Impressive Podcast

The guest on this week’s EconTalk podcast is Richard Epstein of New York University and Stanford’s Hoover Institution and he discusses regulation.

I highly recommend listening to the whole podcast.  Epstein does an excellent job of discussing the intricacies and problems with things like the health care legislation, the financial reform and the FDA.

With about 16 minutes in the podcast, Epstein launches a criticism of Keynesian economics that I haven’t heard before.  In case you don’t know, Keynesian economics underpins government expansionary efforts like stimulus spending.

Epstein:

It [Keynesian economics] never tells you where it is that you’re supposed to quit. Take something like unemployment benefits. If 52 weeks are better than 26 weeks and 99 weeks are better than 52 weeks, are we going to say 200 weeks are better than 99 weeks?

If I were an enterprising reporter, I might be inclined to start asking politicians when will we know to pull government out?  When will we know that we should move unemployment back to 26 weeks?  When will we know that we don’t “need” stimulus spending?  When will we know when the health care bill is making things better?

Of course, the easy answer would be, we will know it when we see it.  When the economy is back in shape.

Next question: So, if the economy gets back in shape, say when unemployment reduces to 6%, can we count on you to sponsor legislation to shorten the duration of unemployment benefits?

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10 thoughts on “Impressive Podcast

  1. But is this right? Presumably Keynesian economics says that you quit when AD reaches a certain point. Either full employment or the point where crowding out and supply constraints kick in (depending on your normative take on the question). Full employment is fairly easy to fix up a definition for – crowding out is presumably identified by price level responses and interest rate responses.

    Is that all really so unclear? Exactly how does Epstein conclude that we “don’t know where to stop” with Keynesianism?

    I’m all for quizing politicians – I’m sure they’ll do badly. No Keynesian theory I’m aware of necessitates the lionization of the politician. But if I were Russ, I would have pushed Epstein a little farther on this claim, rather than simply taking his word for it.

      • I guess you could argue that the max on the Laffer curve is subjective.

        But, to add to Epstein’s thoughts, while I think the Laffer Curve is interesting, I don’t recommend using it to dial in tax policy. My goal wouldn’t be to maximize government revenue, but fund the minimal functions of government.

        I would use the Laffer curve as a point to those who would like to raise taxes to pay for their crazy spending, that at some point that’s counterproductive for their own goals because they will start getting less revenue to do so.

        I think the mental model from Krugs, Summers and Daniel is that they are smart enough to read it and make a positive difference. They don’t seem to consider that that may not be the case.

  2. “Is that all really so unclear? Exactly how does Epstein conclude that we “don’t know where to stop” with Keynesianism?”

    It’s because of political pressures Dan. That is the achilles heel of Keynes, it relies on politicians to do what is “right.” When have you ever known a politician to do what isn’t in his own self-interest. Keynes, smartly, never looked a public choice concerns for his policies. If he did, he knew that they would never work.

    Well that’s a lie, he did mention about one type of political party that would be conducive to his policies, but modern Keynesians don’t like to talk about that.

    But you also need to remember the highly subjective nature of what is the “right” amount of stimulus. Obama, Romer, Orzag, Summers and Geithner all thought they had the “right” amount. Oooops!
    So what if Krugman’s amount is tried and failed? What then?

  3. “It’s because of political pressures Dan. That is the achilles heel of Keynes, it relies on politicians to do what is “right.””

    So we know where to stop but politicians won’t stop there? Sure – but that’s very different from what Epstein said.

    The same can be said about libertarians, right? Libertarians will tell you exactly what you should and shouldn’t do, but politicians can’t implement it well.

    It seems to me if you’re going to identify that as a short-coming of Keynesians you need to identify it as a short-coming of all perspectives.

    But you also need to remember the highly subjective nature of what is the “right” amount of stimulus. Obama, Romer, Orzag, Summers and Geithner all thought they had the “right” amount. Oooops!
    So what if Krugman’s amount is tried and failed? What then?

    Obama, Orzag, Summers, and Geithner never justified it on Keynesian grounds that I’m aware of – did they? Did they demonstrate that their stimulus met Keynesian requirements? No. In fact Summers explicitly had political goals in mind, not Keynesian goals in mind. So again – why is this a problem with Keynesianism?

    Republicans talk libertarianism and then never do it. Does that mean that libertarianism fails on public choice grounds? No – it’s exactly what you’d expect if you understand public choice. Republicans botching isn’t proof one way or another that libertarians are wrong or inadvisable, and Democrats botching it isn’t proof one way or another that Keynesianism is wrong or inadvisable.

    Think of how you would react if I said “Reagan substantially increased the size of government”. That’s about how I’m reacting to your point on Obama or any of the rest of them.

    • Thanks for the comments Daniel.

      “The same can be said about libertarians, right? Libertarians will tell you exactly what you should and shouldn’t do, but politicians can’t implement it well.”

      For example? Like letting you do what you see fit for yourself as long as it doesn’t infringe on the rights of others?

      • I think Dan is under the delusion that Cass Sunstein is a model for libertarianism. From his last sentence, at least we know now, that it’s just partisanship on his part.

    • I think first off, you need to really understand the idea that Republicans are not libertarians.
      Second, they did justified their entire economic policies on Keynesian economics. Where does the idea of “stimulus” come from but Keynes. Last time I checked, Austrian econ didn’t rely on stimulus did it? Or is my reading of Hayek and Mises completely wrong? Where in Human Action does Mises advocate government stimulus to jump start an economy?

      And Reagan did increase the size of Government. DUH!!!! But at least you tipped your hand, you were expecting me to take some offense to that maybe? Now I know that’s why your always defending Obama and his policies. It’s just partisanship on your part. Thanks for the heads up.

    • Daniel – I second ZH’s comment. Didn’t Romer sell stimulus with a multiplier of government spending >1? Is the multiplier not a Keynesian concept?

      Reagan did increase the size of government, didn’t he? Not sure what your point was there.

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