Monday, July 4, 2011
Dr. Drew Debates MSNBC's Ezra Klein on the Obama Stimulus Package
Ezra Klein's Initial Post Attracts Quora Attention
Klein: I've come to think "what size should it have been" is, to some degree, the wrong question. At the time, Christina Romer and Larry Summers believed it should be $1.2 trillion, but the consensus was nothing that could be called "a trillion-dollar spending bill" would pass Congress. But even that $1.2 trillion was too small. We simply didn't have the economic data we needed to make a good judgment. That's the period when the administration disastrously predicted that, with the stimulus, unemployment would never pass 8 percent. If they'd known what was actually happening in the economy, they'd have known it would be above 8 percent before the stimulus even began. But the data has a lag. They did their best.
But there's something to be said for not getting in front of the data, and perhaps even for erring on the side of caution with these policies (I'm more of a shock and awe guy when it comes to combatting financial crises of unknown, but clearly large, magnitudes, but I see how reasonable people can disagree). The real problem wasn't that it wasn't big enough to start, when we didn't know the size of the recession, but that it wasn't made bigger when we did know the size of the recession. Indeed, the underpowered stimulus ended up discrediting itself, and instead of realizing we needed more, the fact that we were still seeing tremendous joblessness gave the opposition party an opportunity to argue that we needed less. It's as if we took too few antibiotics, and finding the disease still present, decided to give up on antibiotics altogether.
Dr. Drew to Another Quora User Regarding Klein's Unusual Post
Drew: Your liberal arrogance is showing. :-) I have Ph.D. in political science. I'm a published author in the field. I've taught at one of the best schools in the nation. There is no way you could have the same expertise as me with "a lot of work." Your comment is almost endearing if it wasn't sadly representative of the flawed thinking of many liberals.
If you look closely, you'll see that all Ezra is doing is citing other people.
He isn't even aware of the Japanese example and hasn't read a book like Burton Fulsom's Raw Deal. This sort of knowledge takes time...and it isn't taught to undergraduates at UCLA.
Political science, unlike physics, is one of those topics that you get better on with age and maturity. To be sure, I did my most creative and influential work while I was in my mid-20s...no one else had figured out the connection between child labor law enforcement and early U.S. welfare programs prior to me in political science. Nevertheless, I'm light-years ahead of where I was as a young man when it comes to predicting political events.
The bottom line is that I predicted the failure of the stimulus package thanks to my expertise. I don't think Ezra can make the same claim to having any predictive power in his political science observations.
Ezra Klein's Response to Dr. Drew's Comments
Klein: Without getting too deep into this, I think this conversation substantially mistakes the role of both expertise and journalists. For one thing, a degree in political science -- whether PhD or BA -- is not relevant to analyzing the macroeconomic effects of the stimulus. You'd want to ask a PhD economist for that.
Which is what I spend my time doing. I don't have, myself, a particular take on whether stimulus works or doesn't work. But I have the accumulated weight of many, many conversations with many, many topnotch economics from both sides of the aisle -- not to mention a lot of time spent reading the research and commentary on these subjects -- and what I present here, and in my other work, is my best read of the evidence. I might be wrong, or they might be wrong, but that's what journalists bring to these conversations: not our own expertise, per se, but the aggregate wisdom of the experts who give us their time and provide us with information. I wouldn't answer a question on physics because I don't talk to many physicists and have no way of accurately assessing the empirical work on various studies.
(And more specifically, the case of Japan is a complicated one, but those who've studied it, like Ben Bernanke and Adam Pozen and, for that matter, Paul Krugman, tend to think that the problem was inconsistent and underpowered policy responses, which is why they tend to advocate for more stimulus rather than less. Indeed, it's the people most familiar with Japan who've been most frustrated at the policymakers who are repeating their mistakes of doing too little, for too short a period of time.)
(And to your point, Craig, I think the evidence is that the stimulus has worked quite well, though not as well as its supporters hoped, but that it was also too small. If someone is very hungry and they have a hamburger, they might not be full, but that doesn't mean the hamburger did a bad job.)
Dr. Drew's Response to Ezra Klein
Drew: As an ex-Democrat, ex-Marxist, ex-friend of Barack Obama, I've been slowly won over to the conservative side that I once ridiculed at Occidental College and at Cornell University. Trust me. I'm not unsympathetic to your point of view.
Nevertheless, I don't buy your bizarre suggestion that you don't have a "take" on whether the stimulus package was too big or too small. Like Rep. Weiner, you seem to believe that you can tell an outright lie and get away with it. :-) He could not, neither can you.
Nevertheless, I can say with much greater authority than you that your belief in the success of the Obama stimulus package is misplaced and completely wrong. The fact that I and a lot of other political economists predicted its failure - and explained why such policies have always failed (even during the New Deal) - gives conservative thought much greater credibility than your ability to pretend objectivity, call people on the phone and ask them questions.
As you mature and grow intellectually, I think you'll find that the truth has a funny way of winning in the end. I expect that swing voters have now had a harsh lesson in the simple truth that government stimulus programs always fail.
Ezra Klein Does More Interviewing
Klein: Update: Answering this question got me interested in looking into this more deeply, so I asked Christina Romer and Jared Bernstein, two of the architects of the stimulus, for their answer:
Could we have had a bigger stimulus?
“A rough, back-of-the-envelope calculation is that $100 billion of stimulus creates 1 million jobs for 1 year (or reduces the unemployment rate by about 1/2 percentage point for a year),” Romer told me over e-mail. “So, if we needed to reduce the unemployment rate another 2 percentage points for two years, we needed about another $800 billion. So, we probably needed about $2 trillion given what we were actually up against.”
The problem, she says, is that more stimulus also means more problems designing the stimulus. “We had a hard time spending $800 billion quickly,” she says, and “with that much stimulus, the issue of diminishing returns could be important. We don’t have much experience with something that large, so I am less confident that the same multipliers would hold.” Perhaps making things even harder, “that much stimulus would have been irresponsible just on its own with no plan for paying for it. It could well have spooked financial markets. If we were going to go that large, it would have had to be with an explicit agreement on what taxes would be raised or spending cut in the future to pay for it.” Passing such a deal would’ve been almost impossible amid the crisis environment of 2009.
Bernstein’s calculation proved very similar. “The simple Keynesian answer is you take the GDP gap— actual GDP minus potential— sum it up over the downturn, and divide by the multiplier,” he wrote to me. “Using annual CBO potential GDP and the real GDP on the books for 08-2010, you come up with a GDP gap of around $3 trillion. Divide that by 1.4, and you’d need around $2 trillion, more than twice the ARRA.”
But, like Romer, he thought the abstract calculation a lot easier than the practical problems associated with shoving $2 trillion into the economy in a fast, effective fashion. “That $2 trillion ignores implementation constraints,” he continued, “which are also binding. I don’t believe we could have efficiently and effectively put that large a stimulus to good use with requisite accountability.”
Dr. Drew's Conclusion
As you can see, Klein did an article in the Washington Post that came out on July 5, 2011 called "Could we have had a bigger stimulus?" What can I say? I'm picking away at the defenses of the arrogant liberals who have done so much damage to our country, damage caused by their lack of experience, and painful lack of knowledge regarding economics, politics, and political economy. As he writes this last piece, it looks to me like he is figuring out that high levels of government spending are inefficient and - in fact - dangerous to our economy. What a tough lesson. To me, it is eerie to see Ezra Klein's painful, irresponsible learning take place right before our eyes.
John C. Drew, Ph.D. is an award-winning political scientist.