06 Jan 2009

The Free Advice "Speak Out!" Award Goes to Mario Rizzo

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Our first Speak Out! award goes to Mario Rizzo. Both on his new blog and in the comments section at other sites, Mario has continually pounded home the message that microeconomics is still relevant, even when there is a recession. The second link above is to an Arnold Kling EconLog post. Kling says he’s “firmly” against a big stimulus, but would instead “prefer a small stimulus.” (Whoa, you should have warned us to sit down before dropping that bombshell, Arnold!) Rizzo says:

Why is there a case for any (fiscal)stimulus at all? If we are simply talking about indulging the public in their fantasies about an easy way out of the economic mess, then I am no expert on this.
However, since so much of the current problem has its roots in the misdirection of resources we must be careful not to frustrate allocative adjustments by renewing the misdirection of resources towards over-expanded sectors. These are not sustainable in terms of the preferences of consumers and investors. The operative resource allocation principle in the political process is toward those areas with the greatest political influence. (BTW, none of this is to be taken as opposing the maintenance of sufficient high powered money to prevent outright deflation.)

Of course, even Rizzo inexplicably thinks that creating more money out of thin air will help with relative price coordination, but that’s why you have me.

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