Monday, September 7, 2009

I Fear for the Finance Students at Washburn University

. Monday, September 7, 2009

My post on Krugman's essay on macroeconomics got picked up by Seeking Alpha, and generated a decent bit of discussion. Most comments there are of the wing-nut variety -- and both political poles are well-represented -- but a decent number of academics and professionals post and comment there too. So I was disheartened to see the following comment from Robert Weigand, an endowed professor of finance at Washburn University:

Sounds like more of the same: Many words devoted to attacking Krugman and Keynes; few words devoted to proposing an alternative path to economic recovery. Are you implying that we should cut taxes and . . . then what? Your comparative intellecutal advantage is supposed to be providing insights into the connection between economics and politics. Reaganomics blew up because, even when Republicans controlled Congress, no one could get them to reduce of even slow federal spending. Thus the $14 trillion deficit. Now that the Dems are in charge (thanks to a huge anti-Bush turnout at the polls) . . . they're not going to cut spending, either -- tax cuts are therefore out of the question. That leaves Keynesian solutions. Lets just hope the fiscal stimulus works and we don't wind up stuck in a Japanese-style liquidity trap, or slow-growth stagflation scenario. Additionally, the reaction from European and Asian financial markets today was telling. Their governments announced continuation of the stimulus programs and stocks rose on the news. So the market obviously likes stimuli.

I responded to Weigand in that thread, but the response was substantive enough that I thought I should reproduce it here:

Nice straw man, but I'm not "implying" anything. I said quite clearly that Fed policies (including QE) have so far been sufficient to arrest the downturn and begin the recovery. So far as I know, no one disputes this. So any case for fiscal stimulus (including tax cuts, which I oppose) has been severely weakened. That doesn't mean that fiscal stimulus can't have positive effects (i.e. the multiplier is probably greater than 1), but it does mean that it is probably unnecessary, so the negative aspects of stimulus (inflation, the debt burden, deadweight loss from future taxation) should be given greater weight.

The rest of your comment makes even less sense. We have debt problems... so we should engage in more deficit spending? Fiscal stimulus (in the form of tax cuts) doesn't work... so we should enact more fiscal stimulus? We face deflation... AND stagflation? Financial markets are all screwed up... so we should set public policy based on day-to-day market fluctuations in Europe and Asia? These are all non sequiturs.

You're right about one thing: my comparative advantage is in examining the links between politics and economics, and most of my posts are oriented towards that nexus. But that requires having an understanding of basic economic theory; apparently that's not a prerequisite for finance professors.

I'd add only one thing: Even though I didn't mention it, I do know that tax cuts and spending programs have different multipliers. Acknowledging that changes the substantive argument very little, but even if it did I doubt Weigand would know the difference.


I Fear for the Finance Students at Washburn University




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