Feed on

I wonder if newspapers and pundits seek the “views” of historians, political scientists, artists, and economists about the temperature at which the sun burns? What follows is a very lengthy exchange between me and the editors of our student newspaper. The ultimate article in question can be found here (a pdf with pictures is here).

Initial Contact from Paper to Me About Doing a Story on the “Stimulus” Bill

Professor Rizzo,
This week we are running a story that compares and contrasts views on the stimulus package amongst faculty and staff. Do you mind sharing some f your thoughts for the story? If so, do you want me to email you specific questions, or do you prefer a phone interview?

Thank you for your time and attention,
newspaper person

My Reply to the Student

Hi newspaper person,

First, I think I would prefer doing this in writing …

Second, is there supposed to be a distinction between the economics of the plan
and people’s romantic idea of what it is supposed to be doing? I am concerned
about appearing in such an article and having the economic analysis be presented
as “opinion or thought” … that kind of thinking is how we got into this mess
to begin with. Everyone and their brother seems to think that because they read
a Krugman column and watch the Daily Show, that they are experts on the economy.
Well, not even the “economic experts”, myself included, know a damn thing about
how to fix things. All a good economist can do is to tell you some things that
are BAD ideas … and certainly what the government has been doing for the last
umpteen years does not square with good policy … and in particular, their
handling of the crisis.

What the world needs is not more opinions or ideas on the crisis, but more
humility and patience.

If you can assure me of such an understanding, I would be more than happy to
spend some time with you.


They Seem to Have Agreed with Me

Dear Professor Rizzo,

Thanks for the email,

Considering your response, I think you gave me a better idea for the story. We’ve already contacted at least 2 political science professors to share their “view”. But, the article would be stronger if it distinguished the economic analysis of the stimulus (where you come into the equation) from political thoughts. So in short, yes, I’d like for you to share how it’s a poor/good economical choice.

newspaper person

So I Agreed to the Interview, and What Follows are Their Questions and My Answers

These are somewhat open-ended, and not amenable to short-quotes, and of course doesn’t ask some of the important questions that need to be asked. I will answer these briefly, and maybe provide some additional comments at the end.

Newspaper Question:-Is this package really going to help the cause of the recession, banks unwilling to lend to consumers, or will the bigger impact be a psychological effect

Declining bank lending is really not the cause of the recession, and it is remarkable that our political leadership has misguided the public into thinking that is the case. My personal belief is that otherwise the bank bailouts would not be palatable to the public if people understood that the problems with the banks did not trigger the recession. Remember that the recession started in December 2007, and that leading indicators of economic activity were turning down as early as the late-winter/early Spring of 2007. This slowdown started long before any credit “crisis” was on the horizon (the first signs of credit problems were in August 2007).

That said, you are asking about the “stimulus” package” helping the recession. I sure hope it has a positive psychological effect, because it is not a very good economic policy. But the psychological case does not seem to be settled yet – “consumer confidence” (if you believe anyone can measure that) seems to continue its free-fall, and Wall Street does not seem too optimistic about the plan. And the credit problem is not that banks do not have capital to lend, or are unwilling to lend, it appears that entrepreneurs are not really seeking funds to make investments with. And most everything in the stimulus bill only creates more uncertainty and a less friendly investing environment, so I do not see how it will boost confidence. For example, as part of the new housing program, the Obama Administration has obliterated the sanctity of private contracts by allowing bankruptcy judges to rewrite the terms of mortgage contracts – in particular by allowing the judges to reduce the amount of principal owed on a mortgage). Separate from whether this will help the economy now, ask yourself how such a change in the legal/institutional environment affects the interest and ability of lenders to make loans in the future. Would you lend me $1 million to start a business if you knew that tomorrow I could take a vacation, gamble it all away, and then have a bankruptcy judge wipe out a portion of the amount I owe you?

(we don’t have a satisfying economic model of consumer confidence, it may turn around, it may not, and we don’t know why or how it will happen).

Without going into the details of the plan, it is highly unlikely to do much to “help” the recession. Some of the reasons why include the fact that not very much of the spending is scheduled to happen this year, in fact, somewhere between 40% and 60% of the spending is slated to occur AFTER 2010 ends. Just to put that in perspective, the longest post-WWII recessions lasted 16 months (Nov 1973 recession and July 1981 recessions) – even assuming we don’t see recovery until Jan 2010, that would put this recession at 25 months – unpredecented since WWII. It is highly likely that without the stimulus, the economy would turn around before any of the spending actually happened.

Of course, even if all of that “stimulus” was in fact being spent today, I do not believe it would do much to help us out of the recession. Why? Because the economic theory behind such a spending plan has been dead for years, nor does the spending honor what that theory suggested to do anyway.

In order for the “stimulus” to do something about the recession, it would have to consider 4 factors:

(1) It must largely employ resources that are currently not employed, otherwise it is not stimulus, it is simply taking water from the deep end of the pool and putting it into the shallow end!

a. In a world where there is only 7.6% unemployment, and about 75% capacity in industrial production, most resources remain employed.

b. Do you really believe that when we install broadband in rural areas, repair bridges in some cities, making electric cars for the General Services Administration, carrying out injury prevention programs, providing operating expenses for the Corporation for National and Community Service, establish $325 million fund to award schools and government agencies that demonstrate “innovation” (that only scratches the surface, read the entire bill, I have) … that the resources we use to work on these projects will come only from the ranks of unemployed workers and capital? Hardly. And it is hardly believable that any meaningful share of the resources that will be used will come from the ranks of the unemployed.

(2) Even if you believe that somehow these projects will employ previously unemployed resources, that presents us with two difficult problems

a. Do you think all unemployed resources are perfectly capable of doing the stimulus projects? For example, my brother was laid off from his job as a bond insurance analyst. Do you think he is capable of laying fiber optic cable? Further, do you think he is able to lay fiber optic cable in rural Kentucky from his home in New York City?

b. Even if you ignore the problem in 2.a., you still have the “problem” that idle resources are not inherently useless. But the proponents of the stimulus plan assume that the value of my brother’s time is zero … or that his “reservation wage” is zero or low. That is far from obvious.

(3) The stimulus bill has to be funded. Whether by taxes now, taxes in the future, or future inflation, resources do not drop from the sky like manna from heaven, despite the messianic government claims to the contrary. And once we recognize that this thing needs to be financed, you need to understand how much economic activity will be lost due to the implementation of the tax (i.e. people’s behavior changes in response to tax and inflation changes, so we lose valuable economic activity due to these changes). Estimates range from 30% to 80% (if I read Marty Feldman’s latest research correctly) of tax revenues are “lost” in terms of lost economic activity in response to the tax. Even taking the low end, or lower (say 25%), means that when we raise the funds for an $800 stimulus bill, we lose $200 billion of economic activity.

(4) And thusfar, everything I am saying assumes that governments are perfectly efficient.

a. Efficient in the sense that all of the projects that are being funded are worthwhile projects (and in fact, make better returns than self-interest, profit-seeking individuals could do on their own). Take a look at the multi-million dollar outhouse that was just built in Glacier National Park if you want to get a sense for how serious this problem is.

b. Efficient in the sense that even if we pick out all of the worthwhile projects, that all of the funds get used wisely, that there is no fraud or corruption or waste or anything of the like. I find that to be just as implausible as seeing a unicorn walking around campus later today.

i. For example, on the very day the stimulus package was passed (including $50 billion for Department of Transportation), in the paper was an article showing how the Department of Transportation’s road spending programs were completely corrupt – such as spending over a quarter-million to pay the taxes of executives, to lease BMWs and Mercedes for executives of the design and engineering companies, a quarter-million dollars for sports tickets, dinners and parties, and so on.

There is room for disagreement about the magnitude of the above effects – I happen to read the evidence as warranting the assertion that these are enormous problems to overcome. Those that take a more favorable view of political institutions will disagree. The evidence is certainly not on their side.
Newspaper Question:-Should the government really just focus its efforts on the TARP plan, and will lending between businesses and consumers actually put the economy back on track.

What you are referring to is the efforts by government to get the bad mortgage assets off of the bank balance sheets. The focus of the government efforts should be more forceful than this. Now, I understand that accounting difficulties (“mark to market” rules for example) and understanding how to think about banks versus bank holding companies makes this process difficult, but despite that, and even making fairly conservative assumptions about the value of the bad assets on balance sheets, it is pretty clear that what we have is a solvency crisis and not the liquidity crisis the Fed and Treasury have been fighting since August 2007.

What is the difference? Simply put … in the banking world there are lenders (often depositors, but now more exotic forms) and there are borrowers (traditionally entrepreneurs). Banks have a liquidity problem when the lenders (e.g. depositors) for some reason really want their money, even though the businesses that have taken loans (the entrepeneurs/borrowers) are doing well. In that case, injections of currency and reserves will do well to shore up the system. However, the other problem is a solvency problem. In this case, the problem is on the borrower side. The bank has made loans to bad businesses. For example, it loaned money to a restaurant entrepreneur that thinks he can make a lot of money selling tuna-chocolate lasagna. No amount of cash and reserves pumped into the bank is going to make that business any more popular. The solvency problem is a market signal that the businesses being financed need to shrink or go away entirely. To throw liquidity at them, or to recapitalize banks that are writing down losses because of things like the tuna-chocolate lasagna business going bad, is to throw “good money” after bad. It would no different than spending billions of dollars to prevent the decline of the loom business in the 19th century, to prevent the decline of the buggy business after the invention of the car, to prevent the decline of the typewriter business after the introduction of the word processor. Would anyone think this is a good idea?

So the focus of the government should have been from the beginning to figure our which banks are insolvent, and which banks have a liquidity problem (incidentally, this seems to be one of the things FDR did well early in his first term in 1933) – and to close the insolvent banks. What we see with TARP and the recent Geithner plan and from Obama’s speech last night is that it is politically not an option to let a big bank fail. And that is a complete failure of political will and of economic policy. There is some hope that the discussion of “nationalization” is just a way for the government to expedite the closing and bankruptcy of the failed institutions (after all, traditional FDIC interventions on failed banks are de facto nationalizations) …

By the way, there will always be borrowers and lenders … so allowing big banks to fail is not the end of the world, not at all. For one, there are already thousands of other financial institutions ready and able to take “deposits” and make loans. Do we really believe that people that wish to invest and lend money would not figure out a way to do it (check out Kiva.org)? Do we really believe that entrepreneurs that need funds will not seek a way to obtain them? It is simply not plausible. And it is not implausible to think that new intermediaries will quickly rise up to take the place of banks. Do you want evidence? Look at the emergence of a huge range of non-bank intermediaries (and further innovations in commercial banking in response to that) as Regulation Q became super-restrictive in the 1970s. That is when an explosion of non-bank intermediaries took place, such as the rise to prominence of mutual funds, the commercial paper markets and a variety of banking instruments to deal with this new competition (e.g. NOW accounts, letters of credit, and the like). So to say that the entire banking system would collapse if Bank of America or Citi went down is pure fear mongering. That discussion itself has probably made the situation worse.

Newspaper Question:-What are the long term pros/cons of the stimulus? (I think I answer several of the other questions in here)

In addition to what I said about it above, the pros of the stimulus seem to be political. Supporters of the stimulus invoking macroeconomic theory that we know less than a perfect amount about get to say anything that they want about the economy.

Furthermore, politically, the con of the stimulus is that supporters have never, not once, pointed to any thing we as individuals or economists can point to in order to assess the success or failure of the effort. I would like to see someone say publicly, “If we are right, then we should see ______” but you will never see such a pronouncement. This way, ANY outcome you see can be used by proponents (and opponents too) to support their positions. For example, if unemployment rises to 10% by the end of the year, stimulus supporters will say, “that’s because the stimulus wasn’t big enough or didn’t happen fast enough … or they’ll say,it could have been worse!” Opponents can play a similar game. I am willing to at least say what I think are some signs that the stimulus is working. For example, if it works, then you should see a rebounding of consumer spending by the 3Q of this year to pre-recession levels; you should see unemployment remain below 8.5% by the end of the year … but even that is far from being as scientific as one hopes we could be. Which is why I argue against the plan on moral grounds too.

Anyway, the real negative of the stimulus is the “Forgotten Man” (in the words of Amity Shlaes, or the “unseen” man in more traditional economic language. Sure, you will see the “saved” jobs in the auto industry, and you will see companies like Caterpillar hiring people to build the machines to build the roads … but beware of what you will NOT see (again, this is why it is politically difficult for me to get these points across). You will NOT see those new jobs in some yet to exist industries that would have been created if you did not force resources into one type of industry or other. Something like over half of the jobs that college graduates can expect to do next year did not exist even 20 years ago. Who knew in 1900 that there would be jobs as airline mechanics? Who knew in 1950 that there would be jobs as computer programmers? Who knew in 1985 that there would be jobs as web developers and network administrators? Well, if we had directed resources elsewhere in the economy, those jobs and industries may never have existed, or existed in much smaller scales than they are now.

Same thing with the housing part of the bill, it is easy to point to the rescued home owner. But name me a politician that will wheel out a friend of mine that has been saving up for a house, but since house prices do not fall, cannot yet buy one, or cannot get a mortgage with less than 20% down? Not gonna happen. Name me a politician that will not castigate a bank for not lending in a risky environment?

The other difficulty with the stimulus is that there is an inherent conflict between “good stimulus” and “good investment.” For those places that really do have unemployed resources (city of Detroit comes to mind) these are probably not the places where “returns on investment” are likely to be big. The best places to invest are the dynamic, growing parts of the country – perhaps Phoenix, Dallas, Atlanta …so policymakers have a difficult tradeoff to make.

And of course, the long-term budgetary impacts of this spending, and the future spending it guarantees need to be considered. So the long term negative impacts here are twofold:

(1) Much of what we are being sold on as temporary stimulus are in fact permanent increases in the budgets of various government agencies. I would love to see someone report on how much of this really ended up being temporary a few years from now. I am willing to bet that over half of this spending is a permanent increase. That’s fine … if you want big government, great … but don’t “sneak it in the back door” in some fabricated crisis scenario that does not quite exist. Either those budget increases make sense or they don’t …

(2) I am more concerned as an economist about a sovereign debt crisis than I am about the prolonged effects of a recession. There are two reasons. In one sense, a recession is “good” in that it indicates that the necessary adjustments to an economy are being made to set the stage for future growth. That process is sometimes long and painful – so appropriate government response, if you believe in that, would be to provide those that are unemployed with a cushion to get through those times. An inappropriate response would be to do things to prevent these adjustments from happening. Price signals are telling is that the auto sector, the housing sector, and the financial sector need to contract … and ALL of our policy is encouraging these to further EXPAND! A serious concern is our ability to make good on our debt payments. We are probably closer now than at any point in our history to doing what happened in Latin America in the 1980s (their “lost decade”) and also doing what Japan did in the 1990s by propping up failed industries with trillions of dollars (their lost decade).

The other serious concern I have as both an economist and a citizen with the stimulus is that it lays the foundation for future bad behavior. Quite contrary to what we heard in the Presidential address last night, when the President said the government plays an important role in building the foundation for strong growth, this stimulus does quite the opposite. It penalizes the prudent to the benefit of the imprudent. It rewards excessive risk taking. It creates an environment of investment and tax uncertainty. And it sends the signal to all firms and individuals that if you get “too big to fail” that you will be bailed out. It sends a signal to all individuals to not be responsible for their own behavior. And it encourages the citizenry to look outward to government as a cure to any economic problem. But the Constitution was not written to make the government the Grand Poobah of Economics, but listen to the campaigns and listen to the news … it seems now that the ONLY role of government is to run the economy.

What happened to protecting rights? What happened to making sure citizens’ voices are better and more accurately represented? What happened to the big discussions in this country about the proper role of government? You know, we pretty much have the same political institutions we had 235 years ago when we were a small, homogenous, agrarian society that had a hard time communicating across large land areas … so why is our “democracy” today similar to what it was back then? Do you think if we put the bailouts and stimulus bills to a vote of the American people that any of it would have passed? I don’t? Where is the discussion on having public referenda on important policies every so often? We do it at the state level? Really, if you asked every American, would you prefer a “share of stock” that costs $9,000 in a company that “invests” in auto bailouts, bank bailouts, and all of the stimulus stuff, or would you prefer the cash equivalent, what do you think the answer would be? How about $4,000 cash instead? I bet most Americans would prefer a mere $500 cash equivalent to a share of the stimulus plan.

The other long term effect that is frightening is that we look at the $800 billion stimulus and think that is all we have done. When in fact, the government has moved around over $3 trillion thusfar in an effort to forestall a deeper recession (by the way, how well has any of it seemed to work thusfar?) with no end in sight. Does the government NOT have a budget constraint? Will it be $4 trillion? $5 $10?

Newspaper Question: -How and will Universities benefit in any way?

There are provisions in the bill to stimulate student lending, and provide for a small amount of grant aid to students attending college. These can both be “captured” by universities. In addition, there are a host of additional provisions in the bill that affect various constituencies, such as funding for energy and health and even economic research. Incidentally, they probably should not have seen a penny. Since the recession started, three sectors of the economy have continued to grow: education, health care … and government. All others have declined.

Newspaper Question:-What are some factors that should’ve been considered (if they weren’t already)?

Newspaper Question: -From an economic stance, was this a smart decision? Why or why not?

Newspaper Question: -What distinguishes it as a political and economical decision?

The urgency and rhetoric to “do something” is a clear give away. People want fast and decisive action, and that is what they got. But think of it this way … the US, in a matter of a couple of weeks, just spent the entire GDP of Australia without so much as any citizen input, or meaningful time for the legislators to read the 1060 page bill.

It is clearly a political decision. For example, the Democrats castigated the Republicans last year for sending out a couple of hundred billions in tax rebates to try to jumpstart spending and forestall the recession. Look to this bill, and exactly the same provision passed. The economic case for/against (I was against both) was no different in either case.

The other way to understand that it is a political decision is that much of it is not stimulus – it is increased spending. That much of the increased spending (in fact, we are promised even more based on last night’s address) is being justified in the name of a crisis, or other bad cowboy capitalistic policies from the last 15 years is pure sophistry. Tell me when you have seen a policymaker cite some real data, compared this recession to past recessions, and so forth, to justify any of this? All we see is obfuscation and hand waving … and the taxpayers fall for it hook, line and sinker.

The other way to know it is a political decision is that the deficit is already at levels higher than any prior Keynesian “stimulus” would have prescribed. For example, the much maligned Reagan deficits were 6% of GDP, and that was when unemployment was around 11%. The left-Keynesians claim that the good years during Reagan’s second administration were an outcome of this deficit strategy … but his deficit is under half of what the Obama deficit will be … and was “able” to pull the economy from a much deeper recession.

You know it is political when no one is standing up and screaming NO to this madness. Lost in the discussion above is that the Feds quietly announced that it was tossing an additional $200 billion to Freddie and Fannie, after throwing $200 billion at them in the fall … and EACH time claiming that “$200 billion was much more money than the companies would need.” By the way, that came on the heels of a 1992 Housing and Community Development Act guaranteeing that, “this Act and the amendments it makes may not be construed: (1) as obligating the Federal Government, either directly or indirectly, to provide any funds to the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Banks, or to honor, reimburse, or otherwise guarantee any of their obligations or liabilities; or (2) as implying that any such enterprise or Bank, or any obligations or securities of such an enterprise or Bank, are backed by the full faith and credit of the United States.”

This bill is a moral outrage – anyone that has been prudent by not spending, by saving, by purchasing a home within their means, by choosing professions that perhaps pay less, but are not as risky … are all being plundered to reward those that have done quite the opposite. For what we have spent on such a stimulus bill, we could have made whole every single poor person in America … permanently … if that is what people really cared about … but they do not. Seriously, if you want to argue that there are 20 million individuals that are down and out, a trillion of spending is enough to provide each and every one of then $50,000. But this bill is a payoff to special interests on BOTH wall street and main street. We are buying the financiers, we are paying off the unions, we are paying off the large industrial companies … and the “middle class” American that is used as a pawn in the political game by both parties has been thrown under the bus.

Ultimately, the evidence for whether such huge spending will do anything is scant on both sides (we’ve never had a peacetime budget deficit of 14% of GDP …). So in some sense, if you wish to ignore the economic warnings above, this boils down to a philosophical argument about the virtues of large government vs. smaller government. You can tell where I stand. But I do not appreciate when economists use their “PhD” badge to justify their favored political position. I hope that I outlined the economics as distinct from the politics above.

For example, as an economist, I might be able to look at this 10 years from now and empirically show you in ended the recession (perhaps), but as an individual I would still oppose the stimulus and bailout on moral grounds. But it would be improper for me to argue from moral grounds, using my PHD as a justification for that opinion of mine. I see that happen far too often on both sides of the political spectrum …

Good luck with the article …


The Article Ran, and I Was Right to Be Worried. Here is My Response to the Editors

Dear Editors,

I am glad you were able to get that article out by the deadline. While I applaud your efforts to get what I was saying, the article unfortunately did a few things I was hoping it would not do … as I indicated when I first agreed to this story.

I am concerned that the story does not properly represent what I am saying – particularly if you only look at the photo captions. Read my entire e-mail below and find where I indicate, “the stimulus will not do enough to stimulate consumer lending,” … I actually make the point that consumer lending is NOT the problem … and none of my economic objections with the stimulus bill have anything to do with it “not doing enough.”

In addition, as I was really worried about initially, the article pulls some opinions from a political scientist and an historian and simply places them side by side with the “views” of an economist. I’d like to know if you would ever run a story on how to run a nuclear reactor, and then poll an economist, an historian and a physicist to capture their “views” on how it ought to be done? Well, why is it any different in economics? Because it is on the news more? I tried to present to you the difficulty of analyzing this stimulus bill (again, refer to my answers below), and where available, to support everything I was saying on the economic front with data. What do the other folks do? Simply assert things without warrant, such as “the stimulus bill has lots of shovel ready stuff in it, just like FDR’s public works programs did, which ended the Great Depression.” Such a comment is not only wholly unscientific, but is also factually incorrect in one part, and wholly up for scientific debate on the other. As I showed you below, very little of the stimulus bill is actually anything like stimulus … and you do correctly indicate this in the piece … but then you place it aside a different “view” on it. Water boils at 212 F, there are not two different views on that. With regard to the public works, well the Depression lasted another 5 years after those started, it is still up for debate how successful they were at ending the Depression.

Or take the “analysis” of the housing plan by a history professor – likening it to the public goods case for funding fire departments. There is no economic analysis there, merely an unwarranted assertion that since we pay money to fire departments because fire damage hurts all of us, then we should bail out homeowners. That is utter nonsense. Even if the economic case for public fire departments is there (and it is not clear at all in 2009 that it is clear) he characterizes the nature of the problem wrong. The economic case for funding fire departments is one we call a “free-rider” problem. And has nothing to do with fires hurting anyone other than myself. The point of the economic analysis is that if Rizzo purchased private fire protection, there would be strong incentives for Rizzo’s neighbors to NOT purchase fire protection. Why? Because if my neighbor’s house went on fire, my fire company would have an incentive to put it out in order to protect MY home … eliminating or reducing the incentive for everyone to purchase fire insurance. In such a world, you can see how it is possible that no one would purchase fire protection, although from a social standpoint, “we” would all be better off having purchased the insurance. That economic case has nothing to do with “fires being bad for all the neighbors.” If my house burns down, it does virtually nothing to the guy down the street. So I have a hard time understanding how this sort of thing now passes as economic analysis of the housing plan. The economic analysis of the plan is quite simple – and even if it talks about externalities, perhaps should go in the other direction. For example, the price signals being sent indicate that the housing market needs to continue to shrink. And taking steps to prevent the additional falling of prices is counterproductive. It is akin to my tuna-chocolate lasagna story. And falling prices HELP the people that do not currently own homes AND that have been prudent. Is there any reason the imprudent should be favored over the prudent here, particularly when what we are talking about is a direct transfer? I argue no. Furthermore, the case for the housing plan that relies on “foreclosures cause a spiral of decline in a community” is a fine little story, but not empirically demonstrable – and I see no effort by the other economic experts in the story to present that case (and it again ignores the forgotten man that is waiting to purchase a home at the now lower price). I would never make a comment like that unless I had some evidence. In fact, what complicates the story on the housing market is the fact that many of the places experiencing declines and foreclosures are in that condition because of bad economic conditions particular to that area, and not because an acute problem in housing, per se. For example, Detroit homes are being foreclosed on because the auto and related industries are declining.

Finally, there are some editorial mistakes in the article, which detract from its otherwise good effort. Some are benign grammatical errors, but others are single word omissions that change the meaning of the piece entirely. For example, you quote me as saying, “in order for it to legitimately be a stimulus, resources that are not employed must become employed. Currently most resources are unemployed.”

Quite the opposite! My point is that currently the VAST majority of resources are employed, so the major economic justification for doing such a stimulus bill does not exist.

I hope readers understand that both in terms of my economic analysis of the plan, and also my own personal opinion of what is going on, the stimulus is pure and unjustified fraud – a moral outrage perpetrated on us with little we can do. Some of what you write captures this, but I can imagine readers walking away slightly confused by some of the mixed signals.

So thank you for running the piece, but I hope you understand why someone like me would be concerned. When 535 guys in Congress and one in the White House have the guns, and are carelessly expropriating trillions of dollars from people like me, you, your parents, etc. I don’t think it is asking too much to treat the thing scientifically.

As an economist, I don’t make any claim to knowing what the heck is going on. But as an economist, I am trained to understand the fact that people respond to incentives, that resources are scarce, that unintended consequences matter, and that all individuals respond to incentives – government officials included. Those that are trained in other disciplines my read a lot of economics, or talk a lot about it, but they are no more capable to using those principles to explain the economy, and certainly not in any position to provide advice on what to do. Just as most of us understand Newton’s laws of motion, and most of us understand the Faraday equations, and most of us understand the equations of thermodynamics, I suffer no illusions that most of us would be capable of commenting intelligently on the proper design of a roller coaster, or of an electrical panel to a house, or of an air conditioner. So why then do so many feel like they are capable of doing the same thing in economics?

2 Responses to “Differing “Views” on the Economy”

  1. Econobran says:


    I think you should copyright “tuna-chocolate lasagna”.

  2. Michael says:

    “I’d like to know if you would ever run a story on how to run a nuclear reactor, and then poll an economist, an historian and a physicist to capture their “views” on how it ought to be done? ” Coincidently, if you poll this economist, you’ll probably get a decent answer, but it still depends on the reactor type. (And only because I did run a reactor for the navy.)
    They talked about the similarities to the New Deal, but I didn’t see any discussion if that was a good or bad thing then. Would I be correct in assuming that they think the New Deal was a good deal? I thought so, until I actually started reading about it.

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