At the head Mark Thoma's daily list of writings-that-Mark-agrees-with is this post by Brad DeLong.
DeLong makes two points:
1. He seems to think that John has changed his mind about "stimulus spending," and quotes from Cochrane's blog post to try to make the point. If you actually read Cochrane's blog post I don't think you will come away with the same impression. I certainly did not. Here's a section:
The "stimulus" proposition is that additional spending -- whether needed or not -- raises output and general welfare. Pay people $1 to dig ditches and fill them up again, and the whole economy gains $1.5. Yes, endorsed by Krugman because it "feels like a job" (his back must not hurt like mine does) and by DeLong: "anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all."Hardly a pro-stimulus guy, I think.
The "targeted," "infrastructure," and the whole worthy apparatus to monitor the wisdom of "stimulus" spending (see John Taylor) is, in the Keynesian model, beside the point, or at best a smokescreen to befuddle the ignorant masses. It would in fact be better if the money were stolen. Thieves have high marginal propensity to consume, and they can get that "spending" out fast in an economy with few "shovel-ready" projects.
Stimulus is a remarkable proposition, because micro fallacies morph into macro wisdom. We all lambaste mayors who tax small businesses (or borrow against future taxes) to build showpiece "jobs" projects. This way lies Buffalo. Yet for the economy as a whole, stimulus says, it's true. The hurricane should have been bigger, so the government would have spent more money to rebuild. Many stimulus advocates point to WWII spending. Think about what that means: all those tanks, ships, and airplanes on the ocean floor were not a terrible economic sacrifice we paid to win a desperate war. Every ship the Germans sunk let the government buy another ship, and gain a ship and a half worth of GDP in the process!
2. DeLong seems to think that John's statements on public policy somehow ruined the 2008 stimulus package:
Perhaps Cochrane misled Michael McKee and Oliver Staley because he had simply not done his homework--had not thought the issues through at an Econ 1 level. Perhaps he was playing for Team Republican and knowingly telling them lies when they called him up and asked him about Jim Tobin.Well boo-hoo. The key problem with the stimulus was that, in fact, it was driven by Econ 1 thinking. That's the way that Brad DeLong and Christina Romer think. At best they are doing IS-LM, but mostly this is Keynesian Cross. There are plenty of good reasons why that just does not cut it. We can do a lot better. Any student educated in a top PhD economics program today has much better tools to address the question of what the fiscal authority should do in a recession. Cochrane is not perfect, but he's thinking about the right things.
I really don't care which.
What I do know is that his intervention made Christina Romer and Larry Summers and company's technocratic job more difficult at a crucial moment.
Here's my recent thinking about the general issues at stake. I'm pretty much in agreement with Jim Bullard, though we may differ on some of the monetary policy issues. Bullard argues, basically, that Friedman and Mankiw were right. Fiscal policy is mainly about the long run. We should decide how large the government should be and what it should do, and there should be essentially no discretionary countercyclical fiscal actions. That doesn't say that we can't have appropriate social insurance - what some people would call "automatic stabilizers," such as unemployment insurance - that imply greater transfers, for example, in a recession than in a boom. Or, as Cochrane points out, there may be sound reasons - tax-smoothing for example - that imply that we should run a deficit during a recession and a surplus in a boom.
Finally, DeLong finishes with this gem:
The problem is that there are a lot of influential bullshit artists out there. Cochrane is at least willing to try to engage. Lucas, Fama, Prescott, Posner, etc., etc. are not even willing to do that.I'm wondering who those "influential bullshit artists" are. Honestly, I have no idea what he is talking about. I'm also wondering why he's picking on Lucas, Fama, Prescott, and Posner. Those people are all septuagenarians. Personally, I'm quite happy that Lucas and Prescott are still engaged in what they do well. They regularly talk about economics in public, and participate in academic conferences. They are both a pleasure to talk to - I learn something from Bob and Ed whenever I see them. What more do we want from those guys? We want them to write blogs? What for? Fama and Posner are not even macroeconomists. Who gives a crap what they think of the stimulus package?
Well, Brad. I'm here and willing to engage. What's on your mind?