by Mario Rizzo
At the outset of the Obama Administration, as Greg Mankiw reminds us, their economists laid out a series of predictions about where the unemployment rate would be with the stimulus package and without it. Currently, the economy is doing worse than their predictions of unemployment without the stimulus and, of course, much worse than the predictions with stimulus.
You wouldn’t know this from the statements being made by Obama, Romer, Summers, et al. All of those statements focus on the second derivative: the unemployment rate is growing less quickly than before.
Now it is a “well-known” constant of economics that, in the absence of fiscal stimulus, the rate of increase in unemployment never falls. The big debate among economists is whether that rate remains constant or increases — in the absence of stimulus.
Now it is quite impossible for the rate of increase itself to increase without limit. So I guess the law must be: In the absence of stimulus the rate of increase will remain constant until no one is employed. Or perhaps until the Great Depression’s famous unemployment rate of 25 percent is reached.
Clearly, I speak nonsense.
The stimulus apologists are ignoring the original prediction based on a model. By that prediction the stimulus is doing harm.
Instead, they are choosing the easier route of the time honored “principle” post hoc ergo propter hoc. They attribute to the stimulus the current state of affairs — but not anything regarding the current state of affairs, just anything that can be construed as better than something else that could have happened. (Since that is always possible, there are no Nobel prizes here.)
So, in the last analysis, politics makes fools of the “scientists.”