Matt Yglesias has a reply to Amar Bhide’s article in the Wall Street Journal titled, “Amar Bhide, WSJ Edit Page, Embrace Regular Recurrence of Massive Recessions”.
The problem is that Amar Bhide does not advocate doing nothing. Perhaps Yglesias didn’t read to the entire article, but for those who did they will find the following paragraphs,
The alternative isn’t, as the stimulus scaremongers suggest, to turn our backs to the downturn. We do have mechanisms in place to deal with economic distress. Public aid for the indigent has been modernized and expanded to provide a range of unemployment and income-maintenance schemes. Bankruptcy courts and laws give individuals another chance and facilitate the orderly reorganization or liquidation of troubled businesses. The FDIC has been dealing with bank failures for more than 70 years, and the Federal Reserve has been empowered to provide liquidity in the face of financial panics for even longer.
These mechanisms are not perfect or to everyone’s taste — liberals and conservatives obviously disagree about their scope and generosity — but they have been forged through a much more deliberate, open process than the stimulus bill or TARP. Legislators, the executive branch, judges, competing interest groups and the press have all had their say in their initial design and evolution. As a result there may be occasional mistakes and fraud but not widespread favoritism.
If the current crisis is indeed unprecedented, why not increase the funding and resources to battle-tested measures? When earthquakes or tsunamis strike, we rush in more doctors and supplies. We don’t use untested medical procedures or set up new relief agencies on the fly.
Increasing unemployment insurance, bankruptcy judges, and the FDIC’s capital and staff would certainly cost money, but these targeted expenditures would be much smaller than grandiose measures to revive overall confidence. And while the cautious approach might lead to a slower recovery, we wouldn’t jeopardize the venturesome, pluralistic foundations of our long-run prosperity.
So when Yglesias writes,
Thus we get Amar Bhide writing things about how “The depressions and panics of the 19th century ended without any fiscal stimulus to speak of” so there’s no reason to waste our time with “John Maynard Keynes’s speculative conjecture about human nature.”
It is not at all honest. Back in the late 19th century and early 20th century we did not have an FDIC, unemployment insurance, and a Federal Reserve to pump liquidity into the economy. Some might argue that the Federal Reserve was partly repsonsible for the Great Depression, but I don’t think the Federal Reserve is making those mistakes this time around. Further, federal government expenditures don’t fluctuate much with the business cycle. Taxes do, but the government generally runs a deficit. It acts in some capacity as an automatic stabilizer. It wouldn’t be too much of a stretch to call these policies Keynesian.
To try and protray Bhide’s position as a “do nothing” approach is nothing short of dishonest. And Yglesias’ comment and accompanying footnote about how certain segments of the “right” are no insane is just outright insulting.
I mean it. How hard would it be for a conservative- or libertarian-inclined economist to just say “the idea of a fiscal stimulus makes some sense, insofar as it’s attempted my preference would be to work as much as possible through tax side measures lest a ‘temporary’ stimulus become a permanent expansion in the size of government”? That’s totally coherent. Instead we’re getting nutty resurrections of the Treasury View, people downplaying the catastrophic nature of the 19th century business cycle, Alan Reynolds, bizarre revisionism about the New Deal, etc.
Note the Bhide has made none of these “insane” arguments save noting that prior to the Great Depression when there was little in the way of government intervention even then the depressions and recessions of that era ended. One should also keep in mind that Bhide is taking a moderately longer of veiw than of Yglesias and his ilk. The U.S. is not only facing a bad recession, but also in not too many years the fiscal imbalances in Medicare and Social Security are going to start to come into play. Even with no stimulus the prediction is for budget deficits for the next few years of a trillion dollars per year. Then we have the tens of trillions due to the fiscal imbalance of Medicare and Social Security. Now add on the stimulus, TARP and possibly TARP 2.0. Eventually, unlike Krugman’s boneheaded view [1], foreign investors might decide to stop buying up U.S. government debt at the current interest rates. Hence is it really all that insane to say, “Uhhhmm, you do realize we have these other budgetary obligations that are extremely large, we need to get the most bang for our buck”? I don’t think so. At the very least reminding people of these issues is probably a good thing. I’ll pot once again this comment from the completely insane (not really) Edward Leamer,
It is more accurate and more intellectually healthy to think of ourselves as trading greater prosperity in the next year or two for less prosperity later on. Let’s proceed with handouts and bailouts that greatly reduce the severity of the current recession at the lowest possible future cost. But let’s top throwing cash at anything that doesn’t move, as if being hit with money would get it moving again.
If at least some cuation is not exercised then we might be trading quite a bit of future prosperity for only a modest increase today.
