"My team didn't get our way in the crisis. Neither did yours. But your side got a lot closer. Don't you think that the $820 Billion dollar "stimulus" package had more in common with Keynes than Hayek?I had responded: "Right but everything that has happened since the stimulus has been holding federal spending steady and they've all been arguing about how to reduce it - in the middle of a depression. That sounds closer to your response (cut) than mine (grow)."
Alan Blinder is a pretty Keynesian guy. He thought it was about the right size: http://www.npr.org/templates/story/story.php?storyId=100018973 I know--some people wanted a bigger stimulus. But it's a Keynesian stimulus not a Hayekian one. What is Smithian about me is that
I start with what Dan Klein calls a "presumption of liberty." I also have little faith in precise models of human behavior. I believe that good social science is narrative in nature using facts and observations about the world. I am suspicious of politicians who try to engineer economic systems from the top down. I think people are a mix of self-interested and altruistic but the self-interested part dominates. What induces altruistic behavior is a desire for respect. I believe people (even economists) are prone to self-deception. I think the division of labor is limited by the extent of the market and is likely more important for creating prosperity than Ricardian comparative advantage.
What's on your list?"
What is the primary fiscal task that both parties see as being before them right now? Cutting the deficit and cutting spending, and for some people even raising taxes. Politicians see the deficit and spending as the problem and their answer is to cut it. Federal workers are under a pay freeze and a hiring freeze. The identification of the problem and the proposed solution to the problem are all Russ's "teams" problems and proposed solutions. Now ultimately they'll tinker around the edges, do a lot of dumb stuff, not make either of us happy, and probably continue this slow-motion austerity. But the idea that they're even in the ballpark of a Keynesian diagnosis and solution is a claim that doesn't make sense to me. If it weren't for automatic stabilizers that politicians have no control over, we'd have even less Keynesianism.
My solution is an institutional one - we need institutions that are less prone to these problems. We cannot hope that politicians are suddenly going to get Keynes. But we can influence institutions in a way that will improve performance - reform around debt limit laws, filibusters, ethics enforcement that guarantees we are actually providing for the general welfare and not individuals' welfare (consistent with Constitutional mandate), perhaps term limits, etc. And then of course we just need better economics education to reorient the discussion away from austerity.
In the next post I'll answer Russ's question on Smith.