The Grumpy Economist: Gary Cano’s Conversation with Economists

Luis Garicano just released a very interesting free e-book,”Capitalism after Covid: A conversation with 21 economists.“I am honored to be one of his interviewees, Video here. Louis has one VoxEU column To conclude the conversation, and Twitter thread If you like to read things like this. Louis is a great interviewer.

This is not an endorsement of all ideas! Luis found a wide range of ideas, which I think is the strength of the project. You can see that really smart people, based on the latest academic research, still have very different conclusions about the current state of affairs and the direction we should go. Although Louis is a very free-market Chicago native, he did not impose views that I think are admirable.

In particular, referring to the VoxEU column, I would object

Most of the shocks are absorbed by public sector budgets.

The world’s ability to make such a large-scale, coherent and rapid economic response to this epidemic has a lot to do with the consensus that economists quickly reached on how to best respond to unprecedented shocks…

Unlike during the Great Financial Crisis, there were often fierce debates between economists who advocated austerity and economists who advocated stimulus, but the priorities were clear:

The central bank should focus on maintaining financial stability and providing unlimited liquidity for the debt market.

Governments should give priority to maintaining family income through generous support for workers’ income, although the United States and Europe have adopted different approaches: the United States has greatly expanded unemployment insurance, and Europe has generally deployed “Kurzarbeit”.

The government should provide enterprises with sufficient liquidity and convenience to make them as unaffected by the blockade as possible.

Finally, substantial public investment in debt financing is needed to support the recovery.

I strongly oppose all of this, so I especially treat these expedients as a “consensus” and prepare for a larger scale deployment in the next pandemic.

If there is a consensus on anything, it is that our government has completely messed up the public health aspects of this crisis, with the exception of a few countries such as South Korea and Taiwan. The FDA and CDC are particularly at fault in preventing tests and vaccines.

Why did the new crown pneumonia cause an unprecedented economic collapse, while the flu of 1958 and 1918 caused almost no decline in GDP? Due to completely excessive business blockade. The economic shock is caused by the government, not the virus. What are the benefits of increasing government debt by trillions of dollars in order to send checks to retirees and those who work happily? I believe everyone likes more money, but this has nothing to do with the coronavirus. Obviously, half of the expanded unemployment was stolen (I even noticed that someone tried to apply in my name). “A lot of public investment in debt financing is needed to support economic recovery.” Please reach a consensus on this? Not from here. The recovery itself is good, and adding more abstract sculptures in the Central Valley with the support of the high-speed train from Bakersfield to Modesto will not help. Why is no one considering moral hazard? We have now established a system in which no one can lose money in an economic recession, and asset prices will be supported by the central bank. Why not leverage to the handle? Why keep some cash, because there will be no more buying opportunities?

But Louis interviewed such a good and outstanding economist and found support for this stupid policy, which is very interesting.

Solve the problem of inequality. In the past few decades, inequality in Western household income and wealth has increased dramatically.

This is simply not true. (Look Here is a grumpy report on Austin and Spint.) Inequality in income before tax transfers has increased. Who cares about this? As the value of founders’ stocks rises, wealth inequality by market value has increased. Who cares about this?

Several interviewees explained the progress economists have made in solving these problems. Atif Mian believes that in order to reduce inequality, policies must focus on achieving fairer growth by significantly increasing public investment, and secondly, addressing some remaining imbalances, especially by increasing the progressiveness of taxation.

Well, if you are a grumpy follower, you will find some clear points of disagreement. By the way, the United States already has the most progressive tax system in the world. Go back to more high-speed trains, nowhere to go…

Stefanie Stantcheva discussed how to design better taxes and how to improve people’s understanding of these issues. Oriana Bandiera emphasized that our understanding of poverty has undergone a major shift, which means that social assistance programs traditionally designed to subsidize consumption should be shifted toward investment. Esteban Rossi-Hansberg discussed the concentration of talent and economic activity in the city, and the extent to which the “zoom revolution” will subvert this concentration, and wondered whether it is desirable considering the potential loss of positive externalities of physical proximity .

But here are some good-sounding innovative ideas that make you feel that economists are not just queuing in the typical left and right range. I need to read those.

Contains the new Leviathan. As Daron Acemoglu said, after adopting an unprecedented policy response to the pandemic, the government is likely to expand permanently, leading to an increase in interventionism and crony capitalism. Different countries will react very differently to this “critical moment”. As Acemoglu and Lucrezia Reichlin argued, those who achieve greater success will introduce stronger democratic systems to control the government. We also need to improve the management of public organizations, which is the focus of the interview with Raffaela Sadun and Carol Propper. Wendy Carlin explained how to balance this greater role of the state requires the establishment of a stronger and more resilient civil society-strengthening the “third pole”.

All this sounds really interesting. Economics and economists are most interesting when they are out of the political framework!

Responding to climate change. …As Michael Greenstone explained in his interview, reducing carbon emissions must be the only priority-not to be confused with providing good things to voters.

Voters and interest groups. Gaia’s mother doesn’t care whether electric car charging stations and solar panels are manufactured in the United States by union members or at one-tenth the cost in China.

However, as Nick Stern said, after the pandemic, investing in climate change is the best way to invest in post-pandemic recovery.

I will not judge in advance, but if this is more of a broken window fallacy and create more jobs by using a spoon instead of a shovel, I would be skeptical.

All in all, this looks interesting and gives a good understanding of the scope of economists’ analysis of contemporary issues.

The list of respondents is

Debt sustainability

Markus Brunnermeier: Let’s compare the central bank to a racing car
John Cochrane: Throw money into the mouse hole
Jesús Fernández-Villaverde: Economists and the pandemic
Agnès Bénassy-Quéré: How to design a recovery plan

Tackling inequality

Oriana Bandiera: Overcoming poverty barriers
Stefanie Stantcheva: Taxation and Socioeconomics
Esteban Rossi-Hansberg: Will working from home kill the city?
Atif Mian: The rich’s excess savings

More balanced globalization

Dani Rodrik: Globalization after the Washington Consensus
Pol Antras: Is globalization slowing down?
Michael Pettis: The trade war is a class war

Contains the new Leviathan

Daron Acemoglu: The Great Disagreement
Wendy Carlin: the third pole
Lucrezia Reichlin: Democratizing economic policy
Carol Propper: Goals and terror
Raffaella Sadun: Resuscitation Management

Promote innovation and curb the power of digital giants

Philippe Aghion: Is “cruel” capitalism more innovative?
John Van Reenen: The Lost Einstein
Fiona Scott Morton: How should we deal with large technology companies?

Combating global warming

Nicholas Stern: Zero Emissions Growth
Michael Greenstone: The real enemy here is carbon

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