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Why are Tyler Cowen, and Greg Mankiw, linking to every possible critic of the stimulus?  

Why did Robert Barro write a piece that even non-economists can see is flawed due to a basic logical mistake?

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

More below...

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:

  1.  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
  1.  All economic shocks must originate from reasons outside of the economic system.
  1.  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.  

Originally posted to mickslam on Fri Jan 23, 2009 at 04:01 PM PST.

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Comment Preferences

    •  Thanks! (1+ / 0-)
      Recommended by:

      I am trying to get progressives up to speed on economics.  Right now, our economy is the most important issue facing the world and the U.S.  

      We need to have good, logical ideas about how to guide the economy, so that it both provides enough freedom for people to create business, and enough structure so the long term goals of our society are met.  

      Difficult, but not impossible to balance.

      I am repeating myself, and thats ok.

      by mickslam on Fri Jan 23, 2009 at 06:44:37 PM PST

      [ Parent ]

      •  Please post more often - we can use all the input (0+ / 0-)

        from economists we can get. Did you know that FDR actually prolonged the Great Depression? I know...I was surprised, too.

        •  I will try to post as much as possible (0+ / 0-)


          that right wing meme about FDR and the depression is so bold I kind of respect it.  My dad thinks Fox news is the truth, and that most economists believe that FDR did extend the depression.

          I am repeating myself, and thats ok.

          by mickslam on Sat Jan 24, 2009 at 06:13:07 AM PST

          [ Parent ]

  •  I do too! (4+ / 0-)

    I am interested in what the smart libertarians here have to say too!


  •  Also suboptimal equilibrium (7+ / 0-)

    Nice catch. There are many problems with the Libertarian theory of economic activity. One is the constant assuming away of problems, like 'the any equilibrium is the optimal equilibrium'. Then there is the hidden Say's Law: the idea that supply creates its own demand. Clearly, there is lots of supply for which there is little or no demand. The rejection of any 'absolute' shortages; we never run out of anything, prices will change to accomodate realities. Henry George had a magnificent critique long ago.

    My main critique is that Libertarians tend not to understand their own theory very well. The issue of 'economic rents' presents a barrier to the idea that a market allocates effeciently.

    •  This is a subtle point (4+ / 0-)

      that a lot of people seem to miss.  Right now, the zero equilibrium is where we're stuck (or at least headed), and the market can't send any signal to force people out of it.

      We need to nationalize the banking sector to force losses on the shareholders and bondholders, get the worst paper out of the system, and try to reset.  At the same time, we need to get people working in the meantime.  Otherwise we'll be stuck in this situation for a while.

      "Dream for just a second and then do it!" -- Kolmogorov

      by theran on Fri Jan 23, 2009 at 05:22:34 PM PST

      [ Parent ]

    •  Exactly (1+ / 0-)
      Recommended by:

      the implied Say's law is great stuff, it is right there, infused into the entire classical theory.  

      When you assume away any potential potential problems, you end up with a theory that explains "everything" but cannot be disproven.  Which is then not science, but wine-bar opining.  

      Henry George!  Have not read him yet. I have been reading Hyman Minsky, which is great, great stuff.  

      I am repeating myself, and thats ok.

      by mickslam on Fri Jan 23, 2009 at 06:35:11 PM PST

      [ Parent ]

  •  you must be kidding (4+ / 0-)
    Recommended by:
    capelza, Paul Goodman, Dougie, iBlue

    So if this stimulus saves a few jobs Adam Smith was wrong and the last 400 years mean nothing?  Everyone knows if the government creates enough jobs, unemployment well fall and the economy will grow ie. WW2.

    The fact everyone knows is that if government interferes with the free markets, that market will not be efficient.  for example, when government puts up rent controls, they reduce the desire to build new rental properties, and usually cause fewer apartments to be available and the demand for what is available will be artificially increased.

    Government can do some things, such as regulate markets to make them more "free" by increasing competition and honesty.  But if government interferes by placing artificial obstacles, the free market will be warped.  some want it warped to favor one group over another, but to deny the interference warps the economy is to deny econ 101 and like I said, history.

    •  The free market exists in utopia (9+ / 0-)

      Only when there are many buyers and many sellers and buyers have good information about the products/services they are acquiring is there anything approaching a free market.

      Econ 101 is as accurate in describing global markets as classical mechanics is in describing the night time temperature of earth.

      "It's the planet, stupid."

      by FishOutofWater on Fri Jan 23, 2009 at 04:21:35 PM PST

      [ Parent ]

      •  I never said we had a free market (2+ / 0-)
        Recommended by:
        Dougie, iBlue

        in fact the USA ranks 6th in economic freedom right now.

        there will always be governmnet interference, but the theory of free markets will not be proven wrong if the Obama stimulus "works".  but people better wake up if they think the stimulus will fix everything, Obama himself said that the country needs to become more positive about the future.  If people are positive or negative in a huge way, it is a self fulfilling prophesy.  And no, the stimulus can help but it can not turn the economy around on its own.

      •  see our problem is you are talking science and i (2+ / 0-)
        Recommended by:
        Dougie, iBlue

        am talking real life.  only in science could you have perfect pricing based on every party having complete knowledge.  But the free market supply/demand method is still the best way to arrive at a true price in real life.  And free markets have made this country the richest in history.  Even the so called socialist countries of Western Europe are much closer to free markets than in undeveloped nations.  

        Whay is that? it is something capitalism bashers often ignore, to have free markets the FIRST thing you need is rule of law, and then patent rights.  Most countries have neither so there is no incentive to innovate, in the end the effort will be stolen and wasted.

        •  if you think i am a basher of capitalism (2+ / 0-)
          Recommended by:
          FishOutofWater, TurkeyCreek

          you are very incorrect.  This is about making a better form of economy that requires an extremely healthy dose of capitalism.  If we have to bailout the banks and emerging markets every 10 years, we should have some say in how capitalism evolves.  as it stands now, we are just on the hook for the problems, from S&L to LCTM to Asia to Russia to Dot coms to the current crisis.  

          I am repeating myself, and thats ok.

          by mickslam on Fri Jan 23, 2009 at 06:27:48 PM PST

          [ Parent ]

        •  I'm very pro small business (0+ / 0-)

          I'm against the corrupt relationships between big business and the government. In that sense I'm very pro free markets. However, i recognize that free markets are a theoretical ideal.

          "It's the planet, stupid."

          by FishOutofWater on Fri Jan 23, 2009 at 06:34:52 PM PST

          [ Parent ]

        •  The problem with this thinking (0+ / 0-)

          is that the supply/demand method you tout as the best method is the "perfect pricing based on every party having complete knowledge"

          I am repeating myself, and thats ok.

          by mickslam on Fri Jan 23, 2009 at 06:48:49 PM PST

          [ Parent ]

    •  How bad does TARP warp the free market? (8+ / 0-)

      The whole free market ideology is so much propaganda.  The powerful in this country have been warping the "free market" they so loudly defend since capitalism got really rolling.  The powerful have grasped control of advertising, of media, and government itself.  If you can set the rules and control history, you are not allowing anything remotely like a free market.

      •  The tarp is the result is the result of poor (0+ / 0-)

        government policies and poor government oversite.  this ways gives a bit to everyone, the small gov types blame the policies, and the big gov types blame the lack of regulation.

        What we do not need is a bunch of lawyers running the economy.  Just look at Sarbanes/Oxley, it did major damage to our domestic stock market and London became the place to go public, not new york.  If Sarbanes/Oxley was put together by those who knew what they were doing, then maybe it would have helped.   But I don't trust a bunch of lawyers when it comes to economics.

        •  You don't make any sense (2+ / 0-)
          Recommended by:
          Killer of Sacred Cows, mkor7

          we let the market price risk, and the biggest players busted.  The TARP comes out of fear for the social ramifications of letting them bust (i.e., a sharp decline in country club memberships).  Capitalism has its own way of telling you when you took on too much risk: you give all your money to somebody else.

          The government is the only thing keeping your brave heros at the trading desk from emptying out their accounts.  The poor policy was not making it impossible to make all these idiot trades.

          "Dream for just a second and then do it!" -- Kolmogorov

          by theran on Fri Jan 23, 2009 at 05:26:18 PM PST

          [ Parent ]

      •  two ways you can judge a country (0+ / 0-)
        1. how many want to get out vs. how many want to get in
        1. how the people on the bottom rung live compared to their peers in other nations.

        we must be doing something right, economic cycles can not be stopped by fiat, they are part of the free market.  The government can reduce the blow with good Fed policy but the cycles will always occur.  And of course we need to root out corruption both in government and in the private sector.

      •  yep, screw "free market" lies (5+ / 0-)

        they have worked so hard to gut the middleclass in the name of low wages and high profits that only radical changes will save this economy. The problem is that all people educated in America swallow the lie about unions and "free markets". You can see by the arguements here like "we don't need no lawyers running the economy" and other false directions.

        What we need is a government run by people who work for the people in America that PRODUCE the products we live by. We need powerful unions to bargain for the common man and we need a tax structure that will limit the gap between rich and poor. Only then can this country be great for it's people once again.

        •  Yes (3+ / 0-)
          Recommended by:
          Clzwld, mkor7, island in alabama

          So far, however, in spite taxpayer money (that's out money, BTW) being thrown to every big financial player the neoliberals (read Paulson, Rubin, Bernanke, Summers, Geithner) can find, the public doesn't own one solitary thing of value,  Even when we alleged got preferred stock, it was non-voting.  How to these banksters get away with this crap?

      •  Very badly (2+ / 0-)
        Recommended by:
        DaleA, Clzwld

        What's the Lehman bonus pool like?  What about Merrill?  Notice the difference between TARP and no TARP.

        (I am a bit amazed that the people who looted Merrill seem to think they "deserved" it---one of the basic notions of capitalism is that if your company busts, you stop getting paid.)

        "Dream for just a second and then do it!" -- Kolmogorov

        by theran on Fri Jan 23, 2009 at 05:19:36 PM PST

        [ Parent ]

    •  Libertarian economics has precious little to do (6+ / 0-)
      Recommended by:
      Marie, theran, DaleA, occams hatchet, mkor7, Jyrinx

      with Adam Smith.

    •  right on (5+ / 0-)

      There is a great confusion between control and regulation. Control is not good. Regulation is necessary.

      Like you said, good regulation actually makes market more free by reducing corruption, dishonesty, backroom deal, and monopoly.

      Transparency and responsibility are exactly what Obama promotes, I believe. I never believe any president has ever interfered with the market: not Clinton, not Bush.

      Some mistaken regulations with obstacles. There is a fine line to walk there but wingnuts view any rule as obstacle. The problem with Bush is that while he does not interfere with the market, he removes regulation and preventive rules and because of the nature of finance, that action tilts the playing field to big corporation and lead to wide spread of ethical problems.

      Control: no. Regulation: yes.

    •  If you are invoking Adam smith (1+ / 0-)
      Recommended by:

      as a source in support of your argument, you do not have enough knowledge to participate in this conversation.  

      I am repeating myself, and thats ok.

      by mickslam on Fri Jan 23, 2009 at 06:18:48 PM PST

      [ Parent ]

    •  Adam Smith argued to the allocation of capital... (3+ / 0-)
      Recommended by:
      Clzwld, TurkeyCreek, mkor7

      If you are in the fortunate position to have accrued a heaping helping of it, and your only motivation is to grow that capital, as a Galtian rationalist, you will benevolently spread it around such that the entire economy grows.  Unfortunately, that isn't how greed and fear balance out in the human psyche.  "Greed" is what keeps people investing -- no-one (with cash to spare) wants to miss out on a good thing.  "Fear" is the flip side of this coin -- human beings have an irrational aversion to giving up accrued gains; a bird in the hand is worth two in the bush.  It doesn't matter if the actor is a grossly wealthy individual or a prudent pension fund manager with quarterly targets -- the human reaction in the face of turmoil, having a pot to sit on, is to put it out of reach of anyone who might steal or squander it.  And so as the funny money evaporates, all the "real" money is in a desperate flight for safety, to the Cayman Islands, Swiss bank accounts, most importantly Out of the Public Eye, until the whole ShitRin blows over.  Private capital isn't about growing the pot right now.  It's all about hanging onto what's mine.  Read some Game Theory in between rereading Ayn Rand.  Game thory is experimentally testable.


      quis custodiet ipsos custodes -- Juvenal VI, 347-8

      by golem on Fri Jan 23, 2009 at 06:55:00 PM PST

      [ Parent ]

  •  Their theories are wrong. (9+ / 0-)

    Humans are not logical, don't have perfect information and markets are manipulated by big players, crooks and cartels.

    Kinetics is critical in physics, chemistry and geology. It's also important in economics.

    "It's the planet, stupid."

    by FishOutofWater on Fri Jan 23, 2009 at 04:24:14 PM PST

  •  number 3 is a strawman (0+ / 0-)

    I didn't know that classical economics says that government spending hurts equilibrium or the free market.  Certainly government spends money on things such as the military that there would be no other buyer for.  So when government spends on the military, infrastructure, diplomacy etc, it is not considered to make the free market inefficient, in this case government is just another consumer.

    the problem is when government meddles with private transactions, that always leads to a false price.

  •  Do economists really understand anything? N/T (2+ / 0-)
    Recommended by:
    Killer of Sacred Cows, mkor7

    I voted with my feet. Good Bye and Good Luck America!!

    by shann on Fri Jan 23, 2009 at 04:27:35 PM PST

  •  There shouldn't be (1+ / 0-)
    Recommended by:

    a Nobel Prize in economics.  Or in any social science.  And I say that as a social scientist.

  •  Larry Cokehead Kudlow (3+ / 0-)
    Recommended by:
    DaleA, luckylizard, mkor7

    was making that bullshit argument today about gov't spending crowding out private investment.

    I found myself screaming at the TV for him to STFU cause his bullshit trickle down tax cut policies have all proven to be complete crap.

    Somehow I doubt he heard me though.

    This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

    by DisNoir36 on Fri Jan 23, 2009 at 04:53:04 PM PST

  •  Better rebuttal: *What* private investment? n/t (3+ / 0-)
    Recommended by:
    Odysseus, theran, DaleA

    Denny Crane: But if he supports a law, and then agrees to let it lapse … then that would make him …

    Shirley Schmidt: A Democrat.

    by Jyrinx on Fri Jan 23, 2009 at 05:12:40 PM PST

  •  So in your estimation (0+ / 0-)

    The Bush/Greenspan approach to the 2001-2003 downturns proves that stimulus doesn't work?

    It only creates phony growth, more debt, and a bigger crash in the medium term?

    So we should expect more of the same from this round of more of the same?

    OK. Got it.

    If a depression is a prolonged recession, what's a prolonged depression? A Dark Age... welcome home...

    by Paul Goodman on Fri Jan 23, 2009 at 06:01:49 PM PST

  •  If? (0+ / 0-)

    "Success with the stimulus will prove their theories wrong"
    "we are just on the hook for the problems"
    Hard to deny either.
    How to reconcile the two?
    My problem continues to be that we paid for the solution time and time again.
    And that theft is the true crime that has to be addressed before we can get off the treadmill.

    Looking for Good Reason

    by Clzwld on Sat Jan 24, 2009 at 09:01:05 AM PST

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