Government Fiscal Stimulus Does Not Speed Job Growth

DebtAndEmploymentGrowthGraph2019-02-17.jpgSource of graph: online version of the WSJ article quoted and cited below.

(p. A17) . . . is there evidence that stimulus was behind America’s recovery–or, for that matter, the recoveries in Germany, Switzerland, Sweden, Britain and Ireland? And is there evidence that the absence of stimulus–a tight rein on public spending known as “fiscal austerity”–is to blame for the lack of a full recovery in Portugal, Italy, France and Spain?
A simple test occurred to me: The stimulus story suggests that, in the years after they hit bottom, the countries that adopted relatively large fiscal deficits–measured by the average increase in public debt from 2011-17 as a percentage of gross domestic product–would have a relatively speedy recovery to show for it. Did they?
As the accompanying chart shows, the evidence does not support the stimulus story. Big deficits did not speed up recoveries. In fact, the relationship is negative, suggesting fiscal profligacy led to contraction and fiscal responsibility would have been better.

For the full commentary, see:
Phelps, Edmund. “The Fantasy of Fiscal Stimulus; It turns out Keynesian policies are correlated with slower, not faster, economic growth.” The Wall Street Journal (Tuesday, Oct. 30, 2018): A17.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Oct. 29, 2018.)

The Politically Correct Fight Against the Leprechaun of Notre Dame

180px-Notre_Dame_Leprechaun_logo.svg.png

Source of image: https://en.wikipedia.org/wiki/Notre_Dame_Leprechaun

(p. A17) So it’s come to this: Leprechauns are hateful.

Not just any leprechauns, mind you. This particular one–hat cocked, chin out, dukes up–happens to be the mascot for the Fighting Irish of the University of Notre Dame. The little, green-suited man is now in the same politically correct crosshairs that recently locked onto the Cleveland Indians’ Chief Wahoo. And ESPN’s Max Kellerman has called on Notre Dame to follow the Indians’ lead and send this leprechaun back to the end of the rainbow where he belongs.
“Many Irish-Americans are not offended, but many are,” Mr. Kellerman said.
. . .
. . . , Mr. Kellerman understands the zeitgeist well. His argument that the 34 million Irish-Americans who are mostly untroubled by the Fighting Irish leprechaun must be forced to yield to the demands of one outraged Irish-American friend is as current as they come.
But in the case of Notre Dame, the more interesting question may be the one the ESPN analyst never asks. Each week on national TV, especially during football season, the Fighting Irish offer their own lesson in diversity. Instead of condemning a cartoon leprechaun, perhaps America ought to be applauding the healthy cultural appropriation that happens every time African-American, Asian-American and Latino athletes compete together wearing jerseys or helmets proudly proclaiming themselves “Irish.”

For the full commentary, see:
William McGurn. “Are Leprechauns Racist?; Notre Dame’s Fighting Irish offer some healthy cultural appropriation.” The Wall Street Journal (Tuesday, February 6, 2018): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Feb. 5, 2018.)

“Amazed by the Short-Term Psychology in the Market”

(p. A1) Even after European leaders appeared to have averted a chaotic default by Greece with an eleventh-hour deal for aid, worries persist that a debt disaster on the Continent has merely been delayed.

The tortured process that culminated in that latest bailout has exposed the severe limitations of Europe’s approach to the crisis. Many fear that policy makers simply don’t have the right tools to deal with other troubled countries like Italy, Spain, Ireland and Portugal, a situation that could weigh on the markets and the broader economy.
“I don’t want to be a Cassandra, but the idea that it’s over is an illusion,” said Kenneth S. Rogoff, a professor of economics at Harvard and co-author of “This Time Is Different: Eight Centuries of Financial Folly.” “I am amazed by the short-term psychology in the market.”
. . .
(p. B3) “I don’t think we’re anywhere near the endgame,” Professor Rogoff of Harvard said.

For the full commentary, see:
PETER EAVIS. ” NEWS ANALYSIS; For Greece, a Bailout; for Europe, Perhaps Just an Illusion.” The New York Times (Weds., February 22, 2012): A1 & B3 (sic).
(Note: ellipsis added.)
(Note: the online version of the commentary is dated February 21, 2012.)

Rogoff and Reinhart’s thought-provoking and much-praised book is:
Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

Gary Becker Says “Economics Trumps Culture”

At the Chicago American Economic Association (AEA) meetings, I attended an 8 AM session on Sun., Jan. 8, 2012 in honor of the 30 anniversary of Gary Becker’s Treatise on the Family. At the end of the session, Becker discussed five issues related to the book.
One of these was the question of whether the features of the family are best understood on the basis of economic issues or cultural issues. He mentioned two examples: the Irish family and the Asian family. In the past it had been claimed that the Irish family would have enduring features due to religion and culture, features such as many children and women who stayed at home. Today, Becker noted, the Irish family looks much like other European families. He then paraphrased Singapore’s former ruler Lee Kuan Yew as having claimed in the past that the Asian family is superior to the Western family in its cohesiveness and loyalty. Today, Becker noted, Asian families look much more like Western families. Becker concluded that in the short run cultural factors may dominate, but that in the long run economic factors dominate. He said “Economics trumps culture.”
Becker’s discussion has broader relevance. One of the issues that I am grappling with in my research and teaching is the extent to which success at entrepreneurial innovation depends on cultural differences and the extent to which it depends on differences in constraints and policies.
If policies matter more, then it is easier to see a clear path toward progress, than if murkier cultural issues matter more.

Economic Freedom Correlated with “Every Indicator of Well-Being”

FreedomIndex2009.gif Source of table: online version of the WSJ article quoted and cited below.

(p. A17) For 15 years, The Wall Street Journal and The Heritage Foundation have been measuring countries’ commitment to free-market capitalism in the “Index of Economic Freedom.” The 2009 Index, published this week, provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens.

The positive correlation between economic freedom and national income is confirmed yet again by this year’s data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as “repressed.” This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.
. . .
In a special chapter in this year’s Index, the Journal’s Stephen Moore chronicles the critical role that tax cuts, particularly cuts in corporate taxes, have played in economic growth in Eastern European countries and others like Ireland. The citizens of those countries lived for decades with state-directed economic planning and regulation, which many now advocate for the U.S. and other advanced economies. They remember the clumsiness of socialism and the government missteps that fostered economic disaster. To switch dance partners now that they have adapted to the quick step of capitalism and are enjoying its many benefits would be a tragic mistake.
It would be ironic indeed if the world’s advanced economies, in seeking to address current woes, abandoned the system that has brought them and others around the world the amazing levels of prosperity experienced over the last half century. The “Index of Economic Freedom” provides a record of that progress. It charts the path to economic advancement and proves that the best way forward is to hang onto our partner and step to the music of the market.

For the full commentary, see:
TERRY MILLER. “Freedom Is Still the Winning Formula.” The Wall Street Journal (Tues., January 13, 2009): A17.
(Note: ellipsis added.)

The Role of the Irish Potato Famine in the Repeal of the Corn Laws

In one of his more famous, and outrageous, essays, George Stigler argued that economists do not matter, because changes in policy do not arise from changes in ideas, but from changing circumstances and special interests.
One of the cases that he briefly mentions is the repeal of the English Corn Laws that had restricted the importation of wheat (in England “corn” is what we call “wheat) into Britain. The usual account is that the free market arguments of Cobden and Bright made the difference.
The account quoted below, might be taken as support for Stigler’s position. But it might also be evidence for the more optimistic position of Stigler’s buddy, Milton Friedman. Friedman held that on major issues, economists’ policy proposals go ignored until some crisis occurs that sends the politicians looking for policy alternatives. (Friedman thought that this is what occurred in the case of his own proposal for floating exchange rates.)

(p. A23) THE feast of Ireland’s patron saint has always been an occasion for saluting the beautiful land “where the praties grow,” but it’s also a time to look again at the disaster that established around the world the Irish communities that today celebrate St. Patrick’s Day: the Great Potato Famine of 1845-6. In its wake, the Irish left the old country, with more than half a million settling in United States. The famine and the migrations changed Irish and American history, of course, but they drastically changed Britain too.
. . .
The first intimations of Ireland’s looming calamity reached the British government in August 1845. Although Britain was responsible for the social and economic iniquities which had made Ireland so susceptible, the government of the day deserves some credit for its efforts to avert mass starvation. There were political as well as logistical difficulties.
. . .
To Peel it was obvious that the Corn Laws would have to go, but his electorate of large landowners was vehemently opposed to their abolition. The Duke of Wellington, leader of the House of Lords, complained that Ireland’s “rotten potatoes have done it all — they put Peel in his damned fright.” Peel drew heavily on the news from Ireland as he urged Parliament to vote for abolition:
“Are you to hesitate in averting famine which may come, because it possibly may not come? Are you to look to and depend upon chance in such an extremity? Or, good God! are you to sit in cabinet, and consider and calculate how much diarrhea, and bloody flux, and dysentery, a people can bear before it becomes necessary for you to provide them with food?”
The bill abolishing the Corn Laws was passed in May 1846 in the House of Commons, with two-thirds of Peel’s party voting against it and the entire opposition voting in favor. A month later, Peel was out of office.
. . .
. . . Ireland’s famine, by ending the Corn Laws, prompted the beginning of the free trade that established the success of Britain’s industrial economy.

For the full commentary, see the article referenced immediately below, or see his forthcoming book Propitious Esculent: The Potato in World History:

JOHN READER. “The Fungus That Conquered Europe.” The New York Times (Mon., March 17, 2008): A23.

(Note: ellipses added.)

The Stigler essay mentioned above is:
Stigler, George J. “Do Economists Matter?” Southern Economic Journal 42, no. 3 (1976): 347-54.
(I will try to dig out a reference for the Friedman position when I have more time.)

Lower Taxes Encourage Entrepreneurship in Ireland


WebReservationsOfficers.jpg “Feargal Mooney, left, is chief operating officer for Web Reservations International. Ray Nolan is the founder and chief executive officer. Web Reservations provides booking and management for hostels that cater to economy travelers.” Source of the caption and photo: online version of the NYT article quoted and cited below.

(p. C8) DUBLIN — Ireland is now alive with enthusiasm for entrepreneurs, who seemingly rank just below rock stars in popularity.
. . .
The relatively new emphasis on entrepreneurs in Ireland is the culmination of nearly four decades of government policies that have lifted the economy from centuries of poverty to modern prosperity.
The change began when Ireland entered the European Union in 1973. In subsequent years, the government rewrote its tax policies to attract foreign investment by American corporations, made all education free through the university level and changed tax rates and used direct equity investment to encourage Irish people to set up their own businesses.
“The change came in the 1990s,” said James Murphy, founder and managing director of Lifes2Good, a marketer of drugstore products for muscle aches, hair loss and other maladies. “Taxes and interest rates came down, and all of a sudden we believed in ourselves.”
The new environment also encouraged Ray Nolan, who founded Raven Computing in 1989 to provide software for lawyers to keep track of billable hours. He sold that company and founded another that created software for companies to manage billing and receipts. And in 1999, he founded Web Reservations International to provide booking and property management for hostels that cater to backpackers and economy travelers.
“Hostel owners needed to keep track of people sharing rooms, and bookings for Americans coming to Dublin for three nights,” said Feargal Mooney, chief operating officer of Web Reservations. “Hostel accommodations go for 10 to 20 euro a night,” he said, or $15 to $30 at today’s exchange rates, “so booking reservations in them wasn’t profitable for the big travel companies.”

For the full story, see:
JAMES FLANIGAN. “ENTREPRENEURIAL EDGE; Ireland Uses Incentives To Help Start-Ups Flourish.” The New York Times (Thurs., January 17, 2008): C8.

(Note: ellipsis added.)