Why did Nobel Prize winning economist Eugene Fama revive an argument that was discredited 70 years ago in an attempt to debunk the effectiveness of the stimulus?
Because if the stimulus is successful, one of the basic assumptions of classical economics will be proven wrong. This will call much of classical economic thinking into question. A success of the stimulus will seriously question economic theory that supports libertarianism
These are extremely smart people making basic mistakes. You do not get to win the Noble prize by making these kind of mistakes. You do not become a Harvard professor by making mistakes like this.
The exact reason they are worried is this economic argument that is crucial to neo-classical economics: The economy is always in equilibrium.
This argument has huge ramifications for economic theory. Three major conclusions result from this assumption of equilibrium:
- Any attempt to place restrictions on economic transactions must lower the efficiency and output of the system as the restrictions would drive the economy from the natural equilibrium
- All economic shocks must originate from reasons outside of the economic system.
- Government spending must crowd out private investment as the economy is already efficiently allocating resources.
You can see that if 3 is proven to be wildly incorrect, that the initial assumption that the economy is always in equilibrium is now very suspect. That places conclusions 1 and 2 in question. Conclusions 1 and 2 form the basis of libertarian thinking, and discrediting them would be a stake through the heart of conservative economic thinking (if of course, there is any. )
These libertarian economists are worried that when the stimulus works, their entire world view will be discredited. So they are sowing counter arguments that are not even wrong, in the attempt to confuse people.
I ran across a new word today, and one that is very applicable to this discussion.
Agnotology: Culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth.
I have to wonder if this is what they are attempting to do. Increase the ignorance of the populace in order to protect their world view.