In Which We Survey 30 Conservative Economists on How to Fix the Economy, 2: Bring Your Own Solutions

I realized I had very little understanding on where the conservative economic mind was these days. In the spirit of “If you want to know what a conservative economist who opposes the Obama administration thinks, ask one”, shortly after the election I decided to do a very unscientific survey.

I had beleaguered Roosevelt Institute intern Charlie Eisenhood use a computer to randomly select 100 names off this list of 200 economists that signed a Cato letter opposing the ARRA stimulus bill in early 2009. I figured this was likely going to be a group of those opposed to future fiscal/monetary policy to fight unemployment, and I wanted to see what they were thinking. He then emailed them a survey I created. He emailed once, then again as a reminder a week later, for a total of 29 responses.

In addition to the survey numbers given in the previous entry, I included a “Provide Your Own Answer” for questions 2-4 to get a sense of where the conservative mind is. Here are the written-in answers, unedited, with the explicitly stated provision that their name would not be used in any way (so hopefully we got some honest answers).

Enjoy.

2. Which of the following informed your disagreement with the fiscal stimulus policy? Please answer on a scale of 1 to 10, 1 being not a factor and 10 being a very strong factor.
1. This is not the best worded survey I have ever seen. Also, I am unable to click on the same number for different statements in the rankings above.
2. Demand-side policy is inferior to supply-side policy. Tax instruments can work in a more productive manner–more quickly, with greater consideration for local knowledge–than direct expenditures. 10 

The driver of the recession was an evaporation of ~ $16 trillion in net worth (permanent income) not an inter-temporal imbalance that could be resolved/smoothed with short-term “stimulus.” 10

3. Keynesian analysis is simply wrong for, among other reasons, it ignored the implied tax liabilities attached to deficit spending.
4. debt financed govt crowds out much more private spending, not just “nearly equal” 

Poll would not let me put 10 on more than one thing, yet you didn’t use the word “rank”

5. This may be a “supply side” concern listed in #2, but I believe the stimulus is unlikely to accurately target unemployed resources effectively. Instead, the stimulus is likely to target resources that were already employed. This is also related to #4 where politics dictates how the money is spent. 

The stimulus spending also might lead to higher budget baselines for government agencies which may result in higher permanent spending, even though the stimulus is supposed to be temporary.

I’m worried that the stimulus increases uncertainty in the economy with regards to future taxes and deficits. Likewise, uncertainty would increase if the stimulus gives government agencies additional money that they then use to create new regulations or change existing ones. I am concerned that, since the stimulus was widely known to be temporary, recipients of the money would not take any long-term actions such as increasing the number of workers on staff and instead would simply try to produce the output required with the existing labor force.

Finally, I am concerned that the stimulus was spend on low-value projects without regards to their benefits under the justification that “any spending is good spending.”

6. Reducing taxes would have an immediate effect, particularly corporate taxes, whereas spending by the government would occur with a lag and would drive out private sector investment.
7. I have serious doubts about government competence in identifying socially productive spending projects. Any dollar of private spending that is crowded out is likely to produce significantly more net benefit to society than a random dollar in the stimulus bill. 10
8. I disagreed with the idea of increasing government’s share of GDP. = 10
9. I WOULD HAVE LIKED A CASH GRANT TO PEOPLE IN RETURN FOR OPTING OUT OF SOCIAL SECURITY UNTIL AN ADVANCED AGE 10
10. There is a software glitch. I cannot assign the same number to more than one factor.
11. Higher government spending leads to a lower economic growth rate – 10. 

The details of the stimulus package indicate that it was in large part a massive political payoff to favored interest groups – 9.

12. I wanted to put 9 for my answer on monetary stimulus, but it wouldn’t let me and so I put the highest number I could.
Your choices left out my most important economic reason for being against the stimulus: when government spends money there is no check that assures that it will spend on things that people value. So government spending typically causes a huge destruction of wealth.
13. 1) Temporary tax cuts and transfer payments have no effect on aggregate demand.
2) Infrastructure spending has a lonhg lag and has no effect on total output, capitla formation or interest rates.
14. The set up is asinine . My main view is that the nature of business cycles is such that discretionary monetary and fiscal policy are futile. Given that action was to be taken, the worst possible option was taken. A preference for monetary policy (not necessarily unconventional). preference that the fiscal policy be a tax cut and a dislike at the directing of the money, not only to state and local governments but to ill-advised energy, transportation, health care and other initiatives are other influences. Thus, labor market rates 1, and aside from the qualification on monetary the others are 10s
15. I disagree with hydrolic Keynesian and Friedmanite socialist economics. I’m a Ron Paul fan: end the fed, embrace the gold standard. the multiplier is negative. saving is great. 10
16. High inflation leads to high interest rates, not the other way around. We have long been on an inflationary track. The massive creation of money must eventually make the situation much, much worse. If the spending was accomplished with existing money instead of new money, it would only divert wealth from more productive uses to less productive uses. Government intervention this large introduces massive uncertainly into the system – 10
17. Fiscal stimulus not useful theoretically (10)
Bailout funds used counterproductively by sustaining failing enterprises (10)
Debt-financed spending increases the burden of the national debt on productive investment(10)
18. Need for structural change (away from retailing, housing and other consumer goods industries and toward capital and export-oriented industries) requires large injections of private investment which would be discouraged/unencouraged by failure to reduce taxes on companies and entrepreneurs and raises prospect of future tax increases.-#10 very strong factor.
19. Debt financed government spending leads to inflation, not because of high interest rates, but because of debt financing through the FED. 10 

Spending by government reduces output because it is always spent badly. 8

Crowding out is increased because of the much higher labor costs in government; added public sector jobs will be accompanied by about twice as many private sector jobs being lost. 8

3. As of September 2010, national unemployment is at 9.6%. What of the following is responsible for unemployment being so high? Please answer each on a scale of 1 to 10, 1 being not at all factor in unemployment, 10 being a very strong factor..
1. I am unable to click on the same number for different statements in the rankings above.
2. Rising health care costs are a huge problem. I do not believe Obamacare did anything to address them and instead, will make the problem much worse.
3. Taxation of labor under the health care legislation
4. Dramatic increases in the length of unemployment benefits. 7
5. Lingering effects of the misdirection of labor during the boom into industries like housing construction that were not sustainable. = 9
6. DOWNWARD INFLEXIBLE WAGES 10
7. A whopping two years of unemployment benefits. If you subsidize unemployment, you get higher unemployment.
8. The reallocation of resources after large shifts in relative demands (e.g., away from housing construction) take time to work out.
9. Unemployment insurance lasting 99 weeks in some states that encourages people to be unemployed. 4
A minimum increase of about 12% in real terms in 2009 that prices out the least skilled. 3
10. The tone and policy uncertainty rate 10; skills, aggregate demand, and dollar rate 1
11. all 10: mininim wage law, unions, unemployment insurance, welfare, fed $ policy, Government Motors, tariffs, the welfare state… 

how COULD you leave out these things in your survey above? those questions bespeak economic illiteracy

12. Lack of private investment expansion as a result of uncertainty concerning future federal and state-level fiscal and monetary policy and the general state of the U.S. economy (10)
13. Failure to channel savings toward investment via the financial sector. Given the bad state of the formal financial sector, it is necessary to leave more funds with business and entrepreneurs so their reliance on the financial sector is less. #7
4. What could the government do to get growth up and unemployment down? Please answer each on a scale of 1 to 10, 1 being very counterproductive, 10 being a strong case for growth, 5 making no difference.
1. Everything listed above is a short-run solution and does nothing to address the long run. They might be successful in creating some level of short-run growth, but in the long run the economy is worse off because they hinder the correction process necessary to adjust the structure of production and to transfer assets to their more efficient uses.
2. Eliminate the corporate income tax completely (and all associated repatriation/transition issues)–without interfering with conversion of non C corporations to C corporations, preferably with offsetting spending cuts. 10
3. Entitlement reform to address the horrible long-term fiscal picture of the federal government. Also, states need to enact pension reform to address the massive unfunded public pension liabilities. I would also repeal Obamacare and replace it with health savings accounts that rely heavily on out-of-pocket payments for routine care with the insurance only kicking in for catastrophic events. I believe this system is the only way to control health care costs in the long run and out-of-control health care costs will be the major thing that drags down the economy in the future. Medicare and Medicaid should be slowly moved to such a system as well. I would assign a rating of “10” to these reforms.
4. Tax cuts along with budget cuts, in particular adressing the structural problem of entitlement programs
Moving the K-12 education system to the private sector
5. let it be
6. Elimination of the corporate tax, even if offset by increases in dividend and capital gains taxes. 7 

Stop propping up housing prices (stopping foreclosures, homebuyer credits, etc.). By delaying the fall of prices, it keeps the market illiquid and stagnant. Allowing prices to bottom out will encourage buyers to return and reignite some construction. 8

7. Resolve insolvent financial institutions (Fannie, Freddie, AIG, Citibank, Bank of America) = 6
Reduce corporate income tax rates = 7
Reduce payroll taxes and make matching spending cuts = 7
8. ADOPT THE AUSTRALIAN SYSTEM OF INTEGRATING THE CORPORATION INCOME TAX WITH INDIVIDUAL INCOME TAXES IS A WELFARE ENHANCING PROPOSAL. 10
CUT THE MINIMUM WAGE WHENEVER UNEMPLOYMENT IS OVER 5 PERCENT. 10
AUTOMATICALLY ELIMINATE TARIFFS OR QUOTAS IN ANY SECTOR WHERE THE SKILL ADJUSTED WAGE EXCEEDS THE NATIONAL AVERAGE BY 10 PERCENT.
9. 1. No more bailouts. We must let incompetent firms fail. As for banks, deposit insurance is all we need. Do not bail out banks, either. We need to reject Chicken Little claims that the letting firms fail could ever cause a depression. The Great Depression was caused by interest rates kept too high for four years, from 1929 to 1933. There was never any threat that we were going to have a Great Depression in these past couple of years, as I have said all along, because interest rates were cut way down.
2. The government needs to cuts its spending and stay out of markets like health care. Government spending slows down growth over time horizons of three years and greater. Since the great majority of us will live longer than three years, increased government spending makes the great majority of us poorer.
10. Eliminate new infrastracture spending and all other new spending authorized on a discretionatry or nondiscretionay basis since 2007 inside ARRa or elsewhere.
11. Everything else is a 1.
12. 10: embrace laissez faire capitalism. read Tom Woods’ book, Meltdown
13. Complete privatization of the financial sector and elimination of the central bank(10)
Complete privatization of the money supply and requirement of 100% reserves by commercial banks(10)
Repeal of financial reform laws and Obamacare legislation(10)
Other suggestions for radical changes in the U.S. political and economic system that would probably just bring a smirk to the face of the designer of this survey. Some of the questions can only stem from a mainstream understanding of theory and implied fiscal and monetary policy.
14. Tax holiday on overseas earnings #9
Cut in corporate income tax #8
Passage of right-to-work law #8
Repeal/rationalization of laws affecting hiring, including healthcare law #10
Deregulation/smart regulation/privatization of industries, poss energy, health, education to encourage private investment #9
Reduction in burden of govt via govt worker wage/benefit cuts and weakening of unions because uncontrolled fiscal situations imply future high tax rates #10

4.5 might be my favorite.

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9 Responses to In Which We Survey 30 Conservative Economists on How to Fix the Economy, 2: Bring Your Own Solutions

  1. Pingback: In Which We Survey 30 Conservative Economists on How to Fix the Economy, 1: Survey Q&A « Rortybomb

  2. Great stuff! But it really isn’t about conservative vs. liberal, it is about those who are trying to fix the problem without even understanding what the problem is. Bernanke’s biggest flaw is that he thinks this is only a credit contraction recession, so he can fix it with credit expansion tools. He doesn’t realize that he is up against (1) a generational shift to the Gen Xers who got buried in student loans, and view credit very differently from the Baby Boomers, (2) the retirement of said Boomers, the pig in the python with the largest cohort turning 48 ( the year of peak consumption per Harry Dent) in 2005 – did something change after that? And (3) technology, which slashes prices every year (OMG – deflation!). SurviveTheGreatInflation.com the book launched yesterday – Bernanke isn’t going to change – given his history, he can’t – and Obama doesn’t have any idea how awful his appointments were. It’s inflation coming, not deflation. Don’t ever bet against the Fed.

  3. Michael Turner says:

    “Bernanke’s biggest flaw is that he thinks this is only a credit contraction recession, so he can fix it with credit expansion tools.”

    Actually, he has said fiscal policy is important, and he’s starting to say it more loudly. It’s just that fiscal policy is not really his bailiwick.

    He has also prescribed a higher inflation target for Japan, and — despite what you hear — has not ruled out aiming higher than 2%, only that he won’t allow “supernormal” inflation. Well, 3-4% isn’t “supernormal” by international standards, certainly. The problem is not really containing inflation, it’s getting it back to an expansionary target, and that expansionary level is probably higher than Greenspan’s de facto 2%.

    “(3) technology, which slashes prices every year (OMG – deflation!).”

    If technology=integrated circuits, maybe. But health care technology is also technology, and that stuff can make health care costs go up, since avoiding malpractice suits often means buying the latest in diagnostic gear.

  4. Nathanael says:

    Wow.

    Reading these “answers”, I can only conclude that “conservative” economists are doctrinaire idiots who don’t know the first thing about economics. But I knew that.

  5. Harry Lavo says:

    After reviewing the numerical responses and then the proferred written responses, I would say at minimum half of these folks are economists in name only. They lack any coherent understanding of how our economy works, and instead are driven by ideology almost exclusively.

    Those that do have some understanding of the system are also ideology-driven, but it shows up mostly as simply ignoring the social impacts of policy, and pretending that economics operates without being bound by political systems that have a legitimate role in determining when the profit motive and when the social welfare motive should dominate. (This political boundry can be democratic — we would hope — or authoritarian, but it is an important boundry in all cases. Many Americans, for example, are flabbergasted that the Chinese have managed to unleash a substantial amount of capitalism within rigidly controlled political boundries).

    There are only one or two voices here that I respect as representing a truly educated economist who puts economics first and ideology second.

    Harry Lavo
    AB Economics, Magna Cum Laude, Oberlin College
    MBA with Distinction, Northwestern University

  6. Michael Turner says:

    “… at minimum half of these folks are economists in name only”

    It’s a pretty easy name to get. Ben Stein gets to be called an economist on the op-ed pages of the New York Times, even though he only has a B.S. in the subject, and mostly peddles B.S. *on* the subject. Then there’s Donald Luskin, who dropped out of college in his first year, IIRC. He should be allowed to call himself an economist only with the honorific, “Stupidest Economist Alive ™”.

    I sort of admired Peter Drucker for insisting he wasn’t an economist, despite journalists’ temptations to call him one. OTOH, I think he might have considered “economist” a term of derision, so I’m ambivalent in my admiration.

    I think this anti-ARRA petition was a little like those petitions that go around collecting the names of “scientists” who want the world to know that they believe anthropogenic global warming is just a cartload of horse puckey. When you start into researching who these “scientists” are, you get about 50% who have actually gotten, say, a PhD and a faculty position, and most of those are *deeply* emeritus; few have any climatology chops to speak of. Of the remainder who seem halfway respectable, quite a few have retracted over the years.

  7. Eric Titus says:

    A recent Rorty post linked to this. It’s interesting to see sensible voices mixed in with the doctrinaire ones. Clearly, unions, minimum wage, etc did not result in the economy suddenly plummeting, and are also probably not what is holding it in a recession. But 1.2 and others make the reasonable case that it might not be possible to ‘jump-start’ the economy out of long-term structural problems. And I think ‘let it be’ is a realistic position if you are skeptical of the government’s ability to stimulate the economy effectively.

    • Michael Turner says:

      But that kind of begs the question, Eric. Is being skeptical of a government’s ability to stimulate the economy a realistic position? If it’s all really more about consumer confidence, and consumer confidence is a largely a function of employment, then however you create more employment (be it with a housing bubble or building more infrastructure) should stimulate the economy. The contortions I see on the part of conservative economists to suggest countervailing mechanisms are pretty amazingly limber, intellectually; the evidence that they are also right seems very scant.

  8. Lil'D says:

    Just out of curiousity, what would be the answers from
    A. Roosevelt Institute & friends
    B. A broad spectrum of heterodox (“Keensians” …?)

    I know I didn’t find much common ground in this set.

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