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Strong opinions, weakly held

Today’s post on economic stimulus, episode V

Arnold Kling deciphers two contrary outlooks on the economic stimulus package. One from Kevin Murphy and another from Brad DeLong.

It’s a great, short look at competing economic philosophies, and why there’s such difference of opinion regarding the stimulus package. I don’t agree with Kling’s conclusion, but his explanation is very much worth reading.

One of Murphy’s key criticisms of fiscal stimulus is that to some degree, it will pull private resources into the public sphere, where they will most likely be allocated less efficiently. As unemployment rises, the degree to which this will occur shrinks. Given that companies announced over 68,000 layoffs just today, these concerns would appear to be diminishing.

4 Comments

  1. “it will pull private resources into the public sphere, where they will most likely be allocated less efficiently”

    That is a conventional but somewhat dubious assumption. See: http://en.wikipedia.org/wiki/Public_good The government may well be able to employ resources more efficiently than private parties. For instance, choosing to use land for a park instead of dividing it for private ownership. Or providing universal health coverage, which is a risk-spreading function made more efficient by including everyone.

    Of course there’s a limit. For one thing people need private gain (=right to resources) so that they go to work.

    But it’s further inapplicable because these resources are not being gainfully employed in the private sector. There’s a trillion dollars or so of unused capacity in the economy right now in the form of unemployed workers and shuttered factories. Putting that to producing public goods doesn’t affect the production of private goods, and has other positive effects (like, people are employed).

  2. Rolando P. Zabalerio

    January 27, 2009 at 9:38 am

    Closer attention on the cause of business failures should be made as the financial bail out is effected to avoid previous mistakes. The country cannot afford another set back due to wrong management

  3. The more I think about it, the more I think that the crowding out argument holds a lot more water than in practice. When I wrote the post, I put it in the “something to consider” category, but I think I’d downgrade it upon further reflection.

  4. Why did Citi Bank get 30 Billion then spend 30 million on a corp. jet. That was purchased out of the US, yep foreign made and foreign bought.Didn’t the 3 auto companies get back lash when they flew to Washington on there jet.

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