Posted by: N.S. Palmer | January 26, 2009

Economics As If The Short Run Mattered

By N.S. Palmer, Ph.D.

The U.S. Republican Party is at it again. This time, House Minority Leader John Boehner (R-OH) and his minions are trying their best to block or sabotage government programs that would stimulate the American economy and reduce unemployment. Some conservative and libertarian economists, such as former Bush advisor Gregory Mankiw at Harvard, are doing likewise — advancing one specious argument after another to forestall anything that would help working Americans.

However, though many of the arguments advanced against the Obama plan and fiscal policy are disingenuous, they are sometimes sincere. The reason is that conservative and libertarian economists tend to focus obsessively on the long run at the expense of the short run.

Of course, Keynes gave the best reply to that kind of thinking: “In the long run, we are all dead.” During the 1930s Great Depression, FDR’s advisor Harry Hopkins said pretty much the same thing: “People don’t eat in the long run. They eat every day.”

There is reason to believe that given a proper legal and institutional framework, the economy will perform best in the long run if taxes and other government interventions are kept to a minimum. However, (a) we do not have a proper legal and institutional framework, and (b) people’s lives depend not on the long run but on a series of short runs.

The trick is to keep the economy going today while taking care that it doesn’t crash tomorrow or the next day. And that’s a trick that both the U.S. Republican Party and its house economists have proven unable to perform. Their signal achievement so far has been to run the U.S. and world economic systems into a ditch. Their current efforts could do little beyond ensuring that the ditch becomes our long-term residence.


Copyright 2009 by N.S. Palmer. May be reproduced as long as copyright notice and URL (http://www.ashesblog.com) are included.


Responses

  1. I’m going to risk writing about something I know precious little about. But isn’t it the “job” of the opposing party to knee-jerk oppose anything the in-power party does? I mean, if the opposing party thinks the in-power party’s idea (about anything) is just boffo, then what purpose does the opposing party serve? My cynicism is hiding in there someplace.

    • You make a good point. It often happens that two opposing parties can achieve a better result than either party could on its own. Each party points out the weaknesses in the other’s position and the compromise eliminates at least some of those weaknesses. That worked fairly well last year with the original Wall Street bailout bill (which went from gosh-awful to merely terrible), though it was less a matter of Republicans vs. Democrats than it was of each party’s foot soldiers rebelling against their leadership. However, what troubles me about the Republicans’ current nay-saying is that I don’t believe it’s in good faith. At least some Republicans, including the leadership, (a) are in the pay of big business and don’t want to do anything that would help working Americans, and (b) would like the current economic crisis to drag on at least until the mid-term elections in 2010 so that they can blame it on the Obama administration and the Democrats. The consensus among non-partisan economists is that fiscal stimulus is needed. The risk of a fiscal stimulus that is too large and too soon is lower than the risk of a stimulus that is too small and too late. The point is to put Americans back to work, to give people at least some feeling of economic security, and to put in place a reasonable regulatory framework that will prevent such economic catastrophes in the future. I would hope that everyone, regardless of party affiliation, would think first of their country and their fellow Americans — and let politics take care of itself for a while.


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