Stiglitz's Brainchild: Trust Government To Restore Trust!

Economists divide into those who theorize about the economy and those who use data to understand how it works. Theorist Joseph Stiglitz has impressive credentials – a Nobel Prize, appointments at the best universities and to top positions in government and international organizations. He counts, along with Paul Krugman, as the most prominent economist of the American left. 

Stiglitz’s tone-deaf article for the New York Times (In No One We Trust) argues that private enterprise and the profit motive have destroyed trust without which the economy and society cannot function. It is up to government to restore trust and to make us all better people in the process.

The timing of Stiglitz’s “government is the cure” message, amidst the catastrophic roll-out of ObamaCare, confirms the ivory-tower detachment of Stiglitz and his ilk. Just as Obama’s administrators are turning the lives of Americans topsy-turvy with contradictory, improvised health-care regulations, Stiglitz wants state planners and bureaucrats to expand their control of our lives all the way down to enforcing their version of business ethics.

go to forbes.com

Another Media Gaffe: Romney in Israel

 

Mitt Romney has been skewered by the mainstream media for a statement about Israel and the Palestinian Authority that is accepted as true by top economic historians and anyone with a little common sense. Perhaps Romney should have known better than to make an intellectual point before reporters, whose attention span and education are in short supply, to say the least.

Romney began his to-be-skewered remarks in Jerusalem with a statement of fact:

“And as you come here and you see the GDP per capita, for instance, in Israel, which is about $21,000, and you compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice a dramatic, stark difference in economic vitality.” (He overstated the Palestinian figure, pointed out one jubilant critic, but the point remains the same).

Romney’s “gaffe” was to use Harvard economic historian, David Landes’s The Wealth and Poverty of Nations to explain the differences in “economic vitality” between Israel and its Arab neighbors he saw with his own eyes:  

“If you could learn anything from the economic history of the world it’s this: culture makes all the difference. Culture makes all the difference.”

The Press buzzed with excitement: Did Romney actually say that Israel is successful and the Palestinian Authority is not because of cultural differences?  What an insult! Such a racist and bigot is not fit to be President! What an opportunity to build on the narrative that Romney is gaffe prone!

go to forbes.com

Yes, There Is No Mainstream or Consensus on Stimulus Spending

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