Economists Go Prime Time Against the Stimulus

by Don Boudreaux on March 13, 2009

in Stimulus

Tonight's edition of ABC News's 20/20 has a segment in which host John Stossel talks with 18 economists (including yours truly) about why stimulus spending is a lousy idea.  (Alas, although I'm in the group that Stossel spoke with, none of my individual comments make it into the final telecast version.)  But the comments of my fellow economists that do make it are terrific.

Tune in!  10-11pm, EDT; the segment with we economists is one of six segments during the hour-long program.

An article about the views of we 18 economists can be found here; it's co-authored by Stossel and my former GMU student Andrew Kirell.

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{ 22 comments }

Mathieu Bédard March 13, 2009 at 3:26 pm

I can't wait for it to make it to YouTube! I will definitely watch this!

Doug Stevens March 13, 2009 at 4:43 pm

Any way to see the footage that didn't make it to the final telecast?

AC March 13, 2009 at 5:04 pm

It's "with us economists" not "with we economists."

Tuts loudly.

vikingvista March 13, 2009 at 5:21 pm

It would be nice for a supporting politician to be asked exactly how government spending stimulates the economy–both the theoretical and empirical evidence.

In addition to their oath of office, Congressmen should be required to repeat:

"SPENDING DOES NOT EQUAL GROWTH."

They think that pushing dollars around somehow creates wealth, just because it increases GDP.

In fact, GDP is merely a measure of money transactions. If those transactions are not all voluntary, then somebody is losing wealth, and even collective wealth may be losing. The government then turns GDP into an index of wealth LOSS, but treats it as though it represents wealth gain.

And this is before we account for the bad incentives.

Government spending can help some at the expense of others, but claims that it grows the economy are unfounded and nonsensical.

One way we can disarm the Keynesians is by filling a large red ball full of billions of dollars and then getting a couple of kids to play catch with it. With each throw of the ball the GDP grows and the economy is "stimulated".

Then the Keynesians can go out back and satisfy themselves playing catch all day while the adults stay in the house and deal with the economy rationally.

Crusader March 13, 2009 at 5:38 pm

What implodes your view is:

Federal Highway Act

The government invested $25 billion in building 41,000 miles of interstate which was a huge boon to the economy. What in economic circles you call ROI. So how is Keynesian policy all bad?

Sam Grove March 13, 2009 at 6:14 pm

Does that include maintenance costs?

What about the foregone opportunities?

Without all the highway building, would railroads have become a viable mass transit industry rather than heavily subsidized boondoggles?

How can we know?

Brandybuck March 13, 2009 at 6:15 pm

You can't use the FHA as an example of successful Keynesianism. What would the economic growth have been like without it? There is no way to know. We do know there were negative consequences through the taxation, borrowing and inflation required to fund it, but we have no way to know if that was greater or lesser than the benefits of an improved transportation system. Perhaps a private solution would have emerged that would have been better, but we will not know one way or the other. I can make an educated guess, but just like your assertion, it will still be nothing more than guesswork.

But that is all beside the point. The national highways were basic infrastructure of high general utility. Building roads is hardly on par with the basketball courts and pizzerias in the grab bag of the current stimulus package. There is a vast difference between basic interstate infrastructure and local "shovel ready" community projects.

vikingvista March 13, 2009 at 6:18 pm

Crusader–

Keynesianism is not the theory that governments can spend money usefully. All governments have always spent money. The Keynesian revolution was not a recognition of the bleeding obvious.

Keynesians are distinguished in that they don't much care HOW government money is spent. They don't say that some spending is useful and other spending is wasteful (though they might say some is more useful than others). To them, ALL spending stimulates growth. Thus the dig-holes/fill-them-in analogy. And the build-battleships/sink-them analogy. This truly is a theory that the forced circulation of money equals wealth creation.

So, for you to defend Keynesianism, you will have to show, INDEPENDENT OF ANY PARTICULAR SPENDING, how government spending, in general, grows the economy.

Government spending on defense, roads, and maybe even at one time education, may have been a useful expense. But, that long predates Keynes.

Keynesianism is the new notion that governments CANNOT waste money. That is why Obama said at the Democrat retreat last month:

"What do you think a stimulus is? It’s spending — that's the whole point! Seriously.”

vidyohs March 13, 2009 at 6:52 pm

I'll go with vikingvista on this one because he said it before I could and probably much better as well as more thoroughly.

My question to Crusader is, just what makes you think that Keyneseyian policy drove the spending by Ike on the interstate system of highways?

Do you, Crusader, equate all government spending with Keynesian policy, spending just to be spending?

I don't think you chose a good example, interstate highway system, if that is so.

vidyohs March 13, 2009 at 6:53 pm

Egad! You know I might have too clever by half here:
"equate all government spending with Keynesian policy, spending just to be spending?"

In reflection I have to wonder.

maximus March 13, 2009 at 7:00 pm

Crusader :
Read Recession and Revovery by Robert Higgs
http://www.lewrockwell.com/higgs/higgs109.html

Vikingvista is spot on about Gov't spending.

BlackSheep March 13, 2009 at 7:49 pm

vikingvista sum it up. Most Keynesians say e.g. the reason why the US got out of the Great Depression was due to the WW2 spending.

mcwop March 13, 2009 at 7:51 pm

Crusader, the highway system contributed to global warming, so was it really a positive?

vidyohs March 13, 2009 at 11:07 pm

Well the 20/20 show is over. For my part John could have spent more time with the economist but at least that segment was first and people would see it before they got bored with the government bashing and drifted off to the important stuff, like vampire movies.

All in all John presented a good show, which he typically does; however, I would bet my next months income that in a week not one person you stopped on the street and asked if he/she had seen the program and who responded yes, would even remember any essential detail much less have any outrage carry over to that point.

Any takers?

vikingvista March 13, 2009 at 11:21 pm

"Any takers?"

Stossel is fighting the good fight with charm and good manners, and doing the world a whole lot more good than I could ever hope to. I'll leave it at that.

RickC March 14, 2009 at 12:06 am

I watched Stossel too. I agree, not nearly enough with the economists. He is fighting the good fight though. Right now, just to see something of this nature on the MSM is huge.

I personally enjoyed that young man who, through and with the help of Stossel, spanked Ehrenreich's book "Nickeled and Dimed" by copying her experiment and blowing holes in her conclusions. The topper came when she basically folded, saying it was embarrassing to be shown up.

The section about privatizing roads and highways was good too.

Gil March 14, 2009 at 1:46 am

You must be thinking of Scratch Beginnings by Adam Shepard, RickC

Ian Parker-Joseph March 14, 2009 at 8:32 am

The Libertarian Party UK suggests market stimulus from the bottom up to arrest the current decline, then total Economic reform.

My Libertarian Values #2 – The Economy. http://tinyurl.com/belrp8

indiana jim March 14, 2009 at 9:37 am

I thought that Stossel was great as usual; unlike others, I think he spent enough time with the economists. I think others forget that this could be repeated. If Stossel were to have a regular session with a group of economists, the aggregated minutes could be huge. So I hope John Stossel will read this and I hope that he will again challenge politicians who try to suggest that "all economists" agree that 2+2=5, or whatever similar obvious silliness the Obamatons try to claim that economists "all" agree to.

Stossel has done a great service to the economics profession writ large, by making it very public that "all" of us certainly do not agree that the earth is flat (populist book writter Thomas Friedman's claims to the contrary nowithstanding), or that Obama's "spending" bill (stimulus? well maybe Chris Matthews has that tingle up his leg again) is the best way to advance economic growth.

Again, I hope Stossel is reading this:

THANK YOU JOHN STOSSEL!!!!!!!!!!!!!

LowcountryJoe March 14, 2009 at 10:45 am

The government invested $25 billion in building 41,000 miles of interstate which was a huge boon to the economy. What in economic circles you call ROI. So how is Keynesian policy all bad? ~ Crusader.

Maybe it's just never been phrased in the particular manner that I am about to phrases it for you now but, Keynesians enjoy pointing to the multiplier effect of a dollar spent and what positive and dynamic things that happen as that dollar circulates and changes hands in an economy. That's all well and good and I even buy into the notion that there's a multiplier effect. So, if Keynesians really want to have that argument I'll concede to the merits of it.

Ah ha, though; the moment of 'gotcha' has arrived. If Keynesians are willing to make this argument then the must also concede that so-called trickle-down economics must also have merit and, not only that, but that any dollar spent through private transactions (a transaction that government is not involved in) also must have a multiplier effect. The question then becomes: in which scenarios, generally, are the multiplier effects most multiplied – government spending or private spending? And all the crusading that you could muster in this forum isn't likely to change the common sense positions that the vast majority of us here have already adopted.

vidyohs March 14, 2009 at 11:43 am

Vikingvista,

I have no real criticism of Stossel, if anyone took it that way, t'ain't true.

My criticism is of the retention power and outrage capability of the man in the street.

I agree that his work is valuable and perhaps may even slowly penetrate the man in the street that all these incidents the government lays on us are not isolated and unique, but inter-connected and common. Thereby compelling some to reach the point of real action to correct what is wrong.

I should live so long.

vikingvista March 14, 2009 at 4:18 pm

LowcountryJoe–

"The question then becomes: in which scenarios, generally, are the multiplier effects most multiplied – government spending or private spending?"

Keyenian's claim that in an economic turndown, and particularly a "liquidity trap", private spending is way down. Then they compute their multipliers and determine that the multipliers for government spending are greater than for tax cuts (to stimulate private spending). They even publish these multipliers–with a precision of 1 part in 100!

The whole Keynesian notion of multipliers is ill-conceived. It is true that voluntary trade increases wealth, and more voluntary trade increases wealth more.

BUT, pushing money around is not the same as voluntary trade. Involuntary trade (government spending), creating a misallocation of resources, can be expected to DECREASE wealth (always for some parties, and likely for the economy as a whole).

If Keynesians were to do a proper accounting of this, they may very well discover that they need to put a negative sign in front of their multipliers. In fact, some empirical evidence from the IMF supports this:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=879624

"The average fiscal multiplier across all 43 recession episodes is -1.5." –p17

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