Comments on: Robert Mundell on Stimulus

By: Paul G. Brown

Paul G. Brown — Wed, 18 Feb 2009 12:27:08 +0000

"Why do you assume that the behavioral changes will lead to economic growth in the long-term (woops, forgot we are all Keynisians now)?"

Actually, I don't. I don't think Keynes did either. I'm personally convinced that longer term technological and geo-political realities utterly trump a decade's worth of public policy.

But in the short term, unemployed people are miserable and become ... collectively awful. Keep 'em busy! Give them opportunities for personal development according to their effort! Spend a little money on em. When times are good, Keynes would argue, we rein in public spending relative to revenue growth. And the 1990's provides some historical evidence that this can be done, for all the failings of our republican democracy.

By: Paul G. Brown

Paul G. Brown — Wed, 18 Feb 2009 12:19:16 +0000

"doesn't an enormous company with far removed upper management resemble the government with a group of central planners?"

Amen! Testify!

Yes.

My suspicion (No guru! No teacher! No method! No data! Pure conjecture!) is that information technology MAY lower search costs and transaction costs to the point that loose, more fluid organizational models can work for industry, and that a broader, portfolio based approach to individual investment can maximize our individual return on savings. But to be "on the safe side" ...

By: Craig

Craig — Wed, 18 Feb 2009 08:34:19 +0000

But isn't the mumble the nub of it.
Increase G and you might get higher interest rates, more public debt, inflation, Ricardian equivalence will kick in, etc.
Why do you assume that the behavioral changes will lead to economic growth in the long-term (woops, forgot we are all Keynisians now)?

By: Jer

Jer — Wed, 18 Feb 2009 04:45:08 +0000

That's an interesting thought, Paul. Someone proposed, in the Journal I think, that stockholders should be able to decide which state a company would be incorporated in, with the assumption that stockholders would choose the states that granted them the most control over management. This might have similar effects to your idea (though it was originally proposed over executive compensation). Would you prefer a mature company continually grow with diminishing ROI or issue a dividend check/repurchase shares? A CEO might prefer the former, an investor might prefer the latter.

A notion in favor of your desired outcome is the idea of the free market as a giant distributed intelligence setting prices and making decisions. If the market works because local nodes have the best local information (and motivation), doesn't an enormous company with far removed upper management resemble the government with a group of central planners?

By: Paul G. Brown

Paul G. Brown — Wed, 18 Feb 2009 04:27:08 +0000

By: Paul G. Brown

Paul G. Brown — Wed, 18 Feb 2009 04:19:16 +0000

By: Craig

Craig — Wed, 18 Feb 2009 00:34:19 +0000

By: Jer

Jer — Tue, 17 Feb 2009 20:45:08 +0000

By: Paul G. Brown

Paul G. Brown — Tue, 17 Feb 2009 19:54:19 +0000

Jer -

I completely agree with you. We should be very humble about what we 'know'. I'd quip that Carlyle was being to complimentary. Economics isn't any kind of science; dismal or otherwise. Too many things can be assumed away. Too many things can't be held constant.

The situation calls for pragmatism. And really. It's only $800 billion ...

I'm much more interested in seeing what's to be proposed for the regulatory scheme going ahead. My personal favorite? A redistributive taxation scheme organized in such a way that never again can a business (financial or otherwise) grow 'too big to fail'. Small business is already the engine room of American commerce. But it's utterly beholdent to the vicissitudes of Big Capital. So - get rid of big capital.

Catchy slogan? Bros and hos before CEOs!

By: Jer

Jer — Tue, 17 Feb 2009 19:13:01 +0000

Paul, thank you for the thoughtful reply.

I was not referring to Mundell in my original comment and I agree with your assessment there.

My comment refers to those who seem to believe that a) there is a well settled answer to our current predicament and b) it's so well settled that we simply solve for x, increase effective demand and everything is hunky dory.

What's the multiplier for gov spending? No one knows. What's the multiplier's differential between different types of gov spending? No one knows.

What's the multiplier for tax cuts? No one knows. What's the multiplier's differential between the different types of tax cuts? No one knows.

To what degree is "crowding out" an overly vague term that ignores changes in greater worker specialization? Does spending more on healthcare help employ carpenters? Does building bridges help employ mainframe programmers?

No we have hints towards some of these areas but enough to craft effective counter cyclical fiscal policy?

It's one thing to say that we're all Keynesians now. It's another thing to pretend that we're particularly talented Keynesians.