by Mario Rizzo
“What it [the total of stimulus-created or saved jobs — MR] doesn’t consider are the jobs lost due to the very policies that are “saving” jobs. Government can only spend what it takes from the private sector one way or another, either through taxation, borrowing, or the redistribution effects of inflation. For every dollar that government spends, there is one less dollar being spent somewhere else in the economy. The jobs that weren’t created because the private sector lacked access to capital due to increases in government borrowing should be offset against whatever jobs the stimulus supposedly is creating.” Steve Horwitz.
Brad DeLong says (in the comments below my previous post) that I got Steve Horwitz’s point about crowding out wrong and therefore my defense of Horwitz is inappropriate. Furthermore, then, I miss the importance of DeLong’s evaluation that Horwitz is incompetent.
First, and most important, I did not intend my post to be primarily a defense of Horwitz and therefore an implicit criticism of DeLong in his criticism of Horwitz. (Got that, readers?)
I intended to say simply that (1) DeLong is wrong for not worrying about crowding out in its various dimensions; and (2) that someone who worries about crowding out, like Steve Horwitz, is therefore not clueless or worse.
I did not realize that DeLong considered Horwitz’s particular version or presentation of the crowding out idea as the evidence of his incompetence. I should have seen that.
Second, please keep in mind that Horwitz’s argument does not appear in a journal article but on the Nightly Business Report (NBR) blog of the PBS Network. This is journalism directed to non-specialists.
Third, let’s look at what Horwitz said. The “offending” sentences are quoted above. It is true that he simplifies the process. But you will note that, as a statement about the long run, it is not bad. Deficits now that ensure higher interest rates later are going to result in an intertemporal crowding out. Raising marginal tax rates (or allowing the Bush tax reductions to expire) will result in jobs lost, especially as they impact small businesses. If the Fed is unsuccessful in contracting the high-powered money it has created, there will be inflation.
But, quite honestly, I am not that interested in correcting Horwitz’s NBR blog posts. And I don’t really care whom Brad DeLong considers incompetent or engaging in economic malpractice.
My central purpose is to say: If you believe in crowding out – even if you simplify the argument for the general public – you are not thereby clueless.
Incidentally, I think that Bastiat’s general point about the seen and unseen is a very valuable lesson for the public to learn. When some consequences are hard to measure or hard to see, it doesn’t mean they are not there doing their mischief. I think Brad DeLong must agree with this.