And if you are willing to say that WWII is not an illustration of successful Keynesian policies what is left? Japan of the 1990s?

But regardless of that, the most important point from Barro’s paper for me is that it is currently extremely difficult to measure the non-defense multipliers. And that all the supposed evidence is unreliable. I don’t know what to make of that argument. But if it is correct my view that the stimulus does not pass the “first do no harm” test holds.

And I should also point out – I didn’t dream up that criticism of him myself (the one about rationing). People have brought that up to Barro himself in conferences and have been frustrated that he hasn’t seemed to have done much to address that objection. There’s not much point to professional conferences if you don’t take criticism you get there into account.

In WWII the government enforced strict rationing of private consumption, precisely so they could direct resources to defense spending. Is it any wonder that Barro came up with an insignificant impact of government spending on private consumption?

It’s a bad paper Daniil.

But at least in the case of WWII there were depressionary consitions. The unemployment rate in 1940 was 9,4%. And if these were not depressionary, nowadays’ conditions also aren’t.

As for endogenity issue, the important line from the Barro’s paper is this:

“A common approach in the existing empirical literature, exemplified by Blanchard and Perotti (2002), is to include government purchases (typically, defense and non-defense combined) in a vector-auto-regression (VAR) system and then make identifying assumptions
concerning exogeneity and timing. Typically, the real-government-purchases variable is allowed to move first, so that the contemporaneous associations with real GDP and other macroeconomic
6 aggregates, including real personal consumer expenditure, are assumed to reflect causal influences from government purchases to the macro variables. This approach may be satisfactory for war-driven defense spending, but it seems problematic for other forms of
government purchases. More generally, it is perilous to treat an arbitrarily selected component of GDP as exogenous and then demonstrate a positive, “causal” effect of this component on
overall GDP.”

Of course, it is up to professional statisticians to opine whether Barro is right in this criticism of the aforementioned way VAR is applied.

Yes.

But even worse, they don’t incorporate all of what we can and do know even without collecting any data. And even worse than that, they actually permit conclusions from data that contradict those known facts.

And then you read Krugman, and you understand why. It is because they have no interest in understanding reality. They just want to achieve their ends, and don’t think reality should be an impediment.

That leads to an important point, the models calibrated with faulty data are going to be faulty…who would have thought! Could this be one reason why the MSE (mainstream economists) didn’t see anything coming?

How convenient that Krug picks the Romer estimate, I mean who would have thought he’d pick a multiplier greater than 1?
I mean come on, that’s like quoting Al Gore to prove AGW.

“Cutting taxes is good for the economy…”

By increasing the incentive for people to take risks, work, and reduce the need of the government the economy tends to grow more over the long term.

“Unions are bad for the economy…”

By driving up wages and removing competition for other workers and protecting their own bad workers, it hurts companies when they try to compete in the marketplace.

“Minimum wage is bad for the economy…”

By “discriminating” against those with lower skills who’s only ability to compete with others is on price, we prevent them from being productive members of society. Many people must start off at lower salaries as they learn and become more productive. Many industries have that start at below minimum wage.

“Free trade is good for the economy…”

By allowing me to import cheaper goods from abroad, it will allow me to use those cheaper goods to produce things that are cheaper and therefor more competitive. If I have to spend less money on cheap tires, I can spend more on other things. This means more people benefit from my spending.

“Deregulation is good for the economy…”

Well this one is more complex, generally speaking regulation impacts the ability to innovate by stifling risk and removing experimentation.

“Privatizing public goods and services are good for the economy…”

This depends on what you’re privatizing. But if the government allows more efficient operators to provide goods, then everybody benefits. There’s be more organizations providing competition to give us those goods, thus providing a dynamic market for them.

“Wealth cncentration is inconsequential…”

This is true so long as the wealth is fairly acquired. It may sound unfair, but the fact is that there has to be wealth concentration. If everybody had equal wealth, NOBODY would have enough to develop complex and expensive to design things such as a computer. Nobody would have enough to build a large building or a railroad. Apple needs that capital to invest and design it. Oil companies need that capital to build huge pipelines.

During this time, places like Japan, Europe, and North America saw huge gains in the standard of living. People went from relatively brutal serfdom and backbreaking labour in farms to cities and their own places to live. Though looking back we may see the factories as sweatshops, 100 yeas from now they’ll probably read in disbelief at how we were stuck in office chairs breathing recirculated office air.

Another problem with Barro that I forgot about.

His solutions to the endogeneity problem (defense spending, etc.) make his estimates absolutely meaningless for the current situation. But people latch on to it because they like what he says about Keynes. Not very impressive.

Let me know when you figure out how to make those two things consistent.

That’s the best thing I’ve heard since muir said he was pursuing a degree in cognitive dissonance.

I hope you are not telling the truth. Of course I stand by what I wrote–I have to. It not only isn’t controversial, it is both true and basic. I don’t know how to make you see how mistaken you are. Perhaps you will read as I told you. But I cannot here give you a starter course in statistical theory. The understanding gap is too wide for a meaningful discussion.

But there is NOTHING in that (accurate) definition you gave that you can twist into justifying “the wide variance is best interpreted as a lack of evidence of a multiplier” after the fact.

Wide is relative, vikingvista. You don’t just look at a variance you consider wide and say there is a lack of evidence for a multiplier, much less dismiss decades of statistically significant empirical findings with “you should see that there isn’t evidence for your Ha”.