Friday, January 25, 2008

Macroeconomic Stimulus and Universities

By Richard Vedder

Here is a contrarian view on the economy. We may be heading into a mild downturn --even a small recession --but no big deal. However, nervous politicans and new leaders at the Fed are going to screw things up. They are pushing for a huge stimulus package to get unemployment at acceptable levels by next November.

The economic experience of the 1970s is that stimulus packages do not work --period. If timing is bad, they can be worse than useless. They do nothing to deal with long run problems (e.g., inadequate capital investments). More importantly, they raise inflationary expectations. That raises interest rates, lowers stock prices. That lowers returns on endowments, leads to reduced university private giving, and does nothing to stimulate the economy in way leading to more state appropriations. The 1970s was generally a mediocre decade for universities relative to the golden days of the 1950s and 1960s --yet was accompanied by vigorous, high deficit fiscal policy and expansive monetary policy.

The university community --as the nation as a whole -- would be better off with a more relaxed, less panicky, "rules" approach that does not depend on the whims of the fed. Bernanke is no Greenspan or Volcker (I was against his appointment) --if for no other reason than he is an academic shielded his whole life from the consequences of adverse economic policies (unlike Greenspan). The CPI rose more last year than the year before, and the falling dollar shows that the world is losing confidence in this great standard of value. You heard it here first.

6 comments:

Bob Yates said...

There is a reason why economics is called the dismal science. In a recession, millions of people will be worse off. However, if you are being paid to comfort the comfortable, it probably is what our gracious host writes:

We may be heading into a mild downturn --even a small recession --but no big deal.

Chris said...

Bernanke is no Greenspan or Volcker (I was against his appointment) --if for no other reason than he is an academic shielded his whole life from the consequences of adverse economic policies (unlike Greenspan).

LOL, Thanks for the laugh, Rich.

Seriously, has there ever been a more ridiculous example of self-loathing manifesting itself as transference?

sciencedoc said...

Chris: Very good! I've sometimes wondered what got into this guy. Maybe bitter about being stuck at Ohio U. all his life? Bernanke/Princeton/Fed must really rankle.

Mad Dog said...
This comment has been removed by the author.
maxheadroom said...

Mr. Mad Dog,

The reasons for the "hate & discontent" from the "Three Little Pigs" is because it is easier to tear paper than to write one. It is easier to criticise and find fault than to think on a high intellectual plane. It's much easier to attack than present alternative ideas. However, the main reason you see, for the TLP's astonishingly diminished mental capacity, is due to insecurity. If the TLP's presented an idea, they would be opening themselves up for criticism - which they simply can not handle. As difficult as it may be to understand, by insulting a person who is either a threat to them or more intelligent than them, they try to knock that person down to build themselves up (in their own minds of course). What you and I see as quite stupid and thoughtless remarks, makes them feel better about themselves. It's really quite that simple.

sciencedoc said...

To the aptly self-named dog and the guy with lots of vacant space: you'll have to come up with better insults than that, after "rats and whores" from the great man himself.