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Brooks Does the Big Lie on Stimulus (with no shame)

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Thursday, 26 April 2012 23:22

David Brooks is playing the "it's all so confusing, we just can't really know anything about economic policy" game. The point is to try to make it intellectually respectable to question whether stimulus spending can boost the economy.

This is important for the right, because the evidence from the austerity induced double-dip in the UK and euro zone is making it ever harder to deny that government spending can and does stimulate the economy just as the old textbook models predict. In the wake of this evidence, it is incredibly valuable that someone like Brooks, who can claim credibility by virtue of his perch on the NYT oped page, muddy the waters with this sort of "it's all so confusing" piece.   

The way to understand Brooks' column, which is ostensibly about the difficulty of sorting out whether government policies work, but which is really about confusing the issue on stimulus, is to imagine that the topic was evolution or the orbit of the earth around the sun. If a person was committed to denying evolution they could easily point to all the mistakes that biologists had made over the years in constructing evolutionary paths. Similarly, one could deny that the earth orbits the sun by pointing to all the difficulties that astronomers encountered over the years in properly calculating its orbit. As Brooks would say, it's all so confusing, it's too bad that we don't have some way to determine these issues.

Of course honest people know that we have ways to determine these issues and it has long been a settled issue that  evolution explains the structure of the biological world and that the earth orbits the sun. Similarly, it is simply not true, as Brooks claims:

"Nearly 80 years later, it’s hard to know if the New Deal did much to end the Great Depression."

Nor is it Brooks being honest in saying:

"Many esteemed and/or Nobel Prize-winning economists like Joseph Stiglitz, Larry Summers and Christina Romer argued that it would help lift the economy out of recession. ....

We went ahead and spent the roughly $800 billion. What have we learned?

For certain, nothing. The economists who supported the stimulus now argue the economy would have been worse off without it."

At the time, Stiglitz, like most prominent progressive economists outside the administration, said as loudly as possible that the stimulus would not be large enough to lift the economy out of recession. (Here's one of my pieces on the topic.) Romer also argued for the need for a much bigger stimulus in a private memo, which has been documented in memos that have since been made public. (Summers claims that he agreed with Romer's position.)

To imply, as Brooks does, that events have somehow shown the advocates of stimulus as being wrong, or that there is even much grounds for questioning the argument for stimulus as its proponents laid it out at the time is an effort to muddy the waters pure and simple. There any number of studies that have shown the stimulus has worked pretty much as predicted, such as this one by the Congressional Budget Office and this one, using an entirely different methodology by two Dartmouth economists.

Of course there can be economists who are opposed to the idea that stimulus can work as an article of religious faith. Economic theory also predicts that for a large enough sum of money there will be economists who will say that the stimulus did not work regardless of what they actually believe to be true.

But the evidence on stimulus, like the evidence on evolution and the orbit of the earth, is not ambiguous. It is unfortunate that some people get paychecks for trying to mislead the public into thinking it is.

[btw, Brooks deserves a heaping dose of ridicule for this section:

"Businesses conduct hundreds of thousands of randomized trials each year. Pharmaceutical companies conduct thousands more. But government? Hardly any."

If Brooks ever read the paper he writes for, he would know that the pharmaceutical industry routinely misrepresents the results of its studies to exaggerate the effectiveness of its drugs and conceal evidence of harmful side effects. Given its track record it is hard to difficult to believe that anyone could hold up the pharmaceutical industry as a model with a straight face.]

Comments (32)Add Comment
Real world experiment
written by Robert Salzberg, April 27, 2012 6:58
    Here's an experiment for Mr. Brooks.  Imagine dozens of industrialized countries around the world competed for who could achieve the best health outcomes for the least amount of money.  Imagine that all the other countries achieved the same or better health outcomes for half as much money as the U.S.

    Mr. Brooks would surely accept the results of the experiment and advocate mightily for the other countries method.  Right?  He wouldn't let ideology get in the way of such overwhelming evidence would he?
...
written by JSeydl, April 27, 2012 7:14
Economic theory also predicts that for a large enough sum of money there will be economists who will say that the stimulus did not work regardless of what they actually believe to be true.


Priceless quote.
Experimenting is falsifying (Popper)
written by Christiaan, April 27, 2012 7:28
Moreover, government does in fact experiment. Bush experimented with trickle down. It failed. Europe and Cameron experimented with austerity. It failed. Obama experimented with Keynesian stimulus. It worked. (I can go on for a long while.)

The problem with experimenting is not so much about doing it, but more about accepting the answers and learning from it. Brooks and his Republican masters have shown again and again that they're the ones who refuse to do this.

Not sure whether I should call Mr Brook hypocrite or devious (if he's smart enough to know what he's saying, I have to conclude the latter.)
...
written by liberal, April 27, 2012 8:19
Economic theory also predicts that for a large enough sum of money there will be economists who will say that the stimulus did not work regardless of what they actually believe to be true.


Yep. As I've pointed out many times, economists themselves point out that incentives matter. And it's clear that the incentives faced by economists encourage them to whore themselves out to the rich and powerful. Thus, the economists are right!
Brooks and the 'Respectable' Right Wing
written by Hugh Sansom, April 27, 2012 8:45
Brooks is in the same camp as pseudo-intellectuals like Amity Shlaes. Brooks doesn't cite Shlaes (she wouldn't work in his argument from authority, to the extent that he offers an argument of any kind), but he is echoing her "FDR didn't help" line. He also doesn't mention any economists most clearly in his camp — Douglas Holtz-Eakin, Casey Mulligan, John Taylor. Maybe that's because they have a demonstrated track record like his own, making up 'facts' when truth doesn't serve their mission.
Did Cash-for-Clunkers Work?
written by Paul, April 27, 2012 9:01
As the epitome of Keynesian stimulus to increase the propensity to consume, C-4-C jump started demand in an auto industry that was in a state of collapse - two major manufacturers bankrupt, factories closing, thousands of workers laid off. After C-4-C, auto industry production increased every quarter, sales increased dramatically to near normal levels and all manufacturers are now profitable.


Increased consumption and demand revived the auto industry as a result of Keynesian stimulus - what other explanation is there?
Sextus Empericus is alive and well, and writing in the NYT.
written by LSTB, April 27, 2012 9:10
Brooks is resurrecting the 1st-2nd century Roman philosophy, Pyrrhonian skepticism: we can't know anything about anything, so it's futile to try.

Stimulus denial makes even less sense than intelligent design, which is quite a feat. To deny stimulus requires believing that government spending creates literally nothing, as though the moment the last disbursement is made, the money disappears from workers' bank accounts and infrastructure crumbles to dust before our very eyes. Or, by operation of karma its benefits are cancelled out by mystical costs. New bridges magically don't shorten people's commutes, for example.

Shame on Brooks.
Math is hard
written by EMichael, April 27, 2012 9:57
Mr. Brooks,

"Don't hand me that irreducible complexity crap"--Paul--
Experimenting
written by David in NYC, April 27, 2012 9:57
"Businesses conduct hundreds of thousands of randomized trials each year. Pharmaceutical companies conduct thousands more. But government? Hardly any."

OK, BoBo, tell us: exactly how would one conduct "hundreds of thousands of randomized trials" with the economy? Use a time machine?
@David in NYC
written by Ken in MN, April 27, 2012 10:46
RE: Experimenting. That is an awesome idea! I'll just put on my tinfoil hat, jump in my time machine and go back to 1932! Of course, the problem is, I can't find my tinfoil hat...

(Ugh! Why does BoBo still have a job???)
..., Low-rated comment [Show]
...
written by JSeydl, April 27, 2012 11:34
Why just look at the example of Japan. Twenty years and debt reaching 230% of GDP and still a stagnant economy. Yep, no way anyone could lose faith in Keynes unless they're being paid off.


Of course you've never read Keynes, Locus. Keynes never said that fiscal stimulus is the only channel for stabalization policy. There are many others, including an easing of monetary policy and an exchange rate depreciation. Here's some weekend reading for you: http://www.cepr.net/index.php/...ary-theory

Japan's failure in the 1990s was a monetary policy failure. The fiscal stimulus attempts could have been 5x as large and it still wouldn't have mattered, so long as the BoJ was unable to stop prices from falling and to bring the Japanese economy out of the liquidity trap.
...
written by liberal, April 27, 2012 12:52
Twenty years and debt reaching 230% of GDP and still a stagnant economy.


Things look better on a per capita basis. Furthermore, IIRC Japan's economy has many strengths (notwithstanding things like the Fukishima disaster).

But the problem is that there's more to the game than macroeconomic policy. Japan undoubtably has its own incompetent, evil kleptocratic elite busy screwing things up there, just as ours is here, in ways outside the realm of monetary and fiscal policy alone.
Truth Seeker
written by Dave, April 27, 2012 1:00
Brooks is not an economist. His bio is a news reporter, elevated to a Serious Talking Head at the NYT. So who are his paymasters he spews his propaganda for?
...
written by liberal, April 27, 2012 1:07
JSeydl wrote,
Japan's failure in the 1990s was a monetary policy failure.


IIRC that's completely true (though my recollection is that they also didn't clean up their zombie banks fast enough, which is a finance/finance regulation policy issue not really monetary).

But their original sin was the bubble that generated that crisis, the asset price bubble (mainly real estate but also lots of other things). I could be wrong, but I recollect hearing things like at one point the land in Tokyo or maybe the Tokyo area was worth more than all the land in the continental US. That's just asking for some serious trouble.
...
written by JSeydl, April 27, 2012 1:45
IIRC that's completely true (though my recollection is that they also didn't clean up their zombie banks fast enough, which is a finance/finance regulation policy issue not really monetary).


This is sort of a misconception. The zombie banks became zombie banks because of the deflation. Here's Bernanke in 1999 (http://www.princeton.edu/~pkru...alysis.pdf):

Consider a hypothetical small borrower
who took out a loan in 1991 with some land as collateral. The longterm prime rate at the end of 1991 was 6.95% (Table 1, column 3). Such a borrower would have been justified, we may speculate, in expecting inflation between 2% and 3% over the life of the loan (even in this
case, he would have been paying an expected real rate of 4-5%), as well as increases in nominal land prices approximating the safe rate of interest at the time, say 5% per year. Of course, as Tables 1 and 2 show, the borrower’s expectations would have been radically disappointed. [Tables show deflation]

To take an admittedly extreme case, suppose that the borrower’s loan was still outstanding in 1999, and that at loan initiation he had expected a 2.5% annual rate of increase in the GDP deflator and a 5% annual rate of increase in land prices. Then by 1999 the real value of his principal obligation would be 22% higher, and the real value of his collateral some 42% lower, then he anticipated when he took out the loan. These adverse balance-sheet effects would certainly impede the
borrower’s access to new credit and hence his ability to consume or make new investments. The lender, faced with a non-performing loan and the associated loss in financial capital, might also find her ability to make new loans to be adversely affected.


But I agree w/ your second point; the the asset price bubble in the 1980s was what ultimately led to the liquidity trap in the 1990s.
brooks-your classic know very little
written by mel in oregon, April 27, 2012 2:32
ron unz wrote an essay showing how little of the criminal behaviour of pharmaceutical companies is reported in the american press. vioxx produced by merck was recalled & eventually a class action suit was settled for about $5 billion. the death rate in america went down quite a bit, which is somewhat strange because it was due almost entirely in the age group (65+) which used vioxx. so unz calculated that 500,000 seniors died from heart attacks & strokes who had used vioxx. FDA officials apologized, promising to do better in the future (yeah, right, when pigs fly). so brooks is obviously unaware of this or else still believes the earth is flat. as to brooks saying it's just so complicated that no one can know if stimuluses work, look at the facts david. the great global capital that has emerged in the last 30 years from the moving of trillions of dollars from the poor to the wealthy has 2 diverging ways of using this money. in america & europe speculative investment has gone in to derivatives. keynes warned of "casino capitalism" back in 1936. china & india have used stimulus to build their infrastructure & manufacturing base. based on their gdp growth, it looks like the asian economies are proving to be right. so it looks like stimulus is on the right track. poor david, he defends a system that lewis lapham wrote over 20 years ago that every time you go into a bank there should be a giant roulette wheel there to let you know how they gamble with your money. the bankers (not the poor tellers) should all be made to wear court jester costumes.
...
written by skeptonomist, April 27, 2012 2:43
Actually it is hard to determine how effective the stimulus was - the judgement depends on modeling, which is always suspect (without a long record of successful prediction, which economics does not have). Unfortunately when Keynesian policies work there is little direct evidence of it - the economy remains on a steady course and what is visible is deficits, when there would have been a recession; and taxes which appear excessive or other restraints, when there would have been a bubble. This is fundamental, not a matter of complexity.

What is perfectly clear from history, and what Brooks as well as policy makers in the US and Europe should have learned, is that austerity does not work. This lesson actually was learned in the Depression, but has been forgotten or never learned by new generations of conservatives. Also other specific claims made by conservative politicians and economists are demonstrably false. We know that high tax rates do not impede economic growth, nor is the problem excessive regulation. I have updated my graph showing the effect of tax-cutting on private investment:

http://www.skeptometrics.org/PrivateInvestment/PrivateInvestment.htm

The claim that private investment is inversely related to tax rates is at the heart of conservative economics, but the evidence shows the opposite. Will Brooks ever learn this?

Private investment in the current cycle has actually recovered at a rate comparable to that in previous cycles, but the crash of 2008-9 was so deep that it will take many years to get back to trend level. This is why government investment is needed (the stimulus does not show up on this graph).
Skepto - You Are Kidding, Right?
written by Paul, April 27, 2012 3:35
Unfortunately when Keynesian policies work there is little direct evidence of it


The auto industry recovery from collapse to record profits in less than 3 years is overwhelming evidence that Keynesian stimulus - Cash for Clunkers specifically - worked exactly as predicted.
...
written by Timezoned, April 27, 2012 4:30
This:
Many esteemed and/or Nobel Prize-winning economists like Joseph Stiglitz, Larry Summers and Christina Romer argued that it would help lift the economy out of recession

Followed by:

The economists who supported the stimulus now argue the economy would have been worse off without it."


Struck me as I read it as one of the most dishonest misdirections in some time. The "Now" passage is the really sleazy one, since it's essentially a factual statement, but in a string with the other gives an impression that basically amounts to a lie.

Stiglitz thought that the stimulus would help, and that it was too small. Now, he thinks taht it helped, and that it was too small.

Brooks paints it an entirely different way and it's rank dishonesty.

In 2011, David Brooks praised Sarah Palin's natural political talent. Now, he thinks that she's an extremist and a lunatic.

Of course, Brooks said that she was an extremist and a lunatic in the first instance also, but if I leave that out and just say that "now" he thinks that, which is true, it gives another impression.

What a sad thing that the New York Times is allowing such dishonesty.
Skepto - You Are Kidding, Right?
written by H-Bob, April 27, 2012 7:18
In 1932, after 3.5 years of continually declining GDP, GDP started growing in the first quarter of FDR's presidency. In 2009, after 18 months of continually declining GDP, GDP started growing in the first quarter after the stimulus was signed into law. That seems to be very persuasive evidence that the stimulus worked.

What permits the conventional wisdumb to sow "confusion" is the delay between the end of a recession and the start of the economic boom. The public seems to believe that the recession continues until the boom begins, even though there is a big difference between declining GDP and slowly growing GDP.
...
written by dominic, April 28, 2012 7:58
Of course Brooks does The Big Lie, that's his job. That's always been his job, he's the living embodiment of cowardly centrism where no matter how crazy or dishonest or evil one party acts, he's always there to muddy the waters by saying "but the democrats..." or "both sides do it" or there are extremists on the left AND on the right."

I'd recommend reading driftglass.blogspot.com for brilliant writing and the shredding of Brooksian ideology.
...
written by Locus, April 28, 2012 2:08
JSeydl,

The evidence in support of Keynesianism is so overwhelming that its critics must be receiving "large sums" to "muddy the waters". Strangely though instead of regaling the world with a list of success stories, Keynesians seem to spend almost all of their time making excuses for why Keynesianism didn't work. The central bank wasn't accommodative enough, or the stimulus wasn't big enough or a single policy mistake was made in 1937 or there was an external oil shock or ... and on and on and on. Keynesian economics is highly successful in academia and political circles. It just falls on its face in the real world.
Locus, You Are Kidding, Right?
written by Paul, April 28, 2012 2:58
Keynesian economics is highly successful in academia and political circles. It just falls on its face in the real world.


When has Keynesian economics ever fallen on its face in the real world?

In 1937, FDR tried to balance the budget by raising taxes and cutting spending - the exact opposite of what Keynes advised.
In 2009, Obama cut the amount of the stimulus because he, and all other economists, misjudged the depth of the Great Recession which was much worse than was known at the time.
In the late 1970s, massive oil price increases combined with the OPEC oil embargo set off inflation that had nothing to do with Keynesian economic principles.

Keynesian economics is responsible for the consequences of following Keynesian principles, nothing else. Perhaps you could explain where exactly in The General Theory of Employment, Interest and Money Keynes got it wrong regarding the real world economy.
...
written by PeonInChief, April 28, 2012 6:05
David Brooks is good for us. He shows us that it's not ignorance or incompetence that keeps us from being NYT columnists, but our unwillingness to spout drivel in support of the 1%.
...
written by Locus, April 28, 2012 10:32
Paul,

I complain that all Keynesians seem to do is make excuses for how Keynesianism should have worked but didn't. And your response is ... a list of excuses. Thank you for proving my point for me.
...
written by David Dickson, April 29, 2012 6:28
It strikes me that you have failed to cite the best evidence supporting your case that the stimulus worked. To wit, after plunging at an average annual rate of nearly 8 percent during the )ct 2008 -- March 2009 period, the economy began to recover (and the recession ended) in June 2009, according to NBER business-cylce dating committee. While the recovery hasn't been nearly as robust as anyone hoped or wanted, it noneless began about 4 months after the stimuls was passed in Feb 2009. . . .
...
written by Calgacus, April 30, 2012 12:15
Locus: Keynesian economics, particularly Keynes's or MMT's version of Keynesian economics, with the primary weapon being targetted fiscal expenditure - works. History proves this unequivocally.

All wealthy people know this. They just want the expenditure targetted at them, for doing nothing, at best. And they usually succeed.

The only reason people disagree is because (a) they are paid to (b) they are insane or (c) they are stupid. 99% of academic economists are all three, and they work very hard to make everyone else (c) & (b). You should really try for (a) also if you aren't already.
...
written by Locus, April 30, 2012 11:28
Calgacus,

I notice that you have the time to (a) impugn people's integrity.

I notice that you have the time to (b) question people's mental state.

I notice that you have the time to (c) insult people's intelligence.

But somehow you just couldn't find the time to mention any of the innumerable Keynesian success stories that supposedly litter the annals of history. I'm sure you were just pressed for time because you were late for a Mensa meeting.
...
written by Calgacus, May 01, 2012 4:05
Locus: Any time it has been tried. Particularly when following what real economists like Keynes, Lerner, Minsky, MMTers, etc have suggested, rather than confused, watered-down prescriptions. The New Deal. The WPA. The economic direction of WWII in the USA. The whole world during the postwar Keynesian full employment era til the 70s or 1980. China, the past 30 years, and particularly in the aftermath of the GFC. After the GFC, Keynesian stimulus worked exactly as predicted. If the "stimulus" was enough, as in China, fine. If it was half as much as recommended, as in the USA, not so fine. Australia - somewhere in between. Austerity is a disaster in Europe, as predicted.

Modern moronic mainstream economics works very hard to concoct meaningless garbage pseudomathematics ( makes a real mathematician vomit) in order to confuse things. But Keynesian economics, MMT economics boils down to accounting. Arithmetic. Disagreeing with it is innumeracy.
Dude!
written by JOHN MARTIN, May 02, 2012 12:53
Economic theory also predicts that for a large enough sum of money there will be economists who will say that the stimulus did not work regardless of what they actually believe to be true.
Integrity, Smart, Good-looks AND Funny?!... come on Dean, stop dicking with me; say yes: MARRY ME
...
written by Locus, May 02, 2012 10:46
Calgacus,

The New Deal: Keynesian stimulus really started under Hoover with his expansion of federal spending by 50% during his administration. And yet by the end of the Thirties unemployment was still 10%. That's not much of a success.

Postwar: Keynesians can't take credit for recoveries after wars and natural disasters as that has been happening already for centuries. Europe in the 1400's experienced a massive increase in economic activity after the horrors of the 1300's but that was well before the rise of strong central governments or Keynes.

Watered-down Prescriptions: That's circular reasoning as it explains away failures by presupposing that Keynesian stimulus would have worked. To put it another way, if the PIIGS are still in trouble ten years from now would that be "proof" that their governments just weren't austere enough?

The Seventies: And there's the rub for Keynesians. With the Great Society, military spending, the space program, the complete dismissal of the barbarous relic and Nixon declaring "I am a Keynesian in economics now", the 70s should have been a golden era for Keynesian economics. Instead the Phillips Curve blew up in a burst of stagflation and many Keynesians had to go back to the drawing board.

China: IMHO China is a bubble and its ghost cities will serve as stark reminders of the foolishness of runaway stimulus. I also believe that commodity suppliers to the Chinese bubble, like Canada, Australia and Brazil, are consequently in for a fall.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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