Jim Manzi and I are kindred spirits on the issue of epistemic humility. Out in the real world – as opposed to the whiteboard – only one thing is for sure and that is that this is all going to end very, very badly. The long run is not your friend.
In the mean time, little is for certain. In particular, we are not clear on exactly what the consequences of economic stimulus were. However, it is important to clarify what some economists may have meant by stimulus skepticism.
I wrote frequently in the weeks leading up to the passage of the stimulus that I was a stimulus skeptic. I signed a letter offered by John Boehner for economists who believe that IIRC, stimulus is not the best way to revive our economy.
At no time, however, did I believe that stimulus would have no effect on output. That is, unlike what I believe to be Mulligan and Fama’s stance, I did not believe that labor markets always clear.
What I did think is that I wanted to take what, even then, seemed like enormous monetary risks. It has been rumored that Tim Geithner suggested securing the assets of all major banks in the United States. While I didn’t formally support that, it did not seem absurd to me. Nor, did massive nationalization of the banking system and certainly not aggressive purchases of government securities.
While taking on all of these risks I didn’t see the need to add the confusion and inevitable political food fight of stimulus on top of it. Moreover, if one was going to do a stimulus it seemed much more sensible to simply slash the payroll tax. The bang for the buck would have been less but you can cram a whole lot more bucks through the payroll tax system than you can through the appropriations mechanism. Additionally, the public choice issues in cutting the payroll tax were much more manageable.
The point of all of this is that I listed myself as a stimulus skeptic but I wasn’t at all skeptical about the stimulating powers of government spending. I was skeptical as to whether that was the ideal course of action. That skepticism was as much rooted in my understanding of American political dynamics and my own tolerance for risk as in any scientific claims about macroeconomics.
That has to be always kept in mind. Economists will disagree on policy even when we have no disagreement over economics. We have different policy preferences based on our different assessments on non-economic factors and at the end of the day because we have different tastes for government action.
If you can get 90% of economists to agree on anything, that’s quite a feat.