Fiscal Stimulus as Faith Healing
Monday December 29, 2008
I have a great deal of respect for Paul Krugman, but I find this type of argument rather irritating:
Krugman goes on to say:
But to continue on the faith healing analogy - If the economy were a human we were trying to heal, does anyone in their right mind believe that fiscal stimulus would gain FDA approval?
Here’s how I see it: the opponents of a strong stimulus plan don’t really have an alternative to offer. They don’t even have a really coherent critique...This is the argument you hear from faith healers and other purveyors of quack cures: "Since modern medicine cannot do anything about your inoperable colon cancer, why not try our magic rocks/chicken feet/magnet therapy? What do you have to lose?" Well, your money and your dignity, for starters.
Krugman goes on to say:
The critics are instead mainly engaged in a series of minor complaints...My two complaints are:
- There is almost no evidence to suggest that fiscal stimulus works. Particularly there is no evidence that it does more good than harm.
- The theory that fiscal stimulus is based on is incoherent at best.
But to continue on the faith healing analogy - If the economy were a human we were trying to heal, does anyone in their right mind believe that fiscal stimulus would gain FDA approval?
Comments
Well, if government borrows to buy something then gdp goes up by definition so no theory is necessary there. It may be spent for good or bad, and while preferably for the former, it is a tradeoff of future position for present situation. So, yes, it does improve the present even if it diminishes the future, though it can well enhance the future. I say bunk to your bunk.
If stimulus is not “modern medicine,” then what is the “modern medicine” referred to? Proponents of new classical economics label it as the latest most up to date knowledge; what does it add to Adam Smith? That said, a lot seems to be lumped together under the label “fiscal” — from expenditures to tax cuts. If the complaint is against expenditures, is it Mr. Moffat’s opinion that all investment does more harm than good (and I don’t suggest that it doesn’t) or only that investment labeled “fiscal” does more harm than good? If some of the really big companies, with revenues larger than small countries were to increase investment during a time of economic downturn, for instance, Mr. Moffat might argue if he were a new classicalist that exactly nothing happened because that is the arguement made about government expenditure that it only comes out of income that comes out of the pocket of the economy the stimulus was designed to spur. But neo classical economists don’t argue that way about really big companies for some reason even though they have the same control over their revenue stream as do small countries, but would argue that about small countries — witness the IMF in the nineties giving advice. On the other hand, if by Fiscal Stimulus Moffat and Krugman mean tax cuts, then we can see what Mr. Moffat is saying — its a bit complicated and could therefore be incoherent — although I have to take his word for it. If he merely means Krugman is incoherent, then that also is another story, which perhaps we only need read Krugman a little bit to find out about.