Tuesday, January 13, 2009

More wise words on the fiscal stimulus

This time from GMU economist Don Boudreaux at Cafe Hayek:
To claim that government cannot spend resources that it doesn't first acquire from the private sector is hardly bizarre. To claim that taking resources from the private sector reduces demands in those industries from which the resources are taken is hardly bizarre. To claim that any economic activity stimulated by increased government spending is offset by economic activity elsewhere slowed by government's need to get the resources it spends is hardly bizarre. Again, such claims might be mistaken -- but what about such claims is so ludicrous as to advertise persons who make them "ethics-free Republican hacks"?

9 comments:

Joseph Mises said...

I've heard a lot from GMU and the Austrians, and a little too much from the jarring but typically crass statements from the neokeynesian left, but not much from the Chicagoites...

What have they to say on the said situation? Keep inflating?

second-tier said...

Unfortunately, many Chicagoites are no longer with us. I don't know if you would count Eugene Fama as part of the Chicago School, but I've posted his comments recently. Gary Becker and Richard Posner's take can be found here: http://www.becker-posner-blog.com/index.html

I'm not 100% sure what Friedman's proposed solution would be were he still alive, but I'm pretty sure it wouldn't involve high inflation.

Joseph Mises said...

I know, I meant it sarcastically. That's one of the few reasons why I agree with Murray N. Rothbard's assessment on the Chicago School. :-/

Joseph Mises said...

I'm guessing Friedman would advocate easy money and no bailouts.

Joseph Mises said...

"...One way to try to prevent a deflationary spiral is for the Federal Reserve Board to increase the supply of money, so that dollars don't buy more goods than they used to. The Fed does this by buying federal securities from banks; the cash the banks receive from the sale is available to them to lend, and what they lend ends up in people's bank accounts and so increases the number of dollars available to be spent. Fearing deflation, the Fed has done this--without success. The banks, because they are close to being insolvent, are fearful of making risky loans, and loans in a recession or depression are risky..."

I'm right.

Joseph Mises said...

They are in otherwords advocating inflation.

second-tier said...

Well, they want to prevent a deflationary spiral, so they are really advocating price stability. Becker and Posner don't want prices to go up; they just want to prevent them from spiraling downward.

Joseph Mises said...

It's semantics.

Joseph Mises said...

Deflation isn't a bad option at the moment, it'll normalize markets. If anything, "price stability", may prevent a downward spiral, and accelerate an inflationary skyrocket.