What’s the deal with the tax cuts versus spending debate? [see Glenn Reynolds for link]
An Interview with Robert Barrow by Conor Clarke, The Atlantic Magazine, Feb 5, 2009:
Just one last thing. I think Joe Biden and a couple other people have said there’s a fairly wide consensus among economists that fiscal stimulus in the form of a large spending bill is the way to go, and…
He said first that every economist thought that.
Well, that’s Joe Biden hyperbole. But what is the lay of the land there? Presumably there are economists out there that take this seriously. And then there are economists out there who think there’s a one-for-one crowding out with any government spending. And I guess, where does the profession fall on that spectrum?
Most economists haven’t really been thinking about this issue, they haven’t really focused on it. It’s not their specialty. Most economists today, they haven’t really been thinking about this kind of multiplier issue. Which goes back to that first question you asked about how come now we’re so worried about this. I don’t think most economists are focused on this, or that they’re familiar with the empirical evidence. I don’t think they’ve really worked on the theory. So I don’t know, maybe they have some opinion that they got from graduate school or something.
I think my sense is that the sentiment has been moving against this kind of approach both within the economics profession and more broadly. I think the initial view was that “yeah, this is a terrible situation” — which I agree with — “and we’ve got to do something about this, and maybe this will work.” I think there was support in that sense.
Are there any conditions under which you might think spending could have a positive effect on output or is it always going to be the case that as a relative matter that tax cuts are going to be better?
Tax cuts are bound to be better. I think the best evidence for expanding GDP comes from the temporary military spending that usually accompanies wars — wars that don’t destroy a lot of stuff, at least in the US experience. Even there I don’t think it’s one for one, so if you don’t value the war itself it’s not a good idea. You know, attacking Iran is a shovel-ready project. But I wouldn’t recommend it.
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Graduate school? That’s encouraging.
Still waiting for the indictments in the mortgage industry and some common-sense “circuit-breaker” regulatory reform, like transparency in derivatives trading, reinstatement of uptick, suspension of mark-to-market valuation, etc. but that would require a responsible Congress, the subject of this thread.
As well as investigating some of the issues NahnCee raised, the complete absence of which leads me to suspicion about competence/intent. So keep the heat up. Something not right about this new crowd. (no pun intended.) But the entertainment value is high.
[via Glenn Reynolds]
