There's a piece in today's Wall Street Journal called "The Fed's
Needless Flirtation With Danger" in which Martin Feldstein writes that in order to stimulate demand, "Well-designed tax rules are a safe
and effective alternative to quantitative easing".
Dr. Feldstein argues that we'd have been better served by tax policies that induce businesses to make new investments and help consumers consume, instead of unleashing so much QE, but some of his contemporaries would challenge that assertion.Major economists in the media often disagree in practice and do so with the type of certainty reserved for hard science and their views are frequently colored by their political leanings.
I once saw an Economist on Squawk Box who insisted that professional economists collectively agree on nearly all major policy prescriptions. I
Nassim Taleb, Wikipedia
wish I could recall his name. His remarks still strike me as wishful. Maybe he was right, but it sounded as though he wanted viewers to believe that the discipline of economics breeds the kind of metaphysical certainty found in the natural sciences. There's a reason that the name for the field of study has long been referred to as "Political Economy".
To help settle the issue or at least test it, a long form Krugman-Feldstein debate or a Taleb-Krugman debate would be an interesting spectacle, like the sort we could watch years ago.
Paul Krugman, Wikipedia
I'm referring to the old TV debates on public television that featured thought leaders from opposite ends of a
policy spectrum who respectfully but forcefully hashed out their differences on politics and economics.
My favorite debater remains the lateWilliam F. Buckley. Though not a PhD economist, he did hold an undergraduate degree in economics from Yale. Amazon Prime members can access some of WFB's old "Firing Line" debates for free.
This development is described by some in the financial press as a tax cut because the benefit accrues to the consumer in much the same way a tax cut does. That is, by paying less at the pump, we automatically keep more of what we earn. I wonder how Keynesians who routinely advocate for enormous government spending to stimulate demand are reacting. Putting money directly in the hands of taxpayers can also spur consumption.
With a title like, "Are Economists Really That Smart" I had to read Bill Flax's piece in this month's issue of Forbes magazine, especially after digesting his first sentence, "Remember when Joe Biden admonished us to keep spending or else we'd go bankrupt?" Mr. Biden's statement reminded me of something Nancy Pelosi uttered before enactment of the unpopular Obamacare legislation affecting 1/6th of our national economy. Of course, Joe Biden and Nancy Pelosi are not trained economists, nor am I, but these people are running the country. This clip is only two seconds...
My timing to read the aforementioned Forbes piece was good since I'd just finished fighting my way through Nassim Taleb's best selling book, The Black Swan. (I say "fighting" because several technical aspects are beyond me).
In their own ways, Messrs. Flax and Taleb fillet and roast the cadre of economists, public policy-makers and financial journalists who worship at the Keynesian alter. Living within one's means and free market principles are concepts ignored, even ridiculed, by economic intelligentsia as they advocate for trillions in "stimulus".
Their voices clamor for more government spending. The reason QE2 failed, according to these experts, is that the sum wasn't large enough and all the fresh liquidity wasn't given enough time to work. On the other hand, economists like Nassim Taleb see the economic calamities we now face through a different lens. But back to the Forbes, piece.
Mr. Flax says of economics and its modern day application to fiscal policy,
"The principal failing of macroeconomics is the intrusion it invites and the certainty it instills in politicians...no planner, no matter how wise, could possibly appreciate all the subjective nuances lurking behind these numbers. Such schemes are doomed to folly."
There also exists today, a notion that Pols sparring over fiscal policy must "compromise" as if the key to solving our economic morass falls in the middle of some ideological bell curve.
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Compromise might produce added legislation, but it won't cure a deficit spending addiction. Consider Nassim Taleb's eighth principle for a Black-Swan-Robust Society,
"Do not give an addict drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it's denial. We need rehab."
1900 advertisement treatment for morphine addiction - Wikipedia
The same metaphor I used in January of 2009 (and used elsewhere by others) of a drug addict who needs to take the pain, was also used by Dr. Taleb.
The point is one cannot compromise with a drug addict, they only come back for more, which is why we must lower federal spending. Tax increases and money printing are analogous to a government's morphine fix -- it feels good for a while, but it only makes the problem worse before the inexorable crash. We must go cold turkey and take the pain incrementally.
