Anyone listening to the major broadcast networks — NBC, CBS, ABC, and PBS — might be convinced that nearly all economists are united behind Obama’s proposed economic stimulus proposals. Just about all of the reports I have heard exclusively quote economists who think such a fiscal stimulus will be a good thing.
In the blogosphere, however, the debate rages between economists such as Paul Krugman, who think that the bigger stimulus, the better; and those such as Tyler Cowen, who remain unpersuaded. Many of the latter question whether a stimulus will work at all. Others think a stimulus might work in theory but that Congress is too likely to turn it into a pork fest for it to have any positive effect on the economy.
Update: Two more lists of stimulus skeptics can be found in the New York Times economix blog and a John Boehner press release. Plus David Brooks (who I pan in another post) expresses his skepticism for reasons that are more practical than technical.
Here are just a few of the skeptics that I have encountered in the last few days.
Harvard economist Edward Glaeser thinks tax cuts make sense but spending is likely to turn into a “fiscal fiasco.”
Stanford economist John Taylor argues that tax cuts (not a Bush-type rebate) will do more to stimulate the economy than more spending.
George Mason University economist Alex Tabarrok argues that federal spending will merely “crowd out” spending by states or private entities. Moreover, he suspects that, at least as far as transportation is concerned, we are already spending enough.
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Greg Mankiw cites several research papers showing that fiscal stimuli haven’t worked in the past and tax cuts are likely to work better.
Atlantic Monthly blogger Megan McArdle argues that “stimulus rarely works unless it is massive and very rapidly applied, and if it is massive and very rapid, it usually has much larger problems.”
Dartmouth economist Andrew Samwick thinks government should spend money on things that are beneficial regardless of whether there is a recession, and that the current emphasis on stimulus is just leading “every political faction advocating for a handout today funded by taxpayers in the future.”
Cato economist Chris Edwards argues that, if infrastructure projects were really worthwhile, they would be already funded. He thinks privatizing roads, airports, and other infrastructure will do far more to stimulate the economy than more federal spending.
Economic consultant John Tamny argues that borrowing money to stimulate the economy is like cutting off the bottom of a blanket and sewing it to the top to keep your head warm.
Libertarian economist Arnold Kling thinks a small stimulus might help but a big one is likely to be a waste.
Those skeptics who think that tax cuts will work better than more spending may be happy to know that Obama is calling for a tax cut that is roughly twice as big as Bush’s 2008 tax rebate. Personally, my view of tax cuts is the same as Samwick’s view of spending: do them because they make sense, not to stimulate the economy.
This isn’t really very complicated.
Wasting money is wasting money. If the government is going to spend money, it has to be on worthwhile projects.
If the government is going to take money from the people, then spend it, it will waste a lot of time and a lot of transaction costs.
I will leave it up to economists to debate if it helps for the government to print money to spend it on projects.
“If the government is going to spend money, it has to be on worthwhile projects.”
I suppose that’s the crux of any argument, and the one that is beaten to death on this blog. Who decides what constitutes a “worthwhile project?” Certainly not planners! 😉
How could you forget Peter Schiff? After all, he was right. Or is there a rift between Cato and the Austrian School that would prevent his listing here?
“Anyone listening to the major broadcast networks  NBC, CBS, ABC, and PBS…”
I think you mean “watching.” Those who religiously listen to NPR (I listening right now) have probably heard voices tantamount to Glaeser and Tabarrok. Their voices tend to be crowded out by the pro stimulus economist, but at least they’re there. I would assume that Fox News also hates the stimulus plan. Thank god for blogs 😉
The Keynesian management of the economy of the Johnson, Nixon, Ford, and Carter administrations did not work very well (despite the fact that Nixon said, “We are all Keynesians now.”) By the late 1970’s and early 1980’s in many circles you could not use the term Keynesian without inserting the modifier “discredited” in front of it.
In the 1980’s at the University of Minnesota School of Economics they developed the Rational Expectations Theory which refuted much of the Kenyesian fiscal stimulus and multiplier theory. Now, Behavioral Finance teaches us that people do not behave rationally.
Either way, it seems that capital must be allocated to to projects that generate real returns. I dont’t think it is enough to just inject money into the economy to get a multiplier effect. With all of the talk about fiscal stimulus I expect that we will re-learn the lessons of stagflation and the Misery Index.
I think it was Milton Freidman who said something to the effect that the danger of Keyensian economics is it allows polititians to justify the behaviors – control – that they want to excercise anyway.
The problem with the overall situation that Randal decries (and with which I agree) is that our society fetishizes the economy.
This is good for corporations, as they need pliant consumers to “steer the economy”. Almost everything is phrased in terms of the economy [true: mother-in-law watching Faux News the other day and talking head calls them “Chinese _consumers_”, even though the topic was not economic].
That is: it is a cataclysm of epic proportion if the economy doesn’t continue to grow. I’m not sure what’s going to happen to our psyche when the world market economy stops growing, after all these years of inculcation and fetishization.
[/soapbox]
DS
bennett Says:
I suppose that’s the crux of any argument, and the one that is beaten to death on this blog. Who decides what constitutes a “worthwhile project?†Certainly not planners!
THWM: Much like the planners, who plan highways.
You can add Dominick Armentano to the list. I cited a bunch more in my recent blog entry at The New Clarion.
How could you forget Peter Schiff? After all, he was right. Or is there a rift between Cato and the Austrian School that would prevent his listing here?
A very small handful of other economists such as Krugman also saw the housing bubble coming. Hell, even in 2005-2006 I knew it couldn’t last! Schiff recommends rebuilding U.S. industry and production rather than propping up consumption.
The real question is HOW do you do that!? Schiff’s relative prescience compared to other economists doesn’t necessarily mean he knows the solution, though; let’s just say that “libertarian” and “Austrian” economists have a heck of a lot to prove; if Obama’s plan works then there is no point in listening to them.
“my view of tax cuts is the same as Samwick’s view of spending: do them because they make sense, not to stimulate the economy.” ROT
I think this is all you needed to write. Didn’t the last round of “stimulus checks” fail? Granted that was before we all knew how bad things were, but it is simply trying to prop up consumerism and not industry – which is what we need.
Tax cuts sound better. Just none for GM.
if Obama’s plan works then there is no point in listening to them
If by “work” you mean “inflate the money supply in an attempt to generate inflation and prop up housing prices”, then Obama’s plan will work. But it will be disastrous for the economy, particularly the poor and working classes who will see massive inflation eat their investments, or, if they don’t have investments, will fork-load over hard-earned devalued dollars as food and consumer goods prices soar.
Didn’t the last round of “stimulus checks” fail?
If by fail you mean “inflate the money supply in an attempt to generate inflation and prop up housing prices”, then no, the stimulous was massively successful. But remember what followed? $4.50 gas (not to imply a causal relationship–certainly many factors were at play in the oil price, including speculation and malinvestment), huge jumps in food prices, and the weakening of the dollar against other currencies. I went to London in June and spent my stimulus check trying to subsidize the extreme prices in London, due largely to the 2:1 ratio of the British Pound to the US Dollar. Even currencies in Eastern Europe were relatively strong against the dollar. Four years ago, the US dollar was worth two Bulgarian Lev, and in May it was worth only 1.25 lev. (By the way, you can get a 13% yield on 13 month deposits in leva in Bulgaria.)
Schiff recommends rebuilding U.S. industry and production rather than propping up consumption.
The real question is HOW do you do that!?
The real answer is YOU don’t do anything. No central planning. No Federal Reserve. Free market interest rates. Deregulation of labor. It’s known as the “free market”. Government aided in shifting resources from a manufacturing and saving economy to a service and consumption economy. Let freedom sort things out.
As there is no such thing as the Free Market and since there is widespread asymmetric information, next idea anyone?
DS
Is Frank…Frank Karlock? Cause I just want to go on record that I, in part, morally agree on post #11. The AFL-CIO was complaining about the same thing as regards China’s fixed exchange rate. So I agree with the ends: equitable wages. I don’t necessarily believe that a floating exchange (free market)would accomplish that though.
Frank, (serious question here, no politics): how would we get China to float?
Deregulation of labor. It’s known as the “free marketâ€Â. Government aided in shifting resources from a manufacturing and saving economy to a service and consumption economy. Let freedom sort things out.
You obviously are referring to “free trade” where high-paying U.S. manufacturing and other jobs are exported to low wage countries like China, and they sell us the resulting cheap products at WalMart–including toys impregnated with lead–back to us “consumers”, paid for by credit cards or the one-time equity that could be extracted from houses. Yeah, this all worked really well!
Sheesh.
t g said:
Is Frank…Frank Karlock? …how would we get China to float?
Nope. And I have no idea.
msetty said:
You obviously are referring to “free trade 
No. I’m referring primarily to getting the government out of the monetary system. Abolish the Federal Reserve. Stop government debasement of money. Return to a commodity-based monetary system and abandon fiat money. Let the market, not the Fed, set interest rates. End fractional reserve banking. Abolish wage and investment taxation. Let the market establish wages.
The system you refer to is corporatist, not capitalist. Every step of the way, the government played a meddling role that resulted in unintended consequences.
Frank,
(sorry for the confusion on the name, Dan made a comment the other day about someone writing under two names…holiday hangover)
On the exchange rate and free markets: as China devalues their currency against the dollar in order to maintain strong exports, do we really want to provide for a free market (i.e. no tariffs on imports etc) in the states which just demands for jobs to be shipped overseas?
I agree that the free market is the most efficient at accessing knowledge and utilizing it to solve some economic problems, but I don’t see how we can assure a true free market on the global scale. There will be a China (or Germany, or France, or Italy) that will not sit back and let freedom run its course. So do we refuse to buy Chinese products because they undercut global wages, thus making a planning decision, or allow it?
Re #16,
That’s a real question – I’m morally on the fence about it.
I think that if we went to a commodity based monetary system, it would force both wages and prices down. Couldn’t unskilled labor in the United States (for instance, people who drop out of school) compete with unskilled Chinese labor on the new system? American unemployment rolls are growing, and minimum wage laws have kept unemployment high for unskilled labor. With a deflation of both wages and prices, I think the United States could compete with China in manufacturing. Employing unskilled labor at American textile factories could be cheaper for companies on this system. First, unskilled American workers are probably more productive than unskilled Chinese workers due to our higher standard of living, and while our standard is in transition, it will remain many orders higher. Secondly, without taxation, companies would have additionally profits to reinvest into the company. Reinvestment might mean buying newer, more efficient capital or hiring more workers. Finally, companies wouldn’t have to spend valuable resources on shipping goods across the Pacific or invest in foreign infrastructure and training.
“Our role of world leadership in a political and military sense is the only reason for our current embarrassment in an economic sense on the one hand and on the other the correction of the economic embarrassment under present monetary systems will result in an untenable position economically for our allies.” That’s LBJ. If you look at the period the US went off the Bretton Woods system, you see an inflation of the money supply and drastic decrease of gold reserves relative to other currencies. The Welfare-Warfare society could not be sustained through a commodity-based monetary system, and in 1971 the US adopted fiat money. Massive inflation followed, income inequality drastically rose, and companies began to shift their manufacturing and heavy industrial operations to third-world countries with lower labor cost.
Ending the welfare-warfare state, getting government out of the market, and returning to sound money could help the United States compete with the world for manufacturing jobs.
Ending the welfare-warfare state, getting government out of the market, and returning to sound money …
This is not human nature.
We must overcome obstacles not by wishing for things that are not true, but by working with things that are.
Caveat: in my view, ending welfare and making it harder for people to make it (what the italicized proposes) would solve a lot of our conundrums – particularly the big two: overpopulation and ecological destruction (due to reduced human population and redistribution of wealth into the hands of a few).
[/radical]
DS