Wednesday, January 28, 2009

Kling Fleshes Out Murphy's Powerpoints

Kevin Murphy's powerpoint are fairly sparse. The discussion is fattened up a bit in this piece from The Atlantic.

Basically, the effects of the stimulus package can be broken down into 4 parts:

  • Keynes Effect - by how much government spending can be expected to push output
  • Housework Effect - to what extent do we have to subtract out output that might be counted differently after a stimulus.
  • Galbraith Effect - does the value of output depend on who makes the spending decision
  • Feldstein Effect - how much do we need to subtract out for financing costs.

The author - Arnold Kling got his Ph.D. from MIT in the same class with Paul Krugman and John Huizinga. He blogs at EconLog.

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