Gregory Mankiw makes an analogy:
To understand the challenge government economists have faced over the past year and a half, it is useful to imagine the case of a physician trying to treat an ill patient. The patient presents herself in terrible shape; the physician has never treated a condition with symptoms quite like hers before; and the causes of the ailments are unclear. The doctor remembers reading about a similar case in medical school — and, trying to recall as much of his training as possible, he endeavors to come up with a theory as to why the patient is sick and to determine what will make her better.
In an ideal world, the doctor would run a controlled experiment: He would assemble 100 patients with similar symptoms, give 50 of them the medicine that seems most likely to work and the other 50 a placebo, and then see whether the patients on the medicine in fact improved. But the doctor does not have 100 patients — he has only one. So, based on his assessment of what is causing the patient’s troubles, and the most likely remedy, he takes a risk and administers the medicine.
The patient, however, returns a few weeks later; this time, her symptoms are worse. What, then, should the doctor conclude? He might decide that he gave the patient the wrong medicine. Or he might determine that the patient was even sicker than he originally thought, and thus that the medicine should be administered at an even higher dosage. Either conclusion is plausible, but there is no way the doctor can be sure. What he does know is that he must act before the situation gets even worse.
And there is no such thing as a “cautious” approach. Whether you up the dose, change the medicine, or conclude that the medicine itself is the problem and turn off the IV altogether, you’re selecting a course of action based on certain specific assumptions, and incurring enormous risk if those assumptions are wrong. The distinction between “action” and “inaction” is artificial in this circumstance. Whatever you decide to do, or not do, that decision carries huge risks and huge consequences. Yet it’s impossible to know with certainty which decision is the correct one. So: good luck with that! #PANIC
Anyway, read the whole thing. (Hat tip: Andrew Sullivan.)
“Did the stimulus fail?” Of course. “Why?” It’s not that hard to figure out — it’s the uncertainty, stupid. Why would any business invest going forward when government deficits are skyrocketing, and taxes are promised to go way, way up?
To go back to the analogy used above, the fundamental problem is that government economists see themselves as a well-trained doctor full of medical knowledge. In reality, government is more like a tribal witch doctor — full of all sorts of wise-sounding pronouncements and bizarre spells and remedies designed more to enthrall the patient and instill fear and obedience than to actually cure anything. The sick patient would work off his wicked hangover much more effectively by being left alone, eating a hearty meal, and getting some sleep.
It’s not often discussed outside the field, but the word “economist” derives from the greek word “econo”, meaning “stupid”. Combine that with “macro”, meaning “big”, and you get “macroeconomist”, or “big stupid”.
I sometimes wonder myself why macroeconomics is still such an impotent field. At this point, you can still find (reputable) people who will argue either way about the stimulus. Personally, if I wanted an good answer to a macroeconomic question, I’d go to George Soros or Warren Buffet before any PhD economist.
Sometimes I think that “positivism” is to blame. This worldview, embraced by Milton Friedman, suggests that the job of an economist is not to figure out what an efficient world looks like in the abstract, but to explain the world we actually see around us. And we can explain anything; the math is bendy enough. Add ideology to this, and suddenly the same set of data conclusively support both liberal and conservative views.
The most promising current thread in macro is probably that which seeks to build macro models off micro foundations. So instead of having a single global price of risks drifting this way and that, we’re concerned about the activities of individual sectors.
In my own opinion, the overemphasis on formal mathematical modeling (as opposed to qualitative analysis of reality) severely constrains the usefulness of our field. We’re like weathermen who have satellites and such, but make our predictions based solely on barometric pressure. That’s why I’d favor the views of Soros or Buffett. They don’t leave information on the table.
(end ramble)
As I recall from the primary debates, Tom Tancredo is a complete joke of a candidate.
The story I’m surprised at not seeing on this very blog is the Wikileaks story about the War Crimes committed by the US military against the people of Afghanistan. Right now I can’t even get on Wikileaks or the cached version of the site. It’s a HUGE story, with little coverage thus far.
So, back to the days of Adam Smith and David Ricardo then? I’m in favor.
As opposed to the Republican plan which would have been essentially, do nothing and hope that the patient is only left crippled and weak and not completely dead?
Wikileaks story about the War Crimes committed by the US military against the people of Afghanistan.
Perhaps when there is a specific accusation there’ll be something to talk about.
Economies run on their own; they do not require government intervention and support. Governments only need to provide the legal and regulatory framework to allow for market transactions to take place in a structured, orderly manner.
Who exactly are these Republicans who wanted to “do nothing?” I seem to recall back in early 2009 the GOP introduced their own $400-500 billion economic stimulus alternative focused primarily on tax cuts. Maybe that is good policy and maybe it isn’t, but in no universe is that “doing nothing.”
There are several major problems with the analogy as stated – “The patient presents herself in terrible shape; the physician has never treated a condition with symptoms quite like hers before; and the causes of the ailments are unclear.” …
“The patient presents herself in terrible shape … “ … the economy, at the start of Obama-as-President, was indeed in terrible shape – what the analogy omits is that the patient followed the physician from a practice where the physician had been part of the Budgetology Department to where the physician was now Chief of the Executivology Department …
“… the physician has never treated a condition with symptoms quite like hers before; … “ … the physician *lies* … he treated her when he was part of the Budgetology Department, and, as noted later in the analogy, the treatment had taken her from being essentially healthy with customary minor ailments (two physically close cases of War-ts, principally) to being severely economically anemic due to repeated prescriptions of therapies to stop treating the War-ts while diverting circulation from essential organs to peripherals …
“… and the causes of the ailments are unclear.” … only to those still running the Budgetology Department …
Recognised standards of patient care require that, when a patient is hemorrhaging, one should not treat the patient with leeches … instead, the patient requires therapies to boost energy supplies (as opposed to the current prescriptions to cut back on nutrients) and to boost productive exercise (to restore constrained circulation) … {in an economic downturn, don’t cut back on possible domestic energy sources – and especially do not take funds/funding from producers of jobs to give to union cronies}
Moral of the Tale – Budgetologists aren’t ususally good Executivologists …
Well, there’s only one way to put a definitive end to this internet debate.
STIMULUS = FAIL.
There. That should settle it.
@Joe Mama – Thats a fair point. In my head I was thinking of the bailouts and not the stimulus. While I think that just doing tax cuts would have been foolish, you are 100% correct that its not doing. I stand corrected.
Ahem, that should read “not doing anything”