A really good summary (HT: Joe Cordes).
The argument:
1. Austerity is stupid
2. Stimulus is dangerous
3. Lying is optimal
4. Economic choices are not scalar
The first point I hope speaks for itself. The second point is obvious too. I think a fifth point ("depression is really dangerous") would better round out the choice set we're facing right now. It's a "lesser of two evils" situation. The third point is interesting but not surprising to economists. The fourth point is very important for those interested in infantilizing the debate. Cafe Hayek is one site that loves to engage in "reductio ad absurdum" arguments, and I've recently discovered Wayne Anderson's penchant for that sort of thinking too. It's a really dumb way to approach these questions, and we need to keep that in mind. Generally speaking, reductio ad absurdum is a bad strategy to use when talking about economics.
This is the essential point of the post:
"I think there are lots of things government can and should do that would be fantastic. A “jobs bill”, however, or “stimulus” in the abstract, are not among them. If we do smart things, we will do well. If we do stupid things, or if we hope for markets to figure things out while nothing much gets done, the world will unravel beneath us. We have intellectual work to do that goes beyond choosing a deficit level."
On that third point - yes, yes - life is often a repeated game. I know that. Still a good game theoretic rule of thumb in a lot of situations.
ReplyDelete1. I think austerity is a generalization that means different things to different people. I am not sure I support it as being stupid, outright. Certainly, in the case of the Greek "austerity measures" one can find things that were good and bad to eliminate from the fiscal budget. However, I think it has become a buzzword of the left that equates any reduction of fiscal spending with bad.
ReplyDelete2. I'd say stimulus is stupid beyond a certain point. See Rogoff, Reinhart, and Kaminsky on debt crises. Not to mention the second order cost problems.
3. Hah!
4. I have to agree...I like Roberts quite a bit but Boudreaux does a lot to harm the libertarian/Austrian viewpoint with trite arguments and so many logical fallacies packed into each argument it is nauseating. I have considered removing it from my blog reader quite often lately.
5. I do not agree with your addendum. I think framing it in a binary outcome world is alarmist. Especially when a lack of fiscal discipline though reckless spending or poorly targeted stimulus could just as easily lead to depression. Also, I'd add, that US credit default would make the great depression look like a tiny bump in the road.
The Reinhart and Rogoff point is a good one, and it ties into Greece. Greece is in a bad situation certainly, but as you say there is a real choice to make between sovereign default and depression - and when that choice becomes a binding one wading through a depression can be a very reasonable solution.
ReplyDeleteBut this gets back to point 4 - economic choices are not scalar. These default/depression tradeoffs aren't anywhere close to what is binding right now for the U.S.. So the point is a good one when we're considering all cases, but it shouldn't be featured in a discussion of the U.S. - at least not now.
And, with our debt levels climbing, we need to remember that revenue losses from the downturn are as much a cause of that as any stimulus. Depression contributes to the debt, in other words.