Ideological Blinders Prevent An Obama Pivot On The Economy

President Barack Obama and Japan’s Shizo Abe both face sluggish economies that have been stimulated to the limit with few, if any, positive results. To his credit, Abe recognizes the need for the politically tough “structural reforms” of credit, agriculture, and retail sales to restore Japanese growth. Obama ignores the deep structural problems of the U.S. economy – over regulation, the uncertainties of Obama Care, anti-growth tax policy, and growing entitlement incentives not to work. Instead, he offers minor sops masquerading as reform, and blames his five-years-out-of-office predecessor for what is wrong today. Under Abe, Japan, at last, has a chance of revitalization. Under Obama, the U.S. will see more of the same. He cannot attack the structural problems restraining the U.S. recovery because they are largely of his own making. The pitiful recovery was authored in Washington.

In yesterday’s hour and four minute speech, President Obama reprised his many “pivot to the economy” speeches of the past: He inherited a mess from Bush, but he got America moving again. He has been blocked by a recalcitrant opposition determined to see him fail.  Without his bold actions, we would still be mired in a painful recession. The President paraded a wish list of shopworn mini-fixes – youth training, mortgage relief, more infrastructure investment — and “mother and apple pie” calls to bring American jobs and manufacturing back home. He failed to offer any concrete proposals how to create jobs and accelerate tepid growth.

go to forbes.com

Infrastructure Gap? Look at the Facts. We Spend More Than Europe

Big government advocates seek to substitute “infrastructure” for the “s” (stimulus) word. President Obama’s State of the Union address called for $40 billion to fix the nation’s roads and bridges and also called for a federal infrastructure bank.  On April 29, he called for an additional $4 billion of infrastructure spending. $40 billion here and $4 billion there, and soon you have some real money.

To convince a wary public to spend more with trillion dollar deficits, big government advocates must gin up a national infrastructure emergency that threatens safety, jobs, and well being. Public spending lobbyists are ready to oblige with D+ report cards for  “aging and unreliable” roads, bridges, and ports. Big government advocates substitute scare tactics for the facts that our infrastructure is as good as Europe’s and that we spend more than the European Union on public investment. If we spend as much or more and have inferior infrastructure that is a political failure of untold proportions for which someone should pay.

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