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Stimulus good in theory, not practice
Commentator David Frum
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TEXT OF COMMENTARY
Kai Ryssdal: Treasury Secretary Timothy Geithner's been a busy guy today. As Steve Henn told us up at the top of the program, he released the details of the administration's mortgage-relief plan this morning. And he's been up on Capitol Hill defending the president's budget, too. It is a budget that is heavy on the expense side of the ledger book. The White House is betting government spending will be good for the economy and the country's long-term health. The idea here, something called the "multiplier effect," is another contribution from the theories of John Maynard Keynes. But commentator David Frum says, in this case, theory and practice are pretty far apart.
DAVID FRUM: If you are under 40 and not a professional economist, I wonder whether you had ever even heard the phrase "economic multiplier" before this month.
The concept got its last big airing during the slow-growth 1970s. Since World War II, economists of the Keynesian school had argued that government spending exerted a bigger impact on stimulating economic activity than private spending, a bigger multiplier.
Government could borrow and spend -- and so long as it spent intelligently, the spending would actually go a long way to paying for itself by expanding the overall economy. The "multiplier effect" was the liberal equivalent of the Laffer curve -- the conservative promise that the government could cut taxes without losing revenue.
The Keynesian argument was not wrong exactly. It was just that we began to run out of good things to buy. An I-95 or an O'Hare airport: Yes, they probably added more to the economy than they cost. But public housing? Synthetic fuels? Boston's "big dig"? Not so much.
Through the 1970s, resurgent free-market economists showed that public spending typically yielded much worse results than private investment. Government still spent a lot. But more and more of that spending supported government's current operations: defense, health care, pensions.
After a generation of this priority shift, the nation's airports, roads, and bridges have begun to look a little tired. And the nation's Keynesian economists have begun to feel a little bolder. The chair of President Obama's Council of Economic Advisers speculated in a recent paper that with today's depressed private investment and aging infrastructure the multiplier on public investment might be higher than ever.
On the blackboard, it might even be true. But the Obama administration's plans won't be enacted on a blackboard.
High-speed rail in the Boston-Washington corridor might pay off. A Maglev train from Disney World to Las Vegas? That's politics, not economics.
The trouble with the Obama plans is not that Keynesian ideas are all wrong. The trouble is that even when they are sort of right, governments can't execute them to do more good than harm.
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.
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"By Alan Harvey The multiplier effect has nothing to do with public goods" wow. I dont think Alan understands what is meant by the multipler effect. In economics it means that for every $1 the Gov spends it will cause a X% growth in GDP. So yes, it has everything to do with public goods.
I find no fault in what Frum states here. Most of the above comments are ridiculous. Frum never states that the Maglev train to Disneyland is a part of the stimulus package. He states that it is a bad idea for stimulating growth. It is a fact that the government is considering this train route. It is also a fact that the stimulus bill sets aside $8B for high speed rail. There is nothing wrong with Frum stating it is a bad idea. And no, it doesn't make him the equivalent of Limbaugh.
I wish NPR would just come out of the closet - have Rush the drug addict limberger present your conservative views.
Just because Frum isn't smart enough to value in projects, doesn't mean they don't have value - just another conservative jerk pandering his pablum!
Could the folks in charge of Marketplace please put Frum out to pasture? Or at the very least, issue a correction? Frum adds nothing; worse, by mangling Keynesianism and repeating a debunked falsehood, he worsens the public discourse considerably.
I see others have beaten me to it. David Frum has no idea what he is talking about. The multiplier effect has nothing to do with public goods. Keynes used burying ten pound notes in bottles and digging them up. One hoped this canned bull from the American Enterprise Institute would be reduced in supply once their theory got blown up by the facts of the crash.
Frum finally makes it through a commentary without slipping into outright, Limbaughesque name calling. Now if he could just get his facts straight, but of course, that would only undermine his position. Thanks for the doublespeak Marketplace.
I find it offensive that Marketplace gives David Frum a soapbox without better identifying his fairly hard-right political tilt. Simply noting his AEI affiliation after the commentary is insufficient for a former Bush speechwriter, National Review writer, & neocon. If he were talking about something non-political maybe you could get away with it, but when he's trying to sound like an economist reviewing Obama's stimulus package it is wrong. You harm your own credibility by giving him this airtime. To use Frum's own words, that's not economics, that's politics.
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