Becker and Murphy on the Stimulus Package

Gary Becker
and Kevin Murphy write today in The Wall Street Journal about their concerns regarding the stimulus package.

There are no two economists in the world who I respect more than Becker and Murphy. Whatever your political bent, when these two write something, you should think hard about their arguments.

Blue Sun

Becker and Murphy are both products of the Chicago School and are scholars at the conservative Hoover Institution. They reflect much of the Milton Friedman view of economic theory - which ends up in chaos and collapse every time it is actually tried (the Great Depression, the Bush Administration, the disastrously collapsed "Iceland Miracle," the South American invasion of "Chicago Boys," Latvia, Estonia, Ireland, etc.).

The ability of any economist to continue to have faith that there is such a thing as a "free" market in any 21st Century economy, and that we can create a true laissez-faire, unregulated, self-optimizing, self-disciplining, self-correcting free market (where all participants have at least something approaching equal knowledge and information) is an example of thinking as profoundly naive as those who still believe that Communism can produce a perfect Workers' Paradise if only the Capitalist countries would stop undermining it.

But, then, Professor Levitt is also a professor at the University of Chicago, so maybe its no surprise. He apparently also lives in that wonderfully comforting little bubble of alternate economic reality on the other side of Alice's Looking Glass.

They say an Economist is one who can explain to you tomorrow why what he predicted yesterday didn't happen today. The Chicago School boys are the perfect paradigm of this.


Leonard Charlap

Gosh, these guys are supposed to be so great and one a Nobelist, but they seem so vague. They provide very little evidence for their opinions and no historical ayalysis. Is this really the best we can do? As a mathematician, I do not find their comments helpful.


Nobel prize notwithstanding, comments from conservatives are only palatable if they admit the conservatives (bush 2 and pub congress) got the U.S. into this mess among others: iraq, katrina, etc.

Further, if these guys are so smart, why don't they try to influence the government, rather than merely criticising (and at such an early time makes little sense.)

Few reasons are given for their negative outlying conclusions, and likely no one can know what they will be.

But, this is history: the worst economic times for the U.S. have followed or coincided with pub presidents: hoover, reagan, bush 1 and 2. Of course, conservatives give us poor gov't because they don't believe in it.

But, realists (such as stock market investors) know that the market has grown much better with Democrats in the W.H. than with pubs.

Why? Competence, think Clinton, Johnson, FDR, etc.

Ivory towers such as U. Chi. and Hoover inst. seldom produce thinkers with the cajones to take on the real world.




Two great economists that do a fabulous job of outlining the major issues and expressing cogent opinions. I work for a municipal government, and we have been delaying bond sales to support capital spending on infrastructure. At last count, we have over $100 million dollars in delayed projects (we are a large city). For example, from an original $25 million planned for road resurfacing in 2009, we have scaled back our capital budget to just over $11 million. The reduction is caused by slower (much slower) revenue growth than anticipated, which means we do not have sufficient funds to take on additional debt through the sale of municipal bonds. Federal assistance would allow us to immediately spend money on projects that are now delayed. In other words, the $100 million dollars was already planned over a year ago (so is "shovel ready") and is only being delayed now. Without this spending, a lot of construction contractors will need to lay off workers. Does the Becker/Murphy argument take into account jobs that are saved (admittedly in the short run) even if spending will not actually create new jobs?



As already noted by Mr. Charlap, they were incredibly vague. It's hard to accept what they say without any of the reasoning behind their conclusions. I don't know that I have the knowledge to understand their reasoning, but I don't find this at all convincing.


Blue Sun -- Please take a history class before spouting such nonsense. The Great Depression was an example of neoliberal policies run amok? Please. Hoover passed a massive tariff bill and even FDR criticized him for excessive tax and spend:

And the Bush Administration? LOL. The same guys that consistently engaged in deficit spending, expansion of federal involvement in health care, education and energy -- NCLB, 2005 energy bill, Medicaid drug bill -- are guilty of being Friedman acolytes? Oh, and Sarbanes-Oxley, yet another classic case of their deregulatory tendencies I imagine.

Meanwhile in South America Chile has outperformed most of its neighbors for some time owing to its liberalization of its economy.

You also submit Estonia, Iceland and Ireland as evidence, but leave out the inconvenient fact that ALL European countries have suffered. Spain -- with socialist Zapatero at the helm -- has unemployment of over 13%.

Just think about this: Bush engaged in deficit spending and promoted more government control. Obama wants to do the same, except with deficits on steroids and even more federal control. Now either Bush is a genius that deserves to be emulated or Obama is an idiot for following in his footsteps. Choose one.


abelian jeff

The hubris of the previous 3 posters is startling.

Usually Named

Do you all really think we have market-based and laissez-faire here in the US? What we have here is a result of ill-thoughtout government intervention over the many years that have caused market distortion and dislocation. To blame deregulation is ridiculous.

By the way Dave, your statements are so ill-informed, it's not even worth discussing.


"Competence, think Clinton, Johnson, FDR, etc."

I'd gladly take Clinton right now. His stimulus bill back in 1993 was only $19.5 billion, which was eventually pared down to $4 billion after Republicans criticized it. He then passed NAFTA the same year.

Meanwhile we have Obama taking the opposite approach with a stimulus bill not far from a trillion dollars that contains anti-free trade provisions.

JFK meanwhile proposed cutting the top individual income tax rate from 91 percent to 65 percent, and reducing the maximum capital gains tax from 25 percent to 19.5 percent. Some of that please!

Johnson was so competent that he declined to run in 1968, and the biggest public policy success of the last 20 years was welfare reform that undid some of his ridiculous policies.


What I thought was interesting about the linked article was:

A. We're all commenting on it here, instead of where it was written.

B. The article was critical of the stimulus plan based on the fact that it would not promote the GDP. But since when was anyone complaining about the GDP- especially after bloody monday in which 50,000 people lost their JOBS? The stimulus plan will be seen as a success if it results in a decrease or leveling off in the unemployment rate. That's the number that resonates with most people emotionally.

Seiji Fetter

The keypoint, I believe, that the authors make is this: we don't think the multiplier will be high enough to compensate the financing of this stimulus plan, due to many inefficient investments and those only used for the long run.

I don't know why people had to bring up the boring orthodox x unorthodox schools debate again.

I believe that the authors' worries are coherent with the reality of this plan. In a way, Paul Krugman has also been argueing how the stimulus might be too little and full of useless "fat".

In my opinion, though, not doing anything, or relying on the less effective tax cuts are just not the way to go. This stimulus bill will certainly not be very efficient, but it's our best bet for an effective measure against this depression.


"You also submit Estonia, Iceland and Ireland as evidence, but leave out the inconvenient fact that ALL European countries have suffered. Spain — with socialist Zapatero at the helm — has unemployment of over 13%."

The rise in unemployment in Spain is down to the housing bubble that bursted, which Zapatero inherited from Jose Maria Aznar, another conservative and Milton Friedmann fan.
Under Zapatero the unemployment rate had falled in every year, apart of Spanish society becoming more open and progressive, and finally managing to win trophies with their national team, which for a multi-ethnical country with lots of ethnical problems means A LOT!
here some historic data on unemployment in Spain. Zapatero took over in 2004 btw.


Short versus long is clearly an issue but it would be nice to see them address the underlying issue, which can be stated simply as: given politics and thus that any package will be imperfect, is that better than doing nothing?

Objections to the stimulus take two general forms: first, that it's inefficient and, second, that the we should ride this out. The first objection is, in a sense, practical while the second is philosophical (for some, almost religious). If you belong to the second group, then you generally believe whatever pain this country, its people and the rest of the world will experience is tough luck. When the country and the world eventually heals, then no matter when that happens you'll see yourself as vindicated. There really is no arguing with this perspective. It is what it is.

The first perspective, the practical objections, then ask: given the nature of politics, would you do nothing or would you enact this kind of bill? Economists may say something like "On balance, I think ... and I'm worried about ...." This kind of mental calculation would, one hopes, embody the understandings economics (and math) has developed over the past few decades about expectations and risk.

For example, assume you have a 1 in 10 chance that doing nothing means Great Depression II. Given that risk, the odds that stimulus works would need to be pretty low for "doing nothing" to be optimal. If you think the odds of GDII are 1 in 1000, then your attitude toward stimulus should change. If you don't identify the risks you're comparing and acknowledge them, then you haven't been paying attention to both the research in economics and behavior and to recent events, which demonstrated beyond a shadow of a doubt that we ignore very large risks at our peril.

So the real question becomes: how do you evaluate the risk of the economy imploding and then put that in with your evaluation of the odds that stimulus helps avoid that. You can then add in your long term concerns or your perception of how much the government "owes" the people to try.



Jordi -- and in 2009 the unemployment is in double digits. And blaming Aznar who has been out of power for over 4 years?

Lastly, what does Zapatero have to do with the performance of la selección Española? Is he giving scoring tips to Torres?

Kevin H

I'm a little worried already, "In fact, much of the proposed spending would be in sectors and on programs where the government would mainly have to draw resources away from other uses"

They are already playing semantic games that distort their findings. They subtract out the money in the bill that is a re-prioritizing when talking about the bill's effect, but not when they are talking about the bills cost. That kind of mistake makes me think bias.

Kevin H

egh, the rest of it is slightly than #1.

#3 is weak. It amounts to a circular argument. If you think the bill will have the desired effect of restarting the economy, then you add in all of the losses the economy would have if there was no bill into the benefits of the bill, making it a huge positive. If you don't think it'll work, then those potential losses don't get factored in and you get a small negative. Big woop.

#4 is also weak. At 0.6% interest or whatever, this is about as free of a lunch as you will ever get.

#2 is their strongest point, and it isn't an economic argument at all, rather a poltical/social science argument. Dosen't make it invalid, but it's a sad state of affairs when economists must dabble in other fields to make their points.


I thought all those famous men with their PHDs from Chicago have already been disproven by the current financial crisis.



You're forgetting about the odds that a stimulus package will CAUSE a great depression II. There are many who think the odds of that are too high for comfort. Saying "We can't just do nothing!" isn't really adequate in this case if the measures you're proposing could hurt rather than just not help.


#2 is the strongest point and well taken. It would have been infinitely more helpful however if these two had at least attempted to quantify the cost of doing nothing or even the downside of spending much less money presuming one of those outcomes would have been more preferable to them.
When translated the authors are saying essentially that this will be hard and may not work as well as advertised which is fair but not the same thing as offering a better alternative. I remember somebody once saying something about the nattering nabobs of negativism.......


"This type of spending includes adding broadband to rural areas, spending more on health coverage, encouraging scientific innovations, developing renewable energy, as well as many other things."

On no, this doesn't start out good.
Public investment would chase out private investment?
- Rural Broadband? BS.
- Health Coverage? 50 million Americans not covered.
- Encouraging Scientific innovations? Squeeze some hedge fund out of high returns? Well, maybe.
- Developing Renewable energy? Projects have been shut down because of a credit crunch.

This is what you get from the WSJ? It's turning into a political rag. I know, many of you already knew that. I was hoping you were wrong.