Say It Ain't So, Alberto!
This isn't cherry-picking, this is…
This is something I certainly did not expect from Alberto Alesina…
Jim Tankersley:
Sequester, to some economists, is no sweat: [T]he academic godfathers of “cut and grow” say recent economic indicators are proving their theory correct. The Standard & Poor’s 500-stock index is up 9 percent since Jan. 1. Consumer spending remains higher than many forecasters expected. Nonresidential fixed investment rose by nearly 10 percent in the fourth quarter. The labor market added 119,000 jobs in January and 236,000 jobs last month.
What could explain the booming stock markets, the latest data on private investment in the fourth quarter of 2012 and the January employment data?
Alberto Alesina, a Harvard professor who has written several papers suggesting that budget cuts done correctly can lead to better growth, wrote in an e-mail last week.
Sure the budget cuts [had] not taken place yet but investors and companies look into the future when they hire. Given that the future implies budget cuts, it must mean that they welcome them.
Jared Bernstein does the intellectual garbage pickup:
Today’s Papers: I’ve long held the view that tax increases and budget cuts in weak economies are analogous to leeching in medieval medicine: it’s not that it doesn’t help—it’s that it hurts. So this seemed like a good time to link to an earlier analysis of why this Alesina stuff is so wrong. Or, better yet, you could just look at the economies that have applied these leeches—UK, Italy, Spain, Greece—and see for yourself. What you really shouldn’t do is what Alesina himself does in the WaPo piece: cite the “booming stock market” as evidence that budget cuts from the sequester work just as he predicted…. [B]eware the analyst that cites the latest stock market trend to support his theory. He will almost always be wrong.
