Monday, February 16, 2009

The Stimulus: Part One

Gallons of metaphorical ink have been shed on the stimulus bill, H.R. 1, that President Obama signed into law on February 17, 2009. The stimulus will occupy this blog for several weeks. Before delving into its tax and spending details, it’s interesting to observe the discord that the law has generated among economists. Prominent economists of the left and right completely disagree on the “stimulus” effect of the measure. Some on the left argue that a dollar in stimulus will give the economy a substantial boost, as much as a dollar fifty in additional economic activity. Some on the right argue that it will provide no net benefit.

Two of the leading antagonists in the debate over enacting a stimulus have become increasingly uncivil. They are Princeton’s Nobel Laureate Paul Krugman, who received his prize for integrating international trade and economic geography, and Harvard’s Robert Barro, a leading macro-economist and possible future prize winner. Krugman insists that a large stimulus is essential to create jobs and avoid years of stagnation; indeed, he has repeatedly argued for a larger package than Congress approved. Barro argues that the stimulus will create no new net jobs. Barro has charged Krugman with abandoning serious economics in his New York Times columns in favor of political advocacy for Democrats and opposition to Republicans. Barro asserts that he, despite Krugman’s Nobel prize, is more qualified to comment on macroeconomic matters. Krugman has completed rejected Barro’s use of World War II to make Barro’s point as “boneheaded.” Neither man wins on charm.

Even if Barro is the more distinguished macro-economist of the two as he claims, it’s hard for the typical college-educated person to fathom how two such brilliant economists can take radically opposing views on the stimulus. Evidently the application of economic theory and evidence is unable to resolve their differences. A survey of the top several hundred economists in the nation would also likely reveal wide differences on the benefits of the stimulus. Economists have presented different interpretations on what measures ended the Great Depression and whether tax-rate reductions in the past, or other factors, were responsible for economic recoveries and growth. If this division persists throughout Obama’s presidency for the next 4 or 8 years, how can Members of Congress decide the best course of action to ameliorate the current crisis and other issues that will arise in the future, other than vote along partisan lines to maximize their prospects for re-election.

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