David R. Henderson  

Barro Interview

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More Appreciation of Hazlitt... Morning Reading...

Check out the interview with Harvard economist Robert Barro. He makes some excellent points, one of the main ones being the important difference between a tax rebate and a cut in tax rates. I made this point in my Forbes.com article last month.

On Krugman:

Questioner: Oh, well he [Krugman] wrote a series of posts saying he thought the World War II spending evidence was not good, for a variety of reasons, but I guess...
Barro: He said elsewhere that it was good and that it was what got us out of the depression. He just says whatever is convenient for his political argument. He doesn't behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he's writing about.

On the "stimulus" bill:

This is probably the worst bill that has been put forward since the 1930s. I don't know what to say. I mean it's wasting a tremendous amount of money. It has some simplistic theory that I don't think will work, so I don't think the expenditure stuff is going to have the intended effect. I don't think it will expand the economy. And the tax cutting isn't really geared toward incentives. It's not really geared to lowering tax rates; it's more along the lines of throwing money at people. On both sides I think it's garbage. So in terms of balance between the two it doesn't really matter that much.

I disagree strongly with his last two sentences. At least the money going to tax cuts to people who pay taxes is a tax cut. It has none of the good incentive effects that cuts in marginal tax rates have. But we can be assured that people who get them will use them in the ways they find most valuable. Most of the government spending, by contrast, will be hugely wasteful and, possibly more important, some of it will be in new government programs that, if passed, are unlikely to disappear. In my view, Bryan Caplan has already lost his bet that Obama will not be another FDR.

On Larry Summers and Christina Romer:

They've brought in some reasonable people in terms of economic advisors. I don't know what impact they're having, and I suppose they have different views on Keynesian macroeconomics than I have. But I'm giving you my opinion about it.

My own view is that Summers was an excellent economist who quit being an excellent economist some years ago. I doubt that he likes the awful bill, but what I'm pretty sure of is that he likes being on the inside. My guess is that Christina Romer is holding her nose for the same reason: she likes being in the White House (actually she's in a different building) near a charismatic president. But I know Christina only by e-mail and a phone call or two. So I'm less sure of my judgment about her.


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CATEGORIES: Fiscal Policy



COMMENTS (9 to date)

Romer really looked bad in her confirmation hearing, I thought. After conceding that there was no evidence that we'd ever even moderated a recession--much less ended one--with stimulus spending, she then happily announced that we'd never tried one this big...so it probably would work this time.

Charlie writes:

Did he call Larry Summers an idiot?

"Interviewer: Well, presumably Larry Summers is not an idiot.

Barro: [laughs] That is another conversation. I have known him for 25 years, and I have opinions about that."

Onto DH's comment, it's amazing how both sides of the profession think the other is being disingenious. The lefties can't believe that the righties have lost the knowledge of keynesian and monetary policy models. They think, surely no one can "believe" RBC models, the models are interesting but the assumptions. The righties are like, "what do you mean, you've been teaching these models for 20 years and you don't believe the assumptions?" So they both think the other is lying about their belief to inform their policy views. (That is, righties are against the expanse in gov't and will say anything to stop it, and lefties are for it and will say anything to push it).

I'm starting to wonder, though, if it isn't the other way around. The righties have come to believe the new classical models partly because they confirm their ideological views and the lefties believe the models with frictions, because they confirm their wanted prescriptions.

Lately, I've been reading a series of short papers going back to 1988 with Summers and Prescott arguing about RBC models. Here is one (http://www.econ.umn.edu/~oksana/4741H/Skeptic.pdf). I think it is obvious both have genuine beliefs.

David R. Henderson writes:

Dear Charlie,

You wrote:
"Onto DH's comment, it's amazing how both sides of the profession think the other is being disingenious [sic]."

I didn't call anyone disingenuous. I said that I thought both Summers and Romer would not like the "stimulus" bill. Have you noticed that we haven't heard any strong endorsement of the bill by Summers? The standard way a political appointee deals with the situation when he/she doesn't like what his/her boss is doing is to be quiet or, if asked his/her opinion, to say, "the President believes."

Best,
David

megapolisomancy writes:

The debates between New Classical Economists and New Keynesian Economists are of great interest but of limited relevance here. I cannot imagine that economists like Summers could say with a straight face that this crisis is not being used to push traditional Democratic policies as "stimulus." That is what the debate should be about.

Charlie writes:

DH, I was reading into this comment, "My own view is that Summers was an excellent economist who quit being an excellent economist some years ago." Followed by this comment, "I doubt that he likes the awful bill, but what I'm pretty sure of is that he likes being on the inside." It makes it sound like you are accusing him of being a shill. Saying what dems want to hear to get on the inside, how would you interpret it?

Also, if it makes you feel better, I added that "On to DH's comment" at the very end, after previewing my post, because I thought it was too abrupt to go from the quote to the commentary. In my mind as I wrote, I was thinking of Krugman/Delong vs. Fama/Cochrane/Barro. Barro just said Krugman will "say whatever."

As far as why we haven't heard more from Summers, don't they just limit his time with the press? He is not known for being good at formulating a message. Wasn't that the leading reason for not making him Secretary of Treasury? I don't recall seeing the "the president believes quotes" from Romer and Summers either.

Charlie writes:

"I cannot imagine that economists like Summers could say with a straight face that this crisis is not being used to push traditional Democratic policies as "stimulus.""

But that is a strange objection. If you believe that digging holes and filling them back up can stimulate an economy, that isn't an argument to dig holes. It's an argument to do projects that you consider valuable, like build a smart grid.

Dewey Munson writes:

I started in one depression and will leave during another - 87 years.

It is startling how little economists have advanced in that period. Y'all are still making the same guesses that FDR had to make.

Symptomatic is the filling of positions with the same people who got us here some of whom helped Germany after wWI.

You should all (not all) get together and start from scratch discarding all your rigid paradigms.

Given that there is general agreement that "it's the money", a good place to start would be to discover what money is starting with frankincense and myrrh and proceeding to our monster printing presses.

Remember that wealth is intrinsic and what we refer to as money is a measuring number which is no more wealth than a carpenter's tape is a house.

So the proper observation is "it's the wealth".

jonah gelbach writes:

For what it's worth, Krugman has actually done influential work in macro. His 199X paper in the BPEA on Japan and deflation is widely cited by macroeconomists. It's also -- !!!! -- an equilibrium model.

He's also done influential work on currency crises. While that's an international topic, it's not a "trade" topic. And it's certainly a macro topic. Back when I was in grad school, I sat in on an intl finance class taught by Rudi Dornbusch. It was all about currency, etc. But I cannot imagine anyone would have said that Rudi's class wasn't about macro, or, for that matter, that Rudi wasn't a macroeconomist.

I don't know all the rest of Krugman's catalogue. I also don't have any brief to carry for him personally. But this idea that some have pushed that krugman isn't really a macroeconomist is silly. I understand that people have strong feelings about him, and as he's recently stated, he's not a diplomat. And if Barro or others want to argue that he's wrong or inconsistent, fine. But sheesh -- the guy is certainly a competent macroeconomist!

jg

David R. Henderson writes:

Good points, Jonah.

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