the Soviet Union comprised Eastern European countries and even had control of East Germany, the U.S. felt that West Germany was an important strategic zone in the coming “Cold War”, and that Germany could not simply be abandoned but needed instead to be rebuilt in order that the West could have a presence in Europe to counteract the Soviet Union.

A third potential reason is the results of the treatment of Germany in the aftermath of World War I and the now apparent results. The harsh treatment of the German population after the first war had been a major factor that led to the second one, and the allies did not wish to repeat those mistakes by once again giving Germany a reason to want to acquire more territory. Of course, it is questionable, in my opinion, whether this would have been a realistic goal of Germany no matter how they were treated after the war. The devastation brought upon the infrastructure during the war was such that it would have suppressed German aggregate supply. This would mean that, far from wishing to acquire more resources, the Germans would have, without considerable help, been reduced to a poor, almost less-developed country that would be unable to rebuild for war. Furthermore, the demise of much of the population would have a decreasing effect on aggregate demand—the opposite of the scenario described above, in which a growing population increases aggregate demand, thus fueling the desire for “lebensraum”.

Because of the factors outlined above, it was imperative that the allies, led by the U.S., aid in the reconstruction of Germany. In the aftermath of World War II, the allies ordered many businesses in Germany to close. These only slowly, after a licensing process, were reopened. (Berge & Ritschl, 1995, p.9) Initially, a program of “de-Nazification” was implemented, though scholars have questioned both its effectiveness and the allies commitment to it in view of the Soviet threat. (Herz, p.1) The allies disbanded the German army in 1946. The Morgenthau plan was proposed, which essentially would have “returned Germany to a rural state”, in the words of Jeffry Diefendorf.  (Diefendorf, p. 244.)  The goal of this plan had been to make all industrial centers of Germany “international zones”, with all German territory becoming farmland. This plan was implemented to some extent initially, though later it was phased out, in favor of the Marshall plan. From 1948 to 1951, the U.S. contributed an estimated $1.4 billion to west-occupied parts of Germany under the Marshall plan. (Delong & Eichengreen, 1991, p.14)

[NOTE: I’ve cut out a lengthy section on the economic details of Germany both pre- and post-war. It uses a bunch of jargon and data unrelated to my present point. If you wonder why you see some stuff in the references that’s not cited in-text, that’s why.]

As mentioned above, after World War I, the United States’ desire to get out of the war quickly had led to a Peace that left the German elites intact, with the burden of the punishment for the war falling mainly on the civilian population. In contrast, in the wake of World War II, the German leadership was forced to suffer much more, and the population was given aid to rebuild. This is another key shift in attitude that contributed to the difference in treatment.

It would be remiss to omit the Soviet policy towards East Germany form this paper altogether. The Soviet Union’s treatment of East Germany was fairly harsh, as dismantling programs—discontinued in the West after 1947—continued past that point in the East. From this alone it appears that the Soviet Union, whether due to the nature of economic limitations, or else an unwillingness to do so out of a desire to punish Germany—the Soviet Union approved of and benefited from the harsh Morgenthau plan (Dietrich, p.14)—it appears that the Soviet Union’s treatment of East Germany was unable produce them same results as those produced in the West.

My own analysis, very broadly speaking; is that there are two points of view with regard to the reasons for the difference in treatment—one is of a more optimistic tone, the other pessimistic, or at least cynical. The optimistic explanation is that the allied forces decided that it was necessary to help the Germans to avoid again fostering a sentiment that they had been unjustly punished in some way. In this view, the lesson is that simple defeat is not enough; it is necessary to build relations and help the defeated enemy.

The pessimistic view is that it was necessary that Germany first be indisputably defeated militarily. While it may have helped matters, in the wake of the first War, if, for example, France had not demanded such exorbitant reparations; it would nonetheless be true that Germany had not suffered direct, total defeat, and thus any armistice would have seemed like a surrender. In this view, it was necessary that Germany suffer firsthand the effects of a large war on its own soil, and be defeated completely. In economic terms, the costs of war needed to be extremely high before Germany would ever abandon it. Only after this had occurred could Germany be rebuilt.

References

Berger, Helge & Ritschl, Albrecht. Germany and the political economy of the Marshall plan. 1947-1952: a re-revisionist view. In Europe‘s Post-war Recovery by Barry J. Eichengreen 1995. Published by Cambridge University Press,

Bessel, Richard. Germany after the First World War 1993. Published by Oxford University Press. Page 96.

Burdekin, Richard C.K. & Burkett, Paul. Money, Credit, and Wages in Hyperinflation: Post-World War I Germany. 2007. Economic Inquiry. Volume 30 Issue 3, Pages 479 – 495

DeLong, J. Bradford & Eichengreen, Barry. The Marshall Plan: History’s Most Successful Structural Adjustment Program. In Postwar economic reconstruction and lessons for the East today by Rüdiger Dornbusch. Published by MIT Press

Diefendorf, Jeffry M. In the wake of war 1993. Published by Oxford University Press. Page 244.

Dietrich , John The Morgenthau Plan: Soviet influence on American postwar policy 2002. Algora Publishing.

The Economist. Loads of money December 23, 1999. http://www.economist.com.hk/diversions/millennium/displayStory.cfm?Story_ID=347363 Accessed May 3 2009.

Statisitsche Reichsamt, Zahlen zur Geldentwertung in Deustchland 1914 bis 1923. Quoted in Bessel, Richard. Germany after the First World War 1993. Published by Oxford University Press. Page 95.

Fischer, Conan. The Ruhr Crisis, 1923-1924 Oxford University Press, 2003

Eichengreen, Barry. Institutions and economic growth: Europe after World War II. In Economic growth in Europe since 1945. Crafts N. F. R, Toniolo, Gianni. 1996 Cambridge University Press.

Heinz-Paque, Karl. Why the 1950s and not the 1920s? Olsonian and non-Olsonian interpretations of two decades of German economic history. In Economic growth in Europe since 1945 by Crafts, N. F. R, Toniolo , Gianni 1996.

Herz , John H. The Fiasco of Denazification in Germany. 1948 Political science Quarterly. Vol. 63. No. 4. pp. 569-594

Keynes, John Maynard. The Economic Consequences of the Peace 1920. Harcourt, Brace & Howe. Inc.

Klein, Fritz. Between Compiegne and Versailles: The Germans on the way from a Misunderstood Defeat to an Unwanted Peace. In The Treaty of Versailles: A reassessment after 75 years. By Manfred Franz Boemeke, Gerald D. Feldman, Elisabeth Gläser Pages 203-220.

Myerson, Roger, B. Political Economics and the Weimar Disaster Journal of Institutional and Theoretical Economics 160 (2004), 187–209

Ritschl, Albrecht. An exercise in futility: East German economic growth and decline 1945-90. In Economic growth in Europe since 1945 by N. F. R, Toniolo , Gianni (Cambridge: Cambridge University Press) 1996.

Ritschl, Albrecht. The Pity of Peace. Germany’s economy at War 1914-1918 and Beyond. December 2003. In The Economics of World War I by Broadberry, S.N. and Harrison, Mark. 2005. Cambridge University Press.

Svenson, Jakob The institutional economics of foreign aid Swedish Economic Policy Review Vol.13 (2006) 115-137

Shuster, Richard J. German disarmament after World War I: the diplomacy of international arms inspection, 1920-1931 2006. Published by Routledge. Page 56.

Taylor, A. J. P. The origins of the Second World War 1996. Simon and Schuster

Footnotes

  1. MV = PY where M = Money in circulation, V = the Velocity of money, P = the Price level, and Y = index of goods. i.e. GDP.
  2. “Militaristic Keynesianism” is the concept of boosting aggregate demand through increasing military expenditures.

 

Jesse A. Myerson wrote an article in Rolling Stone entitled “Five Economic Reforms Millenials Should Be Fighting For“. The first of these reforms is “Guaranteed Work for Everybody”.  (This is immediately qualified to “everyone who wants to contribute productively to society”, probably since the original might be interpreted as meaning forced labor.)

Anyway, Myerson claims that “A job guarantee that paid a living wage would anchor prices”.  How? As I see it, if all the unemployed (or even a significant number of them) were suddenly being paid money for work, it would result in an increase in the price level–that is, inflation.

 
Now, this isn’t necessarily as bad as it sounds, since the problem in most recessions is deflation, and pursuing an inflationary policy to combat unemployment is an old Keynesian trick.  (Although in this case, unemployment would presumably be almost 0, so there would be no need to combat it…) 
 
Also, since it’s a living wage, if prices go up, the government would have to increase the wage to keep up with prices, which could cause prices to go up again, and possibly lead to a never-ending inflationary cycle.  But that might just be my pessimism talking.  Nevertheless, I don’t get how this idea, whatever other merits it may have, is supposed to “anchor prices”.

I can’t believe I didn’t hear about this sooner!  I just learned about it this week while discussing our latest Federal government crisis with someone. Turns out that, during the first debt ceiling crisis of 2011, people were considering the idea of the U.S.  minting a platinum trillion dollar coin in order to bypass the Congress’s refusal to raise the debt limit.  Says Wikipedia:

The concept of striking a trillion dollar coin that would generate one trillion dollars in seigniorage, which would be off-budget, or numismatic profit, which would be on-budget, and be transferred to the Treasury… Thus, if the Treasury were to mint one trillion dollar coins, it could deposit such coins at the Federal Reserve’s Treasury account instead of issuing new debt.

Read the article for the full details.  The coin would have to be platinum, apparently, which of course immediately made me think of the “platinum chip”, the central MacGuffin in Fallout: New Vegas. Moreover, the whole concept of sounds like the denouement of a Gilbert and Sullivan operetta. So, how could I not be interested?

More seriously, I think the fact that this was even considered–and only rejected out of deference to the balance of power rules–shows the extent to which our government is not functioning like it should.  But then, you knew that.

This latest crisis has shown some serious vulnerabilities in the rules governing the operation of the Federal government.  Has our country really never been so polarized that the parties weren’t driven to this kind of thing before?

[To be sung to the tune of Gilbert and Sullivan’s “Modern Major General]

In microeconomics, S and D curves must equilibrate;

It’s a fact which ev’ry laissez-faire economist must celebrate.

Under classical assumptions, as set down by Dr. Marshall,

Markets always clear, although the equilibrium is partial!

And with perfect competition, to the best of our ability,

Then the quantity and price are such that maximize utility.

And although the notion may seem so simple that it’s risible

Even so, the market‘s guided as if by a Hand Invisible.

And at the risk of being just a little bit repetitive

This is why we mustn’t intervene when markets are competitive—

It’s a fact which ev’ry laissez-faire economist must celebrate—

In standard economics, S and D curves must equilibrate!

————————————————————————————————————————–

So effective is the model at describing price behavior,

There are those who’ve come to see it as an economic savior.

As a market functions best when its preserving its autonomy

They use this very model for the whole macroeconomy.

And according to the principles which I already mention,

Conclude that never is there need for a market intervention.

Recessionary gaps” they will dismiss as sheer vapidity,

And they will see no sign of traps constraining the liquidity.

But there’s a little problem, in that when they do extrapolate,

The similarities with micro will, alas, evaporate.

But even so, ev’ry laissez-faire economist will celebrate:

In economic models, S and D curves must equilibrate!

————————————————————————————————————————–

There are analogues in science that I’ll tell you if you want ‘em:

Physics, for example, has mechanics classical and quantum

The former is for apples and for other common articles,

While the latter is designed for use with sub-atomic particles.

Although in single markets laissez-faire is unassailable,

That doesn’t really mean that it is infinitely scalable.

For when on a certain field is where all of your reliance is

You hope that it would have the rigor of the other sciences.

And so my final verdict, I’m afraid, is very critical:

As long as economics is so thoroughly political

The best that we can hope for is economists who celebrate:

In economic models, S and D curves must equilibrate!

Supply and Demand

The Daily Mail reports that a study found “Men who are physically strong are more likely to have right wing political views”. Although, the article says that they used data on “bicep size, socio-economic status and support for economic redistribution”.  Bicep size doesn’t always correlate perfectly with strength–strength lifters who can lift more weight may not have biceps as large as bodybuilders who deliberately sculpt their arms. I actually wonder if this could skew their results, because it’s probably mostly rich guys who have time to body-build, as opposed to guys who just become strong working construction or something.  But whatever.

I haven’t actually read the study, just the press reports on it.  Maybe they misinterpreted it.  But I think people are too quick to assume that physically sculpted bodybuilders are “strong”, when they may not actually be that capable. Bodybuilding is a fine activity, but it’s not the same as achieving peak physical ability.

Also, none of the articles I read said anything about what other variables the researchers took into account.  I can only assume that they controlled for things like “age” as well.  Maybe I’ll try to find the study, although the whole thing seems kind of silly to me.

I saw the original Star Trek episode “The Cloud Minders” last night.  It’s about a city in the clouds populated by artists and thinkers who devote themselves to their pursuit of beauty.  It sounds pretty awesome at first, but it comes out in the episode that the reason they are able to do this is because they have a population of people who are effectively slaves doing all the hard work for them.

The plot resolution in this episode was confusing–it was one of the weaker episodes, in my opinion–but it was certainly an interesting concept. It reminded me of the Oscar Wilde essay in which he laid out his scheme for fixing the world:

The fact is, that civilisation requires slaves. The Greeks were quite right there. Unless there are slaves to do the ugly, horrible, uninteresting work, culture and contemplation become almost impossible. Human slavery is wrong, insecure, and demoralising. On mechanical slavery, on the slavery of the machine, the future of the world depends.

Wilde wrote that in 1891, and poverty and class-inequality have still not been abolished despite massive advances in technology. Of course, the people in the Star Trek episode had even less technology than was available in Wilde’s time, let alone what they ought to have in the 23rd century.  The slave people in the episode were mining some mineral by hand. How they had created a floating city with powerful anti-gravity technology but not yet invented the shovel, I don’t know.  Perhaps it was a make-work project.

But it’s still an interesting idea, inconsistencies aside.  Wilde knew it took work to build civilization, and that somebody had to do the unpleasant bits.  He was hoping to put that job off on machines, since it’s not cruel to make them do it.

This leads to another point.  Last week, Ross Douthat wrote a column in the NYT entitled “A World Without Work”,  where he claims that it’s no longer as vital for people to work because of the nation’s great wealth.  As he writes “the decline in work-force participation is actually being made possible by material progress.”

Douthat is worried that this, though, because he fears that the very absence of having to work, being freed from the daily toil, will be harmful to people’s well-being.  It’s possible. Perhaps the very material security which is supposed to be the catalyst for civilization could instead bring about its stagnation, making people into idle dilettantes, who do nothing but write about science-fiction shows and generally have their heads in the clouds.

(Hat tip to Freddie DeBoer for the Douthat article.)

 

I liked Bill Clinton’s speech last night.  He did a good job of using his charisma to package the use of actual numbers and statistics in his speech.  It seems to me that politicians nowadays prefer to rely more and more on clever turns of phrase, rather than actual facts and figures to get their points across.  Clinton certainly had some one-liners, but he also gave some pretty involved  explanations of things.  I especially liked his observation that  “Today, interest rates are low, lower than the rate of inflation. People are practically paying us to borrow money”.

I am still not a fan of saying the stimulus “created or saved” jobs, which he did at least once.  That sounds like weasel words, and even though I assume the “saved” idea is based on models and projections of the economy without the stimulus,  those are still just models, and it feels shady to take credit for preventing something you assume would have happened.  They should stick with just “created”.

All in all, though, a very good speech.

For the past week, all any one is taking about is Niall Ferguson’s Newsweek article on the case against re-electing President Obama.  There has been a lot of arguing between Ferguson and many high-profile bloggers about various points in the article which are either false or misleading.  There is also the revelation that Newsweek does not actually fact-check their articles.  I think that aspect of it has been pretty well hashed-over, so I’m not going to spend much time on it.

What I want to address is why Ferguson thinks Romney would be any better.  Because, the question is not “is Obama the best candidate for the Presidency,” but  “is he better than Romney?”  Ferguson’s reasons for favoring Romney seem to rest largely on the fact that his V.P. is Paul Ryan.  Big deal.  The Vice-Presidency is practically worthless except in the hands of somebody with vast experience with how Washington works and tons of connections within the political arena.  But I don’t think Romney wants to market Ryan as “the next Dick Cheney”.

Then, of course, there is the problem that Ryan is not really all he’s cracked up to be, as documented by Ferguson’s arch-nemesis, Paul Krugman.  I’ll address that in a minute but first let’s allow, for the sake of argument, that Paul Ryan is, as Ferguson writes “truly sincere about addressing this country’s fiscal crisis.”  He’s still just the Vice-President.  Arguably, he could do more to implement his budget schemes in his current position as Congressman than as Romney’s back-up.

But here is where things get problematic:  Ferguson’s argument is that the economy has sucked under Obama.  That’s true.  There’s no two ways about it, as they say.  And while that’s not completely or even mostly Obama’s fault, his administration has definitely made some mistakes on that front.

So, is the Romney/Ryan ticket likely to do a better job or a worse job?

Ferguson describes Ryan’s plan, kind of assuming that his plan is what Romney will pursue:

Replace Medicare with a voucher program for those now under 55 (not current or imminent recipients), turn Medicaid and food stamps into block grants for the states, and—crucially—simplify the tax code and lower tax rates to try to inject some supply-side life back into the U.S. private sector. Ryan is not preaching austerity. He is preaching growth.

“Growth”, eh? Well, to get growth, you need a multiplier effectThe estimated values for multipliers on tax cuts range from 1.29 to 0.27, according to Mark Zandi, Chief Economist at Moody’s, in a study cited by Wikipedia. The same study estimated the multipliers for government spending increases ranged from 1.73 to 1.36.  These are the different effects a change in tax cuts or spending have on growth of domestic output. (GDP)

If you notice, the number 1.36 is greater than the number 1.29.  That means that if you multiply the same number by both, you get a greater answer from the number that’s greater.  The spending increase number is greater than the tax cut number.  I realize this is difficult to understand.  Apparently, a Harvard professor and the Republican candidate for Vice-President can’t follow it.

Alright, so I’m being a sarcastic jerk.  There is an alternative explanation: that everything we thought we knew about basic macro-economics is wrong, in which case all bets are off.  We may as well just go back to the barter system.  Neoclassical synthesis?  No thank you!  The Republicans seem beholden to a school of thought which, rather than having a macro-economic model and a micro-economic model, simply extrapolates the principles of classical micro to describe the macro.

Remember what Ferguson wrote, about “supply-side life”?  Well, that’s a swell plan if you’re facing a supply side recession, as we were in the 1970s.  But we’re not facing that now.  We’re facing a demand-side recession.  How do I know this?  Because there has been a decrease in GDP and low inflation–almost deflation.  If it were a supply-side issue, there would have been a decrease in GDP and a rise in the price level–aka “stagflation“.  Meaning, the supply-side stuff advocated by Ronald Reagan that worked to an extent in the early ’80s won’t work now.

(Not that I suppose you care, but here is a graph of what the present problem is.  It’s lousy quality, and I just sketched it without using any numbers or anything, but I couldn’t find any public domain graphs of an Aggregate Demand decrease online.)

The Recession: Aggregate Demand decreases, causing decrease in price level and GDP

So, Paul Ryan–and, Ferguson would have us presume, Romney–are bringing supply to a demand fight.  Their plan is to cut taxes and reduce spending, when what they should be doing is increasing spending and leaving taxes alone until the economy has recovered, at which point they could reduce spending and raise taxes to start dealing with the debt problem.

That is why, even though Obama has messed up his handling of the economy, it would not be smart to vote him out because of it.  His replacements would be even worse.