See the invitation below. My theme will be “what certified macroeconomists think about the stimulus bill.” Economic Recovery:  
Free Markets vs. Big Government

Why the Stimulus Won’t Work–Panel 1
Burton Folsom, Charles Kline Professor of History, Hillsdale College
J.D. Foster, Norman B. Ture Senior Fellow in the Economics of Fiscal Policy,
Thomas A. Roe Institute for Economic Policy Studies, The Heritage Foundation

Arnold Kling, Adjunct Scholar, Cato Institute and Member, Mercatus Center Working Group on Financial Markets

Market-Based Solutions–Panel 2
William Beach, Director, Center for Data Analysis, The Heritage Foundation
Mario Rizzo, Associate Professor of Economics, New York University
Luigi Zingales, Professor, Booth School of Business, University of Chicago

Keynote Address and Luncheon
Donald Boudreaux, Chairman and Professor, Department of Economics, George Mason University

Tuesday, February 10, 2009
8:30 am Registration
9:15 am Why the Stimulus Won’t Work–Panel 1
10:45 am Market-Based Solutions–Panel 2
12:30 pm Keynote Address and Luncheon

Hyatt Regency Washington on Capitol Hill
400 New Jersey Avenue, NW
Washington, DC

Please RSVP by Tuesday, February 3, 2009.
For additional information, please contact Ann Bula.
Call: (202) 608-1524 Fax: (202) 675-1778 Email:

A certified macroeconomist is someone who can go through the list of Nobel Laureates, identify which ones were cited for their contributions in macro, and briefly explain those contributions. I can think of only one journalist, David Warsh, who could pass as a certified macroeconomist. Most of the people who get TV time and press coverage for their macroeconomic views are not certified macroeconomists.

I am not trying to claim that certified economists have all the answers. On the contrary, I want to emphasize what certified macroeconomists don’t know and what we disagree on. But the gaps in our knowledge do not mean that the answers are to be found elsewhere. As the late Herbert Stein once wrote,

1. Economists do not know very much.
2. Other people, including the politicians who make economic policy, know even less about economics than economists do.

from Washington Bedtime Stories, p. xi.

The outline for my talk is a work in progress. So far, I have

1. Most certified macroeconomists support a large stimulus. A smaller number are opposed to any stimulus. An even smaller number support a small stimulus.

2. The main reason for supporting large stimulus rather than small stimulus is that small stimulus efforts have a track record of failure. That’s the logic that gave us the Somme Offensive.

3. You can support a large stimulus but still have strong reservations about this bill. Certified economists I would put in this category include Larry Summers (no longer free to say so in public), Alice Rivlin, Martin Feldstein, and Jeff Sachs.

4. The bill serves two purposes. stimulus; and Radical Reconstruction. It’s not mostly stimulus, with a little bit of other stuff thrown in. It’s mostly other stuff, with a little bit of stimulus thrown in. That means a ginormous amount of other stuff.

5. Certified macroeconomists were taken by surprise by what has happened. A lot of people saw the boulder of the housing bubble ready to roll down the mountain. Hardly anybody foresaw the financial avalanche that would ensue.

6. Certified macroeconomists were badly polarized in the early 1970’s, with Chicago types essentially denying the idea of involuntary unemployment and the MIT types clinging to macroeconometric models. By the late 1970’s, the arguments were over. The models had all sorts of problems, and everybody gave up on them, although people had different reasons for doing so. Methodologically, everyone agreed to work on irrelevant math probems, and substantively everyone agreed that reasonably stable money growth would lead to a reasonably stable economy.

7. We had reasonably stable money growth under Greenspan and Bernanke (at least that is what most people would have said at the time), but look what happened.

8. So now, it’s back to the early 1970’s, with Chicago denying reality and MIT back to thinking in terms of macroeconometric models.

9. But the economy is different from what it was 35 years ago. Distribution of labor force by educational attainment.

10. What harm could a stimulus do? Murphy’s priors vs. DeLong’s.

11. An alternative stimulus: a 50 percent reduction in the employer’s contribution to the payroll tax (would cost about $250 billion per year it is in effect)

Can I get through that in half an hour? (or less–assume that the other panelists are long-winded). Should I try to add anything about Minsky? Or Jeremy Stein?

I need to give people three things to remember. If I had to choose now, those three things would be: (1) For certified macroeconomists, a large stimulus is not a tried and true remedy. It is a gamble (2) The stimulus bill is large, but it is not a large stimulus. (3) A cut in the employer contribution to the payroll tax would be much more timely, more targeted, and temporary