Crowding Out

If you think markets tend to work better than government in giving people what they want and need, then you’ll worry about government spending crowding out private spending. If you think government works better than markets in giving people what they want and need, then you’ll want government spending to crowd out private spending. I agree with Arnold Kling that maybe this helps explain why positions on the stimulus debate break so cleanly (and damningly for the scientific pretensions of macroeconomics) along partisan lines. Here’s Arnold:

On the stimulus proposal, the division is almost entirely left-right. I cannot think of a single economist on the Left who is skeptical, and I cannot think of a single economist on the Right who is a supporter.

I think that the left-right polarization reflects the fact that the stimulus is ideologically loaded. If nothing else, it shifts large amounts of power and decision-making authority toward government technocrats. If you’re a neo-Galbraithian, that is a good thing. For example, Mark Thoma writes

Tax cuts won’t build schools, or any other public good.

John Kenneth Galbraith was always complaining that the public sector was starved. He viewed entrepreneurialism as a myth. It comes down to a choice between technocratic planning in large firms or technocratic planning in government, and he preferred the latter.

On the other hand, if you’re a Hayekian, the shift in power is appalling.

Well, I am appalled. But also confused, since I didn’t think that most mainstream economists who also happen to be Democrats were “neo-Galbraithians.” Arnold says there is pretty much no evidence that neo-Galbraithian policy is good for a recession. As far as I know, there’s pretty much no evidence that neo-Galbraithian policy is good for the economy generally. But what mainstream economists who are also loyal Democrats actually says that it is? That’s what’s confusing to me. My sense was that there was a pretty solid non-partisan professional consensus against neo-Galbraithianism. So how come the stimulus debate is shaping up as if mainstream Democratic economists do want the public sector to crowd out the private sector? What gives?

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