April Fools' Festival Day III: Robert Lucas
In which Robert Lucas demonstrates that he understands first-year macro less well than many horseflies understand Apple's supply chain:
...I've already said I think what the Fed is now doing is going to be enough to get a reasonably quick recovery committed. But, could we do even better with fiscal stimulus? I just don't see this at all. If the government builds a bridge, and then the Fed prints up some money to pay the bridge builders, that's just a monetary policy.... The only part of the stimulus package that's stimulating is the monetary part....
If we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder--the guys who work on the bridge--then it's just a wash. It has no first-starter effect. There's no reason to expect any stimulation. And, in some sense, there's nothing to apply a multiplier to. (Laughs.)
You apply a multiplier to the bridge builders, then you've got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn't going to help, we know that....
The Moody's model that Christina Romer--here's what I think happened. It's her first day on the job and somebody says, you've got to come up with a solution to this--in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning. So she scrambled and came up with these multipliers and now they're kind of--I don't know. So I don't think anyone really believes...
These models have never been discussed or debated in a way that that say--Ellen McGrattan was talking about the way economists use models this morning.
These are kind of schlock economics.
Maybe there is some multiplier out there that we could measure well but that's not what that paper does. I think it's a very naked rationalization for policies that were already, you know, decided on for other reasons...
