“Saturday afternoon on NPR James Fallows proclaimed that “there is essentially no disagreement WHATSOEVER” among economists that more stimulus spending is necessary today [emphasis in the original]. He are misinformed.
Last year, hundreds of economists signed a petition, circulated by the Cato Institute, whose key clause reads “it is a triumph of hope over experience to believe that more government spending will help the U.S. today.” Among the economists who signed this petition in opposition to ‘stimulus’ spending are three Nobel laureates in economics (Edward Prescott, Vernon Smith, and James Buchanan). Others signers include Chicago’s Eugene Fama and Sam Peltzman, Harvard’s Jeffrey Miron, Texas A&M’s Thomas Saving, Cornell’s Rick Geddes and Dean Lillard, University of Virginia’s Lee Coppock and Kenneth Elzinga, Duke’s Michael Munger and Edward Tower, University of Rochester’s Mark Bils and Ronald Schmidt, Rutger’s Michael Bordo and Leo Troy, University of Southern California’s John Matsusaka and Kevin Murphy, and one of the world’s preeminent scholars of money and banking, Carnegie-Mellon’s Allan Meltzer.
Perhaps these economists and the many others who’ve signed this petition- and who continue to speak out against what they believe to be the folly of ‘stimulus’ – are mistaken. But for James Fallows to announce publicly on NPR that there is “no disagreement WHATSOEVER” among economists that more stimulus spending is desirable is so wildly inaccurate that it borders on being irresponsible.
Maybe Paul Krugman bellows at such a loud volume, and with such deafening screechiness, that Fallows really believes that nearly all economists support more stimulus spending. Or perhaps Fallows simply assumes that the world conforms to his notion of what it should be.”
This is edited from a letter to The Atlantic from Donald Bordeaux of George Mason University and is an opinion shared by this participator.
Given that most of the stimulus money from the AR&RA of 2009 went to support existing public employee salaries and questionable public works, I wonder, as did Thomas Friedman in the column noted below, whether this kind of deficit spending is truly a thoughtful and worthy investment. The dilemma faced by Governor Christie of NJ over whether to continue funding a rail tunnel to Manhattan is informative and his decision instructive about further exposing public funds to uncontrolled spending. I direct you to a column by David Brooks also a NYTimes writer and also below for thoughts that better articulate this issue than I am capable of doing.
My bottom line is that stimulus spending of public monies has not proven to be money well spent, deficits are gravely damaging our country’s well being and I worry that our politicians are incapable of spending public funds wisely given the pressures exerted by all the groups who demand public funds.
Fallows was surely wrong, using the simple theorem that one can find economists to disagree on almost subject.
However, as far as stimulus spending goes, my understanding is that it was too small (Delong, Krugman, and Romer all seem to agree on this), but it was better than nothing. The spending serves two purposes; we get stuff built/maintained, and to the extent that our economy is consumer-driven (which it seems to be) we keep people employed, which keeps them consuming. The stats I’ve seen suggest that we have idle capacity, and they also suggest that contrary to what some economist have been claiming (in particular, the ones who disagree with Krugman) we do not yet have “structural” unemployment (meaning, that people have lost skills and forgotten how to work). I’m also inclined to trust Krugman’s judgement here, because he has been frequently correct at predicting the course of this recession (in particular, inflation, frequently predicted by the well-spoken non-economist Niall Ferguson, has utterly failed to materialize, leading to derisive remarks about “invisible bond vigilantes” on the part of Delong and others. When interest rates are low, that’s a market signal to borrow, right?)
Here in Belmont, I know that stimulus money kept teachers employed. Since we underspend (relative to state mean, median, neighboring towns, and towns with comparable results) I view this as money that was put to good use. We’re getting a new bike path to Alewife, I think from this spending; this is good, it will help reduce traffic to Alewife by getting some Belmont commuters out of cars, save time for those of us who were already biking, and generally add to passengers on the Red Line (and since the MBTA has annoying debts it somehow acquired from the Big Dig, which represent a huge fixed cost, more passengers is good).
There is also some amount of history — we have the history of the Great Depression, and how that economy reacted to stimulus spending, an how it reacted to cuts in stimulus spending (e.g., 1937). We have Japan’s recent history to consider. We also have our own CBO, which estimates that for each dollar “spent” in various ways (including tax cuts), the most effective way (generating the most additional economic activity) is actual spending, that hires people and contractors who hire people, and not tax cuts. We also have recent history (last few decades, especially the most recent one) where it was demonstrated that a tremendous increase in upper-income wealth does not result in a corresponding growth in the rest of the economy; it does not trickle down, all boats do not float. That is to say, the Bush recovery, fueled mainly by tax cuts, was not a very robust one. The CBO estimates also suggest that if we in Massachusetts wanted to help the local economy while still maintaining the required balanced budget, we could do so by increasing taxes somewhat and increasing (or maintaining) spending somewhat — because the economic activity lost to tax increases, will be more than offset by the activity gained from maintained or increased spending. There are limits to this, because the benefits will tend to “leak” into neighboring states, and so there is a temptation for each state to let its neighbor do the taxing, and enjoy some of the stimulus for free.
Furthermore, unlike countries in the Euro Zone (e.g., Greece), the US borrows in its own currency (at least, it does for now). Small amounts of inflation are just fine; they devalue the debt that has been built up (the dose makes the poison, obviously) and make it easier to pay down. Deflation is horrible when you have debt, because each dollar owed represents an increasingly large amount of production.
I am curious about one thing — I have seen this concern for the “efficiency” and “effectiveness” of stimulus spending pop up on other completely unrelated forums. I’m guessing that this is not just coincidence, that many people with a somewhat conservative outlook have similar sources. Where did this come from?
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