Robert Barro has an op-ed piece in today's Wall Street Journal. In it he opines on the effectiveness of the stimulus package, based on estimates of the government spending multiplier he has estimated. His estimates are less than unity, which means that an extra $900 billion of government spending leads to an increase in GDP of less than $900 billion. This differs from the claims made by others such as Paul Krugman, who believes the stimulus was vital but too small. I am unaware of any economic research Krugman has done on the spending multiplier, but he presumes that when there is slack in the economy, such as in a recession, the "crowding-out effects" that might occur in normal times will not take place.
But Krugman's arguments are based on the Keynesian model, which was rejected by much of the profession because of empirical evidence. It also is based on an over-arching concern on the short run. But, it was an emphasis on the short run, as exemplified by government, business, banks, and households, that helped create the problems we currently have. We may yet develop the situation that Keynesians believed after World War II--the economy was inherently unstable and persistent efforts by the federal government would be needed to maintain growth. If so, I believe a key reason for it will be government policies that focused so much on the short run that market forces were not permitted to provide a sustainable growth rate.
Tuesday, February 23, 2010
Saturday, February 20, 2010
I just learned from the Cowen/Tabarrok blog (Marginal Revolution) that Allan Stockman died. I met him several times. He worked on a post-doc at UCLA while I was in grad school there. He then moved on to the University of Rochester where he spent his career. He wrote a principles of economics text, and I participated in a panel that read portions and offered comments on it. He was a first-rate economist, specializing in international finance. An obituary is here.
The March 1 issue of Fortune has an interview with Delos Cosgrove, CEO of the Cleveland Clinic. The clinic is one of the most highly rated medical facilities in the country, and has the highest acuity patients of any hospital in the country. (That is, they have the sickest group of patients.) Dr. Cosgrove offers some interesting comments on health care costs. Like many others, he focuses attention on behavioral patterns--obesity, smoking, and exercise. He argues that the claim that we the quality of health care in the US is not very high is false. He also notes that health care costs will continue to rise, no matter what happens in Congress regarding health care reform. Why? One reason is we have more elderly and we can do more for the elderly today than in the past. He also notes that suffering has gone down. It is a nice counter to so much of what politicians claim about health care and what can be done.
Monday, February 15, 2010
I don't often agree with Krugman, but when he focuses on international economics, he usually is good. His column in today's NY Times is right on. I would only add that the political elites in Europe who pushed the euro through wanted it to help push more political integration--ultimately a United States of Europe. Hence, Krugman's conclusion along with the supporting statement by Eichengreen are the result of that decision over a decade ago.