A panel of Chicago economists convened to discuss their views on the stimulus package recently, and video of the event is now available online. All the speakers had something interesting to say (including Nobel Laureate Robert Lucas being surprisingly sympathetic to government intervention).
Of particular interest, in my opinion, is Kevin Murphy‘s discussion, which comes in the middle of the video. (If you don’t have the patience for watching video, you can just look at Murphy’s PowerPoints.) It is vintage Kevin Murphy. He says that he can’t remember much from his macroeconomics courses, so he starts over from scratch and creates a perfect framework for thinking about how one should evaluate the case for stimulus.
What he comes up with seems totally obvious once he presents it, and yet I have never seen anyone discuss the issue in a manner even remotely similar to this. That is the mark of true genius.
I have only one thing to add to the panel’s discussion. Throughout the video, you will see that the speakers operate under the assumption that the economists who are advocating stimulus are doing so based on an economic analysis. For instance, Murphy says things like “Christina Romer [the head of the Council of Economic Advisers] must believe that the deadweight loss of taxation is very small.”
A very plausible alternative hypothesis is that the justifications being put forth for the stimulus package — even if those doing the justifying are economists — are based on politics, not economics.
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Murphy’s reductionist approach is appealing but wrong-headed. Or at least I take issue with his structure (he clearly isn’t a macroeconomist). Two things up front:
a. His equation presumes that $1 of Gov’t spending has a max. value of $1 to the economy. Surely he’s heard of the multiplier effect. Perhaps he doesn’t agree with it… maybe because he apparently puts stock in..
b. Ricardian equivalence? Somebody please tell me one study (empirical) which provides evidence of Ricardian equivalence in taxpayer behavior.
The problem with Murphy’s presentation is his pretense that people “have opinions” about the value of these parameters rather than empirically validated estimates. Thus Murphy can have “an opinion” or say “it is likely low” and that the disagreement is about “opinions” of the value of these parameters. In fact Romer doesn’t have an “opinion” but an “estimate,” meaning that she has gone to the real world, applied statistics, and derived values for these parameters or others similar to them. So has the Congressional Budget office, and even Mark Zandy. The pretense that these are merely opinions, rather than empirically valid results is shameful at a school whose “star” was Milton Friedman a fan of positivist economics. Perhaps the Econ department there should simply transfer into the Religion depaertment where they won’t have all this hard work to do.
The government has postponed the date for changing from analog to digital tv so that 6,000,000(?) users can have more time to obtain coupons for a free converter but is pushing the stimulus package as early as feb 16, without heavy debate, where as many as the whole population of this country can suffer terrible consequences should not all alternatives be weighted.
Anyone know where Lucas’s slides could be found?
Having had a modest meal of only white foods–milk, cauliflower, mashed potato, with salt and white pepper, and whitefish with the skin removed….and having bathed and dressed only in white, and now sitting in my white room….I seek not to disturb my pure objectivity by actually reading the opinions of these economics reprobates…
But on the other hand–why does anything they have to say have even the merest glint of credibility? Haven’t they shown themselves to be (with all due respect) complete imbeciles?
this is what I want to, need to know–what are the criteria (the real standards) on the basis of which this package is being developed- I have heard absolutely nothing (only vagaries) about this- the focus has been on the bits of fluff that should have been excluded-
this makes me skeptical- real skeptical. How does one buy anything when you don’t know what you are buying into-
What do I mean? AS a teacher, I was forced into investing a while back in an account set aside just for teachers. The choices were limited as to what I could invest in.
My first inclination, since the market was doing well at the time was stocks. Not knowing about it, but seeing that the market seemed to be doing well- I went into it. trying a few different possibilities- I then let it go for a while- and low and behold when my next statement came- I had lost 1/4 of it. Well, that was enough for me to begin to monitor the situation—- I got a bit more agressive- when the market was doing well nationally or internationally or property values were going up, I went into the better situation. When, it started to go down, I got out. that was 2 years ago and I am still getting the same low interest rate- but guess what –I have gained back all I lost and then some- it’s not alot of money- but – I learned from this- somebody’s gotta mind the ship- so I wanna know how our national ship is going to be minded before I say– go to– this needs to be made clear not just to me- but as I hear – to us all- so rikman- I agree- we need a debate and a healthy package- no more of a strong arm- been there and heard that for 8 years.
moderator-
calling it “petty” for the author to suggest economists that don’t agree with him are politically motivated is neither off-topic, nor abusive.
why remove my comment?
Garrett,
You haven’t correctly understood the model. In the model, government spending can be worth more than $1: alpha is all about measuring how much government spending is worth, and if you want to make it worth more than $1 in private spending, just make alpha negative. Regarding the multiplier, Murphy’s F is the proportion of spending that comes out of currently unused resources. This can be greater than 1 as well. A multiplier of 1.5 means F = 1.5
Hope this helps.