Sunday, March 8, 2009

Brad DeLong and Michele Boldrin

Highly recommended link:

At UC Davis, Brad DeLong and Michele Boldrin debate the fiscal stimulus.  It's not a great *debate* but is probably the best representation of the pro- and anti-stimulus sides I've seen anywhere.  

Edit: A disturbing part of DeLong's--and by extension the pro-stimulus side--argument is that spending government money to help people is inherently a trickle-down enterprise.  The hope is that spending money on roads and schools will hit the newly slack workforce, rather than shift away private enterprise.  You can debate how much you think this will happen with the given stimulus, but as far as helping people goes, it's much less direct than giving people unemployment benefits and targeted tax cuts.  Holding the amount of the stimulus constant, the question should be whether mass spending improves welfare for an average person as much as simply giving them money would.  To the degree that technology and labor market frictions prevent slack resources from moving into government programs in the short-term, this militates against government spending for the sake of spending.  

Boldrin was also both right and wrong on Kenysians.  It's certainly true that rapid price losses in the housing sector defy Kensyian 'sticky prices' and suggest that the entire enterprise of modeling the economy--not just modeling it on Chicago or MIT lines--is suspect.  But you still see labor market outcomes--less demand for workers translates almost entirely to fewer workers rather than lower wages--that are sticky and difficult to explain otherwise.


Dan in Euroland said...

Boldrin provides a self-assessment here. Admits to making some blunders. Seems like a cool dude.

Thorfinn said...

Interesting stuff. You can also see some of DeLong's responses to Zingales on his website, but it's more of the same as presented here (and elsewhere). With Boldrin, you finally find some sort of coherent stance against the stimulus that doesn't rely on totally unreasonable assumptions.