Comments on: Kevin Murphy is Right

By: GilM

GilM — Tue, 27 Jan 2009 01:16:13 +0000

Here's the pdf with Murphy's slides. It's helpful to follow his discussion if you can see what he and the audience were looking at.

http://faculty.chicagogsb.edu/brian.barry/igm/E...

By: GilM

GilM — Mon, 26 Jan 2009 17:16:13 +0000

Here's the pdf with Murphy's slides. It's helpful to follow his discussion if you can see what he and the audience were looking at.

http://faculty.chicagogsb.edu/brian.barry/igm/E...

By: William

William — Thu, 22 Jan 2009 18:18:56 +0000

Murphy's model is really good, since, as you say, it's useful in defining the terms of the debate and forcing people to make their assumptions explicit.

On the other hand, Murphy implies that making government "inefficiency" (alpha) go negative is a lot harder than it really is. "Inefficiency" isn't really a good term, though, since alpha is just a statement about the value of government spending. If government spending is quite valuable, then more spending can be a good idea, even if it has no multiplier effects.

As Mark Thoma writes, "Tax cuts won't build schools, or any other public good," and that's what it is really all about. Infrastructure, schools, welfare programs, and the like, are all considered by most stimulus advocates to be more valuable than private spending. If you are not a libertarian, it's easy to assume that alpha is negative.

By: GilM

GilM — Thu, 22 Jan 2009 18:04:38 +0000

"the whole thing looks like a pretty sure loser."

For us, sure. But maybe not for him.

By: John V

John V — Thu, 22 Jan 2009 16:19:14 +0000

And from listening to and reading several nonkeynesians who do not subscribe to the unquestioned and total importance of aggregate demand, I've found a lot of sense in the idea that “capital” is not simply “k” as keynesians would like it to be. To them, capital is capital is capital. This is simply not true.

The term “play dough” or “clay” has been used to describe the flawed way in which keynesians view capital….as if it's all the same and can be simply remolded to suit any generic need. Some capital is idle right now because of gross misallocation in form of too many resources going into housing. Priming the pump doesn't solve this and it also totally avoids why this all happened…as if it doesn't matter or is too messy to spend time on.