Crazy Pills

The Department State of Macro by A Milder Despot
June 12, 2010, 9:26 pm
Filed under: A Milder Despot

Pushback is really needed on this, clearly, despite Walt’s more-charitable-than-his-usual-angry-demeanor.

Economists were absolutely divided on the stimulus at the time, and they continue to be. Two hundred economists agreed that the Obama stimulus plan was a bad idea, signing onto an incredibly controversial statement that basically subscribed to freshwater principles.

Now, Walt would have you believe that these economists “don’t count,” despite 95% of them actually being academics not the “business economists” he likes to degrade. I would mention nobel laureates Gary Becker and James Buchanan, but Walt would have you believe that they don’t count either. Then I would mention monetarists like Scott Sumner, but Walt would have you believe they don’t count either. Then I would hide behind the GMU economists, but Walt would have you believe that they don’t count either. I would mention Greg Mankiw, but of COURSE he doesn’t count either, because he disagrees with Paul Krugman. I guess, then, I would have to mention Tyler Cowen, who is the sole economist alive in America today whose opinion Walt disagrees with but still is allowed to speak with Walt’s respect.

These people are freshwater and saltwater, neoclassicists and behavioralists, Keynesians and monetarists. The reason that there was such a broad-based opposition to the Obama stimulus is because the stimulus was so poorly designed. As I’ve said all along, it was the equivalent of throwing money at the wall and just hoping some of it worked.

And of course, to the stimulus’ credit, some of it has worked. Aid to the states has proven more effective than previously predicted but, of course, many states are using stimulus money for short-term gain while exacerbating their long-term fiscal crises.

Additionally, as Walt said, the length of the downturn has provided a retort to the timeliness objection to this parcticular stimulus and to anti-stimulative efforts in general.

The stimulus has also proven less effective than predicted. In particular, infrastructure spending and projects that composed a great deal of stimulus spending have seen virtually zero effect on unemployment. Census spending has actively crowded out private efforts. Now these may not be terrible disasters, but they speak to the “throwing money at the wall” strategy and the general poor design of the whole endeavor.

Republican arguments about the stimulus not creating a single job are disingenuous. The stimulus has done some good. But it’s also been a big waste and actively harmful in a few cases. Almost a trillion dollars was spent. The bill will come due at some point. And while it’s our structural debt rather than massive one-time debt that is the bigger long-term problem, spending nearly 10% of GDP on one piece of legislation doesn’t help.

All of this measurement of the stimulus is largely moot because, at this point, we certainly don’t know what kind of effect the stimulus is having. It’ll be years before we know definitively what’s worked and what hasn’t worked. And maybe not even then (see: anti-Depression measures).

Now, as to the state of the macro community, it’s more correct to say that they’re divided but mostly in favor of some kind of stimulative action by the government when it comes to countering recessions. What I’ve just discussed is opposition to Obama’s stimulus, not general stimulative efforts. It would be correct to say that, for the most part, Mankiw-ian New Keynesians, Cowen-like behavioralists and even Sumnerian monetarists would be in favor of well-designed stimulus. That would leave the Becker neoclassicists and Kling-Mason schoolers as against it, which is a much smaller group of people.

However, to sum up, both of Brooks’ quotes were right.


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