A fourth hypothesis is that Obama and his political advisors do not have a great deal of confidence in what their own economic advisors recommend because they see that the economics profession is badly split over a lot of crucial issues about how to generate a recovery. And it is certainly true that a great deal of the economics profession in America has behaved very badly indeed since the start of the financial crisis. They have helped to create a climate of ignorance, in which action to make things better requires that one start by rolling mammoth boulders uphill.
Here at Berkeley we are outraged at the Robert Lucases and Richard Posners claiming that Christina Romer must be corrupt for saying that the Recovery Act was likely to boost employment. Neither Lucas nor Posner has ever been able to elucidate any even half-plausible reason for why expansions in government spending would not boost demand. Both believe that expansionary monetary policy works because more money in people's pockets induces them to step up the pace of their spending. Why is a boost to the pace of the federal government’s spending supposed to any worse at this than anyone else’s? They have no answer because there is no answer.
Our reaction to Lucas and Posner is thus contempt and scorn.
We are annoyed at the Greg Mankiws saying that a tax-heavy Recovery Act would have been effective but the actual Recovery Act was not. Does he not know that the Recovery Act was 40 percent tax cuts? Does he not know that the multipliers he says he favors predict that the Recovery Act would been twice as effective at boosting employment as the multipliers the Obama administration used predict?
We are puzzled at the Niall Fergusons saying that there is nothing that ex- construction workers can do that is productive because they have no useful skills. We point out to him that employment held up absolutely fine for 18 months after the peak of the construction boom. As construction employment collapsed the workers shed from that industry had no problems finding other jobs, It is only after collapse of Lehman Brothers and the financial crisis that employment crashes--that is a sign that what we have is not structural unemployment but deficient demand unemployment.
And we are horrified when Barack Obama goes off message too, saying that because the private sector is cutting back the government needs to cut back too--therefore, Obama said, he is calling for a three-year freeze on non-security discretionary spending. (...)
Let me mention one last hypothesis--one that may get my economist union card revoked and get me transferred to a department of rhetoric, or perhaps cultural studies.
Friedrich Nietzsche talked about the losers, or about those who thought they were the losers. He discussed their tendency in various ways to transvalue their values--to say that what was thought to be bad was in fact good precisely because it was thought to be bad.
Three weeks ago I was talking to some activists from the California Tea Party. I was trying to explain the Keynesian perspective: Shouldn’t we keep public employment from falling," I said, "because right the government can borrow at such extraordinarily good terms, and if we keep our teachers at work then they educate our students and our students can earn more in the future--and if teachers have incomes they spend money and that employs more people in private sector?
And they said no.
They said: we have lost our jobs in the private sector. It is only fair for those who work in the government to run some risk of loosing their jobs as well. They are unionized. They have pensions. It is not fair that they should have jobs too. They need to lose their jobs as well.
Thus unemployment becomes something to be valued. The fact that government austerity will increase unemployment becomes a transvalued virtue of the policy(.)