Friday, January 30, 2009

"Stimulus": economists from across the political spectrum DO NOT agree on the need for massive spending [update 5]

New President Obama says that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy. In fact, many economists don't agree. They don't agree at all.

In fact, Mr President, hundreds of them, including Nobel laureates and other prominent scholars, have signed a statement that the Cato Institute placed in major newspapers across the United States confirming that they don't agree.

Click the pic to read a PDF of the whole document. You won't believe some the names, most of them over and above those Greg Mankiw has documented on his blog in recent weeks, such as (in alphabetical order) Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingalesl, [hat tip Anti Dismal], and in addition too to the fine people at both the Mises Institute and the Ayn Rand Institute.

They don't agree at all that your "recovery" plan will "jumpstart" the economy. In fact, most of them think the "jumpstart" is the very last thing that is needed.

So to say that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy would suggest you're either aware of the dissent but lying about the agreement, or unaware of the dissent -- which is to say, ignorant of the cogent arguments against the foolishness of you profligacy.

In fact, not even the textbooks support the antediluvian idea of such a response. As Ike Brannon and Chris Edwards point out[pdf], macroeconomics has long consigned such foolish Keynesianism to the dustbin of history:

It is difficult to find a macroeconomics textbook these days that discusses Keynesian fiscal stimulus as a policy tool without serious flaws, which is why the current $800 billion proposal has taken many macroeconomists by surprise.6 John Cochrane of the University of Chicago recently noted that the idea of fiscal stimulus is “taught only for its fallacies” in university courses these days.7 Thomas Sargent of New York University noted that “the calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."
In other words, this $850 billion of spending won't work, can't work, and will do nothing except drag out the time it takes for a real recovery to happen. The one thing economists without a political axe to grind do agree on is that "We Can't Spend Our Way out of This Quagmire" - as Lawrence White and David Rose point out, that's precisely what got us in this problem in the first place.
Current attempts to solve our crisis by increasing spending is exactly the wrong thing to do. No one wants to bear the political cost for appearing to be uncaring by favoring a policy of "doing nothing." Out of political cowardice, the federal government is attempting to produce a solution that is penny-wise and pound foolish. You can't solve an excessive spending problem by spending more. We are making the crisis worse.
We have been down this road before. Most recessions start with the bursting of bubbles that grew large because of excessive money growth. But again and again, we presume a Keynesian cause and a Keynesian cure.
Our recent stock market and housing market crashes can prove to be the start of a sound and rapid recovery — if we will have the courage to let it be so.

UPDATE 1: Here's more beautifully cutting commentary from two masters at the game:

UPDATE 2: Thomas Jefferson vs. Obama:
"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

UPDATE 3: Link from pic is fixed.

UPDATE 4:  The entertaining Fred Thompson on the Spend-Your-Way-To-Prosperity-Plan [hat tip Foundation for Economic Growth

UPDATE 5:  "Arm yourself against the growing Keynesian counter-revolution," says the Hayek Center.  "The time is now for executives and college students and small business owners and journalists and the general public to intellectually arm up — and participate in the beating back of the Cargo Cult science of the new Keynesians."  And in this post the Center provides a mountain of intellectual ammo.  What are you waiting for?

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17 Comments:

Anonymous Dinther said...

Maybe you should change the link on that picture to the actual PDF http://www.cato.org/special/stimulus09/cato_stimulus.pdf

1/30/2009 11:12:00 am  
Blogger PC said...

Thanks Paul. Fixed now. :-)

1/30/2009 11:13:00 am  
Anonymous Richard McGrath said...

Shame George Reisman wasn't one of the signatories.

1/30/2009 01:24:00 pm  
Blogger Berend de Boer said...

PC: What are you waiting for?

I'm overseas. Great to see the kiwi dollar being killed.

1/30/2009 06:55:00 pm  
Blogger Clunking Fist said...

Denialists, the lot of them! Our Barry will sort them out, probably by threatening to withdraw their funding.

LOL - what do you mean about US uni’s not gummint funded? How dare they be non-dependant…

1/31/2009 07:46:00 am  
Anonymous LGM said...

Just thought you might like to know about this....

Despite the bilge being presented by the media lavatory, the recession will not be over in a few quarters, nor has NZ "missed the worst of it". Last week companies among my client list terminated well over 1500 jobs. There are more to come....

To think there are morons in this World who believe that application of more of the same idiocy that caused this will assist in curing it!

LGM



LGM

1/31/2009 09:09:00 am  
Anonymous Robert Winefield said...

As if spending a trillion dollars wasn't enough! There is a 'Buy American' provision in the Bill that prohibits the purchase of foreign steel in America. And America doesn't produce enough steel for its own purposes to say nothing of the retaliatory tariffs that will be imposed if this gets passed...

1/31/2009 04:56:00 pm  
Blogger Jeff Perren said...

"There is a 'Buy American' provision in the Bill "

Smoot-Hawley II. Progressives never learn.

2/01/2009 03:56:00 am  
Anonymous LGM said...

Jeff

Yup. They never do. That's because they don't want to.

Oh well.

LGM

2/01/2009 08:16:00 am  
Anonymous LGM said...

Berend

Why do you want to see the Kiwi getting hammered? What do you exepct to happen next?



LGM

2/01/2009 08:21:00 am  
Blogger Ruth said...

This comment has been removed by the author.

2/01/2009 03:33:00 pm  
Blogger Ruth said...

Berend

Why do you want to see the Kiwi getting hammered?

Rather a strange wish - maybe he hates NZ.

People seem to forget NZD is but a point, if that, in offshore portfolios. The actions of Bollard don't make a lot of difference because the economy is so small.

In spite of all this gnashing of teeth about stimulus, the evils of Obama (and what's with the childish 'Obamamessiah' disrespect - no one called President Bush 'George' or Caesar -even though he acted like one - it's either Mr President or Pres. Obama), the package will be passed and the real world moves on.

A is A and as hopefully as rational people we deal with things as they are, instead of impotently shaking our fists at the sky.

2/01/2009 03:35:00 pm  
Blogger Jeff Perren said...

Ruth, apparently you haven't seen any of the hundreds (thousands?) of blog comments on HuffPo, DailyKos, and elsewhere that referred to Bush many times as Bushitler.

The difference is, Bush - whatever one's view of the war against the jihadists - never acted like Hitler, whereas (while it is a silly moniker), Obama - and even moreso his supporters - very often act as if he is the Messiah, come to save the world.

On the other hand, Bush's faults were often pointed out, harshly, by Republicans, conservatives, libertarians, et al. Obama's supporters deny he has any, hence the nickname.

Having only read a handful of your posts, I'm very quickly coming to the conclusion that your views aren't very well grounded. Rationality is only as valuable as it is based on a solid foundation of fact.

2/01/2009 05:12:00 pm  
Anonymous Tim said...

But it's the foundations of rationality which are problematic!
Popper once likened reason to a brilliant house built on top of a swamp.
I think your sentiment is closer to "rationality is only as valuable as its being used by someone I agree with".

2/01/2009 10:47:00 pm  
Blogger Elijah Lineberry said...

Good on the Cato Institute.

Splendid chaps whom we in New Zealand should be using as a model of how to get things done.

Isn't it interesting how it is always the libertarians who initiate things?

2/02/2009 09:56:00 am  
Blogger Jeff Perren said...

"But it's the foundations of rationality which are problematic!"

Freshman-level. Are you seriously going to try to give a rational argument to persuade us that reason is 'problematic'?

Less Popper, more Aristotle. Or, if that's too thick for you, try Blanshard.

2/02/2009 11:37:00 am  
Blogger PC said...

It would certainly be correct to say that 'reason' as Mr Popper understood it could be likened to an attractive edifice built on top of a swamp.

But that's not at all to say that reason as it actually is, i.e., "the faculty that identifies and integrates the material provided by man’s senses," can be so characterised.

2/02/2009 12:05:00 pm  

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