Chicago Economists on the Stimulus Package
A panel of Chicago economists convened to discuss their views on the stimulus package recently, and video of the event is now available online. All the speakers had something interesting to say (including Nobel Laureate Robert Lucas being surprisingly sympathetic to government intervention).
Of particular interest, in my opinion, is Kevin Murphy‘s discussion, which comes in the middle of the video. (If you don’t have the patience for watching video, you can just look at Murphy’s PowerPoints.) It is vintage Kevin Murphy. He says that he can’t remember much from his macroeconomics courses, so he starts over from scratch and creates a perfect framework for thinking about how one should evaluate the case for stimulus.
What he comes up with seems totally obvious once he presents it, and yet I have never seen anyone discuss the issue in a manner even remotely similar to this. That is the mark of true genius.
I have only one thing to add to the panel’s discussion. Throughout the video, you will see that the speakers operate under the assumption that the economists who are advocating stimulus are doing so based on an economic analysis. For instance, Murphy says things like “Christina Romer [the head of the Council of Economic Advisers] must believe that the deadweight loss of taxation is very small.”
A very plausible alternative hypothesis is that the justifications being put forth for the stimulus package — even if those doing the justifying are economists — are based on politics, not economics.