Courtesy of Gregory Mankiw:
Professor Mankiw, chairman of the Bush administration’s council of economic advisers (2003-2005), gives reasons for being skeptical about the benefits of massive government spending during a recession. He seems surprised that there are so few economists who have publicly taken his position. Aren’t economists supposed to be skeptical? Mankiw notes that poor House minority leader John Boehner has been forced to issue an appeal to locate economists willing to voice skepticism of massive government spending. Cato’s Dan Mitchell is one of only four economists listed as a respondent.
I suppose the problem is that economists and policy-oriented conservatives are not as skeptical about massive government spending as we were led to believe. The Hudson Institute’s Irwin Stelzer and columnist Charles Krauthammer offer lots of reasons why greedy special interests and politicians are eager to exploit government bail-outs, but they don’t deny the current necessity of the financial bail-out, so far as I can tell. Bruce Bartlett, in Forbes of all places, assesses “What Would Keynes Do?”, and it’s pretty clear that Bartlett agrees with Keynes’ view that government spending is needed to prime the pump of an illiquid private economy. Ben Stein supports both the financial bail-out (warning: lots of screaming) and the auto bail-out. Economist Martin Feldstein, usually considered a conservative, argues for more defense spending as a fiscal stimulus.
President Bush succinctly describes the state of conservative economic thinking: “I’ve abandoned free market principles to save the free market system,” he told CNN. Last week, Steven Pearlstein, the very liberal economics columnist at the Washington Post commended Bush for understanding that principles must give way to whatever his treasury secretary thinks should be done from week to week.
Had the financial crisis occurred at the start of the Obama administration rather than at the end of the Bush administration I expect there would have been much Republican huffing and puffing against the spendthrift Democrats. Fortunately, the timing of recent events, coupled with the massive deficits incurred by the Bush administration during the past eight years, shows the hollowness of Republican rhetoric. Unfortunately, it also illustrates the collapse of conservative economic ideas.