In its Sunday edition, the New York Times informed its readers that “a wide range of economists say the administration should call for a new round of stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth.”
In my post of August 11 Paul Gregory Forbes I rejected the notion of a consensus and pointed out that the seven Nobel Prizes went to economists who cast doubt on the Keynesian model and zero to economists for advancing the Keynesian agenda. The Nobel prize committee itself has cast serious doubt on the characterization of Keynesian economics as “mainstream.”
In his “No Near-Consensus Among Economists for Another Stimulus Package” John Taylorwrites “there are plenty of economists who think that gradually reducing spending and not increasing taxes is better for job creation. In June, for example, 150 economists (including me) wrote that a debt deal ‘that is not accompanied by significant spending cuts and budget reforms would harm private-sector job growth.’”
Disagreement among economists on Keynesian stabilization policy is not new. Two researchers analyzed a randomized survey of one thousand members of the American Economic Association from 2003. AEA members were asked their views on a wide range of issues, including a set of questions on the economic role of government. The results of this study were published in 2006.
The key question for our purpose is the degree of support for “tuning the economy by fiscal policy.” Some fifty percent supported strongly or mildly and thirty percent opposed as of 2003. The rest had mixed feelings. Of the eight questions on the role of government, the Keynesian fiscal policy question had the greatest variance – that is the greatest amount of disagreement. Note that this question is not ideal. It was asked at a time of rapid economic growth and low unemployment and did not address the question of a stimulus as huge as we have recently seen.
Note that AEA members were last surveyed in 2003. If there is a consensus about the last three years, I would imagine it would be that the massive Obama stimulus failed. For this reason, the same survey today should yield even larger percentages of Keynesian skeptics
The professional competence of the average economist to answer questions on macroeconomic stabilization has diminished over the past two decades. The high growth and low unemployment starting in the early 1980s diverted attention of economists from the business cycle. Accordingly, relatively few economists know the modern stabilization literature. We do not have a survey of economists who specialize in the business cycle. The results of such a survey would be informative.
A final note: As of 2003, democratic-voting economists outnumbered republican-voting economists by almost three-to-one. The vast majority of those answering the fiscal tuning question voted democratic..
Personally, I do not see the mainstream consensus that the New York Times does. Perhaps I am too dense.
The authors of the survey report an interesting fact about the answers of the surveyed economists: “Economists have something of a reputation for favoring free-market principles, yet we see that economists on average are supportive of most economic interventions, mixed on a few interventions, and opposed only on immigration (weakly opposed to tighter restrictions), government ownership of industry, and tariffs. It seems that most economists in fact stand in the middle of the road or even on the interventionist side. Why, then, do they have a reputation for being free-market supporters?”
Daniel Klein and Charlotta Stern, Economists’ Policy Views and Voting,” Public Choice (2006) 126: 331–342, 2006