The Counterrevolution in Economics: A Reading List

 

The failure of the Obama stimulus plan has sparked some great new economic thinking. As the pseudo-Keynesians continue their call for ever-larger stimulus, a smaller cohort of writers is suggesting counterproposals. Be sure to read:

Tyler Cowen on austerity.

Keith Hennessey on stimulus.

Greg Mankiw on crisis economics.

Allan Meltzer on stimulus.

Robert Samuelson on the limits of economics.

The moribund economy is the product of a failed liberal theory. If only the Obama team had read (and listened to!) “The Stimulus Trap” last January. A lot of this might have been avoided.

A postscript: Looking over that piece a year and a half later, I am less convinced that monetary policy has done all it can do. It worries me when I hear that the money supply may be contracting and that a lot of the liquidity the Fed injected into the banks is just sitting there. We need to get that money moving, by creating a predictable business environment conducive to risk-taking and investment.

There are 7 comments.

Become a member to join the conversation. Or sign in if you're already a member.
  1. Profile Photo Inactive
    @MelFoil

    If creative destruction is a fine thing in the private sector, I’d like to see it tried in public sector too. Now seems like the perfect time.

    • #1
  2. Profile Photo Editor
    @RobLong

    So true, Matt. (By the way, is it “Matt” or “Matthew?” I feel like such a car salesman sometimes, using the wrong name. Like when people call me “Bob.”)

    Anyway, Matt, “The Stimulus Trap” was a great piece of forecasting — and you’re right: lots of liquidity is sitting there, making the banks’ balance sheets look good. Which makes sense if all you think is going on is a banking crisis. But what everyone forgot was that a banking crisis is a monetary thing — it’s really all about balance sheets. But an economic reversal is about nobody hiring anybody, nobody building anything, nobody risking capital on a new business. Which right now nobody is doing because nobody knows what’s the next big awful thing this administration is going to do, regulate, or tax.

    • #2
  3. Profile Photo Contributor
    @JamesPoulos
    Rob Long: […] what everyone forgot was that a banking crisis is a monetary thing — it’s really all about balance sheets. But an economic reversal is about nobody hiring anybody, nobody building anything, nobody risking capital on a new business. Which right now nobody is doing because nobody knows what’s the next big awful thing this administration is going to do, regulate, or tax. ยท Jun 30 at 9:06am

    So the risk-averse position — and who can’t be risk-averse in such an uncertain climate? — involves finally just assuming that, whatever it is, it’s gonna be big, and it’s gonna be like what’s already happened, only moreso. The only ‘safe’ bet, to borrow Bill Voegeli’s doom-laden phrase, is on “unlimited government.”

    When we make that cognitive switch — when the stress is so great that we resign ourselves to whatever’s next — we really are on the royal road to ruin.

    • #3
  4. Profile Photo Editor
    @RobLong

    I agree, James. But to some people it doesn’t look like ruin. To some people, it looks like Europe.

    What I think we on the right always forget is, our idea of disaster — high taxes, slower growth, large government — is their idea of paradise. They don’t seem all that exercised about GDP or unemployment or the rising debt because they have a solution to it. More spending by the government.

    We act as if the $100 trillion or so that we owe is somehow unsustainable. They know it’s not — all it takes is a whopping across-the-board tax hike, which they think people will just accept (and they’re probably right: what other solution is there, with a debt this high?)

    We keep thinking things like the failed stimulus and the absurd spending are signs of failure, because they haven’t worked. But what if there’s another definition of “worked?” From where I sit, they look like huge successes, if the idea was to put us on the road to a more top-down, planned, nanny-state high tax country.

    • #4
  5. Profile Photo Contributor
    @MatthewContinetti

    Rob, I write under Matthew but my friends call me Matt — and you are a friend!

    Your reference to the uncertainty problem brings to mind Amity Shlaes’s Forgotten Man. I listened to Shlaes give a talk in 2009, and the lesson I took from it was that it wasn’t so much any single New Deal program that prolonged the Depression, but the overall atmosphere created by FDR’s anti-business rhetoric and caprice. Let’s not forget, either, that FDR’s attitude toward the market wasn’t any more popular than Obama’s attitude is today. Recently Michael Barone pointed out that FDR was on track to lose the 1940 election until the imminent war became the dominant issue. Democrats’ anti-business policies come back to haunt them. Question is, will the 2010-2012 Republicans be able — or even willing — to undo the damage?

    • #5
  6. Profile Photo Member
    @

    Matt — It looks like Ross Douthat rode to your defense today against Jonah Goldberg’s lambasting. It’s pretty clear what’s going on here… Douthat wants to be a Ricochet contributor.

    • #6
  7. Profile Photo Editor
    @RobLong

    Matt, I read that Barone piece — I can’t find it to link to — and was amazed, because of course it’s exactly the opposite of what I was taught in my long-ago AP US History class, which is that the country worshipped the magnificent Roosevelt almost to a man, minus the creepy Republicans. The question about the Republican stomach for repeal and replace after 2010 — and we’re all making a giant assumption here — is part of the larger Republican challenge to represent small, start-up, and entrepreneurial businesses (and the financial systems that incubate them) rather than the hulking decrepit behemoths and Wall Street uberbanks that clog the halls with lobbyists and lawyers.

    The innovative products and services that are being invented right now, somewhere in America, are coming from companies and start-ups that can’t afford to hire DC representation. No one stands up for them. No one gives them tax breaks. No one rewrites regulations for them. No one helps them hire engineers, or makes investors more willing to take entrepreneurial risk. If Republicans get in there and forget that, they’re in trouble. And so are we.

    • #7

Comments are closed because this post is more than six months old. Please write a new post if you would like to continue this conversation.