11.02.2009

The Difficulty of Following the Middle Way

Today Paul Krugman is suggesting that the stimulus package is working, but that it wasn't big enough.

Take Krugman as a typical (if "highly qualified") liberal economist and Anti-Krugman as a typical (and as highly qualified) conservative economist. What would each economist say if the stock market crashed and banks ran out of cash by the end of this week?

Krugman: See?--the stimulus wasn't big enough.
Anti-Krugman: See?--the stimulus was a waste of money and didn't stop collapse.

The problem here is that, because of our situation as a deeply-mixed economy, causes and consequences are fundamentally unclear. That is, any economic theory is necessarily based on some degree of faith. That is, the reason that there is no consensus on what caused the '08 collapse isn't just that "economics is so complicated." Rather, there's no consensus because nobody can agree which legislation is causing which problems, and which legislation is helping or not-impeding economic growth. Because it seems nobody knows!

So are economic cycles like sunspots? Entirely unpredictable? If so, then neither Krugman nor anti-Krugman should open their mouths any more. They're wasting everyone's time. If not, can we reach consensus about how legislation effects the economy? If we can, why haven't we?

(No answers today; only questions)

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