Mason's # 4: The Economy Has, for a Long Time, Been Much Weaker Than Neo-Classicals Admit

To me, this is a strange point. Mason is arguing that pretty much everyone who isn't progressive has been fibbing to themselves about the strength of the economy for a long time. This seems implausible to me: you can't fool all of the people all of the time.

In thinking about an analogy, it's like NFL coaches of the 2020's saying that all those great coaches (say, Lombardi, Shula, Walsh, Johnson, Dungy) of the past were benighted. They could have scored a lot more points if only they'd thrown the ball more like we do today. Yet this totally ignores that rule changes about when and how hard you could hit players on a passing play reduced the risk, and thus increased the use and effectiveness of passing. A similar argument could be made about 3 point shooting in basketball, or swinging for the fences in baseball. To me, what these share with the macroeconomic position of Mason is a focus on just two variables in a multivariate situation. In other words ... omitted variables bias.

Now, literally, I don't think Mason is guilty of that. But I wonder about how the various components are weighted in his thinking.

This is important because I absolutely agree with Mason on the importance of strong labor markets to reduce inequality. I'm just not sure we get there with expanded government spending which gets roughly cancelled by expanded by government finance through deficits and taxes.

Which brings me to the last point: lots of Democratic politicians and progressives generally think the economy was weak from 2009-14 because the "Obama stimulus package" was not big and aggressive enough. I find this dubious, since it was the biggest in history in real terms, the recession of 2007-9 was not the biggest since the of World War II, the worst of the recession was over by the time the stimulus package was passed, and the spending was heavily backweighted so that much of did occur in just those later years. Having said all that, observational equivalence implies that the evidence in their favor and in mine may not be able to sort this out very well. So maybe they're right. I don't think so, but let's say I'm not 90-10 against their position either ... maybe 70-30.