[Update: Here’s a new study on tax cuts and the impact they have on economic growth.]
In my last post I declared a link war on the question of whether government stimulus or austerity is the best approach for fixing an economic slump. Results were fascinating.
Apparently both sides of the stimulus-versus-austerity debate can point to historical data and say, “See, my way always works.” I was not expecting that. I mean, isn’t everyone staring at the same historical data?
It turns out that the historical data is more like a Rorschach test. One economist can look at the data and see a bunny rabbit while another sees a giraffe. You and I haven’t studied the raw data ourselves, and we probably aren’t qualified anyway, so we are forced to make our decisions based on the credibility of economists. And seriously, who has less credibility than economists? Chiropractors and astrologists come close.
Prior to declaring a link war on this question I assumed one set of economists were data-ignoring political partisans and their critics were honest patriots raising their voices to save a troubled world. After reviewing the links I have ruled out that interpretation. I think it’s more likely that the data is legitimately subject to interpretation and economists are filtering what they see through their political biases.
I reject the notion that one side is cynically ignoring the data to help get their preferred political party in favor no matter the consequences. I think the data is genuinely ambiguous.
I have read (okay, skimmed) the links that many of you provided. I’ve sorted the better ones into categories so you can judge for yourself. And I am ready to declare a verdict in the case of stimulus versus austerity.
My judgment is that while some of the economists involved might be entirely right, while the economists on the other side might be nothing but clever crackpots, there is no mechanism for citizens such as us to sort the credible from the crackpots. If you read the links below and declare one side an obvious winner, you just might be a special sort of idiot who thinks he’s brilliant. It looks to me as if both sides have equally strong-sounding arguments based on data. But to be fair, I can’t rule out the possibility that I’m an idiot; the circumstantial evidence is piling up.
When faced with a decision of this complexity, in which experts disagree, and I have no reliable mechanism to discern truth, I choose the path that is least expensive to me in the short run. Whenever the long run is 100% unpredictable, it makes sense to maximize your short term situation. In my case that means favoring lower taxes and huge cuts in government spending. If your income is directly influenced by government spending, you should be in favor of stimulus and lower taxes.
If you believe one set of economists over the other because one side’s arguments sound more convincing, you’re either an idiot or an economic genius, and realistically, you can’t be sure which one you are.
Below are the better links that many of you provided, grouped by category. At the end I included links from people who argue that monetary policy is the real solution, not stimulus versus austerity.
I dare you to study the links and conclude that one side is a clear winner.
Most Entertaining Link
This musical video of economists John Maynard Keynes and F.A. Hayek debating is awesome in just about every way. Starts slow but worth the wait.
Austerity is Bad Links
Austerity is Good Links
Monetary Policy is the Thing