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To: TimF who wrote (5571)	9/2/2010 10:57:18 AM
From: TimF	1 Recommendation Respond to of 7936

Poorly controlled but we are running something of an experiment now ---- Economists Question Keynes-Inspired Stimulus by David Kestenbaum In the heat of the financial crisis, the coming recession looked so bad that the Obama administration decided to test out the advice of a man who had been dead for over 60 years — the economist John Maynard Keynes. Keynes' idea, radical when he proposed it, was that a government could pull a country out of a deep recession by spending money — a lot of money. Congress followed Keynes' advice. In February 2009, it passed a $787 billion stimulus bill. Now, economists don't often get a chance to test an idea of this magnitude — an idea that goes to the heart of how economies work and the nature of recessions. But here it was: an accidental experiment. "Near perfect," said economist Tyler Cowen at the time. "I view this … as the first test of Keynesian fiscal policy as a formula for getting out of a depression. The very first test." (Keynes' ideas also inspired Franklin D. Roosevelt's New Deal after the Great Depression, but some felt that stimulus was too small to really test the idea.) The Skeptic Cowen, a professor at George Mason University, opposed the stimulus at the time. But he said to call him back in a year-and-a-half. He said if the economy recovers, "I would take that as serious evidence that I was wrong. I don't think it will happen, but I would take it seriously." So, a year-and-a-half has passed. Has Cowen converted to Keynesianism? No. "If you just look at the actual outcome, I would say what we did didn't work," he says. The economy has been growing for about a year, but unemployment is still high, and Cowen worries things might be turning down again — a double-dip recession. "Stimulus, for sure it works in the short run," he says. "The thing is, what happens when you pull the stimulus away? If you simply slide back to where you were, all you've done is postpone that process of adjustment. So I view it is a short-term fix that had some stabilizing properties but didn't really turn the economy around." And that was Keynes' idea: That government spending can turn the economy around. Keynes believed that recessions often went on longer than they needed to because people and businesses were too anxious to spend. That's why the government needed to borrow the money from them, and spend it for them. If you think of the economy like a car, Keynes argued that it can stall out for long periods. But government spending can restart the engine. The Keynesian And there are still plenty of Keynesians around. Mark Zandi, chief economist with Moody's Analytics, declares the stimulus a success: "I don't think it's a coincidence that the recession ended about this time last year when the stimulus was providing its maximum economic benefit. So it achieved its principle objective: to arrest the recession and jump-start an economic recovery." Zandi recently wrote a paper with another economist, Alan Blinder, called "How the Great Recession Was Brought to an End." They argue that the stimulus played an important role and describe the results of an economic computer model that suggests that the stimulus added or saved almost 2.7 million jobs. Zandi says we will pay a penalty down the road. "This costs us dearly. If you add up all of the stimulus that we provided to the economy, it was $1 trillion, or roughly $1 trillion," he says. "I mean, that's very, very costly — and we're going to have to pay for it." Pay for it by raising taxes or cutting spending — both of which could slow the economy. And this really is the crux of the debate. Zandi and Cowen agree that stimulus can help in the short run, and that it hurts down the road. The question is: Which is larger? Zandi and Cowen both say they are open to being proved wrong. Zandi says if the government debt incurred by the stimulus really weighs on the economy for a long time, he might revise his views. Cowen says if the economy makes a very strong recovery, he would also have to do some soul searching. npr.org

To: TimF who wrote (5571)	9/2/2010 5:33:42 PM
From: skinowski	1 Recommendation Read Replies (3) \| Respond to of 7936

free market is better for the economy than communism I think, Tim, that relatively recent history offers some pretty well "controlled" evidence. Think of post war East vs. West Germany. Those are the same people, the same genes, the same culture, the same past. And yet the capitalist free West prospered, and the East went on to become a disaster. And not only in the economic sense. Oppression is a hugely corrupting influence. Another example is N vs. S Korea.

To: TimF who wrote (5571)	9/3/2010 12:10:26 PM
From: TimF	Respond to of 7936

One thing that we have run a lot of experiments on, and that is at relevant to current policy in a minor way (and used to be to a greater extent) is price controls. They have failed just about every time they have tried. They either allow for market clearing prices (the market price is within the allowed limit, as it would be with say a minimum wage of a dollar a day in the US, or a maximum price for bread of $50/slice), in which case they do little of consequence, or they distort prices creating surpluses of unwanted items or (more often) shortages, and a less efficient allocation of resources. At best they might be better than freely set prices, if they only one who can freely set them is a government protected monopoly but most of the time the proper answer is to stop protecting the monopoly.