Gary Becker and Kevin Murphy write today in The Wall Street Journal about their concerns regarding the stimulus package.
There are no two economists in the world who I respect more than Becker and Murphy. Whatever your political bent, when these two write something, you should think hard about their arguments.
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“Competence, think Clinton, Johnson, FDR, etc.”
I’d gladly take Clinton right now. His stimulus bill back in 1993 was only $19.5 billion, which was eventually pared down to $4 billion after Republicans criticized it. He then passed NAFTA the same year.
Meanwhile we have Obama taking the opposite approach with a stimulus bill not far from a trillion dollars that contains anti-free trade provisions.
JFK meanwhile proposed cutting the top individual income tax rate from 91 percent to 65 percent, and reducing the maximum capital gains tax from 25 percent to 19.5 percent. Some of that please!
Johnson was so competent that he declined to run in 1968, and the biggest public policy success of the last 20 years was welfare reform that undid some of his ridiculous policies.
What I thought was interesting about the linked article was:
A. We’re all commenting on it here, instead of where it was written.
B. The article was critical of the stimulus plan based on the fact that it would not promote the GDP. But since when was anyone complaining about the GDP- especially after bloody monday in which 50,000 people lost their JOBS? The stimulus plan will be seen as a success if it results in a decrease or leveling off in the unemployment rate. That’s the number that resonates with most people emotionally.
The keypoint, I believe, that the authors make is this: we don’t think the multiplier will be high enough to compensate the financing of this stimulus plan, due to many inefficient investments and those only used for the long run.
I don’t know why people had to bring up the boring orthodox x unorthodox schools debate again.
I believe that the authors’ worries are coherent with the reality of this plan. In a way, Paul Krugman has also been argueing how the stimulus might be too little and full of useless “fat”.
In my opinion, though, not doing anything, or relying on the less effective tax cuts are just not the way to go. This stimulus bill will certainly not be very efficient, but it’s our best bet for an effective measure against this depression.
“You also submit Estonia, Iceland and Ireland as evidence, but leave out the inconvenient fact that ALL European countries have suffered. Spain — with socialist Zapatero at the helm — has unemployment of over 13%.”
The rise in unemployment in Spain is down to the housing bubble that bursted, which Zapatero inherited from Jose Maria Aznar, another conservative and Milton Friedmann fan.
Under Zapatero the unemployment rate had falled in every year, apart of Spanish society becoming more open and progressive, and finally managing to win trophies with their national team, which for a multi-ethnical country with lots of ethnical problems means A LOT!
here some historic data on unemployment in Spain. Zapatero took over in 2004 btw.
http://www.indexmundi.com/spain/unemployment_rate.html
Short versus long is clearly an issue but it would be nice to see them address the underlying issue, which can be stated simply as: given politics and thus that any package will be imperfect, is that better than doing nothing?
Objections to the stimulus take two general forms: first, that it’s inefficient and, second, that the we should ride this out. The first objection is, in a sense, practical while the second is philosophical (for some, almost religious). If you belong to the second group, then you generally believe whatever pain this country, its people and the rest of the world will experience is tough luck. When the country and the world eventually heals, then no matter when that happens you’ll see yourself as vindicated. There really is no arguing with this perspective. It is what it is.
The first perspective, the practical objections, then ask: given the nature of politics, would you do nothing or would you enact this kind of bill? Economists may say something like “On balance, I think … and I’m worried about ….” This kind of mental calculation would, one hopes, embody the understandings economics (and math) has developed over the past few decades about expectations and risk.
For example, assume you have a 1 in 10 chance that doing nothing means Great Depression II. Given that risk, the odds that stimulus works would need to be pretty low for “doing nothing” to be optimal. If you think the odds of GDII are 1 in 1000, then your attitude toward stimulus should change. If you don’t identify the risks you’re comparing and acknowledge them, then you haven’t been paying attention to both the research in economics and behavior and to recent events, which demonstrated beyond a shadow of a doubt that we ignore very large risks at our peril.
So the real question becomes: how do you evaluate the risk of the economy imploding and then put that in with your evaluation of the odds that stimulus helps avoid that. You can then add in your long term concerns or your perception of how much the government “owes” the people to try.
Jordi — and in 2009 the unemployment is in double digits. And blaming Aznar who has been out of power for over 4 years?
Lastly, what does Zapatero have to do with the performance of la selección Española? Is he giving scoring tips to Torres?
I’m a little worried already, “In fact, much of the proposed spending would be in sectors and on programs where the government would mainly have to draw resources away from other uses”
They are already playing semantic games that distort their findings. They subtract out the money in the bill that is a re-prioritizing when talking about the bill’s effect, but not when they are talking about the bills cost. That kind of mistake makes me think bias.
egh, the rest of it is slightly than #1.
#3 is weak. It amounts to a circular argument. If you think the bill will have the desired effect of restarting the economy, then you add in all of the losses the economy would have if there was no bill into the benefits of the bill, making it a huge positive. If you don’t think it’ll work, then those potential losses don’t get factored in and you get a small negative. Big woop.
#4 is also weak. At 0.6% interest or whatever, this is about as free of a lunch as you will ever get.
#2 is their strongest point, and it isn’t an economic argument at all, rather a poltical/social science argument. Dosen’t make it invalid, but it’s a sad state of affairs when economists must dabble in other fields to make their points.