Dec

6

Economists for stimulus

December 6, 2008 | 2 Comments | Joshua Gans

A group of economists – Tony Cole, Saul Eslake, Allan Fels, Rod Glover, Nicholas Gruen, Ian Harper, Tony Harris, Mike Waller – have written an open letter to the Prime Minister (but not the Treasurer) advocating aggressive stimulus of the economy. In the main, what they are advocating is standard fare — favour investment rather than handouts in spending government money and do something about Federal/State finances. More radical is the notion of a temporary cut in compulsory superannuation with an increase later on. This is not necessarily a bad idea but I couldn’t find a publicly available paper that had done the modelling over what the consequences of this might be. Let us remember, we need to get private investment going at some stage and so potentially removing lots of funds for that purpose is a risk. But there are short, medium and long run trade-offs and so this might turn out to be a good idea.

What is interesting about the group is that only two of the economists have an academic affiliation — Fels and Harper — and in each case they can be said to be more policy or business focussed than research focussed. This is very different from the mix that typically forms the basis of such letters in the US. Those are made up of academics with very high-powered national and international research reputations. Those letters often cite evidence in support of their policies.

Now I don’t think that the signaturies to this letter are against such things; far from it. What is interesting to me is that the organisers chose explicitly a different route from that mix of economists that might have been viewed to have influence in the US. I must admit that I do not know which is the better route for Australia. But this makes me wonder whether at a Governmental level, politicians are viewed to shy away from arguments put forward by research academics as opposed to those how spend their time more actively involved in policy management, etc. And if so, why?


Comments

2 Responses to “Economists for stimulus”

  1. Roberto on December 6th, 2008 11:00 pm

    Mmmmm. A combination of bureaucrats and technocrats simply prognosticating and perhaps self seeking from a self promotion perspective. Or am I just being skeptical?

  2. Kevin on December 7th, 2008 5:44 am

    This a variation on what the government is doing anyway. It is my guess that a group of academic economists would come up with a similar list. This is not surprising as both groups use the same models for validation of ideas. These models have the underlying assumption that capital markets where individuals work to their own advantage will allocate capital in the most efficient manner for the whole community. This has been shown to be wrong yet again as no amount of regulation will fix the structural issue.

    In brief the underlying problem of fractional reserve banking is not addressed

    and

    The issue of how to spend community money to benefit the whole community is not addressed.

    The panic reaction of giving money to individuals without restriction will not bring about the best long term spending outcomes for the whole community.

    While the intention is good and while the measures will increase spending they do not address the financial system structural issue of the creation of new money and they do not address the underlying problem of individual spending needs being different to community spending needs.