11 Jan 2009

Great Mankiw Article on the Problems With Gov’t "Stimulus"

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Wow, I am really taken aback. Reading his blog over the last year or so, my opinion of Mankiw had gone way down (compared to my opinion from reading his textbook). But he is on fire in this NYT op ed (HT2EE).

Don’t get me wrong, he is still staying firmly within the mainstream worldview, and is just bringing up a few practical issues with stimulus. He still basically concedes the Keynesian framework that, on the surface, he seems to be rejecting. But even so, you gotta love passages like this:

If you hire your neighbor for $100 to dig a hole in your backyard and then fill it up, and he hires you to do the same in his yard, the government statisticians report that things are improving. The economy has created two jobs, and the G.D.P. rises by $200. But it is unlikely that, having wasted all that time digging and filling, either of you is better off.

People don’t usually spend their money buying things they don’t want or need, so for private transactions, this kind of inefficient spending is not much of a problem. But the same cannot always be said of the government. If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being.

The way to avoid this problem is a rigorous cost-benefit analysis of each government project. Such analysis is hard to do quickly, however, especially when vast sums are at stake. But if it is not done quickly, the economic downturn may be over before the stimulus arrives.

Oh, and check out this scary quote from Samuelson: “I don’t care who writes a nation’s laws or crafts its advanced treaties, if I can write its economics textbooks.” *shakes* Uhhhh! That guy gives me the willies.

But you know, I have to say, something doesn’t feel right about this. All of a sudden, the “free market” guys who had been disappointing me–not just Mankiw but also my favorite economist–are all of a sudden lighting it up. Is it just that I have come to grips with my disillusionment, and now that I no longer have such a high bar, they seem awesome?

Or, is it that they have been more willing to come out forcefully against Big Government now that it is a Democrat proposing it? Note that this last question doesn’t require a conspiracy theory. It is entirely possible that with the election over, now a bunch of true right-wing hacks are going to do a 180 on Big Government, and then this changes the climate so that the true academics subconsciously feel more comfortable “going there.” Believe me, when you are writing for popular audiences who don’t share all of your views, you develop a sense for what will resonate and what won’t. (If I’m doing a radio show on energy issues, I can certainly rail against incompetent federal officials locking up American resources. But I would lose the listeners if I said, “Speaking of which, isn’t it about time we privatized the FAA?”)

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