by Mario Rizzo
The fiscal stimulus package has passed. But the argument is not over. I gave a talk at the Club for Growth-Heritage Foundation conference, “Economic Recovery: Free Markets vs. Big Government” this past Tuesday just as the bill passed the Senate. I have linked the text of my remarks here. My four key points are:
1. The central cause of the current economic state of affairs is bad monetary policy from 2002 through early 2006.
2. Stimulus should not stimulate or reinforce the misallocation of resources.
3. Stimulus should create economic value and not destroy it.
4. The best stimulus consists of incentive-relevant tax reductions.
I could say that we’ll see what happens with the actual stimulus package. However, there is no clearly defined standard for whether it will “work” or not. President Obama has made the standard partly counterfactual – it will save jobs that otherwise would have been lost. Let that pass. Suppose we all agree by some date that it didn’t work, there is no easy way to determine whether that is because it wasn’t large enough – as Paul Krugman and others are already claiming – or because it was an inherently bad idea.
I am not saying that, in principle, we cannot decide these things with some reasonable confidence. That would be science, not politics. There is no “rational” political standard or test to apply ex post. It is a matter of “simple” rhetoric and exploiting events and mood. As my late colleague Ludwig Lachmann used to say: There is no doubt that people learn from experience, but – what do they learn?
Additional link: Peter Kein has a very interesting post at Organizations and Markets called, “Demand for Commodities in Not Demand for Labor.” The historian of economic thought will note that this is one of John Stuart Mill’s tests of an (real) economist.
Update: The entire Club for Growth-Heritage Foundation conference is available on video. I recommend it. My own talk is on the second panel — the first talk after the introductory remarks.
Further link: The Mises Institute has kindly posted my talk in its entirety. Here.