A funny thing seems to have happened on the way to a he-said, she-said story for ABC on the stimulus:
“The stimulus worked,” said Stuart Hoffman, chief economist at PNC Bank. Without it, “the unemployment rate would probably be closer to 11 percent” and the economy might not have grown at all last year. Mark Zandi of Moody’s Economy.com thought the nation would be “still in recession.” “It played a significant role supporting recovery,” said economist Diane Swonk of Mesirow Financial. Not all the economists who responded to our survey agreed the stimulus was necessary. “Throwing a trillion dollars at anything will move it,” said Standard and Poor’s David Wyss, “but the recovery would be beginning and the unemployment rate nearing a peak” without it. “The economy would probably be recovering,” argued Jay Bryson of Wells Fargo, just maybe not “as fast as it is.”
They’ve attempted to frame this as a standard piece of “experts disagree on shape of the earth” shoddy policy journalism, but what you’re actually seeing here is that despite their best efforts they can’t find anyone to endorse the standard Heritage/NRO/GOP view that the stimulus is harming the economy. Hoffman and Zandi deem the stimulus vital. Swonk says it played a “significant role” in bolstering recovery. Wyss is sniffy and derisive, but the essence of his sniffy derision is to say that of course the stimulus helped. And Bryson says the economy recovered faster because of the stimulus. Everyone agrees!
What? In response to David Leonhardt's outstanding New York Times article on the success of the stimulus, Reihan Salam at National Review objects that Leonhardt is refuting a notion that no serious person actually holds:
If Leonhardt intends to knock down a straw-man argument — ARRA has had no impact and the economy would be in the same shape without any fiscal stimulus program — he succeeds.... I don't thing that anyone doubts that ARRA helped perk up growth...
It's bizarre that Reihan portrays this as as a straw man argument, since it's indisputably a very-widely held opinion among Republicans and conservatives, and I'd argue represents the consensus GOP view. When new party poster boy Scott Brown asserted that the stimulus "didn't create one new job," he was simply parroting a line that has been circulating among his party for a year. Which other conservatives have said this, you ask? Which ones haven't? There's John Boehner ("the stimulus isn’t creating jobs for American workers.") The Washington Times editorial page ("Mr. Obama's policies delayed the recovery.") Andrew Wilson at the American Spectator ("It is a $787 billion shell game -- taking money out of the private sector and putting it to less productive use in the public sector or passing it around as hand-outs to politically favored Democratic Party constituents. In doing so, the "stimulus" has actually destroyed jobs.")
How about some examples closer to home? Here's National Review's Mark Steyn: ("It didn’t just fail to stimulate, it actively deterred stimulation, because it was the first explicit signal to America and the world that the Democrats’ political priorities overrode everything else.") Here's Brian Riedl, also in National Review. ("The stimulus is not failing because it is too small or because too much of it is being saved. It’s failing because Congress can only redistribute existing demand, not create new demand.") With more time I could go on and on. Reihan, a former TNR Reporter-Researcher, is a bright and terrific guy, but he has an unfortunate tendency to imagine that the Republican Party is filled with people who think like he does. It isn't.
I’ve seen the economists’ letter opposing premature fiscal tightening in Britain, and hear it will be published tomorrow. I fully agree with the writers’ position. The crucial thing to understand is that fiscal contraction of an additional one or two percent of GDP in the near future has essentially no significance for the sustainability of government finances, either in Britain or here. The only reason to do it is to impress markets — to convince them of your willingness to bear pain. And absent structural reform — which is the real need — how much good does that do? So let’s not impose useless punishment, there or here.
4) British Fiscal Austerity II:
There are advantages to joining a currency union, but there are also costs. One important cost is that countries within the union cannot pursue individualised monetary policy. For example, if Spain and Greece weren't subject to the constraints that a common currency imposes, they could devalue their currencies to stimulate exports. Importantly, this could be used to offset the economic contraction that would be caused by bringing their deficits under control. But this is not possible under a common currency. The fact that individual countries within the euro area cannot use monetary policy to stabilise their economies means they must rely upon fiscal policy as their main stabilisation tool. However, fiscal policy alone is not as effective at stabilisation as fiscal policy used in combination with monetary policy. Fiscal federalism is one way to improve stability. Fiscal federalism is a broad topic, but here it is refers to resource transfers made by a centralised authority in an attempt to stabilise economic activity.
6) GRAPH OF THE DAY:
7) BEST NON-ECONOMICS THING I HAVE READ TODAY: Robert Waldmann: Why Is Gerald Seib So Determined to Miss the Point?:
Seib is, indeed, heroically refusing to see what is under his nose. However, I am uncomfortable with anonymous sources (Republican ligislators say in private). There is no need to look behind the scenes to see that Republicans are determined to obstruct initiatives which they think are substantively good. 7 Republican senators cosponsored a bill to set up the deficit commission in public and then filibustered it in public. Case closed. Also they supported the individual mandate before they opposed it. They would certainly certainly not support health care reform without the mandate. The mandate was AHIPs condition for (publicly) supporting the bill. There is no way Republicans would support a ban on discriminating against people with pre-existing conditions without a mandate. That would be crazy (no problem for them) and opposed by the industry (no way it happens). It is obvious that they are not filibustering only because of policy disagreements. There is no need to quote anonymous sources to know this. It is clear from their public statements and actions.
8) STUPIDEST "ECONOMIST" I HAVE READ TODAY: Brian Reidl, of National Review and Heritage, as observed by Brad DeLong:
Brian Reidl: "Obama’s Faith-Based Economics: The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy. No new demand is created; it’s a zero-sum transfer of existing demand..."
What Brian Riedl doesn't seem to realize is that the only way he can get extra money to spend is by borrowing it or selling his assets. In either case, the person he borrowed it from or sold his assets to no longer has the money to spend--and so by Reidl's "logic" any private-sector decision to spend more (or less!) money doesn't create (or destroy!) demand: "it's [just] a zero-sum transfer of existing demand." According to Reidl's logic, no private decision to spend more or less can ever change the flow of existing demand: spending in the economy must always be a constant. You have only to look at employment in America to understand that the claim that spending in the American economy is always a constant is simply and completely false. According to Reidl's logic, none of these fluctuations in the employment-to-population ratio ever happened. He and his ignorant cohorts just close their eyes, plug their ears, and the more literate and well-read of them say: "Say! Bastiat! Say! Bastiat! Say! Bastiat!"... Reidl's claim would be true if we lived in a pure cash-in-advance economy with a rigid technological velocity constraint--if the only way you could buy things was by paying cash on the barrelhead immediately, if you could only spend your cash once every "market day," and if you were forced on pain of confiscation to spend your cash every "market day." But we don't live in such an economy. We never lived in such an economy. Even Gyges King of Lydia, inventor of coinage, did not live in such an economy.
And John Cochrane of the University of Chicago, as observed by Oregon Girl:
Tell this to John Cochrane as well. He was on the News Hour last night and made exactly the same statement. The money to pay for the stimulus had to come from somewhere, implying that there was zero net effect of the stimulus. I expect that of a intellectually vapid think tank, but of an academic economist?
9) DELONG SMACKDOWN OF THE DAY: Felix Salmon: Why Cap-and-Trade Beats a Carbon Tax:
Brad DeLong reckons that the relative merits of carbon taxes and cap-and-trade "roughly offset each other". "To first order cap-and-trade and carbon taxes are the same," he says, but there are second- and third-order differences. Among the second-order differences are these, and you can see how he ends up with the "roughly offset" conclusion: (i) Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value. (ii) Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value. These two considerations do not offset each other. The second risk is high and real; the first risk is low and politically much more unrealistic. Given the hysteria over energy prices in general and gasoline prices in particular, it's easy to imagine how a carbon tax would be set too low. And it's true that no one really knows what the elasticities are in the energy market, which means that an aggressively-low emissions cap could indeed send prices into the stratosphere. But, realistically, what would happen in such an event? Would Congress sit idly by as fuel-oil costs exceeded monthly mortgage payments?
10) HOISTED FROM THE ARCHIVES: DeLong: Why You Should Read John Maynard Keynes (1919), The Economic Consequences of the Peace:
Before this full-bore, fangs-bared assault on the Treaty of Versailles and the politicians who made it, John Maynard Keynes was an aesthete, an intellectual, and a clever sometime-advisor to the British Treasury.
Afterwards, he was a celebrity, and a force to be reckoned with in the making of economic policy.
The anger and despair of this book had been building for some time, as Keynes had watched the slaughter of World War I and then saw the prospects for successful post-war reconstruction slipping away.