I think it is worth noting I may have gotten in over my head when discussing some macro issues with Rob. Rob was an economics major who possesses a strong understanding of the technical side of the subject. I on the other hand never found this approach stimulating or interesting and resorted to approaching economic issues from a more philosophical/political perspective. Thus, Rob is the more traditional academic purist, and I'm more of the haphazardly self-taught mutt. This being said, I do not think it restricts either of us, or at least Rob from effectively conversing. Rob and I could have a political philosophy debate mixing in the likes of Keynes, Hayek and Marx for hours on end. Unfortunately I do not think I can say the same for myself when it comes to the more textbook/academic material, particularly on the macro side. So over the next few months during my free time I plan on reviewing some old college textbooks and reacquainting myself with the material so I can become little more useful over here.
That being said, I would like to challenge (though that might not be the right word) Rob's defense of the stimulus by posing five questions based on what I consider the main critiques of central planning [in America].
1. Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
Will raises a lot of good points here and I don't think we have to get too technical to have a productive discussion. I'll give my best shot to try to answer some of these questions.
ReplyDelete1. My best guess is, it depends. Neither Government nor the markets are infallible. The private sector won't necessarily make the best decision about collective action problems. The answer here isn't about Government vs markets so much as it is about the details of Government policy. Some will be likely implemented better than markets could and some will not. Only time will tell if this is a good idea. I think historical evidence from a number of public works projects during the great depression TVA, WPA, etc. can help make the case that Government can help allocate resources to solve a collective action problems and if investment is tanking along with consumption the spender of last resort is the Government. More about this in answer to question 4.
2. No, but can we reasonably believe that market will either? With markets we have the tools of self incentives that work the vast majority of the time and fail catastrophically on occasion. Government can't fix all our problems, but we do have the tools of democratically elected officials with limited terms to evaluate their policies.
3. A better question might be can we reasonably expect [people] not to succumb to perverse spending. I don't think markets have eliminated greed and replaced it with responsibility to stock holders and neither has Government replaced corruption with duty to constituents.
Sometimes Government can do a better job and sometimes not.
4. It's not so much about arrogance of the Government believing it can plan the economy as it is about Government stepping in to solve a tragedy of the commons. It is in every firm's self interest to hoard capital right now. However, the best outcome for everybody is all acting in unison to ramp up investment and spur the economy. It's a classic prisoner's dilemma that Government can fix by borrowing now and boosting investment. Weighing the costs is difficult, but crowding out is not really a concern when the trepidation firms harbor is creating a positive feedback loop inspiring more fear and less investment.
5. This may the most interesting point Will raises. I am (sadly) not very knowledgeable about our constitution, but I definitely don't believe stimulus spending is immoral on any grounds. One might make the case that we are taxing the future to spend now, but a more reasonable conclusion is if we do nothing we will end up with a lost decade ala Japan which will hurt future tax payers even more. Stimulus spending, while bad for future generations is not as bad as doing nothing.
I just wrote this quickly without proof reading so I hope it makes sense. Enjoying this discussion. Jbo please join.