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Did the stimulus package jump-start the economy? Will climate regulation create jobs? Are clean energy subsidies an efficient way to curb pollution? Is health-care spending worth it? And how worried, really, should we be about budget deficits?
Those are questions for economists. With those issues in the news, economists are in demand. They’re quoted in the press, invited to conferences, even sought out at cocktail parties. But what, really, do they have to tell us?
“It’s a very funny time to be an economist,” says Russ Roberts, an economics professor at George Mason University and a research fellow at Stanford University’s Hoover Institution. “Our reputation isn’t very good. Probably shouldn’t be very good. We didn’t predict the recession. We don’t have a theory on how to get out. Yet people ask us for guidance. It’s bizarre.”
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GreenBiz.comRoberts is an unusual economist because he spends a good deal of time trying to explain his trade to a broad public. He hosts an excellent weekly podcast called EconTalk. He has written “an economic romance” called The Invisible Heart. He blogs at Café Hayek and, most recently, produced a rap video showdown between Frederick A. Hayek and John Maynard Keynes that has amassed an astonishing 500,000 (!!!) views on YouTube.
But when Roberts spoke the other day during a day-long media colloquium at Hoover, where he was joined by John Taylor and Robert Hall, who are distinguished Stanford economists, he titled his talk: “Is Economics a Progressive Discipline?”
By progressive, he didn’t mean left of center. (Not at Hoover!) Instead, he was asking whether economics, like physics, evolves, to develop deeper or more precise knowledge about how the world works. “Do we make any progress?” he asked. His answer, in sum, was not much. Unlike physicists or mathematicians (or even, I daresay, climate scientists), economists today can’t agree on what would seem to be very fundamental questions.
That became evidence during my day at Hoover. Taylor—who invented the “Taylor rule,” a guideline for monetary policy -- gave a thoughtful, well-reasoned, data-driven lecture arguing, in essence, that the Obama administration’s $787-billion stimulus package had a very limited effect on the economy in the short run, and will do damage in the long run because “government purchases crowd out other things.” (Here’s a paper he co-authored on the topic.) Too much government spending, Taylor said, inhibits private investment and consumption because people, quite rationally, fear that government spending (and borrowing) will lead to higher interest rates and taxes. So people and businesses hunker down, undercutting the desired effect of the stimulus.
Hall, by contrast, argued that without the stimulus, the economy would be in even worse shape, with higher unemployment and slower growth. He produced a surprising statistic -- real disposable per capita income of Americans is currently at an all time high. This is so even though the incomes of the rich fell during the Great Recession.
“It looks like the middle class is doing better than ever,” Hall said. “You’d never know that from what you read in the press. But that’s what the numbers show.”
What’s more, unlike Taylor, he suggested that the psychological impact of the stimulus would be positive, not negative, because government spending creates an “anticipation effect” -- people are less fearful because help is on the way.
