Tuesday, February 19, 2013

Same Article, Different Point

Towards the end of “In Shovels, a Remedy for Jobs and Growth" Jared Bernstein is quoted:

Jared Bernstein, the former chief economic adviser to Vice President Joseph Biden who is now at the Center on Budget and Policy Priorities, argues that while fiscal consolidation would have been necessary at some point, the government slammed the brakes on spending before families were ready to spend again, while they were still working to reduce large debt burdens.

“The stimulus didn’t last long enough,” Mr. Bernstein said. “We pivoted to deficit reduction too soon.”

Not everybody agrees. Conservative economists, and most Republicans in the House, make the exact opposite argument: that spending cuts stimulate growth by giving businesses confidence that the government will be able to pay its debts.

Conservative politicians might say that, but macroeconomists don’t — but I’ll get to that later.

The general point being made here is OK. If 1) you think the economy could be better, and 2) you think that government could help make it better by spending more, then 3) this is a great time to increase government spending to do that. Bernstein is emphasizing point 1, while Larry Summers (discussed in the same part of the article) is emphasizing point 2. The conclusion is that with real interest rates negative, the government should be borrowing a ton and investing in improving the economy. Fair enough.

So what’s wrong with what Bernstein said specifically? He’s really making 2 points: 1) there was a stimulus, and 2) the stimulus wasn’t spread out enough.

This is at variance with the facts on both counts. Both were covered years ago on this blog.

Let me summarize: they couldn’t figure out that much to do that was stimulating, so they spent a lot of extra money on stuff they knew wouldn’t work, but the stimulating part was really thinned out, and as a result largely cancelled by other factors … but nonetheless obvious 4 years ago that the package would still be hanging with us now.

And Bernstein’s going around saying the stimulus package didn’t last long enough.

Don’t believe him.

This is cross-posted from SUU Macroblog, which is required reading for my macroeconomics classes.

No comments:

Post a Comment