Sachs on Stimulus

by Russ Roberts on September 27, 2011

in Stimulus

Jeffrey Sachs doesn’t think much of the Stimulus I or Stimulus II (HT: Nate Silver). And echoing the sentiments of many posts here at the Cafe on the CBO, he recognizes the falsity of the CBO’s claims that the stimulus created jobs:

One of the common errors of our recent policy debate has been the belief that various studies of the Congressional Budget Office (CBO) “prove” that the stimulus measures have raised employment and output. Careful readers of the CBO reports know that the CBO has proved nothing of the sort. The CBO reports have assumed that the stimulus works, relying on multipliers found in its mathematical models of the US economy. The CBO hasn’t in fact re-examined its model for purposes of estimating the impacts of the stimulus policies.

Yet the actual outcomes of the US economy have been far worse than were expected. Unemployment, of course, remains above 9 percent when it was expected in early 2009 to fall to below 7 percent by today. There is, alas, no reason to believe that the stimulus packages have done much of anything to stimulate the economy even in the short term, much less to bridge the gap to the revival of sustained growth.

There is an even deeper reason for the public’s disorientation over Obama’s rhetoric. President Obama repeatedly and rightly discusses the longer-term prerequisites for restoring competitiveness: investments in infrastructure, renewable energy, job training, and quality education. Yet these alluring long-term visions are almost completely disconnected from Obama’s actual budget policies, which are relentlessly short-term and without strategies beyond a year or two. This disconnect between Obama’s soaring rhetoric and lack of long-term plans was on display in the jobs speech this week.

He then goes on to say that the Republicans’ ideas of lower taxes, reducing regulation, and shrinking government are “the road to ruin.” What does America need:

America requires at least a decade of well-designed and well-executed national investments in people, infrastructure, and innovative technologies, in order to boost competitiveness and renovate the economy. Yet such an effort requires serious plans, careful deliberation, and higher taxation on deadbeat corporations and the super-rich. (Obama’s endorsement of lowering corporate tax rates in return for ending loopholes augers poorly once again, since it invites yet another gimmicky tax negotiation in the interests of the rich.)

At least a decade? How about six months? When was the last time America had well-designed and well-executed investments in people, infrastructure, and innovative technologies? Who would do the designing? Who would do the executing? How would that group differ from the current crew? You mean they’d be even smarter and wiser than Larry Summers, Austan Goolsbee, Christina Romer, and Alan Krueger?

And at least two of those three goals–investments in people and innovative technologies we can do fine our own, thank you very much. Just stop spending so much money badly.



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