Categorized | economy

Something to remember about the stimulus package

From Brad DeLong:

But when fiscal boost was tried on a large enough scale, it certainly did the job. And it is reasonable to infer (with all the caveats provided by the CBO) that what is true in the very large will be true in the merely large as well. Eugene Fama says that it is theoretically impossible for fiscal stimulus to boost output: World War II proves him wrong. Robert Barro says that the multiplier is zero: World War II proves him wrong. Benn Steil says that Jacques Rueff in 1947 conclusively proved that fiscal policy could not boost employment: World War II proves him wrong.

Of course, I hope that Professor DeLong isn’t implying — just as I hope Mitch McConnell isn’t implying when he says something similar — that we should have another global war so we can go back to high mortgages and eating out every day. Of course not, I know, but I don’t think these folks who say things like, “World War II proves him wrong,” realize what it sounds like.

The World War II does prove that large-scale federal intervention can lift an economy out of a depression. However, as a caveat, the economy during World War II was heavily regimented with wage and price freezes, rationing, and even some sectors totally closed off to consumers (such as automobiles). This isn’t exactly a “key ground in the middle between fascist-style regimentation and socialist-style national planning.”

And, as further corrective, here’s Justin Fox responding to DeLong:

I guess what continues to perplex me at least a little is how lacking in the customary rigor of modern academic economics the arguments for stimulus are. It’s basically just, We ran gigantic budget deficits during World War II and the economy got better. That’s the kind of argument I would make, not the kind of argument I’d expect from the chair of the Political Economy of Industrial Societies major at the University of California Berkeley. It’s just all so seat-of-the-pants. But it’s better to be approximately right than precisely wrong, I guess.

But I will repeat what I’ve been saying here for months: if you are an entrepreneur or a small business, you have to support government economic stimulus. Whatever graphs or charts the economists throw in your face, it is, for you, a matter of survival.

In high school, my first true love asked me what I thought of premarital sex. Since this was the question just about every hormone-addled adolescent would like to hear from a member of the opposite sex, I replied, “The more the better.” If you’re a solopreneur, entrepreneur, or small business, then I suggest you memorize that response so you have a ready answer whenever you’re asked your opinion about economic stimulus.

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