Kevin Murphy is Right

Megan McArdle points us to this fascinating panel at the U of Chicago devoted to evaluating Obama's stimulus plan. Kevin Murphy's remarks  (between 17:20 and 31:37 in the video) wonderfully elucidate the terms of the debate, and helps me better grasp exactly why the stimulus is sure to be a bust. If you agree with Murphy, as I do, that the efficiency of government spending is generally low, that the value of activating currently idle resources is low (the “multiplier”), and that the deadweight loss from the future tax increases required to finance the stimulus spending is high, then the whole thing looks like a pretty sure loser.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

3 thoughts

  1. You make good points. The reason people (myself included) get BA degrees is because they’re a ticket-punching exercise that is required by most employers- a “proof of competence”.
    “You don’t really ‘tell someone to go back and get a real degree’, they respond to incentives.”
    Not being able to get a job is an incentive. (Or, for instance, being offered an $80K starting salary rather than $20K)
    I agree with expanding H1B visas (really, why should Vancouver get all the talent?), but that doesn’t change the fact that we shouldn’t be wasting our best brains in non-productive and frivolous industries, given the challenges that we have to overcome in the next century.
    “They’re not for nothing, these programs. They do get connections that are disproportionately California-focused (I went out of state for school, so I’d like to think I’m reasonably unbiased here), University of Phoenix this ain’t.”
    True enough, though it doesn’t change the fact that an MBA is much more dependent upon contacts and school rep than other professionals. Sure, a degree from Columbia Medical School is superior to one from the University of South Dakota Medical School, but you’re still a fully-trained medical doctor, capable of finding high-paid employment virtually anywhere. The USD MBA isn’t in the same position. Likewise, someone from USD Law School can take the bar exam and set up shop anywhere- while the Harvard Law student has clear advantages, the USD JD isn’t as out in the dark as the USD MBA would be.

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