As we all know President-Elect Obama spoke at GMU yesterday to lay out his plan for the economy. Alex actually got to go and was pleasantly surprised. Russ wonders about the long line of politicians with their hands out for funds that was on display.
Alex has argued that relative to the New Deal, Obama seemed sensible. I respect Alex tremendously and consider him one of the bright spots not only on our faculty, but in the world of economics. But I am not so sure that we were listening to the same speech.
I didn't attend, but instead sat at home and watched every word. I was struck by how in the name of pragmaticism, our President-Elect is going to engage in a wreckless fiscal policy and a renewed regulatory regime. Alex argued that there is no regime uncertainty looming with Obama, I agree only to the extent that uncertainty is eliminated because the regime we are headed toward without doubt is wreckless statism at unheard of levels. Obama was explicit about this.
1. The era of wait for market correction is OVER.
2. Supposedly we have already seen the failure of a wait and see approach.
3. While he will welcome open debate, we need to move swiftly to pursue his plan.
4. He will spend more federal money in the first 100 days of his administration than we have ever seen.
5. But somehow all this federal spending will be consistent with signaling to the world that we have gotten our fiscal house in order.
6. We need new regulations for the 21st century economy (against the old dogma of market self-correction must be rejected)
7. We need to make government better, not smaller.
8. We will spend all this money on worthy projects (namely public projects) that we (meaning me and my team) deem worthy --- education is one of those; infrastructure is another; health is another. (Please note the relevance of Russ's interpretation here)
9. Throwing money at the problem isn't the answer, investing is (but what the difference is, is not clear)
10. Finally, I am DEADLY serious about this and unless you listen to me and throw off the "old dogma" that got us here in the first place (by which he means the free market ideology that supposedly has dominated Washington for the past 8 years) our economy will sink into a crisis we will never be able to escape from. Every moment we wait, individuals are losing their jobs.
The speech was important for Obama because he is setting expectations. Don't blame his administration for the economic situation and don't even blame his administration for the economic situation 3 years from now because the situation is that dire caused by the "do nothingism" philosophy of old ideas on the economy and government. Government must be an active player in the economy, and seen as the corrective to our social ills. We have sunk into such a deep hole, in fact, that ONLY government can get us out. If our economic situation is anything other than grave in the coming years it will be because of the bold and pro-active steps his administration will have taken. All praise go to the articulate and intelligent leader. Who, let me remind you, is pragmatic and open to discussion, but you better get onboard quickly with these policy initiatives or we are going to be in a living hell.
I really don't see how as an economist in the tradition of Adam Smith, JB Say, L. Mises, F.A. Hayek, Milton Friedman, and James Buchanan can see ANYTHING positive in Obama's speech. That it was delivered at GMU is as ironic as it is disturbing.
But rather than wallow in despair, as economic educators lets take this as inspiration that our work is cut out for us. First, we have to remember what Knight argued --- "To say a situation is hopeless, is to say it is ideal." We are far from the ideal, so it is not hopeless. We can through our efforts as educators (to our students, to our peers, and to the general public) provide a different way of thinking about these issues yet again. We have to speak eloquently, write effectively, and be relentless in our pursuit of truth. If we do that, and do that everyday, we will be fighting the good fight against popular economic fallacies. These are dark days for economists, but certainly no darker than the times faced in the 1930s-1940s. Time to really go to work. Second, lets not be bashful in our perspective, but we have to avoid being silly with it. For the scholar/teacher, now is not the time to scream and stomp your feet. Instead, now is the time to produce even more logically rigorous and careful empirical argument to challenge each of the 10 points listed above. We have to be more sophisticated in our argument, not less. More dedicated as teachers of the economc way of thinking than we have been. Bastiat once said something along the lines of "Never fear a harsh critique, but always fear a weak defense of your position." The stakes are very high, and the urge is to scream and yell at the collective insanity. Resist this temptation for quick satisfaction and instead take a longer term perspective. Use Mises's critique of socialism in the 1920s as your inspiration. Mises didn't scoff at, nor did he scream at, the socialist policy proposals that were being debated around him not only among academics, but in practical public policy after WWI in Red Vienna. Instead, he analyzed them logically and dispassionately and demonstrated their fatal flaw. Or look at Hayek's The Road to Serfdom as the exemplarly work for dire times for the economist.* Hayek as the "endogenous public choice theorist" changed the course of human history in the second half of the 20th century. Ideas do have consequences, and economic scholar/teachers can, and do, make a difference.
Time to roll up the sleeves and get to work.
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*BTW, economics means something other than what economists do. As Lord Acton once put it, it is those who sit in the seat of Adam Smith that deserve our attention.
Two quick thoughts on Obama's "plan":
1. Funny how the left is willing to rush, rush, rush, into a stimulus plan with all kinds of dire warnings about horrible consequences if we don't ACT NOW, when that's EXACTLY what they (rightly!) complained about for the last 8 years with respect to the war. Don't we want to take our time and make sure we're doing the right thing here too before we rush to judgment? The lack of consistency here suggests to me that many on the left aren't really concerned with process. They really do believe that if the right people are in power, we can just charge ahead. (Anecdote: one very left friend of mine is very happy about how many "academics and scientists" Obama is appointing. After all, we need smarter people in DC after the last 8 years." The fatal conceit is alive and well.)
2. As many have pointed out, creating jobs is easy. Creating productive jobs is hard. What Obama et. al. seem to fail to understand is that the whole freaking mess came about because we "created jobs" - just in the financial markets not the "green" ones. There's no reason to believe the jobs created by a so-called stimulus will be any more "sustainable" than those created by the housing boom.
Posted by: Steve Horwitz | January 09, 2009 at 09:08 AM
Alex seemed to pick out a few palatable sound bites. I wonder what the real costs of marginally fibbing at such a closed lecture are? Surely the guy knew where he was at. I wonder if we dismissed those careful word choices as outliers what Alex would have had to say about the remaining message?
Posted by: Daniel J. D'Amico | January 09, 2009 at 09:22 AM
I recall Bill Clinton's honeymoon plan -- a $20 billion injection into projects. And back then I argued it was ridiculous.
Posted by: Dave Prychitko | January 09, 2009 at 09:33 AM
Anyone notice how the catch phrase is no longer "yes we can," but is now "only government can"? The soundbites gave me chills, and not the good kind. Fatal conceit indeed.
Posted by: M. Allen | January 09, 2009 at 09:46 AM
Pete,
maybe we just disagree about how bad the alternative is! Do note, however, that Obama has announced no new and big entitlement programs and no new and big nationalizations. Is this what you expected? Compare with Bush under which we have had both!
Yes, the program is going to get worse (see what the Senate Democrats want) but Obama is at least not leading the way. David Brooks had it correct today:
"Obama’s team has clearly thought through every piece of this plan. There’s no plank that’s obviously wasteful or that reeks of special-interest pleading. The tax cut is big and bipartisan. Obama is properly worried about runaway deficits, but he’s spending money on things one would want to do anyway. This is not an attempt to use the crisis to build a European-style welfare state."
http://www.nytimes.com/2009/01/09/opinion/09brooks.html
Obama is no libertarian so he is doing plenty of things that you and I would do differently but that's not news. What is news is that as bad as things are the fiscal stimulus is pragmatic and middle-of-the road and it is temporary stuff from which we can recover.
By the way, the idea that Obama would spin his remarks for a GMU audience is the most hilarious thing I have read in several weeks.
Alex
Posted by: Alex Tabarrok | January 09, 2009 at 11:08 AM
The ironic and sad part (to me) of the current situation is that it is very likely that Obama and massive government spending will get credit for the continued existence of the business cycle. Economic growth will eventually return, which is the part of the business cycle everyone loves and wants credit for. More than likely, some degree of growth will occur in the next 4 years, from which people will 'deduce' that it was the spending that did it. Post hoc ergo propter hoc. I applaud your hope in the face of this seemingly grim situation for believers in the market.
Posted by: James Kibler | January 09, 2009 at 11:45 AM
What worries me is the downside risk of moving precipitously. How does our nation respond to future crises -- in whatever form they may take -- if the stimulus package fails? The Obama proposal conjures up an image of a poker player throwing all his chips to the middle of the table, and yelling "I'm all in." Already, according to press reports, foreign investors have curbed their appetite for USG debt. Adding trillions more dollars in debt to the USG balance sheet over the next two years could, ultimately, lead to a tipping-point phenomenon, which would spark sharply higher interest rates and inflation. Will investors be naive enough to believe that Obama is serious about resolving our long-term fiscal problems? I doubt it.
Posted by: Larry Phillips | January 09, 2009 at 03:25 PM
One absolute last comment.If you feel marginalized now,how will you be treated when more trillions are on the line?Rolling your sleeves up?Others will roll up theirs and throw you out the window.Economics is obviously an Art to practitioners and a religion to the rest of us.Don't you see how powerful that makes you?The 'no bail out' calls received by legislators were in the 20:1 majority and in the hundreds of thousands.These doubting legislators are only human.They need 'permission' to state (and vote) openly how their personal beliefs guide them to do.You as 'ordained priests' have as much legitimacy as Bernanke (in the man in the street's mind).If you make a stand and approach legislators directly.It may bring other groupings of economists out to argue with your position.The public will see there are many dissenting groupings and the Fed will lose its aura of authority.The Austrian viewpoint IS common sense (praxeology).It fits with what the majority of Americans believe also.It's such a shame that you can't see that you can't lose and that this is your time.Please talk to Ron Paul and I'm sure he could arrange a meeting with those he knows/feels are unhappy with the leadership position.You think hard work is needed because your ego is invested in your art.You did the hard work in becoming ordained.Now you need to preach.
Posted by: S.Shorland | January 10, 2009 at 07:25 AM
Signalling. How does the GMU administration really feel about the Economics Department and Law School? Besides sending out a signal to the rest of the world (both Obama by going right into the lion's den and GMU applauding his entry), is GMU also trying to signal that they are more than a "free market, ultra right wing" university?
Any thoughts on this, Pete?
Posted by: Dave Prychitko | January 10, 2009 at 09:30 AM
Dave,
Are you being too subtle? What university administrator would spurn the PR of such a speech? There is a funding issue, too, I suppose. But I don't see why we need to look "deeply" at anything to explain why GMU would welcome Obama -- as well they should have IMHO.
Posted by: Roger Koppl | January 10, 2009 at 10:20 AM
reckless, not wreckless!
Posted by: greenish | January 10, 2009 at 04:39 PM
Stop being so dramatic!
Remember that we're not looking at the difference between a cataclysmic disaster vs an economic paradise.
We're looking at an Obama/Bush type regime damaging real economic growth 1 - 3% more than a Reagan type regime would damage it.
So it's not the end of the world, it's just that a few people will be a bit poorer than they would otherwise have been.
Posted by: Willie | January 12, 2009 at 03:45 AM