Whatever your beliefs about the efficacy of fiscal stimulus, I think you’d have to go a bit to find an analysis of the ineffectiveness of fiscal stimulus more superficial than Arthur Laffer’s:
Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around.
It worked miserably, as indicated by the table nearby, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus.
The four nations—Estonia, Ireland, the Slovak Republic and Finland—with the biggest stimulus programs had the steepest declines in growth. The United States was no different, with greater spending (up 7.3%) followed by far lower growth rates (down 8.4%).
There are several problems with this. First is that not only did countries with the largest spending increases show sharp declines but so did countries with among the lowest increases in spending, e.g. Germany (spending increase of 4.6%, change in real GDP -11.6%) and Sweden (spending increase of 3.8%, change in real GDP -13.6%). Or, in other words, either high increases in spending or low, both profligacy and austerity can be associated with large declines in real GDP.
More importantly isn’t it barely possible that countries in which they foresaw larger declines, depending on the political winds in those countries, engaged in more vigorous measures to address them? I.e. that the causality goes the other way around?
Was Laffer ever considered a serious economist? He seems to have spent his entire career in politics. He seems to have always been what Krugman has become.
Steve
Yes. While the Laffer curve bears his name, it is an old concept and the basic concept it true, if empirical difficult to verify. His early work in economics shows he published in some of the better journals in the field.
No, he was a professor from the early 1970s till the mid 1980s.
No, the two have had similar paths, I would say. Academic, to policy adviser, to author/pundit/advocate.
Disingenuous is a better fit for what Laffer did here. The periods for comparison he selected are so absurd it indicates he contrived to get the answers he got. He compares real growth before a severe recession to growth during it and then simply asserts various stimulus packages did it. No taking into account a massive financial crash or crushing household debt.
I’m open to data indicative that stimulus can have the adverse effect, but EVERY time a mainstream economist purports to demonstrate this, a cursory inspection shows cherry-picked data, repeated assumptions and correlations for which there is no evidence. That’s not economics, it’s anti-government theology and politically infected dogma. You don’t start from the position that government sucks and then set out to prove it.
” You don’t start from the position that government sucks and then set out to prove it.”
But then we would have no libertarians. 🙂
Steve